83 FR 53928 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the WisdomTree Long-Term Treasury PutWrite Strategy Fund, WisdomTree Corporate Bond PutWrite Strategy Fund, WisdomTree International PutWrite Strategy Fund, and WisdomTree Emerging Markets PutWrite Strategy Fund, Each a Series of WisdomTree Trust, Under Rule 14.11(i), Managed Fund Shares

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 207 (October 25, 2018)

Page Range53928-53934
FR Document2018-23278

Federal Register, Volume 83 Issue 207 (Thursday, October 25, 2018)
[Federal Register Volume 83, Number 207 (Thursday, October 25, 2018)]
[Notices]
[Pages 53928-53934]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-23278]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84456; File No. SR-CboeBZX-2018-078]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
WisdomTree Long-Term Treasury PutWrite Strategy Fund, WisdomTree 
Corporate Bond PutWrite Strategy Fund, WisdomTree International 
PutWrite Strategy Fund, and WisdomTree Emerging Markets PutWrite 
Strategy Fund, Each a Series of WisdomTree Trust, Under Rule 14.11(i), 
Managed Fund Shares

October 19, 2018.
    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 October 9, 2018, 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, II, 
and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 
WisdomTree Long-Term Treasury PutWrite Strategy Fund, WisdomTree 
Corporate Bond PutWrite Strategy Fund, WisdomTree International 
PutWrite Strategy Fund, and WisdomTree Emerging Markets PutWrite 
Strategy Fund, each a series of the WisdomTree Trust (the ``Trust''), 
under Rule 14.11(i) (``Managed 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.

[[Page 53929]]

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 the 
WisdomTree Long-Term Treasury PutWrite Strategy Fund, WisdomTree 
Corporate Bond PutWrite Strategy Fund, WisdomTree International 
PutWrite Strategy Fund, and WisdomTree Emerging Markets PutWrite 
Strategy Fund (each a ``Fund'' and, collectively, the ``Funds'') under 
Rule 14.11(i), which governs the listing and trading of Managed Fund 
Shares on the Exchange.
    The Shares will be offered by the WisdomTree Trust, which was 
established as a Delaware statutory trust on December 15, 2005. The 
Trust is registered with the Commission as an investment company and 
has filed a registration statement on Form N-1A (``Registration 
Statement'') with the Commission on behalf of the Funds.\3\
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    \3\ See Post-Effective Amendment Nos. 641-644 to the 
Registration Statement on Form N-1A for the Trust, dated September 
19, 2018 (File Nos. 333-132380 and 811-21864). The descriptions of 
the Funds and the Shares contained herein are based on information 
in the Registration Statement.
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    Exchange Rule 14.11(i)(7) provides that, if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect and maintain 
a ``fire wall'' between the investment adviser and the broker-dealer 
with respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\4\ In addition, Exchange 
Rule 14.11(i)(7) further requires that personnel who make decisions on 
the investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable investment company 
portfolio. Exchange Rule 14.11(i)(7) is similar to Exchange Rule 
14.11(b)(5)(A)(i) (which applies to index-based funds); however, 
Exchange Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not a registered broker-dealer and is not affiliated with any broker-
