83 FR 3807 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the Cboe Vest S&P 500® Premium Income ETF Under Rule 14.11(c)(5)
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 18 (January 26, 2018)
Federal Register Volume 83, Issue 18 (January 26, 2018)
| Page Range | 3807-3812 | |
| FR Document | 2018-01354 |
[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)] [Notices] [Pages 3807-3812] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-01354] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82538; File No. SR-CboeBZX-2018-005] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the Cboe Vest S&P 500[supreg] Premium Income ETF Under Rule 14.11(c)(5) January 19, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the [[Page 3808]] ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on January 10, 2018, Cboe BZX Exchange, Inc. (``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 proposal to list and trade shares of the Cboe Vest S&P 500[supreg] Premium Income ETF (formerly known as the Cboe Vest S&P 500[supreg] Market-Neutral Option Income ETF), a series of ETF Series Solutions (the ``Trust''), under Rule 14.11(c)(5) (``Index Fund 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 shares (``Shares'') of Cboe Vest S&P 500[supreg] Premium Income ETF (the ``Fund'') under Rule 14.11(c)(5), which governs the listing and trading of Index Fund Shares based on equity and fixed income securities indexes on the Exchange. The Fund will be an index-based exchange traded fund (``ETF''). The Fund will track the Cboe S&P 500[supreg] Volatility Risk Premia Index (the ``Index'').\3\ --------------------------------------------------------------------------- \3\ This filing was originally submitted on January 10, 2018 as SR-CboeBZX-2018-004. SR-CboeBZX-2018-004 was subsequently withdrawn on January 10, 2018 and replaced by this filing. --------------------------------------------------------------------------- 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 has filed a registration statement on behalf of the Fund on Form N-1A (``Registration Statement'') with the Commission.\4\ The Fund's adviser, Cboe Vest Financial, LLC (the ``Adviser''), and index provider, Cboe Exchange, Inc. (``Cboe Options'' or the ``Index Provider''), are affiliates and have implemented and will maintain a ``fire wall'' with respect to their respective personnel regarding access to information concerning the composition and/or changes to the underlying index or portfolio, as applicable. The Adviser and the Index Provider are not registered as broker-dealers, but are affiliated with a broker-dealer. The Index Provider has implemented and will maintain a ``fire wall'' with respect to such broker-dealer and its personnel regarding access to information concerning the composition and/or changes to the Index. In addition, Index Provider personnel who make decisions regarding the Index composition or methodology are subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the Index, pursuant to Rule 14.11(c)(5)(A)(iii). The Adviser has also implemented and will maintain a ``fire wall'' with respect to such broker-dealer and its personnel regarding access to information concerning the composition and/or changes to the portfolio. In addition, 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 another 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. The Exchange also notes that the Adviser is a BZX Affiliate as defined in Rule 14.3(e)(1)(A),\5\ but the Fund is not an Affiliate Security, as defined in Rule 14.11(e)(1)(B),\6\ and is therefore not subject to the additional requirements applicable to Affiliate Securities because such definition explicitly excludes Index Fund Shares. The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. --------------------------------------------------------------------------- \4\ See Registration Statement on Form N-1A for the Trust, dated September 28, 2017 (File Nos. 333-179562 and 811-22668). The descriptions of the Fund and the Shares contained herein are based, in part, on information 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. \5\ As defined in Rule 14.3(e)(1)(A), the term ``BZX Affiliate'' means the Exchange and any entity that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Exchange, where ``control'' means that one entity possesses, directly or indirectly, voting control of the other entity either through ownership of capital stock or other equity securities or through majority representation on the board of directors or other management body of such entity. \6\ As defined in Rule 14.3(e)(1)(B), the term ``Affiliate Security'' means any security issued by a BZX Affiliate or any Exchange-listed option on any such security, with the exception of Portfolio Depository Receipts as defined in Rule 14.11(b) and Index Fund Shares as defined in Rule 14.11(c). --------------------------------------------------------------------------- The Exchange is submitting this proposed rule change because the Index for the Fund does not meet the listing requirements of Rule 14.11(c)(5) applicable to an index that consists of both equity securities and Fixed Income Securities,\7\ which requires that the equity and fixed income component securities in an index or portfolio separately meet the criteria set forth in Rules 14.11(c)(3) and 14.11(c)(4), respectively. As further described below, the Index consists of options on an index that consists of ``U.S. Component Stocks'' as defined in Rule 14.11(c)(1)(D),\8\ and Fixed Income Securities. The Fixed Income Security component of the Index, which consists of only Treasury bills, meets the ``generic'' listing requirements of Rule 14.11(c)(4). However, because the Index consists partially of options based on an index of U.S. Component Stocks (the [[Page 3809]] S&P 500 Index) and Rule 14.11(c)(3)(A)(i) applies only to U.S. Component Stocks (that is, the rule provides criteria for an index composed of equity securities and not for an index that includes options on an index of equity securities), it does not meet the criteria set forth in Rule 14.11(c)(3) and, thus, does not meet Rule 14.11(c)(5). --------------------------------------------------------------------------- \7\ As defined in Rule 14.11(c)(4), the term ``Fixed Income Security'' shall mean debt securities that are notes, bonds, debentures or evidence of indebtedness that include, but are not limited to, Treasury bills, government-sponsored entity securities (``GSE Securities''), municipal securities, trust preferred securities, supranational debt and debt of a foreign country or subdivision thereof. \8\ As defined in Rule 14.11(c)(1)(D), the term ``U.S. Component Stock'' shall mean an equity security that is registered under Sections 12(b) or 12(g) of the Act, or an American Depositary receipt, the underlying equity security of which is registered under Sections 12(b) or 12(g) of the Act. --------------------------------------------------------------------------- Cboe S&P 500[supreg] Volatility Risk Premia Index The Index is a rules-based options index created by the Index Provider, an affiliate of the Adviser, and designed to capture the ``volatility risk premium'' in standardized options on the S&P 500 Index (``S&P 500 Index Options'') by writing one-month call and put S&P 500 Index Options (``Sold SPX Options'') and buying an identical number of one-month call and put S&P 500 Index Options (together, the ``Bought SPX Options'') with a lesser market value (i.e., buying call options with a higher strike price and put options with a lower strike price).