83_FR_63926 83 FR 63689 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List and Trade Shares of the FormulaFolios Sector Rotation ETF, a Series of the Northern Lights Fund Trust IV, Under Rule 14.11(i), Managed Fund Shares

83 FR 63689 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List and Trade Shares of the FormulaFolios Sector Rotation ETF, a Series of the Northern Lights Fund Trust IV, Under Rule 14.11(i), Managed Fund Shares

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 237 (December 11, 2018)

Page Range63689-63692
FR Document2018-26735

Federal Register, Volume 83 Issue 237 (Tuesday, December 11, 2018)
[Federal Register Volume 83, Number 237 (Tuesday, December 11, 2018)]
[Notices]
[Pages 63689-63692]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-26735]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84719; File No. SR-CboeBZX-2018-076]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2, To List and Trade Shares of the FormulaFolios Sector 
Rotation ETF, a Series of the Northern Lights Fund Trust IV, Under Rule 
14.11(i), Managed Fund Shares

December 4, 2018.

I. Introduction

    On October 2, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
FormulaFolios Sector Rotation ETF (``Fund'') of the Northern Lights 
Fund Trust IV (``Trust'') under BZX Rule 14.11(i). The proposed rule 
change was published for comment in the Federal Register on October 22, 
2018.\3\ On November 8, 2018, the Exchange filed Amendment No. 1 to the 
proposed rule change.\4\ On November 30, 2018, the Exchange filed 
Amendment No. 2 to the proposed rule change.\5\ The Commission has 
received no comments on the proposal. This order grants approval of the 
proposed rule change, as modified by Amendment Nos. 1 and 2.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 84438 (October 16, 
2018), 83 FR 53343.
    \4\ In Amendment No. 1, which amended and replaced the proposed 
rule change in its entirety, the Exchange: (a) clarified references 
to certain OTC derivatives that the Fund intends to invest; (b) 
clarified that, in the event that Sector Swaps (as defined herein) 
are unavailable or the pricing for such contracts are unfavorable, 
the Fund may attempt to replicate the desired equity exposure by 
purchasing some or all of the equity securities that are listed on a 
U.S. national securities exchange, including ETFs, comprising the 
top four sectors at the time; and (c) made other non-substantive, 
technical, and clarifying corrections to the proposal. Because 
Amendment No. 1 does not materially alter the substance of the 
proposed rule change or raise unique or novel regulatory issues 
under the Act, Amendment No. 1 is not subject to notice and comment. 
Amendment No. 1 to the proposed rule change is available at: https://www.sec.gov/comments/sr-cboebzx-2018-076/srcboebzx2018076-4716147-176694.pdf.
    \5\ In Amendment No. 2, the Exchange: (a) Clarified that the 
Fund will meet the requirements of Rule 14.11(i)(4)(C)(vi), which 
requires that, to the extent that listed or OTC derivatives are used 
to gain exposure to individual equities and/or fixed income 
securities, or to indexes of equities and/or indexes of fixed income 
securities, the aggregate gross notional value of such exposure 
shall meet the criteria set forth in BZX Rule 14.11(i)(4)(C)(i) and 
(ii) (including gross notional exposures), respectively; and (b) 
made other non-substantive, technical, and clarifying corrections to 
the proposal. Because Amendment No. 2 does not materially alter the 
substance of the proposed rule change or raise unique or novel 
regulatory issues under the Act, Amendment No. 2 is not subject to 
notice and comment. Amendment No. 2 to the proposed rule change is 
available at: https://www.sec.gov/comments/sr-cboebzx-2018-076/srcboebzx2018076-4716146-176693.pdf.
---------------------------------------------------------------------------

II. Exchange's Description of the Proposal, as Modified by Amendment 
Nos. 1 and 2

    The Exchange proposes to list and trade the Shares of the Fund 
under BZX Rule 14.11(i), which governs the listing and trading of 
Managed Fund Shares on the Exchange. The Shares will be offered by the 
Trust, which was established as a Delaware statutory trust on June 2, 
2015. The Exchange represents that 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.\6\ FormulaFolio 
Investments, LLC is the investment adviser to the Fund 
(``Adviser'').\7\
---------------------------------------------------------------------------

