82 FR 61608 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the LHA Market State® Tactical U.S. Equity ETF, a Series of the ETF Series Solutions, Under Rule 14.11(i), Managed Fund Shares
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 248 (December 28, 2017)
Federal Register Volume 82, Issue 248 (December 28, 2017)
| Page Range | 61608-61611 | |
| FR Document | 2017-27998 |
[Federal Register Volume 82, Number 248 (Thursday, December 28, 2017)] [Notices] [Pages 61608-61611] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-27998] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82379; File No. SR-CboeBZX-2017-012] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the LHA Market State[supreg] Tactical U.S. Equity ETF, a Series of the ETF Series Solutions, Under Rule 14.11(i), Managed Fund Shares December 21, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on December 7, 2017, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposed rule change to list and trade shares of the LHA Market State[supreg] Tactical U.S. Equity ETF (the ``Fund''), a series of the ETF Series Solutions (the ``Trust''), under Rule 14.11(i) (``Managed Fund Shares''). The shares of the Fund are referred to herein as the ``Shares.'' The text of the proposed rule change is available at the Exchange's website at www.markets.cboe.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. (A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade the Shares under Rule 14.11(i), which governs the listing and trading of Managed Fund Shares on the Exchange.\3\ The Fund will be an actively managed exchange- traded fund that seeks to provide investment results that exceed the total return performance of the broader U.S. equity market on a risk- adjusted basis. The Exchange submits this proposal in order to allow the Fund to hold listed derivatives, in particular S&P 500 futures, in a manner that does not comply with Rule 14.11(i)(4)(C)(iv)(b).\4\ Otherwise, the [[Page 61609]] Fund will comply with all other listing requirements on an initial and continued listing basis under Rule 14.11(i).\5\ --------------------------------------------------------------------------- \3\ The Commission originally approved BZX Rule 14.11(i) in Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently approved generic listing standards for Managed Fund Shares under Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22, 2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100). \4\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate gross notional value of listed derivatives based on any five or fewer underlying reference assets shall not exceed 65% of the weight of the portfolio (including gross notional exposures), and the aggregate gross notional value of listed derivatives based on any single underlying reference asset shall not exceed 30% of the weight of the portfolio (including gross notional exposures).'' The Exchange is proposing that the Fund be exempt only from the requirement of Rule 14.11(i)(4)(C)(iv)(b) that prevents the aggregate gross notional value of listed derivatives based on any single underlying reference asset from exceeding 30% of the weight of the portfolio (including gross notional exposures). The Fund will meet the requirement that the aggregate gross notional value of listed derivatives based on any five or fewer underlying reference assets shall not exceed 65% of the weight of the portfolio (including gross notional exposures). \5\ The Exchange notes that this proposal is very similar to a previously approved proposal to list and trade a series of Managed Fund Shares on the Exchange with similar exposures to a single underlying reference asset and U.S. exchange-listed equity securities. See Securities Exchange Act Release No. 80529 (April 26, 2017), 82 FR 20506 (May 2, 2017) (SR-BatsBZX-2017-14). --------------------------------------------------------------------------- The Shares will be offered by the Trust, which was established as a Delaware statutory trust on February 9, 2012. The Trust is registered with the Commission as an open-end investment company and is expected to file a registration statement on behalf of the Fund on Form N-1A (``Registration Statement'') with the Commission.\6\ The Fund's adviser, Little Harbor Advisors, LLC (the ``Adviser''), is not registered as a broker-dealer and is not affiliated with a broker- dealer. Adviser personnel who make decisions regarding the Fund's portfolio are subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the Fund's portfolio. In the event that (a) the Adviser becomes registered as a broker-dealer or newly affiliated with a broker-dealer; or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a broker-dealer; it will implement a fire wall with respect to its relevant personnel or such broker-dealer affiliate, as applicable, regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. --------------------------------------------------------------------------- \6\ The Trust expects to file a post-effective amendment to the Registration Statement on or about December 15, 2017. See Registration Statement on