\9\ The ``volatility risk premium'' in S&P 500 Index Options is based on the premise that the expected level of volatility of the S&P 500 Index priced into such options (the options' ``implied volatility'') is, on average, higher than the volatility actually experienced by the S&P 500 Index (the ``realized volatility''). The Index will only include S&P 500 Index Options and Treasury bills. --------------------------------------------------------------------------- \9\ For purposes of this filing, when describing the Index, the terms ``buy,'' ``sell,'' ``write,'' ``hold,'' or any other term related to the acquisition, disposition, or issuance of an asset are intended to describe a theoretical transaction conducted by the Index that will be reflected in the Index constituents, rather than to imply that the Index is actually transacting. --------------------------------------------------------------------------- On the last trading day of each month, the Index writes (sells) and buys call and put S&P 500 Index Options with an expiration date of the last trading day of the following month. The strike prices for the Sold SPX Options will be ``out-of-the-money'' (i.e., the strike price of the sold put options will be less than the level of S&P 500 Index and the strike price of the sold call options will be more than the level of the S&P 500 Index). The strike prices for the Bought SPX Options will be higher and lower, respectively, than the strike price for the Sold SPX Options, which offsets some of the Index's risk from the Sold SPX Options. The difference between the strike prices of the Sold SPX Options and the Bought SPX Options represents the net liability for the Index, and the Index maintains an allocation to one- and three-month Treasury bills at least equal to such net liability. The Index receives premiums from the sale of the Sold SPX Options and pays premiums to buy the Bought SPX Options. The Index invests the net premium difference between the Sold SPX Options and the Bought SPX Options in one- and three-month Treasury bills. The Index holds each option until its expiration. If the value of the S&P 500 Index rises above the strike price of the put S&P 500 Index Options (the ``SPX Puts'') or falls below the strike price of the call S&P 500 Index Options (the ``SPX Calls'') sold by the Index, the Sold SPX Options will not be exercised and will expire worthless, resulting in a gain to the Index equal to the premiums received from the Sold SPX Options. If the value of the S&P 500 Index falls below the strike price of the SPX Puts or rises above the strike price of the SPX Calls sold by the Index, the Sold SPX Options will finish ``in-the-money'' and the Index incurs a loss equal to the difference between the Sold SPX Options' strike price and the value of the S&P 500 Index, less the value of the premiums received from the Sold SPX Options. If the value of the S&P 500 Index rises above the strike price of the SPX Puts or falls below the strike price of the SPX Calls bought by the Index, the Bought SPX Options will not be exercised and will expire worthless, resulting in a loss to the Index equal to the premiums paid for the Bought SPX Options. If the value of the S&P 500 Index falls below the strike price of the SPX Puts or rises above the strike price of the SPX Calls sold by the Index, the Bought SPX Options will finish ``in-the-money'' and the Index receives a gain equal to the difference between the Bought SPX Options' strike price and the value of the S&P 500 Index, less the value of the premiums paid for the Bought SPX Options. The strike prices of the SPX Puts and SPX Calls are calculated such that the Index is equity-market-neutral, meaning that it seeks to earn a total return in most equity market conditions regardless of general market direction as measured by the move in value of the S&P 500 Index. The cash and net option premium proceeds will be invested in short-term Treasury bills which will be rolled at maturity. This makes the Index bond-market-neutral, meaning that as interest rates and the yield for Treasury bills go up or down, the short duration of the Treasury bills will result in minimal effect on the Index. Fund Holdings Under Normal Market Conditions,\10\ the Fund will invest all, or substantially all, of its assets in the S&P 500 Index Options that make up the Index, as well as the Treasury bills included in the Index. Under Normal Market Conditions, at least 80% of the Fund's total assets (exclusive of any collateral held from securities lending) will be invested in the S&P 500 Index Options or Treasury bills that make up the Index. In addition to the S&P 500 Index Options and Treasury bills that make up the Index, the Fund may invest up to 20% of its total assets in U.S. exchange-listed options based on one or more ETFs that track the performance of the S&P 500 Index (``Comparable ETF Options''). The Fund will hold only S&P 500 Index Options, Comparable ETF Options, Treasury bills included in the Index, and other cash and cash equivalents.\11\ --------------------------------------------------------------------------- \10\ 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. \11\ For purposes of this filing, cash equivalents are short- term instruments with maturities of less than three months, including: (i) U.S. Government securities, including bills, notes, and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities; (ii) certificates of deposit issued against funds deposited in a bank or savings and loan association; (iii) bankers acceptances, which are short-term credit instruments used to finance commercial transactions; (iv) repurchase agreements and reverse repurchase agreements; (v) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; (vi) commercial paper, which are short-term unsecured promissory notes; and (vii) money market funds. --------------------------------------------------------------------------- Additional Discussion The Exchange believes that sufficient protections are in place to protect against market manipulation of the Fund's Shares and S&P 500 Index Options and Comparable ETF Options for the following reasons: (i) The diversity, liquidity, and market cap of the securities underlying the S&P 500 Index; \12\ (ii) the liquidity of the S&P 500 Index Options; \13\ and (iii) surveillance [[Page 3810]] by the Exchange, Cboe Options and the Financial Industry Regulatory Authority (``FINRA'') designed to detect violations of the federal securities laws and self-regulatory organization (``SRO'') rules. --------------------------------------------------------------------------- \12\ 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 meet the generic listing standards applicable to an index composed of U.S. Component Stocks in Rule 14.11(c)(3)(A)(i). \13\ The market for S&P 500 Index Options traded on Cboe Options is among the most liquid markets in the world. In 2016, 1,023,623 options contracts on the S&P 500 Index were traded per day on Cboe Options, which is more than $200 billion in notional volume traded on a daily basis. --------------------------------------------------------------------------- Trading in the Shares and the underlying investments will be subject to the federal securities laws and Exchange, Cboe Options, FINRA, and, with respect to the Comparable ETF Options, other U.S. options exchanges' rules and surveillance programs.\14\ --------------------------------------------------------------------------- \14\ The Exchange notes that Cboe Options is a member of the Option Price Regulatory Surveillance Authority, which was established in 2006, to provide efficiencies in looking for insider trading and serves as a central organization to facilitate collaboration in insider trading and investigations for the U.S. options exchanges. For more information, see http://www.cboe.com/aboutcboe/legal/departments/orsareg.aspx. --------------------------------------------------------------------------- The Exchange has in place a surveillance program for transactions in ETFs to ensure the availability of information necessary to detect and deter potential manipulations and other trading abuses, thereby making the Shares less readily susceptible to manipulation. Further, the Exchange believes that because the assets in the Fund's portfolio, which are comprised primarily of S&P 500 Index Options, will be acquired in extremely liquid and highly regulated markets,\15\ the Shares are less readily susceptible to manipulation. --------------------------------------------------------------------------- \15\ All exchange-listed securities that the Fund may hold will trade on a market that is a member of the Intermarket Surveillance Group (``ISG'') and the Fund will not hold any non-exchange-listed options, however, not all of the components of the portfolio for the Fund may trade on exchanges that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. For a list of the current members of ISG, see www.isgportal.org. --------------------------------------------------------------------------- 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. Trading of the Shares through the Exchange will be subject to the Exchange's surveillance procedures for derivative products, including Index Fund Shares. 