dealers that are in the business of buying or selling securities. The 
Sub-Adviser is affiliated with multiple broker-dealers and has 
implemented a ``fire wall'' with respect to such broker-dealers and 
their personnel regarding access to information regarding access to 
information [sic] concerning the composition and/or changes to a Fund's 
portfolio. In addition, Sub-Adviser personnel who make decisions 
regarding a Fund's portfolio are subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding such Fund's portfolio. In the event that (a) the Adviser or 
Sub-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 and maintain 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.
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    \4\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    Each Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
    The Exchange submits this proposal in order to allow each Fund to 
hold listed derivatives (i.e., Puts, as defined below) in a manner that 
does not comply with Exchange Rule 14.11(i)(4)(C)(iv)(b).\5\ 
Specifically, each Fund seeks to achieve its respective investment 
objective primarily through a strategy of selling listed put options on 
exchange traded funds (``ETFs'') \6\ in a manner that does not meet the 
requirements of Rule 14.11(i)(4)(C)(iv)(b), while investing the sales 
proceeds in Treasury Bills. The Funds may also hold a very limited 
amount of certain fixed income securities and mutual funds that do not 
comply with the holdings requirements in Rule 14.11(i)(4)(C)(ii) and 
14.11(i)(4)(C)(i), respectively, as further described below. Otherwise, 
each Fund will comply with all other listing requirements on an initial 
and continued listing basis under Exchange Rule 14.11(i) for Managed 
Fund Shares. The Exchange notes that the Commission has previously 
approved the listing and trading of two funds that employ very similar 
indexed strategies.\7\
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    \5\ Exchange 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).''
    \6\ For purposes of this filing the term ETF shall mean 
Portfolio Depository Receipts as defined in Rule 14.11(b), Index 
Fund Shares as defined in Rule 14.11(c), and Managed Fund Shares as 
defined in Rule 14.11(i), or the equivalent product type on other 
national securities exchanges. With respect to Index Fund Shares, 
the underlying index shall be referred to herein as an ``Index.''
    \7\ See Securities Exchange Act Release Nos. 81876 (October 16, 
2017), 82 FR 48861 (October 20, 2017) (order approving proposed rule 
change to list shares of the WisdomTree CBOE Russell 2000 PutWrite 
Strategy Fund); 74675 (April 8, 2015), 80 FR 20038 (April 14, 2015) 
(order approving proposed rule change to list shares of the Wisdom 
Tree Put Write Strategy Fund); and 77045 (February 3, 2016), 81 FR 
6916 (February 9, 2016) (order approving a proposed rule change 
relating to the index underlying the WisdomTree Put Write Strategy 
Fund). If such funds were evaluated under the generic listing 
standards for Managed Fund Shares applicable under Rule 14.11(i), 
they would not meet the generic listing standards in the same way as 
the Funds would not meet the generic listing standards.
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PutWrite Strategy
    In a put writing strategy, a Fund (as the seller of the option) 
receives premiums from the purchaser of the