Form N-1A for the Trust (File Nos. 333- 179562 and 811-22668). The descriptions of the Fund and the Shares contained herein are based, in part, on information expected to be included in the Registration Statement. The Commission has not yet issued an order granting exemptive relief to the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1) applicable to the activities of the Fund, but the Fund will not be listed on the Exchange until such an order is issued and any conditions contained therein are satisfied. --------------------------------------------------------------------------- The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. LHA Market State Tactical U.S. Equity ETF In order to achieve its investment objective, under Normal Market Conditions,\7\ the Fund will invest approximately 80% of its net assets at the time of investment in U.S. exchange-listed ETFs \8\ that principally invest in U.S. equity securities (``U.S. ETFs'') or the constituent stocks of a U.S. ETF. As noted above, Rule 14.11(i)(4)(C)(iv)(b) prevents the Fund from holding listed derivatives based on any single underlying reference asset in excess of 30% of the weight of its portfolio (including gross notional exposures). The Exchange is proposing to allow the Fund to hold up to 60% of the weight of its portfolio at the time of investment (including gross notional exposures) in S&P 500 futures contracts traded on the Chicago Mercantile Exchange (``S&P 500 Futures''). Allowing the Fund to hold a greater portion of its portfolio in S&P 500 Futures would mitigate the Fund's dependency on holding OTC instruments, which would reduce the Fund's operational burden by allowing the Fund to primarily use listed futures contracts to achieve its investment objective and would further reduce counter-party risk associated with holding OTC instruments. The Exchange notes that the Fund may also hold certain fixed income securities and cash and cash equivalents in compliance with Rules 14.11(i)(4)(C)(ii) and (iii) in order to collateralize its derivatives positions. --------------------------------------------------------------------------- \7\ The term ``Normal Market Conditions'' includes, but is not limited to, the absence of trading halts in the applicable financial markets generally; operational issues causing dissemination of inaccurate market information or system failures; or force majeure type events such as natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption, or any similar intervening circumstance. \8\ For purposes of this proposal, the term ETF means Portfolio Depositary Receipts and Index Fund Shares as defined in Rule 14.11(b) and 14.11(c), respectively, and their equivalents on other national securities exchanges. --------------------------------------------------------------------------- As noted above, the Fund's investment in U.S. ETFs or the constituent stocks of a U.S. ETF will constitute approximately 80% of the Fund's net assets at the time of investment and under Normal Market Conditions, and such holdings will meet the requirements for U.S. Component Stocks in Rule 14.11(i)(4)(C)(i)(a). The Fund may hold approximately 20% of its net assets at the time of investment in fixed income securities, cash, and the cash value of futures positions \9\ under Normal Market Conditions. The combination of U.S. ETFs, constituent stocks of U.S. ETFs, fixed income securities, cash, cash equivalents, and the cash value of futures positions will constitute the entirety of the Fund's holdings and the cash value of these holdings will be used to form the basis for these calculations. The Exchange notes that this is different than the calculation used to measure the Fund's holdings in S&P 500 Futures as it relates to the Fund holding up to 60% of the weight of its portfolio, which, as noted above, includes gross notional exposures gained through the S&P 500 Futures in both the numerator and denominator, which is consistent with the derivatives exposure calculation under Rule 14.11(i)(4)(C)(iv). The Exchange represents that, except for the 30% limitation in Rule 14.11(i)(4)(C)(iv)(b), the Fund's proposed investments will satisfy, on an initial and continued listing basis, all of the generic listing standards under BZX Rule 14.11(i)(4)(C) and all other applicable requirements for Managed Fund Shares under Rule 14.11(i). --------------------------------------------------------------------------- \9\ The cash value of futures positions is based on the value of the Fund's daily margin account with the applicable futures exchange(s). --------------------------------------------------------------------------- The Trust is required to comply with Rule 10A-3 under the Act for the initial and continued listing of the Shares of the Fund. In addition, the Exchange represents that the Shares of the Fund will comply with all other requirements applicable to Managed Fund Shares, which includes the dissemination of key information such as the Disclosed Portfolio,\10\ Net Asset Value,\11\ and the Intraday Indicative Value,\12\ suspension of trading or removal,\13\ trading halts,\14\ surveillance,\15\ minimum price variation for quoting and order entry,\16\ the information circular,\17\ and firewalls \18\ as set forth in Exchange rules applicable to Managed Fund Shares. Moreover, all of the futures contracts and U.S. ETFs held by the Fund will trade on markets that are a member of Intermarket Surveillance Group (``ISG'') or affiliated with a member of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.