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. All statements and representations made in this filing regarding the index composition, the description of the portfolio or reference assets, limitations on portfolio holdings or reference assets, dissemination and availability of index, reference asset, and intraday indicative values (as applicable), or the applicability of Exchange listing 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. The Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares and exchange-traded options contracts with other markets and other entities that are members of the ISG and may obtain trading information regarding trading in the Shares and exchange-traded options contracts from such markets and other entities. The Exchange is also able to access, as needed, trade information for certain fixed income instruments reported to FINRA's Trade Reporting and Compliance Engine (``TRACE''). In addition, the Exchange may obtain information regarding trading in the Shares and exchange-traded options contracts from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. As noted above, S&P 500 Index Options are among the most liquid options in the world and derive their value from the actively traded S&P 500 Index components. The contracts are cash-settled with no delivery of stocks or ETFs, and trade in competitive auction markets with price and quote transparency. The Exchange believes the highly regulated options markets and the broad base and scope of the S&P 500 Index make securities that derive their value from that index less susceptible to market manipulation in view of market capitalization and liquidity of the S&P 500 Index components, price and quote transparency, and arbitrage opportunities. The Exchange believes that the liquidity of the markets for S&P 500 Index securities, S&P 500 Index Options, and other related derivatives is sufficiently great to deter fraudulent or manipulative acts associated with the price of the Shares. The Exchange also believes that such liquidity are [sic] sufficient to support the creation and redemption mechanism. Coupled with the surveillance programs of the SROs described above, the Exchange does not believe that trading in the Fund's Shares would present manipulation concerns. The Fund's investments will be consistent with the Fund's investment objective and will not be used to enhance leverage (although certain derivatives and other investments may result in leverage).\16\ The Fund's investments will not be used to seek performance that is the multiple or inverse multiple (i.e. 2x or -2x) of the Index. The Fund's use of derivative instruments will be collateralized. --------------------------------------------------------------------------- \16\ The Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of a fund, including a fund's use of derivatives, may give rise to leverage, causing a fund to be more volatile than if it had not been leveraged. To mitigate leveraging risk, the Adviser will segregate or earmark liquid assets or otherwise cover the transactions that give rise to such risk. See 15 U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18, 1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset Management, L.P., Commission No-Action Letter (July 2, 1996). --------------------------------------------------------------------------- The Exchange represents that, except as described above, the Fund will meet each of the initial and continued listing criteria in BZX Rule 14.11(c)(5) with the exception of meeting the requirements of Rule 14.11(c)(3)(A)(i), applicable to the listing of Index Fund Shares based upon an index of ``U.S. Component Stocks,'' as required under Rule 14.11(c)(5). Further to this point, the three-month Treasury bills that compose the entirety of the fixed income portion of the Index will satisfy all requirements of Rule 14.11(c)(4). 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. A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange. In addition, the Exchange represents that the Shares of the Fund will comply with all other requirements applicable to Index Fund Shares, which includes requirements relating to the dissemination of key information such as the Net Asset Value, Index value, and the Intraday Indicative Value, rules governing the trading of equity securities, trading hours, trading halts, firewalls for the Index Provider and Adviser, surveillance, and the information circular, as set forth in Exchange rules applicable to Index Fund Shares and the orders approving such rules. [[Page 3811]] Quotation and last sale information for S&P 500 Index Options will be available via the Options Price Reporting Authority. The intra-day, closing and settlement prices of exchange-traded options will be readily available from the options exchanges, automated quotation systems, published or other public sources, or online information services such as Bloomberg or Reuters. Price information on Treasury bills and other cash equivalents is available from major broker-dealer firms or market data vendors, as well as from automated quotation systems, published or other public sources, or online information services. 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act \17\ in general and Section 6(b)(5) of the Act \18\ 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. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f. \18\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed rule change 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 of the Fund will meet each of the initial and continued listing criteria required by BZX Rule 14.11(c)(5), which includes the listing requirements for an index that is composed of both equity securities and fixed income securities, with the exception of the requirement that the equity portion of the Index meets the criteria set forth in Rule 14.11(c)(3). Specifically, the Index does not meet the requirements of Rule 14.11(c)(3) because the equity portion of the Index consists of options on U.S. Component Stocks and Rule 14.11(c)(3)(A)(i) applies only to U.S. Component Stocks (that is, the rule provides criteria for an index composed of equity securities and not for an index that includes options on an index of equity securities), it does not meet the criteria set forth in Rule 14.11(c)(3) and, thus, does not meet Rule 14.11(c)(5).\19\ The Exchange believes that the concerns that Rule 14.11(c)(3)(A)(i) are intended to address are mitigated and that sufficient protections are in place to protect against market manipulation of the Fund's Shares and S&P 500 Index Options and Comparable ETF Options for the following reasons: (i) The diversity, liquidity, and market cap of the securities underlying the S&P 500 Index; \20\ (ii) the liquidity of the S&P 500 Index Options; \21\ and (iii) surveillance by the Exchange, Cboe Options and FINRA designed to detect violations of the federal securities laws and self-regulatory organization (``SRO'') rules. --------------------------------------------------------------------------- \19\ Rule 14.11(c)(3)(A)(i)(e) provides that all securities in the applicable index or portfolio shall be U.S. Component Stocks listed on a national securities exchange and shall be NMS Stocks as defined in Rule 600 under Regulation NMS of the Act. Each component stock of the S&P 500 Index is a U.S. Component Stock that is listed on a national securities exchange and is an NMS Stock. Options are excluded from the definition of NMS Stock. The Fund and the Index meet all of the requirements of the listing standards for Index Fund Shares in Rule 14.11(c)(3), except the requirements in Rule 14.11(c)(3)(A)(i)(a)-(e), as the Index consists of options on the S&P 500 Index. The S&P 500 Index consists of U.S. Component Stocks and satisfies the requirements of Rule 14.11(c)(3)(A)(i)(a)-(e). \20\ 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 meet the generic listing standards applicable to an index composed of U.S. Component Stocks in Rule 14.11(c)(3)(A)(i). \21\ The market for S&P 500 Index Options traded on Cboe Options is among the most liquid markets in the world. In 2016, 1,023,623 options contracts on the S&P 500 Index were traded per day on Cboe Options, which is more than $200 billion in notional volume traded on a daily basis. --------------------------------------------------------------------------- The Exchange has in place a surveillance program for transactions in ETFs to ensure the availability of information necessary to detect and deter potential manipulations and other trading abuses, thereby making the Shares less readily susceptible to manipulation. Further, the Exchange believes that because the assets in the Fund's portfolio, which are comprised primarily of S&P 500 Index Options, will be acquired in extremely liquid and highly regulated markets, the Shares are less readily susceptible to manipulation. 