[[Page 53930]]

option in exchange for providing the purchaser with the right to sell 
the underlying instrument to the Fund at a specific price (i.e., the 
exercise price or strike price). If the market price of the instrument 
underlying the option exceeds the strike price, it is anticipated that 
the option would go unexercised and the Fund would earn the full 
premium upon the option's expiration or a portion of the premium upon 
the option's early termination. If the market price of the instrument 
underlying the option drops below the strike price, it is anticipated 
that the option would be exercised and the Fund would pay the option 
buyer the difference between the market value of the underlying 
instrument and the strike price. The proceeds received by a Fund for 
writing put options will generally be invested in Treasury Bills in 
order to seek to offset any liabilities the Fund incurs from writing 
put options.
    The Sub-Adviser will select option investments based on estimates 
of current and future market volatility levels, underlying instrument 
valuations and perceived market risks and will evaluate relative option 
premiums in determining preferred option contract terms, such as 
exercise prices and expiration dates. At the time of writing (selling) 
a put option, the aggregate investment exposure, as measured on a 
notional basis (i.e., the value of the underlying instrument at its 
strike price), of the options written by the Fund will not exceed 100% 
of the Fund's total assets.
    Each Fund's investments will substantially consist of written put 
options on one or more ETFs and Cash Equivalents.\8\
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    \8\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents include short-term instruments with maturities of less 
than three months are: (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.
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WisdomTree Long-Term Treasury PutWrite Strategy Fund
    The WisdomTree Long-Term Treasury PutWrite Strategy Fund seeks 
long-term growth of capital and income generation. The Fund seeks to 
achieve its investment objective primarily through a strategy of 
writing listed put options on one or more ETFs that track the 
performance of debt issued by the U.S. Treasury with remaining 
maturities of 20 years or more.
WisdomTree High Yield Corporate Bond PutWrite Strategy Fund
    The WisdomTree High Yield Corporate Bond PutWrite Strategy Fund 
seeks long-term growth of capital and income generation. The Fund seeks 
to achieve its investment objective primarily through a strategy of 
writing listed put options on one or more ETFs that track the 
performance of U.S. high yield corporate debt.
WisdomTree International PutWrite Strategy Fund
    The WisdomTree International PutWrite Strategy Fund seeks long-term 
growth of capital and income generation. The Fund seeks to achieve its 
investment objective primarily through a strategy of writing listed put 
options on one or more ETFs that track the equity market performance of 
developed markets outside of the U.S. & Canada.
WisdomTree Emerging Markets PutWrite Strategy Fund
    The WisdomTree Emerging Markets PutWrite Strategy Fund seeks long-
term growth of capital and income generation. The Fund seeks to achieve 
its investment objective primarily through a strategy of writing listed 
put options on one or more ETFs that track the performance of large and 
mid-cap emerging markets equities.
Investment Methodology
    Under Normal Market Conditions,\9\ each Fund will invest 
substantially all of its assets in put options and one month or three-
month U.S. Treasury bills. Each Fund's investment strategy will be 
designed to write a sequence of one-month, at-the-money, puts on the 
applicable ETFs (the ``Puts'') \10\ and invest the proceeds from 
writing such puts in Treasury bills. The number of Puts written will 
vary from month to month, but will be limited to permit the amount held 
in a Fund's investment in Treasury bills to finance the maximum 
possible loss from final settlement of the Puts.
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    \9\ 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. In response to adverse market, economic, 
political, or other conditions, the Fund reserves the right to 
invest in U.S. government securities, other money market instruments 
(as defined below), and cash, without limitation, as determined by 
the Adviser or Sub-Adviser. In the event the Fund engages in these 
temporary defensive strategies that are inconsistent with its 
investment strategies, the Fund's ability to achieve its investment 
objectives may be limited.
    \10\ The term ``Puts'' will at any time include only puts on the 
five ETFs that track the performance of the applicable market sector 
that have the greatest total options consolidated average daily 
exchange trading volume in such puts for the previous quarter. The 
Fund will not invest in Puts on leveraged (e.g., 2X, -2X, 3X, or -
3X) ETFs.
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    The new Puts will be struck and sold on a monthly basis, usually 
the third Friday of the month (i.e., the ``Roll Date''), which matches 
the expiration date of the current Puts. The strike price of the new 
Puts will be based on the strike price of the put options with the 
closest strike price below the last trade of the applicable ETF 
reported before 11:00 a.m. ET. For example, if the last trade in the 
applicable ETF reported before 11:00 a.m. ET is $50.23 and the closest 
listed put option with a strike price below $50.23 is $50, then the $50 
strike put option will be sold by the Fund.
Other Assets
    Each Fund may invest up to 20% of its net assets (in the aggregate) 
in Other Assets. Other Assets includes only the following: Other ETF 
put options; \11\ Index futures and/or options on Index futures; \12\ 
total return swaps; \13\ shares of other exchange traded products

[[Page 53931]]