\19\ All statements and representations made in this filing regarding (a) the description [[Page 61610]] of the portfolio, reference assets, and indices, (b) limitations on portfolio holdings or reference assets, or (c) the applicability of Exchange rules shall constitute continued listing requirements for listing the Shares on the Exchange. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund or Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will surveil for compliance with the continued listing requirements. If the Fund or Shares are not in compliance with the applicable listing requirements, then, with respect to such Fund or Shares, the Exchange will commence delisting procedures under Exchange Rule 14.12. FINRA conducts certain cross-market surveillances on behalf of the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA's performance under this regulatory services agreement. If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures with respect to such Fund under Exchange R7ule [sic] 14.12. --------------------------------------------------------------------------- \10\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii). \11\ See Rule 14.11(i)(4)(A)(ii). \12\ See Rule 14.11(i)(4)(B)(i). \13\ See Rule 14.11(i)(4)(B)(iii). \14\ See Rule 14.11(i)(4)(B)(iv). \15\ See Rule 14.11(i)(2)(C). \16\ See Rule 14.11(i)(2)(B). \17\ See Rule 14.11(i)(6). \18\ See Rule 14.11(i)(7). \19\ For a list of the current members and affiliate members of ISG, see www.isgportal.com. The Exchange notes that not all components of the Disclosed Portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act \20\ in general and Section 6(b)(5) of the Act \21\ in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest in that the Shares will meet each of the initial and continued listing criteria in BZX Rule 14.11(i) with the exception Rule 14.11(i)(4)(C)(iv)(b), which requires that the aggregate gross notional value of listed derivatives based on any five or fewer underlying reference assets shall not exceed 65% of the weight of the portfolio (including gross notional exposures), and the aggregate gross notional value of listed derivatives based on any single underlying reference asset shall not exceed 30% of the weight of the portfolio (including gross notional exposures).\22\ The Exchange believes that the liquidity in the S&P 500 Futures markets mitigates the concerns that Rule 14.11(i)(4)(C)(iv)(b) is intended to address and that such liquidity would prevent the Shares from being susceptible to manipulation.\23\ The Exchange also believes that the concerns that Rule 14.11(c)(3)(A)(i) are intended to address are mitigated by the diversity, liquidity, and market cap of the securities underlying the S&P 500[supreg] Index.\24\ Further, allowing the Fund to hold a greater portion of its portfolio in S&P 500 Futures would mitigate the Fund's dependency on holding OTC instruments, which would reduce the Fund's operational burden by allowing the Fund to primarily use listed futures contracts to achieve its investment objective and would further reduce counter-party risk associated with holding OTC instruments. The Exchange further believes that the diversity, liquidity, and market cap of the securities underlying the S&P 500 Index are sufficient to protect against market manipulation of both the Fund's holdings and the Shares. --------------------------------------------------------------------------- \20\ 15 U.S.C. 78f. \21\ 15 U.S.C. 78f(b)(5). \22\ As noted above, the Exchange is proposing that the Fund be exempt only from the requirement of Rule 14.11(i)(4)(C)(iv)(b) that prevents the aggregate gross notional value of listed derivatives based on any single underlying reference asset from exceeding 30% of the weight of the portfolio (including gross notional exposures). The Fund will continue to meet the requirement that the aggregate gross notional value of listed derivatives based on any five or fewer underlying reference assets shall not exceed 65% of the weight of the portfolio (including gross notional exposures). \23\ As of December 7, 2017, the average daily notional volume for S&P 500 Futures was more than $180 billion over the previous thirty trading days. \24\ The Exchange notes that the diversity, liquidity, and market cap of the components of the S&P 500 Index are such that the S&P 500 Index would without question meet the generic listing standards applicable to an index composed of U.S. Component Stocks in Rule 14.11(c)(3)(A)(i). --------------------------------------------------------------------------- The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. All of the futures contracts held by the Fund will trade on markets that are a member of ISG or affiliated with a member of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Exchange may obtain information regarding trading in the Shares and the underlying futures contracts held by the Fund via the ISG from other exchanges who are members or affiliates of the ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement.\25\ The Exchange further notes that the Fund will meet and be subject to all other requirements of the Generic Listing Rules and other applicable continued listing requirements for Managed Fund Shares under Rule 14.11(i), including those requirements regarding the dissemination of key information such as the Disclosed Portfolio,\26\ Net Asset Value,\27\ and the Intraday Indicative Value,\28\ suspension of trading or removal,\29\ trading halts,\30\ surveillance,\31\ minimum price variation for quoting and order entry,\32\ the information circular,\33\ and firewalls \34\ as set forth in Exchange rules applicable to Managed Fund Shares. --------------------------------------------------------------------------- \25\ See note 19, supra. \26\ See note 10, supra. \27\ See note 11, supra. \28\ See note 12, supra. \29\ See note 13, supra. \30\ See note 14, supra. \31\ See note 15, supra. \32\ See note 16, supra. \33\ See note 17, supra. \34\ See note 18, supra. --------------------------------------------------------------------------- For the above reasons, the Exchange believes that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. (B) Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange notes that the proposed rule change, rather will facilitate the listing and trading of an additional actively-managed exchange-traded product that will enhance competition among both market participants and listing venues, to the benefit of investors and the marketplace. (C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or [[Page 61611]] (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File No. SR-CboeBZX-2017-012 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File No. SR-CboeBZX-2017-012. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-CboeBZX-2017-012 and should be submitted on or before January 18, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\35\ --------------------------------------------------------------------------- \35\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-27998 Filed 12-27-17; 8:45 am] BILLING CODE 8011-01-P
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C. Self-Regulatory Organization’s public in accordance with the LHA Market State® Tactical U.S. Equity
Statement on Comments on the provisions of 5 U.S.C. 552, will be ETF (the ‘‘Fund’’), a series of the ETF
Proposed Rule Change Received From available for website viewing and Series Solutions (the ‘‘Trust’’), under
Members, Participants, or Others printing in the Commission’s Public Rule 14.11(i) (‘‘Managed Fund Shares’’).
No written comments were solicited Reference Room, 100 F Street, NE, The shares of the Fund are referred to
Washington, DC 20549, on official herein as the ‘‘Shares.’’
or received with respect to the proposed
business days between the hours of The text of the proposed rule change
rule change.
10:00 a.m. and 3:00 p.m. Copies of the is available at the Exchange’s website at
III. Date of Effectiveness of the filing also will be available for www.markets.cboe.com, at the principal
Proposed Rule Change and Timing for inspection and copying at the principal office of the Exchange, and at the
Commission Action office of the Exchange. All comments Commission’s Public Reference Room.
Within 45 days of the date of received will be posted without change. II. Self-Regulatory Organization’s
publication of this notice in the Federal Persons submitting comments are Statement of the Purpose of, and
Register or within such longer period cautioned that we do not redact or edit Statutory Basis for, the Proposed Rule
up to 90 days (i) as the Commission may personal identifying information from Change
comment submissions. You should
designate if it finds such longer period In its filing with the Commission, the
submit only information that you wish
to be appropriate and publishes its Exchange included statements
to make available publicly. All
reasons for so finding or (ii) as to which concerning the purpose of and basis for
submissions should refer to File
the self-regulatory organization the proposed rule change and discussed
Number SR–NYSEArca–2017–140, and
consents, the Commission will: any comments it received on the
should be submitted on or before
(A) by order approve or disapprove proposed rule change. The text of these
January 18, 2018.
the proposed rule change, or statements may be examined at the
(B) institute proceedings to determine For the Commission, by the Division of
Trading and Markets, pursuant to delegated
places specified in Item IV below. The
whether the proposed rule change Exchange has prepared summaries, set
authority.42
should be disapproved. forth in Sections A, B, and C below, of
Eduardo A. Aleman,
IV. Solicitation of Comments the most significant parts of such
Assistant Secretary.
statements.