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. Trading of the Shares through the Exchange will be subject to the Exchange's surveillance procedures for derivative products, including Index Fund Shares. All statements and representations made in this filing regarding the index composition, the description of the portfolio or reference assets, limitations on portfolio holdings or reference assets, dissemination and availability of index, reference asset, and intraday indicative values (as applicable), or the applicability of Exchange listing rules shall constitute continued listing requirements for listing the Shares on the Exchange. . [sic] 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 Rule 14.12. The Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares and exchange-traded options contracts with other markets and other entities that are members of the ISG and may obtain trading information regarding trading in the Shares and exchange-traded options contracts from such markets and other entities. The Exchange is also able to access, as needed, trade information for certain fixed income instruments reported to TRACE. In addition, the Exchange may obtain information regarding trading in the Shares and exchange-traded options contracts from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. As noted above, S&P 500 Index Options are among the most liquid options in the world and derive their value from the actively traded S&P 500 Index components. The contracts are cash-settled with no delivery of stocks or ETFs, and trade in competitive [[Page 3812]] auction markets with price and quote transparency. The Exchange believes the highly regulated options markets and the broad base and scope of the S&P 500 Index make securities that derive their value from that index less susceptible to market manipulation in view of market capitalization and liquidity of the S&P 500 Index components, price and quote transparency, and arbitrage opportunities. The Exchange believes that the liquidity of the markets for S&P 500 Index securities, S&P 500 Index Options, and other related derivatives is sufficiently great to deter fraudulent or manipulative acts associated with the price of the Shares. The Exchange also believes that such efficiency and liquidity are sufficient to support the creation and redemption mechanism. Coupled with the extensive surveillance programs of the SROs described above, the Exchange does not believe that trading in the Fund's Shares would present manipulation concerns. The Exchange represents that, except as it relates to the options portion of the Index and the index dissemination requirements described above, the Fund will meet and be subject to all other requirements of Rule 14.11(c)(5) related to generic listing standards of the Index and other applicable requirements for such a series of Index Fund Shares under Rule 14.11(c) on an initial and continued listing basis, including those requirements regarding the dissemination of key information such as the Net Asset Value, and the Intraday Indicative Value, rules governing the trading of equity securities, trading hours, trading halts, surveillance, and the information circular, as set forth in Exchange rules applicable to Index Fund Shares and the orders approving such rules. 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. Moreover, all of the options 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. 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 will facilitate the listing and trading of an additional type of Index Fund Shares that will enhance competition among market participants, 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 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 (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 proposed rule change 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 Number SR-CboeBZX-2018-005 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 Number SR-CboeBZX-2018-005. 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 the filing also will 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 Number SR-CboeBZX-2018-005 and should be submitted on or before February 16, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\22\ --------------------------------------------------------------------------- \22\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-01354 Filed 1-25-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices 3807
certain potentially erroneous ETF involves manual data entry that poses arrangements, NSCC’s related operating
Instructions (whether due to mistakes in an inherent risk of communicating structure, and NSCC’s communications
manual entry or otherwise) in a pending potentially erroneous information. The with ETF agents and authorized
status until confirmed by the submitting proposed Intraday Cycle and participants via the input and output
ETF agent. Holding potentially Supplemental Cycle would enable ETF reports. The proposal would enhance
erroneous ETF Instructions in a agents to submit new ETF Instructions the efficiency and effectiveness of
‘‘pending’’ status would help minimize to correct previously submitted ETF NSCC’s provision of ETF-related
the potential impact of erroneous ETF Instructions before Members need to services by (1) enabling ETF agents to
Instructions on Members’ Required satisfy their next Required Deposit. correct previously submitted errors
Deposits by preventing such ETF Similarly, the automated threshold before additional Required Deposits are
Instructions from being processed value reasonability check would help required, (2) preventing potentially
without confirmation from the minimize the potential impact of erroneous ETF Instructions from being
submitting ETF agent. Thus, the erroneous ETF Instructions on processing until confirmed, and (3)
automated threshold value reasonability Members’ Required Deposits by enabling same-day settling ETF
check would help to ensure that preventing such ETF Instructions from Instructions to receive the benefits of
Members are subject to Required being processed absent confirmation NSCC processing. Accordingly, the
Deposits that more closely reflect the from the submitting ETF agent. Thus, Commission finds that the proposal
Members’ intended trading activity and the proposed cycles and automated would enhance NSCC’s efficiency and
not erroneously entered information threshold value reasonability check are effectiveness in meeting the
because Members would be required to ETF-specific proposals designed to requirements of its Members, as well as
confirm that the entered information is better produce margin levels the efficiency and effectiveness of
in fact correct. Therefore, the commensurate with the risk and NSCC’s ETF-related clearing and
Commission finds that the proposed particular attributes of ETFs. settlement arrangements, operating
change to add the automated threshold Accordingly, the Commission finds that structure, and communication
value reasonability check would help the proposed cycles and automated procedures, consistent with Rule 17Ad–
promote the prompt and accurate threshold value reasonability check 22(e)(21).82
clearance and settlement of securities would enhance NSCC’s risk-based
III. Conclusion
transactions, consistent with Section margin system in a manner that
17A(b)(3)(F) of the Act.76 considers the risks and particular On the basis of the foregoing, the
Finally, the Commission finds that attributes specific to ETFs, consistent Commission finds that the proposal is
NSCC’s proposal to remove the with Rule 17Ad–22(e)(6)(i).80 consistent with the requirements of the
repetitive language regarding next-day Rule 17Ad–22(e)(21) under the Act Act, in particular the requirements of
settling creates and redeems would requires NSCC to be efficient and Section 17A of the Act 83 and the rules
promote the prompt and accurate effective in meeting the requirements of and regulations thereunder.