    \6\ See Registration Statement on Form N-1A for the Trust, dated 
July 27, 2018 (File Nos. 333-204808 and 811-23066). According to the 
Exchange, the Trust has obtained an order granting certain exemptive 
relief under the Investment Company Act of 1940 (``1940 Act''). See 
Investment Company Act Release No. 29571 (May 16, 2017) (File No. 
812-32367).
    \7\ The Exchange represents that the Adviser is not a registered 
broker-dealer and is not currently affiliated with any broker-
dealers. In addition, the Exchange represents that Adviser personnel 
who make decisions regarding the Fund's portfolio are subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the Fund's portfolio. In the event 
that (a) the Adviser becomes registered as a broker-dealer or newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser is a registered broker-dealer or becomes affiliated with a 
broker-dealer, it will implement 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 of, 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 Fund will be an actively managed exchange-traded fund that 
seeks to provide a long-term total return which exceeds the total 
return of its Primary Benchmark Index.\8\ The Fund will seek to achieve 
its investment objective, under Normal Market Conditions,\9\ by 
utilizing derivatives, or a combination of derivatives and direct 
investments, to gain 100% equity exposure. The Exchange submits this 
proposal in order to allow the Fund to hold over-the-counter (``OTC'') 
derivatives, in a manner that may not comply with BZX Rule 
14.11(i)(4)(C)(v), which requires, among other things, that the 
aggregate gross notional value of OTC derivatives not exceed 20% of the 
weight of the portfolio (including gross notional exposures).\10\ 
Specifically, the Exchange is proposing that the Fund may hold up to 
75% of the weight of its portfolio in OTC derivatives, including gross 
notional exposures. Otherwise, the Exchange represents that the Fund 
will comply with all other listing requirements on an initial and 
continued listing basis under BZX Rule 14.11(i).\11\
---------------------------------------------------------------------------

    \8\ The Fund's Primary Benchmark Index is the S&P 500 Index.
    \9\ As defined in BZX 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.
    \10\ BZX Rule 14.11(i)(4)(C)(v) provides that ``the portfolio 
may, on both an initial and continuing basis, hold OTC derivatives, 
including forwards, options, and swaps on commodities, currencies 
and financial instruments (e.g., stocks, fixed income, interest 
rates, and volatility) or a basket or index of any of the foregoing, 
however the aggregate gross notional value of OTC derivatives [sic] 
shall not exceed 20% of the weight of the portfolio (including gross 
notional exposures).''
    \11\ In particular, the Exchange notes that the Fund will meet 
the requirements of BZX Rule 14.11(i)(4)(C)(vi), which requires 
that, to the extent that listed or OTC derivatives are used to gain 
exposure to individual equities and/or fixed income securities, or 
to indexes of equities and/or indexes of fixed income securities, 
the aggregate gross notional value of such exposure shall meet the 
criteria set forth in BZX Rule 14.11(i)(4)(C)(i) and (ii) (including 
gross notional exposures), respectively.

---------------------------------------------------------------------------

[[Page 63690]]

    The Adviser will allocate the Fund's assets based on two 
proprietary investment models. The Adviser's first investment model 
will identify trends for the individual sectors within its Primary 
Benchmark Index. Each month, the model will analyze the strength of the 
US economy and rank the sectors of its Primary Benchmark Index based on 
a blend of various technical momentum indicators, volatility gauges, 
and valuation multiples. When the economy appears healthy, sectors with 
the highest risk-adjusted returns (lower volatility and higher price 
momentum) and the lowest valuations (lower price ratios) are ranked 
higher. When the economy appears unhealthy, sectors with more stable 
price movements and lower volatility are ranked higher. The Fund will 
invest in the top four sectors in an equal weight. In order to achieve 
such exposure, the Fund will use OTC swap contracts that reference each 
applicable sector index (``Sector Swaps'').\12\ In the event that such 
Sector Swaps are unavailable or the pricing for such contracts are 
unfavorable, the Fund may attempt to replicate the desired equity 
exposure by purchasing some or all of the equity securities that are 
listed on a U.S. national securities exchange, including ETFs,\13\ 
comprising the top four sectors at the time.\14\ If the model indicates 
the market is doing poorly, and if not enough sectors pass the 
screening criteria, the Fund can invest a portion or all of its assets 
in cash or Cash Equivalents.\15\ The Exchange is proposing to allow the 
Fund to hold up to 75% of the weight of its portfolio (including gross 
notional exposure) in Sector Swaps, collectively, in a manner that may 
not comply with 14.11(i)(4)(C)(v).\16\
---------------------------------------------------------------------------