Interested persons are invited to [FR Doc. 2017–27993 Filed 12–27–17; 8:45 am]
submit written data, views, and BILLING CODE 8011–01–P (A) Self-Regulatory Organization’s
arguments concerning the foregoing, Statement of the Purpose of, and
including whether the proposed rule Statutory Basis for, the Proposed Rule
change is consistent with the Act. SECURITIES AND EXCHANGE Change
Comments may be submitted by any of COMMISSION 1. Purpose
the following methods: [Release No. 34–82379; File No. SR– The Exchange proposes to list and
CboeBZX–2017–012]
Electronic Comments trade the Shares under Rule 14.11(i),
• Use the Commission’s internet Self-Regulatory Organizations; Cboe which governs the listing and trading of
comment form (http://www.sec.gov/ BZX Exchange, Inc.; Notice of Filing of Managed Fund Shares on the
rules/sro.shtml); or a Proposed Rule Change To List and Exchange.3 The Fund will be an actively
• Send an email to rule-comments@ Trade Shares of the LHA Market State® managed exchange-traded fund that
sec.gov. Please include File Number SR– Tactical U.S. Equity ETF, a Series of seeks to provide investment results that
NYSEArca–2017–140 on the subject the ETF Series Solutions, Under Rule exceed the total return performance of
line. 14.11(i), Managed Fund Shares the broader U.S. equity market on a risk-
adjusted basis. The Exchange submits
Paper Comments December 21, 2017. this proposal in order to allow the Fund
• Send paper comments in triplicate Pursuant to Section 19(b)(1) of the to hold listed derivatives, in particular
to Secretary, Securities and Exchange Securities Exchange Act of 1934 (the S&P 500 futures, in a manner that does
Commission, 100 F Street NE, ‘‘Act’’),1 and Rule 19b–4 thereunder,2 not comply with Rule
Washington, DC 20549–1090. notice is hereby given that on December 14.11(i)(4)(C)(iv)(b).4 Otherwise, the
7, 2017, Cboe BZX Exchange, Inc. (the
All submissions should refer to File
‘‘Exchange’’ or ‘‘BZX’’) filed with the 3 The Commission originally approved BZX Rule
Number SR–NYSEArca–2017–140. This 14.11(i) in Securities Exchange Act Release No.
Securities and Exchange Commission
file number should be included on the 65225 (August 30, 2011), 76 FR 55148 (September
(‘‘Commission’’) the proposed rule 6, 2011) (SR–BATS–2011–018) and subsequently
subject line if email is used. To help the
change as described in Items I and II approved generic listing standards for Managed
Commission process and review your Fund Shares under Rule 14.11(i) in Securities
below, which Items have been prepared
comments more efficiently, please use Exchange Act Release No. 78396 (July 22, 2016), 81
by the Exchange. The Commission is
only one method. The Commission will FR 49698 (July 28, 2016) (SR–BATS–2015–100).
publishing this notice to solicit 4 Rule 14.11(i)(4)(C)(iv)(b) provides that ‘‘the
post all comments on the Commission’s
comments on the proposed rule change aggregate gross notional value of listed derivatives
internet website (http://www.sec.gov/
from interested persons. based on any five or fewer underlying reference
rules/sro.shtml). Copies of the assets shall not exceed 65% of the weight of the
submission, all subsequent I. Self-Regulatory Organization’s portfolio (including gross notional exposures), and
amendments, all written statements Statement of the Terms of Substance of the aggregate gross notional value of listed
sradovich on DSK3GMQ082PROD with NOTICES
the Proposed Rule Change derivatives based on any single underlying
with respect to the proposed rule reference asset shall not exceed 30% of the weight
change that are filed with the The Exchange filed a proposed rule of the portfolio (including gross notional
Commission, and all written change to list and trade shares of the exposures).’’ The Exchange is proposing that the
communications relating to the Fund be exempt only from the requirement of Rule
14.11(i)(4)(C)(iv)(b) that prevents the aggregate gross
proposed rule change between the 42 17 CFR 200.30–3(a)(12). notional value of listed derivatives based on any
Commission and any person, other than 1 15 U.S.C. 78s(b)(1). single underlying reference asset from exceeding
those that may be withheld from the 2 17 CFR 240.19b–4. 30% of the weight of the portfolio (including gross
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of the portfolio, reference assets, and that the liquidity in the S&P 500 Futures Generic Listing Rules and other
indices, (b) limitations on portfolio markets mitigates the concerns that Rule applicable continued listing
holdings or reference assets, or (c) the 14.11(i)(4)(C)(iv)(b) is intended to requirements for Managed Fund Shares
applicability of Exchange rules shall address and that such liquidity would under Rule 14.11(i), including those
constitute continued listing prevent the Shares from being requirements regarding the
requirements for listing the Shares on susceptible to manipulation.23 The dissemination of key information such
the Exchange. The issuer has Exchange also believes that the concerns as the Disclosed Portfolio,26 Net Asset
represented to the Exchange that it will that Rule 14.11(c)(3)(A)(i) are intended Value,27 and the Intraday Indicative
advise the Exchange of any failure by to address are mitigated by the diversity, Value,28 suspension of trading or
the Fund or Shares to comply with the liquidity, and market cap of the removal,29 trading halts,30
continued listing requirements, and, securities underlying the S&P 500® surveillance,31 minimum price variation
pursuant to its obligations under Index.24 Further, allowing the Fund to for quoting and order entry,32 the
Section 19(g)(1) of the Act, the Exchange hold a greater portion of its portfolio in information circular,33 and firewalls 34
will surveil for compliance with the S&P 500 Futures would mitigate the as set forth in Exchange rules applicable
continued listing requirements. If the Fund’s dependency on holding OTC to Managed Fund Shares.