clearance and settlement of securities its Members and the markets it serves, It is therefore ordered, pursuant to
transactions, consistent with Section and regularly review the efficiency and Section 19(b)(2) of the Act, that
17A(b)(3)(F) of the Act.77 Removing effectiveness of its (1) clearing and proposed rule change SR–NSCC–2017–
such repetitive language would help settlement arrangements, (2) operating 019 be, and hereby is, approved.84
make the Rules more accurate and clear. structure, including risk management For the Commission, by the Division of
Maintaining accurate and clear Rules policies, procedures, and systems, and Trading and Markets, pursuant to delegated
would enable Members and other (3) use of technology and authority.85
stakeholders to better understand their communication procedures.81 As stated Eduardo A. Aleman,
respective rights and obligations above, the proposed cycles would Assistant Secretary.
regarding NSCC’s clearance and enable ETF agents to submit new ETF [FR Doc. 2018–01359 Filed 1–25–18; 8:45 am]
settlement of securities transactions. Instructions to correct previously BILLING CODE 8011–01–P
Accordingly, the Commission finds that submitted ETF Instructions before
the proposed change to remove Members need to satisfy their next
repetitive language from the Rules Required Deposit. Similarly, the SECURITIES AND EXCHANGE
would promote the prompt and accurate automated threshold value reasonability COMMISSION
clearance and settlement of securities check would help minimize the
[Release No. 34–82538; File No. SR–
transactions, consistent with the potential impact of erroneous ETF
CboeBZX–2018–005]
requirements of Section 17A(b)(3)(F) of Instructions on Members’ Required
the Act.78 Deposits by preventing such ETF Self-Regulatory Organizations; Cboe
Rule 17Ad–22(e)(6)(i) under the Act Instructions from being processed BZX Exchange, Inc.; Notice of Filing of
requires NSCC to cover its credit absent confirmation from the submitting a Proposed Rule Change To List and
exposures to its Members by ETF agent. The Intraday Cycle also Trade Shares of the Cboe Vest S&P
establishing a risk-based margin system would enable NSCC to receive same-day 500® Premium Income ETF Under Rule
that, at a minimum considers, and settling ETF Instructions (corrections or 14.11(c)(5)
produces margin levels commensurate otherwise), and thereby allow such
with, the risks and particular attributes same-day settling ETF Instructions to January 19, 2018.
of each relevant product, portfolio, and receive the benefits of NSCC processing. Pursuant to Section 19(b)(1) of the
market.79 As described above, ETF The proposed cycles and automated Securities Exchange Act of 1934 (the
daltland on DSKBBV9HB2PROD with NOTICES
agents submit ETF Instructions to NSCC threshold reasonability check constitute
82 Id.
using a standardized input file, which changes designed to improve the
83 15 U.S.C. 78q–1.
efficiency and effectiveness of NSCC’s 84 In approving the proposed rule change, the
76 Id. ETF clearance and settlement Commission considered the proposals’ impact on
77 Id.
efficiency, competition, and capital formation. 15
78 Id. 80 Id. U.S.C. 78c(f).
79 17 CFR 240.17Ad–22(e)(6)(i). 81 17 CFR 240.17Ad–22(e)(21). 85 17 CFR 200.30–3(a)(12).
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![3810 Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices
by the Exchange, Cboe Options and the reference asset, and intraday indicative manipulative acts associated with the
Financial Industry Regulatory Authority values (as applicable), or the price of the Shares. The Exchange also
(‘‘FINRA’’) designed to detect violations applicability of Exchange listing rules believes that such liquidity are [sic]
of the federal securities laws and self- shall constitute continued listing sufficient to support the creation and
regulatory organization (‘‘SRO’’) rules. requirements for listing the Shares on redemption mechanism. Coupled with
Trading in the Shares and the the Exchange. The issuer has the surveillance programs of the SROs
underlying investments will be subject represented to the Exchange that it will described above, the Exchange does not
to the federal securities laws and advise the Exchange of any failure by believe that trading in the Fund’s Shares
Exchange, Cboe Options, FINRA, and, the Fund or Shares to comply with the would present manipulation concerns.