(``ETPs''); \14\ shares of non-exchange-traded registered open-end 
investment companies (i.e., mutual funds); \15\ and variable or 
floating interest rate securities.\16\
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    \11\ A Fund may invest up to 10% of its assets in over-the-
counter put options.
    \12\ A Fund will limit its direct investments in futures and 
options on futures to the extent necessary for the Adviser to claim 
the exclusion from regulation as a ``commodity pool operator'' with 
respect to the Fund under Rule 4.5 promulgated by the Commodity 
Futures Trading Commission (``CFTC''), as such rule may be amended 
from time to time. Under Rule 4.5 as currently in effect, the Fund 
would limit its trading activity in futures and options on futures 
(excluding activity for ``bona fide hedging purposes,'' as defined 
by the CFTC) such that it will meet one of the following tests: (i) 
Aggregate initial margin and premiums required to establish its 
futures and options on futures positions will not exceed 5% of the 
liquidation value of the Fund's portfolio, after taking into account 
unrealized profits and losses on such positions; or (ii) aggregate 
net notional value of its futures and options on futures positions 
will not exceed 100% of the liquidation value of the Fund's 
portfolio, after taking into account unrealized profits and losses 
on such positions.
     The exchange-listed futures contracts in which a Fund may 
invest will be listed on exchanges in the U.S. Each of the exchange-
listed futures contracts in which the Fund may invest will be listed 
on exchanges that are members of ISG.
    \13\ A Fund may use total return swaps to create positions 
equivalent to investments in ETF put options and the component 
securities underlying the applicable Index.
     A Fund's investments in total return swap agreements will be 
backed by investments in U.S. government securities in an amount 
equal to the exposure of such contracts.
    \14\ A Fund may invest in shares of both taxable and tax-
exempted money market funds. When used herein, ETPs may include, 
without limitation, Index Fund Shares (as described in Rule 
14.11(c)); Linked Securities (as described in Rule 14.11(d)); 
Portfolio Depositary Receipts (as described in Rule 14.11(b)); 
Trust-Issued Receipts (as described in Rule 14.11(f)); Commodity-
Based Trust Shares (as described in Rule 14.11(e)(4)); Currency 
Trust Shares (as described in Rule 14.11(e)(5)); Commodity Index 
Trust Shares (as described in Rule 14.11(e)(6)); Trust Units (as 
described in Rule 14.11(e)(9)); Managed Fund Shares (as described in 
Rule 14.11(i)), and closed-end funds. The ETPs in which the Fund may 
invest all will be listed and traded on U.S. exchanges. The Fund may 
invest in the securities of ETPs registered under the 1940 Act 
consistent with the requirements of Section 12(d)(1) of the 1940 Act 
or any rule, regulation or order of the Commission or interpretation 
thereof. A Fund will only make such investments in conformity with 
the requirements of Section 817 of the Internal Revenue Code of 
1986. The ETPs in which the Fund may invest will primarily be index-
based ETFs that hold substantially all of their assets in securities 
representing a specific index. The Fund will not invest in leveraged 
(e.g., 2X, -2X, 3X, or -3X) ETPs.
    \15\ The Fund will not invest in leveraged (e.g., 2X, -2X, 3X, 
or -3X) mutual funds.
    \16\ A Fund may invest in securities (in addition to U.S. 
Treasury securities, described above) that have variable or floating 
interest rates which are readjusted on set dates (such as the last 
day of the month) in the case of variable rates or whenever a 
specified interest rate change occurs in the case of a floating rate 
instrument. Variable or floating interest rates generally reduce 
changes in the market price of securities from their original 
purchase price because, upon readjustment, such rates approximate 
market rates. Accordingly, as interest rates decrease or increase, 
the potential for capital appreciation or depreciation is less for 
variable or floating rate securities than for fixed rate 
obligations.
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    As such, the Funds may hold certain fixed income securities and 