Fund or Shares are not in compliance instruments, which would reduce the For the above reasons, the Exchange
with the applicable listing requirements, Fund’s operational burden by allowing believes that the proposed rule change
then, with respect to such Fund or the Fund to primarily use listed futures is consistent with the requirements of
Shares, the Exchange will commence contracts to achieve its investment Section 6(b)(5) of the Act.
delisting procedures under Exchange objective and would further reduce
Rule 14.12. FINRA conducts certain counter-party risk associated with (B) Self-Regulatory Organization’s
cross-market surveillances on behalf of holding OTC instruments. The Statement on Burden on Competition
the Exchange pursuant to a regulatory Exchange further believes that the
diversity, liquidity, and market cap of The Exchange does not believe that
services agreement. The Exchange is
the securities underlying the S&P 500 the proposed rule change will impose
responsible for FINRA’s performance
Index are sufficient to protect against any burden on competition that is not
under this regulatory services
market manipulation of both the Fund’s necessary or appropriate in furtherance
agreement. If the Fund is not in
holdings and the Shares. of the purpose of the Act. The Exchange
compliance with the applicable listing
The Exchange believes that its notes that the proposed rule change,
requirements, the Exchange will
surveillance procedures are adequate to rather will facilitate the listing and
commence delisting procedures with
properly monitor the trading of the trading of an additional actively-
respect to such Fund under Exchange
Shares on the Exchange during all managed exchange-traded product that
R7ule [sic] 14.12.
trading sessions and to deter and detect will enhance competition among both
2. Statutory Basis violations of Exchange rules and the market participants and listing venues,
The Exchange believes that the applicable federal securities laws. All of to the benefit of investors and the
proposal is consistent with Section 6(b) the futures contracts held by the Fund marketplace.
of the Act 20 in general and Section will trade on markets that are a member (C) Self-Regulatory Organization’s
6(b)(5) of the Act 21 in particular in that of ISG or affiliated with a member of Statement on Comments on the
it is designed to prevent fraudulent and ISG or with which the Exchange has in Proposed Rule Change Received From
manipulative acts and practices, to place a comprehensive surveillance Members, Participants or Others
promote just and equitable principles of sharing agreement. The Exchange may
trade, to foster cooperation and obtain information regarding trading in The Exchange has neither solicited
coordination with persons engaged in the Shares and the underlying futures nor received written comments on the
facilitating transactions in securities, to contracts held by the Fund via the ISG proposed rule change.