with respect to the Comparable ETF continued listing requirements, and, The Fund’s investments will be
Options, other U.S. options exchanges’ pursuant to its obligations under consistent with the Fund’s investment
rules and surveillance programs.14 Section 19(g)(1) of the Act, the Exchange objective and will not be used to
The Exchange has in place a will surveil for compliance with the enhance leverage (although certain
surveillance program for transactions in continued listing requirements. If the derivatives and other investments may
ETFs to ensure the availability of Fund or Shares are not in compliance result in leverage).16 The Fund’s
information necessary to detect and with the applicable listing requirements, investments will not be used to seek
deter potential manipulations and other then, with respect to such Fund or performance that is the multiple or
trading abuses, thereby making the Shares, the Exchange will commence inverse multiple (i.e. 2x or -2x) of the
Shares less readily susceptible to delisting procedures under Exchange Index. The Fund’s use of derivative
manipulation. Further, the Exchange Rule 14.12. instruments will be collateralized.
believes that because the assets in the The Exchange or FINRA, on behalf of The Exchange represents that, except
Fund’s portfolio, which are comprised the Exchange, will communicate as as described above, the Fund will meet
primarily of S&P 500 Index Options, needed regarding trading in the Shares each of the initial and continued listing
will be acquired in extremely liquid and and exchange-traded options contracts criteria in BZX Rule 14.11(c)(5) with the
highly regulated markets,15 the Shares with other markets and other entities exception of meeting the requirements
are less readily susceptible to that are members of the ISG and may of Rule 14.11(c)(3)(A)(i), applicable to
manipulation. obtain trading information regarding the listing of Index Fund Shares based
The Exchange believes that its trading in the Shares and exchange- upon an index of ‘‘U.S. Component
surveillance procedures are adequate to traded options contracts from such Stocks,’’ as required under Rule
properly monitor the trading of the markets and other entities. The 14.11(c)(5). Further to this point, the
Shares on the Exchange during all Exchange is also able to access, as three-month Treasury bills that compose
trading sessions and to deter and detect needed, trade information for certain the entirety of the fixed income portion
violations of Exchange rules and the fixed income instruments reported to of the Index will satisfy all requirements
applicable federal securities laws. FINRA’s Trade Reporting and of Rule 14.11(c)(4). The Trust is
Trading of the Shares through the Compliance Engine (‘‘TRACE’’). In required to comply with Rule 10A–3
Exchange will be subject to the addition, the Exchange may obtain under the Act for the initial and
Exchange’s surveillance procedures for information regarding trading in the continued listing of the Shares of the
derivative products, including Index Shares and exchange-traded options Fund. A minimum of 100,000 Shares
Fund Shares. FINRA conducts certain contracts from markets and other will be outstanding at the
cross-market surveillances on behalf of entities that are members of ISG or with commencement of trading on the
the Exchange pursuant to a regulatory which the Exchange has in place a Exchange. In addition, the Exchange
services agreement. The Exchange is comprehensive surveillance sharing represents that the Shares of the Fund
responsible for FINRA’s performance agreement. In addition, the Exchange will comply with all other requirements
under this regulatory services also has a general policy prohibiting the applicable to Index Fund Shares, which
agreement. distribution of material, non-public includes requirements relating to the
All statements and representations information by its employees. dissemination of key information such
made in this filing regarding the index As noted above, S&P 500 Index as the Net Asset Value, Index value, and
composition, the description of the Options are among the most liquid the Intraday Indicative Value, rules
portfolio or reference assets, limitations options in the world and derive their governing the trading of equity
on portfolio holdings or reference assets, value from the actively traded S&P 500 securities, trading hours, trading halts,
dissemination and availability of index, Index components. The contracts are firewalls for the Index Provider and
cash-settled with no delivery of stocks Adviser, surveillance, and the
Options, which is more than $200 billion in or ETFs, and trade in competitive information circular, as set forth in
notional volume traded on a daily basis.
14 The Exchange notes that Cboe Options is a
auction markets with price and quote Exchange rules applicable to Index
member of the Option Price Regulatory Surveillance transparency. The Exchange believes the Fund Shares and the orders approving
Authority, which was established in 2006, to highly regulated options markets and such rules.
provide efficiencies in looking for insider trading the broad base and scope of the S&P 500
and serves as a central organization to facilitate Index make securities that derive their 16 The Fund will include appropriate risk
collaboration in insider trading and investigations disclosure in its offering documents, including
for the U.S. options exchanges. For more value from that index less susceptible to
leveraging risk. Leveraging risk is the risk that
information, see http://www.cboe.com/aboutcboe/ market manipulation in view of market certain transactions of a fund, including a fund’s
legal/departments/orsareg.aspx. capitalization and liquidity of the S&P use of derivatives, may give rise to leverage, causing
15 All exchange-listed securities that the Fund
500 Index components, price and quote a fund to be more volatile than if it had not been
daltland on DSKBBV9HB2PROD with NOTICES
may hold will trade on a market that is a member leveraged. To mitigate leveraging risk, the Adviser
of the Intermarket Surveillance Group (‘‘ISG’’) and
transparency, and arbitrage will segregate or earmark liquid assets or otherwise
the Fund will not hold any non-exchange-listed opportunities. cover the transactions that give rise to such risk. See
options, however, not all of the components of the The Exchange believes that the 15 U.S.C. 80a–18; Investment Company Act Release
portfolio for the Fund may trade on exchanges that liquidity of the markets for S&P 500 No. 10666 (April 18, 1979), 44 FR 25128 (April 27,
are members of the ISG or with which the Exchange 1979); Dreyfus Strategic Investing, Commission No-
has in place a comprehensive surveillance sharing
Index securities, S&P 500 Index Action Letter (June 22, 1987); Merrill Lynch Asset
agreement. For a list of the current members of ISG, Options, and other related derivatives is Management, L.P., Commission No-Action Letter
see www.isgportal.org. sufficiently great to deter fraudulent or (July 2, 1996).