mutual funds that do not comply with the holdings requirements in Rule 
14.11(i)(4)(C)(ii) and 14.11(i)(4)(C)(i), respectively. The Exchange 
does not believe that these holdings represent any substantive policy 
concerns because they represent such a small portion of the portfolio. 
In addition, the Funds additional holdings of ETPs and cash and cash 
equivalents will meet the listing standards applicable in Rule 
14.11(i)(4)(C)(i) and 14.11(i)(4)(C)(iii), respectively. The listed 
derivatives holdings described above will comply with Rule 
14.11(i)(4)(C)(iv) when calculated including the options held as part 
of the investment methodology described above. The OTC derivatives will 
comply with Rule 14.11(i)(4)(C)(v).
Additional Discussion
    In order to achieve its investment objective, under Normal Market 
Conditions,\17\ the aggregate gross notional value of Puts may approach 
100% of a Fund (including gross notional values). As noted above, 
Exchange Rule 14.11(i)(4)(C)(iv)(b) prohibits a Fund from holding 
listed derivatives based on any five or fewer underlying reference 
assets in excess of 65% of the weight of the portfolio (including gross 
notional exposures) and 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 each Fund to hold up to 100% of the weight of its 
respective portfolio (including gross notional exposures) in listed 
derivatives based on a single underlying reference asset (the 
applicable ETF) through its investment in Puts.
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    \17\ As defined in Exchange Rule 14.11(i)(3)(E), 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.
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    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and the Puts 
for several reasons: (i) The liquidity in the market for at-the-money 
Puts in the underlying ETFs; (ii) the diversity, liquidity, and size of 
the securities, whether equity or fixed income, underlying the ETFs 
(each of which either meet the generic listing standards in Rule 14.11 
or the equivalent listing rules on another national securities exchange 
or have otherwise been approved for listing by the Commission); and 
(iii) surveillance by the Exchange, other SROs on which the Puts are 
listed and traded, and the Financial Industry Regulatory Authority 
(``FINRA'') designed to detect violations of the federal securities 
laws and self-regulatory organization (``SRO'') rules. 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 each Fund's portfolio, which are comprised 
primarily of Puts, will be acquired in extremely liquid and highly 
regulated markets,\18\ the Shares are less readily susceptible to 
manipulation.
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    \18\ All exchange-listed securities that the Funds may hold will 
trade on a market that is a member of the Intermarket Surveillance 
Group (``ISG'') and the Funds will not hold any non-exchange-listed 
equities, however, not all of the components of the portfolio for 
the Funds 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.
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    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 Managed Fund Shares. The 
issuer has represented to the Exchange that it will advise the Exchange 
of any failure by a Fund or the related 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 a Fund or the related 
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 a 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, ETPs, futures contracts, and 
exchange-traded options contracts with other market and other entities 
that are members of ISG and may obtain trading information in the 
Shares, futures contracts, exchange-traded options contracts, and ETPs 
from such markets and other entities. In addition, the Exchange, or 
FINRA, on behalf of the Exchange is able to access, as needed, trade 
information for certain fixed income instruments reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE''). The Exchange may 
also obtain information regarding trading in the Shares, futures 
contracts, exchange-traded options contracts, and ETPs 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