remove impediments to and perfect the from other exchanges who are members III. Date of Effectiveness of the
mechanism of a free and open market or affiliates of the ISG or with which the Proposed Rule Change and Timing for
and a national market system and, in Exchange has entered into a Commission Action
general, to protect investors and the comprehensive surveillance sharing
public interest in that the Shares will agreement.25 The Exchange further Within 45 days of the date of
meet each of the initial and continued notes that the Fund will meet and be publication of this notice in the Federal
listing criteria in BZX Rule 14.11(i) with subject to all other requirements of the Register or within such longer period
the exception Rule 14.11(i)(4)(C)(iv)(b), up to 90 days (i) as the Commission may
which requires that the aggregate gross Rule 14.11(i)(4)(C)(iv)(b) that prevents the aggregate designate if it finds such longer period
notional value of listed derivatives gross notional value of listed derivatives based on to be appropriate and publishes its
any single underlying reference asset from
based on any five or fewer underlying exceeding 30% of the weight of the portfolio
reasons for so finding or (ii) as to which
reference assets shall not exceed 65% of (including gross notional exposures). The Fund will the self-regulatory organization
the weight of the portfolio (including continue to meet the requirement that the aggregate consents, the Commission will:
gross notional exposures), and the gross notional value of listed derivatives based on
any five or fewer underlying reference assets shall
(A) By order approve or disapprove
aggregate gross notional value of listed not exceed 65% of the weight of the portfolio the proposed rule change, or
derivatives based on any single (including gross notional exposures).
underlying reference asset shall not 23 As of December 7, 2017, the average daily 26 See note 10, supra.
sradovich on DSK3GMQ082PROD with NOTICES
exceed 30% of the weight of the notional volume for S&P 500 Futures was more than 27 See note 11, supra.
portfolio (including gross notional $180 billion over the previous thirty trading days. 28 See note 12, supra.
24 The Exchange notes that the diversity,
exposures).22 The Exchange believes liquidity, and market cap of the components of the
29 See note 13, supra.
30 See note 14, supra.
S&P 500 Index are such that the S&P 500 Index
20 15 31 See note 15, supra.
U.S.C. 78f. would without question meet the generic listing
21 15 32 See note 16, supra.
U.S.C. 78f(b)(5). standards applicable to an index composed of U.S.
22 As noted above, the Exchange is proposing that Component Stocks in Rule 14.11(c)(3)(A)(i). 33 See note 17, supra.
the Fund be exempt only from the requirement of 25 See note 19, supra. 34 See note 18, supra.
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![Federal Register / Vol. 82, No. 248 / Thursday, December 28, 2017 / Notices 61611
(B) institute proceedings to determine For the Commission, by the Division of II. Self-Regulatory Organization’s
whether the proposed rule change Trading and Markets, pursuant to delegated Statement of the Purpose of, and
should be disapproved. authority.35 Statutory Basis for, the Proposed Rule
Eduardo A. Aleman, Change
IV. Solicitation of Comments Assistant Secretary.
In its filing with the Commission, the
[FR Doc. 2017–27998 Filed 12–27–17; 8:45 am]
Interested persons are invited to Exchange included statements
BILLING CODE 8011–01–P
submit written data, views and concerning the purpose of and basis for
arguments concerning the foregoing, the proposed rule change and discussed
including whether the proposal is any comments it received on the
SECURITIES AND EXCHANGE
consistent with the Act. Comments may proposed rule change. The text of these
COMMISSION
be submitted by any of the following statements may be examined at the
methods: [Release No. 34–82380; File No. SR– places specified in Item IV below. The
CboeEDGX–2017–007] Exchange has prepared summaries, set
Electronic Comments forth in Sections A, B, and C below, of
Self-Regulatory Organizations; Cboe the most significant parts of such
• Use the Commission’s internet EDGX Exchange, Inc.; Notice of Filing
comment form (http://www.sec.gov/ statements.
and Immediate Effectiveness of a
rules/sro.shtml); or Proposed Rule Change to Rule 21.5, A. Self-Regulatory Organization’s
• Send an email to rule-comments@ Minimum Increments, To Extend the Statement of the Purpose of, and the
sec.gov. Please include File No. SR– Penny Pilot Program Statutory Basis for, the Proposed Rule
CboeBZX–2017–012 on the subject line. Change
December 21, 2017.
Paper Comments Pursuant to Section 19(b)(1) of the 1. Purpose
Securities Exchange Act of 1934 (the The purpose of this filing is to extend
• Send paper comments in triplicate ‘‘Act’’),1 and Rule 19b–4 thereunder,2 the Penny Pilot, which was previously
to Secretary, Securities and Exchange notice is hereby given that on December approved by the Commission, through
Commission, 100 F Street NE, 14, 2017, Cboe EDGX Exchange, Inc. June 30, 2018, and to provide revised
Washington, DC 20549–1090. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with dates for adding replacement issues to
the Securities and Exchange the Pilot Program. The Exchange
All submissions should refer to File No.