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![Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices 3811
Quotation and last sale information that includes options on an index of derivative products, including Index
for S&P 500 Index Options will be equity securities), it does not meet the Fund Shares. All statements and
available via the Options Price criteria set forth in Rule 14.11(c)(3) and, representations made in this filing
Reporting Authority. The intra-day, thus, does not meet Rule 14.11(c)(5).19 regarding the index composition, the
closing and settlement prices of The Exchange believes that the concerns description of the portfolio or reference
exchange-traded options will be readily that Rule 14.11(c)(3)(A)(i) are intended assets, limitations on portfolio holdings
available from the options exchanges, to address are mitigated and that or reference assets, dissemination and
automated quotation systems, published sufficient protections are in place to availability of index, reference asset,
or other public sources, or online protect against market manipulation of and intraday indicative values (as
information services such as Bloomberg the Fund’s Shares and S&P 500 Index applicable), or the applicability of
or Reuters. Price information on Options and Comparable ETF Options Exchange listing rules shall constitute
Treasury bills and other cash for the following reasons: (i) The continued listing requirements for
equivalents is available from major diversity, liquidity, and market cap of listing the Shares on the Exchange. .
broker-dealer firms or market data the securities underlying the S&P 500 [sic] The issuer has represented to the
vendors, as well as from automated Index; 20 (ii) the liquidity of the S&P 500 Exchange that it will advise the
quotation systems, published or other Index Options; 21 and (iii) surveillance Exchange of any failure by the Fund or
public sources, or online information by the Exchange, Cboe Options and Shares to comply with the continued
services. FINRA designed to detect violations of listing requirements, and, pursuant to
the federal securities laws and self- its obligations under Section 19(g)(1) of
2. Statutory Basis
regulatory organization (‘‘SRO’’) rules. the Act, the Exchange will surveil for
The Exchange believes that the The Exchange has in place a compliance with the continued listing
proposal is consistent with Section 6(b) surveillance program for transactions in requirements. If the Fund or Shares are
of the Act 17 in general and Section ETFs to ensure the availability of not in compliance with the applicable
6(b)(5) of the Act 18 in particular in that information necessary to detect and listing requirements, then, with respect
it is designed to prevent fraudulent and deter potential manipulations and other to such Fund or Shares, the Exchange
manipulative acts and practices, to trading abuses, thereby making the will commence delisting procedures
promote just and equitable principles of Shares less readily susceptible to under Exchange Rule 14.12. FINRA
trade, to foster cooperation and manipulation. Further, the Exchange conducts certain cross-market
coordination with persons engaged in believes that because the assets in the surveillances on behalf of the Exchange
facilitating transactions in securities, to Fund’s portfolio, which are comprised pursuant to a regulatory services
remove impediments to and perfect the primarily of S&P 500 Index Options, agreement. The Exchange is responsible
mechanism of a free and open market will be acquired in extremely liquid and for FINRA’s performance under this
and a national market system and, in highly regulated markets, the Shares are regulatory services agreement. If the
general, to protect investors and the less readily susceptible to manipulation. Fund is not in compliance with the
public interest. The Exchange believes that its applicable listing requirements, the
The Exchange believes that the surveillance procedures are adequate to Exchange will commence delisting
proposed rule change is designed to properly monitor the trading of the procedures with respect to such Fund
prevent fraudulent and manipulative Shares on the Exchange during all under Exchange Rule 14.12.
acts and practices, to promote just and trading sessions and to deter and detect The Exchange or FINRA, on behalf of
equitable principles of trade, to foster violations of Exchange rules and the the Exchange, will communicate as
cooperation and coordination with applicable federal securities laws. needed regarding trading in the Shares
persons engaged in facilitating Trading of the Shares through the and exchange-traded options contracts
transactions in securities, to remove Exchange will be subject to the with other markets and other entities
impediments to and perfect the Exchange’s surveillance procedures for that are members of the ISG and may
mechanism of a free and open market obtain trading information regarding
and a national market system and, in 19 Rule 14.11(c)(3)(A)(i)(e) provides that all trading in the Shares and exchange-
general, to protect investors and the securities in the applicable index or portfolio shall traded options contracts from such
public interest in that the Shares of the be U.S. Component Stocks listed on a national markets and other entities. The
securities exchange and shall be NMS Stocks as
Fund will meet each of the initial and defined in Rule 600 under Regulation NMS of the Exchange is also able to access, as
continued listing criteria required by Act. Each component stock of the S&P 500 Index needed, trade information for certain
BZX Rule 14.11(c)(5), which includes is a U.S. Component Stock that is listed on a fixed income instruments reported to
the listing requirements for an index national securities exchange and is an NMS Stock. TRACE. In addition, the Exchange may
Options are excluded from the definition of NMS
that is composed of both equity Stock. The Fund and the Index meet all of the
obtain information regarding trading in
securities and fixed income securities, requirements of the listing standards for Index Fund the Shares and exchange-traded options
with the exception of the requirement Shares in Rule 14.11(c)(3), except the requirements contracts from markets and other
that the equity portion of the Index in Rule 14.11(c)(3)(A)(i)(a)–(e), as the Index consists entities that are members of ISG or with
of options on the S&P 500 Index. The S&P 500
meets the criteria set forth in Rule Index consists of U.S. Component Stocks and
which the Exchange has in place a
14.11(c)(3). Specifically, the Index does satisfies the requirements of Rule comprehensive surveillance sharing
not meet the requirements of Rule 14.11(c)(3)(A)(i)(a)–(e). agreement. In addition, the Exchange
14.11(c)(3) because the equity portion of 20 The Exchange notes that the diversity,
also has a general policy prohibiting the
the Index consists of options on U.S. liquidity, and market cap of the components of the distribution of material, non-public
S&P 500 Index are such that the S&P 500 Index
Component Stocks and Rule information by its employees.