[[Page 53932]]

distribution of material, non-public information by its employees.
    As noted above, options on the associated ETFs are among the most 
liquid options in their applicable market sector and derive their value 
from similarly liquid and actively traded ETFs and their constituents. 
The contracts 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 ETFs make securities that 
derive their value from such ETFs less susceptible to market 
manipulation in view of size and liquidity of the ETF components, price 
and quote transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for the 
ETFs and options on the ETFs is sufficiently great to deter fraudulent 
or manipulative acts associated with the Funds' Shares price. The 
Exchange also believes that such liquidity is sufficient to support the 
creation and redemption mechanism. Coupled with the surveillance 
programs described above, the Exchange does not believe that trading in 
the Funds' Shares would present manipulation concerns.
    The Exchange represents that, except for the limitations on listed 
derivatives in BZX Rule 14.11(i)(4)(C)(iv)(b) and the limited holdings 
in fixed income securities and mutual funds that do not comply with the 
holdings requirements in Rule 14.11(i)(4)(C)(ii) and 14.11(i)(4)(C)(i), 
respectively, the Funds' 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). The Trust is 
required to comply with Rule 10A-3 under the Act for the initial and 
continued listing of the Shares of the Funds. 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 
Funds will comply with all other requirements applicable to Managed 
Fund Shares, which includes the dissemination of key information such 
as the Disclosed Portfolio,\19\ Net Asset Value,\20\ and the Intraday 
Indicative Value,\21\ suspension of trading or removal,\22\ trading 
halts,\23\ surveillance,\24\ minimum price variation for quoting and 
order entry,\25\ and the information circular,\26\ as set forth in 
Exchange rules applicable to Managed Fund Shares. Moreover, all of the 
options contracts held by the Funds 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. 
Quotation and last sale information for U.S. exchange-listed options 
contracts cleared by The Options Clearing Corporation 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 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.
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    \19\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \20\ See Rule 14.11(i)(4)(A)(ii).
    \21\ See Rule 14.11(i)(4)(B)(i).
    \22\ See Rule 14.11(i)(4)(B)(iii).
    \23\ See Rule 14.11(i)(4)(B)(iv).
    \24\ See Rule 14.11(i)(2)(C).
    \25\ See Rule 14.11(i)(2)(B).
    \26\ See Rule 14.11(i)(6).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \27\ in general and Section 6(b)(5) of the Act \28\ 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.
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    \27\ 15 U.S.C. 78f.
    \28\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares of each Fund will be listed on the Exchange pursuant to the 
initial and continued listing criteria in Rule 14.11(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. Trading of the Shares through the 
Exchange will be subject to the Exchange's surveillance procedures for 
derivative products, including Managed Fund Shares. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related 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 a Fund or the related 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 a 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, ETPs, futures contracts, and 
exchange-traded options contracts with other market and other entities 
that are members of ISG and may obtain trading information in the 
Shares, futures contracts, exchange-traded options contracts, and ETPs 
from such markets and other entities. In addition, the Exchange, or 
FINRA, on behalf of the Exchange is able to access, as needed, trade 
information for certain fixed income instruments reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE''). The Exchange may 
also obtain information regarding trading in the Shares, futures 
contracts, exchange-traded options contracts, and ETPs 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.
    The Adviser is not registered as, or affiliated with, any broker-
dealer. The Sub-Adviser is affiliated with multiple broker-dealers and 
has implemented a ``fire wall'' with respect to such broker-dealers and 
their personnel regarding access to information concerning the 
composition and/or changes to a Fund's portfolio. In addition, Sub-
Adviser personnel who make decisions regarding a Fund's portfolio are 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the Fund's portfolio. All 
exchange-listed options, futures contracts and ETPs held

[[Page 53933]]