Commission (‘‘Commission’’) the proposes that any Pilot Program issues
SR–CboeBZX–2017–012. This file
proposed rule change as described in that have been delisted may be replaced
number should be included on the
Items I and II below, which Items have on the second trading day following
subject line if email is used. To help the been prepared by the Exchange. The
Commission process and review your January 1, 2018. The replacement issues
Exchange has designated this proposal will be selected based on trading
comments more efficiently, please use as a ‘‘non-controversial’’ proposed rule
only one method. The Commission will activity for the most recent six month
change pursuant to Section 19(b)(3)(A) period excluding the month
post all comments on the Commission’s of the Act 3 and Rule 19b–4(f)(6)(iii)
internet website (http://www.sec.gov/ immediately preceding the replacement
thereunder,4 which renders it effective (i.e., beginning June 1, 2017, and ending
rules/sro.shtml). Copies of the upon filing with the Commission. The
submission, all subsequent November 30, 2017).
Commission is publishing this notice to The Exchange represents that the
amendments, all written statements solicit comments on the proposed rule Exchange has the necessary system
with respect to the proposed rule change from interested persons. capacity to continue to support
change that are filed with the
I. Self-Regulatory Organization’s operation of the Penny Pilot. The
Commission, and all written
Statement of the Terms of Substance of Exchange believes the benefits to public
communications relating to the
the Proposed Rule Change customers and other market participants
proposed rule change between the
who will be able to express their true
Commission and any person, other than The Exchange filed a proposal for the
prices to buy and sell options have been
those that may be withheld from the EDGX Options Market (‘‘EDGX
demonstrated to outweigh the increase
public in accordance with the Options’’) to extend through June 30,
in quote traffic.
provisions of 5 U.S.C. 552, will be 2018, the Penny Pilot Program (‘‘Penny
available for website viewing and Pilot’’) in options classes in certain 2. Statutory Basis
printing in the Commission’s Public issues (‘‘Pilot Program’’) previously The Exchange believes that its
Reference Room, 100 F Street NE, approved by the Commission.5 proposal is consistent with the
Washington, DC 20549, on official The text of the proposed rule change requirements of the Act and the rules
business days between the hours of is available at the Exchange’s website at and regulations thereunder that are
10:00 a.m. and 3:00 p.m. Copies of such www.markets.cboe.com, at the principal applicable to a national securities
filing will also be available for office of the Exchange, and at the exchange, and, in particular, with the
inspection and copying at the principal Commission’s Public Reference Room. requirements of Section 6(b) of the Act.6
office of the Exchange. All comments In particular, the proposal is consistent
received will be posted without change. 35 17 CFR 200.30–3(a)(12).
with Section 6(b)(5) of the Act,7 because
1 15 U.S.C. 78s(b)(1).
Persons submitting comments are it would promote just and equitable
2 17 CFR 240.19b–4.
cautioned that we do not redact or edit
sradovich on DSK3GMQ082PROD with NOTICES
3 15 U.S.C. 78s(b)(3)(A). principles of trade, remove
personal identifying information from 4 17 CFR 240.19b–4(f)(6)(iii). impediments to, and perfect the
comment submissions. You should 5 The rules of EDGX Options, including rules mechanism of, a free and open market
submit only information that you wish applicable to EDGX Options’ participation in the and a national market system. The
to make available publicly. All Penny Pilot, were approved on August 7, 2015. See
Exchange believes that the Pilot
submissions should refer to File No. Securities Exchange Act Release No. 75650 (August
7, 2015), 80 FR 48600 (August 13, 2015) (SR–
SR–CboeBZX–2017–012 and should be EDGX–2015–18). EDGX Options commenced 6 15 U.S.C. 78f(b).
submitted on or before January 18, 2018. operations on November 2, 2015. 7 15 U.S.C. 78f(b)(5).
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Document Created: 2017-12-28 00:43:21
Document Modified: 2017-12-28 00:43:21
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 61608 |
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