daltland on DSKBBV9HB2PROD with NOTICES
would meet the generic listing standards applicable
14.11(c)(3)(A)(i) applies only to U.S. to an index composed of U.S. Component Stocks in As noted above, S&P 500 Index
Component Stocks (that is, the rule Rule 14.11(c)(3)(A)(i). Options are among the most liquid
provides criteria for an index composed 21 The market for S&P 500 Index Options traded options in the world and derive their
on Cboe Options is among the most liquid markets value from the actively traded S&P 500
of equity securities and not for an index in the world. In 2016, 1,023,623 options contracts
on the S&P 500 Index were traded per day on Cboe
Index components. The contracts are
17 15 U.S.C. 78f. Options, which is more than $200 billion in cash-settled with no delivery of stocks
18 15 U.S.C. 78f(b)(5). notional volume traded on a daily basis. or ETFs, and trade in competitive
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![3812 Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices
auction markets with price and quote facilitate the listing and trading of an communications relating to the
transparency. The Exchange believes the additional type of Index Fund Shares proposed rule change between the
highly regulated options markets and that will enhance competition among Commission and any person, other than
the broad base and scope of the S&P 500 market participants, to the benefit of those that may be withheld from the
Index make securities that derive their investors and the marketplace. public in accordance with the
value from that index less susceptible to provisions of 5 U.S.C. 552, will be
market manipulation in view of market C. Self-Regulatory Organization’s available for website viewing and
capitalization and liquidity of the S&P Statement on Comments on the printing in the Commission’s Public
500 Index components, price and quote Proposed Rule Change Received From Reference Room, 100 F Street NE,
transparency, and arbitrage Members, Participants or Others Washington, DC 20549 on official
opportunities. The Exchange has neither solicited business days between the hours of
The Exchange believes that the nor received written comments on the 10:00 a.m. and 3:00 p.m. Copies of the
liquidity of the markets for S&P 500 proposed rule change. filing also will be available for
Index securities, S&P 500 Index inspection and copying at the principal
III. Date of Effectiveness of the
Options, and other related derivatives is office of the Exchange. All comments
sufficiently great to deter fraudulent or Proposed Rule Change and Timing for
received will be posted without change.
manipulative acts associated with the Commission Action
Persons submitting comments are
price of the Shares. The Exchange also Within 45 days of the date of cautioned that we do not redact or edit
believes that such efficiency and publication of this notice in the Federal personal identifying information from
liquidity are sufficient to support the Register or up to 90 days (i) as the comment submissions. You should
creation and redemption mechanism. Commission may designate if it finds submit only information that you wish
Coupled with the extensive surveillance such longer period to be appropriate to make available publicly. All
programs of the SROs described above, and publishes its reasons for so finding submissions should refer to File
the Exchange does not believe that or (ii) as to which the self-regulatory Number SR–CboeBZX–2018–005 and
trading in the Fund’s Shares would organization consents, the Commission should be submitted on or before
present manipulation concerns. will: February 16, 2018.
The Exchange represents that, except (A) By order approve or disapprove For the Commission, by the Division of
as it relates to the options portion of the the proposed rule change, or Trading and Markets, pursuant to delegated
Index and the index dissemination (B) Institute proceedings to determine authority.22
requirements described above, the Fund whether the proposed rule change Eduardo A. Aleman,
will meet and be subject to all other should be disapproved. Assistant Secretary.
requirements of Rule 14.11(c)(5) related
IV. Solicitation of Comments [FR Doc. 2018–01354 Filed 1–25–18; 8:45 am]
to generic listing standards of the Index
Interested persons are invited to BILLING CODE 8011–01–P
and other applicable requirements for
such a series of Index Fund Shares submit written data, views, and
under Rule 14.11(c) on an initial and arguments concerning the foregoing,
SECURITIES AND EXCHANGE
continued listing basis, including those including whether the proposed rule
COMMISSION
requirements regarding the change is consistent with the Act.
dissemination of key information such Comments may be submitted by any of [Release No. 34–82565; File No. SR–NYSE–
as the Net Asset Value, and the Intraday the following methods: 2017–42]
Indicative Value, rules governing the Electronic Comments
trading of equity securities, trading Self-Regulatory Organizations; New
hours, trading halts, surveillance, and • Use the Commission’s internet York Stock Exchange LLC; Notice of
comment form (http://www.sec.gov/ Designation of a Longer Period for
the information circular, as set forth in
rules/sro.shtml); or Commission Action on Proposed Rule
Exchange rules applicable to Index
Fund Shares and the orders approving • Send an email to rule-comments@ Change To Amend the NYSE Listed
sec.gov. Please include File Number SR– Company Manual To Modify Its
such rules. The Trust is required to
CboeBZX–2018–005 on the subject line. Requirements With Respect to
comply with Rule 10A–3 under the Act
Physical Delivery of Proxy Materials to
for the initial and continued listing of Paper Comments the Exchange
the Shares of the Fund. Moreover, all of
the options contracts held by the Fund • Send paper comments in triplicate
January 22, 2018.
will trade on markets that are a member to Secretary, Securities and Exchange
On November 22, 2017, New York
of ISG or affiliated with a member of Commission, 100 F Street NE,
Stock Exchange LLC (‘‘NYSE’’ or the
ISG or with which the Exchange has in Washington, DC 20549–1090.
‘‘Exchange’’) filed with the Securities
place a comprehensive surveillance All submissions should refer to File and Exchange Commission
sharing agreement. Number SR–CboeBZX–2018–005. This (‘‘Commission’’), pursuant to Section
For the above reasons, the Exchange file number should be included on the 19(b)(1) of the Securities Exchange Act
believes that the proposed rule change subject line if email is used. To help the of 1934 (‘‘Act’’) 1 and Rule 19b–4
is consistent with the requirements of Commission process and review your thereunder,2 a proposed rule change to
Section 6(b)(5) of the Act. comments more efficiently, please use amend the NYSE Listed Company
only one method. The Commission will Manual (the ‘‘Manual’’) to modify its
B. Self-Regulatory Organization’s post all comments on the Commission’s requirements with respect to the
daltland on DSKBBV9HB2PROD with NOTICES
Statement on Burden on Competition internet website (http://www.sec.gov/ physical delivery of proxy materials to
The Exchange does not believe that rules/sro.shtml). Copies of the the Exchange. The proposed rule change
the proposed rule change will impose submission, all subsequent was published for comment in the
any burden on competition that is not amendments, all written statements
necessary or appropriate in furtherance with respect to the proposed rule 22 17 CFR 200.30–3(a)(12).
of the purpose of the Act. The Exchange change that are filed with the 1 15 U.S.C. 78s(b)(1).
notes that the proposed rule change will Commission, and all written 2 17 CFR 240.19b–4.
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Document Created: 2018-10-26 10:05:53
Document Modified: 2018-10-26 10:05:53
| 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 | 83 FR 3807 |
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