by the Funds will be traded on U.S. exchanges, all of which are members 
of ISG or are exchanges with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
    All statements and representations made in this filing regarding 
the description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of reference asset and intraday indicative values (as applicable), or 
the applicability of Exchange rules specified in this filing shall 
constitute continued listing requirements for the Shares. The issuer 
has represented to the Exchange that it will advise the Exchange of any 
failure by a Fund to comply with the continued listing requirements, 
and, pursuant to its obligations under Section 19(g)(1) of the Act, the 
Exchange will monitor for compliance with the continued listing 
requirements. 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 a Fund is not in compliance with the applicable 
listing requirements, the Exchange will commence delisting procedures 
under Rule 14.12.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily every business 
day, and that the NAV will be made available to all market participants 
at the same time. In addition, a large amount of information will be 
publicly available regarding the Fund and the Shares, thereby promoting 
market transparency.
    In addition, the Exchange believes that sufficient protections are 
in place to protect against market manipulation of the Funds' Shares 
and the Puts because of: (i) The liquidity in the market for at-the-
money Puts in the underlying ETFs; (ii) the diversity, liquidity, and 
size of the securities, whether equity or fixed income, underlying the 
ETFs (each of which either meet the generic listing standards in Rule 
14.11 or the equivalent listing rules on another national securities 
exchange or have otherwise been approved for listing by the 
Commission); and (iii) surveillance by the Exchange, other SROs on 
which the Puts are listed and traded, and the FINRA designed to detect 
violations of the federal securities laws and SRO rules. Further, the 
Exchange believes that because the assets in each Fund's portfolio, 
which are comprised primarily of Puts, will be acquired in extremely 
liquid and highly regulated markets,\29\ the Shares are less readily 
susceptible to manipulation.
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    \29\ All exchange-listed securities that the Funds may hold will 
trade on a market that is a member of the ISG and the Funds will not 
hold any non-exchange-listed equities or options, however, not all 
of the components of the portfolio for the Funds 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.
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    As noted above, options on the associated ETFs are among the most 
liquid options in their applicable market sector and derive their value 
from similarly liquid and actively traded ETFs and their constituents. 
The contracts 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 ETFs make securities that 
derive their value from such ETFs less susceptible to market 
manipulation in view of size and liquidity of the ETF components, price 
and quote transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for the 
ETFs and options on the ETFs is sufficiently great to deter fraudulent 
or manipulative acts associated with the Funds' Shares price. The 
Exchange also believes that such liquidity is sufficient to support the 
creation and redemption mechanism. Coupled with the surveillance 
programs described above, the Exchange does not believe that trading in 
the Funds' Shares would present manipulation concerns. As noted above, 
the Funds may hold certain fixed income securities and mutual funds 
that do not comply with the holdings requirements in Rule 
14.11(i)(4)(C)(ii) and 14.11(i)(4)(C)(i), respectively, but the 
Exchange does not believe that these holdings represent any substantive 
policy concerns because they represent such a small portion of the 
portfolio.
    The Exchange represents that, except for the limitations on listed 
derivatives in BZX Rule 14.11(i)(4)(C)(iv)(b), Rule 14.11(i)(4)(C)(i), 
and 14.11(i)(4)(C)(ii), the Funds' 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). The Trust is 
required to comply with Rule 10A-3 under the Act for the initial and 
continued listing of the Shares of the Funds. 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 
Funds will comply with all other requirements applicable to Managed 
Fund Shares, which includes the dissemination of key information such 
as the Disclosed Portfolio,\30\ Net Asset Value,\31\ and the Intraday 
Indicative Value,\32\ suspension of trading or removal,\33\ trading 
halts,\34\ surveillance,\35\ minimum price variation for quoting and 
order entry,\36\ and the information circular,\37\ as set forth in 
Exchange rules applicable to Managed Fund Shares. Moreover, all of the 
options contracts held by the Funds 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 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 
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.
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    \30\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \31\ See Rule 14.11(i)(4)(A)(ii).
    \32\ See Rule 14.11(i)(4)(B)(i).
    \33\ See Rule 14.11(i)(4)(B)(iii).
    \34\ See Rule 14.11(i)(4)(B)(iv).
    \35\ See Rule 14.11(i)(2)(C).
    \36\ See Rule 14.11(i)(2)(B).
    \37\ See Rule 14.11(i)(6).
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    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services, and 
quotations and last sale information will be available via the CTA 
high-speed line. Quotation and last sale information for the Shares and 
any ETPs it [sic] which it invests will be available via the CTA high-
speed line. Quotation and last sale information for U.S. exchange-
listed options contracts cleared by The Options Clearing Corporation 
will be available via the Options Price Reporting Authority. The intra-
day, closing and settlement prices of exchange-traded portfolio assets, 
including ETPs, futures and exchange-traded options contracts will be 
readily available from the securities exchanges and futures exchange 
trading such securities and futures, as the case may be, automated 
quotation systems, published or other public sources, or online 
information services such as Bloomberg or Reuters. Such price 
information on fixed income portfolio

[[Page 53934]]

securities, including money market instruments, and other Fund assets 
traded in the over-the-counter markets, including bonds and money 
market instruments 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. The 
website for the Fund will include the prospectus for the Fund and 
additional data relating to NAV and other applicable quantitative 
information. Moreover, prior to commencement of trading, the Exchange 
will inform its Members in an information circular of the special 
characteristics and risks associated with trading the Shares. If the 
Exchange becomes aware that the NAV is not being disseminated to all 
market participants at the same time, it will halt trading in the 
Shares until such time as the NAV is available to all market 
participants. With respect to trading halts, the Exchange may consider 
all relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Funds. Trading also may be halted because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments composing the daily disclosed portfolio of each 
Fund; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.
    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 Managed 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 within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such 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 Comments

     Use 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-2018-078 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-2018-078. 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 a.m. and 3 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-2018-078 and should be submitted on or before November 15, 
2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23278 Filed 10-24-18; 8:45 am]
BILLING CODE 8011-01-P


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CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation83 FR 53928 

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