    \12\ The Fund will attempt to limit counterparty risk in non-
cleared swap contracts by entering into such contracts only with 
counterparties the Adviser believes are creditworthy and by limiting 
the Fund's exposure to each counterparty. The Adviser will monitor 
the creditworthiness of each counterparty and the Fund's exposure to 
each counterparty on an ongoing basis. The Sector Swaps will 
reference the individual sector indices that underlie the Primary 
Benchmark Index, which include S&P 500 Consumer Discretionary, S&P 
500 Consumer Staples, S&P 500 Health Care, S&P 500 Industrials, S&P 
500 Information Technology, S&P 500 Materials, S&P 500 Real Estate, 
S&P 500 Telecommunication Services, S&P 500 Utilities, S&P 500 
Financials, and S&P 500 Energy (individually, ``Primary Benchmark 
Sector Index,'' and, collectively, ``Primary Benchmark Sector 
Indexes''). The Exchange notes that the Primary Benchmark Index and 
each Primary Benchmark Sector Index separately meet the generic 
listing standards applicable to Index Fund Shares under BZX Rule 
14.11(c)(3)(A)(i).
    \13\ For purposes of this proposal, the term ETF includes 
Portfolio Depositary Receipts, Index Fund Shares, and Managed Fund 
Shares as defined in BZX Rules 14.11(b), (c), and (i), respectively, 
and their equivalents on other national securities exchanges.
    \14\ Such equity securities may include either component 
securities of the Primary Benchmark Index, ETFs based on the Primary 
Benchmark Index, or ETFs based on the sectors underlying the Primary 
Benchmark Index. Any such holdings will meet the listing 
requirements for U.S. Component Stocks as provided in BZX Rule 
14.11(i)(4)(C)(i)(a).
    \15\ As defined in BZX Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (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.
    \16\ See supra note 10.
---------------------------------------------------------------------------

    The Adviser's second investment model is used to manage an active 
bond allocation exclusively through holding fixed income ETFs. This 
model analyzes various major fixed income asset classes (U.S. 
treasuries, investment grade U.S. bonds, high-yield U.S. bonds, high-
yield municipal bonds, and floating rate bonds) based on a blend of 
yield spreads, interest rates, and price momentum. Following the 
ranking process, the Fund will invest in ETFs based on the highest-
ranked asset classes, with the lowest ranked asset classes left out of 
the Fund.\17\ When not enough of the asset classes meet the model's 
criteria, the Fund may invest heavily in cash or Cash Equivalents until 
more asset classes become favorable for investing.
---------------------------------------------------------------------------

    \17\ All of the Fund's investments made pursuant to this second 
investment model will meet the listing requirements for U.S. equity 
securities as provided in BZX Rule 14.11(i)(4)(C)(i)(a).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares, as modified by Amendment Nos. 1 
and 2, is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\18\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\19\ which requires, among 
other things, that the Exchange's rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, 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. The 
Commission also finds that the proposal to list and trade the Shares on 
the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act 
\20\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers and investors of information with respect to 
quotations for and transactions in securities.
---------------------------------------------------------------------------

    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ 15 U.S.C. 78k-1(a)(1)(C)(iii)
---------------------------------------------------------------------------

    According to the Exchange, apart from the exception to BZX Rule 
14.11(i)(4)(C)(v) described above, the Fund's proposed investments will 
satisfy, on an initial and continued listing basis, all of the generic 
listing standards under BZX Rule 14.11(i)(4)(C) and all other 
applicable requirements for Managed Fund Shares under Rule 14.11(i). In 
addition, the Exchange represents that the Shares of the Fund will 
comply with all other requirements applicable to Managed Fund Shares 
including, but not limited to, requirements relating to the 
dissemination of key information such as the Disclosed Portfolio, Net 
Asset Value (``NAV''), and the Intraday Indicative Value, rules 
governing the trading of equity securities, trading hours, trading 
halts, surveillance, firewalls, and the information circular, as set 
forth in Exchange rules applicable to Managed Fund Shares and the 
orders approving such rules.
    The Exchange also represents that the intra-day, closing, and 
settlement prices of exchange-traded portfolio assets, including equity 
securities, will be readily available from the securities exchanges 
trading such securities, automated quotation systems, published or 
other public sources, or online information services such as Bloomberg 
or Reuters. Intraday price quotations on OTC swaps and fixed income 
instruments are available from major broker-dealer firms and from 
third-parties, which may provide prices free with a time delay or in 
real-time for a paid fee. Price information for Cash Equivalents will 
be available from major market data vendors. In addition, the Disclosed 
Portfolio will be available on the issuer's website free of charge. The

[[Page 63691]]

Fund's website includes a form of the prospectus for the Fund and 
additional information related to NAV and other applicable quantitative 
information. Information regarding market price and trading volume of 
the Shares will be continuously available throughout the day on 
brokers' computer screens and other electronic services. Quotation and 
last-sale information on the Shares will be available through the 
Consolidated Tape Association. Trading in the Shares may be halted for 
market conditions or for reasons that, in the view of the Exchange, 
make trading inadvisable. The Exchange deems the Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
The Exchange represents that it has appropriate rules to facilitate 
trading in the Shares during all trading sessions.
    The Commission notes that, in support of its proposal, the Exchange 
has made the following additional representations:
    (1) As noted above, the Exchange represents that, apart from the 
exception to BZX Rule 14.11(i)(4)(C)(v) relating to holdings in OTC 
derivatives, the Fund will meet and be subject to all other 
requirements of the generic listing standards and other applicable 
continued listing requirements for Managed Fund Shares under BZX Rule 
14.11(i), including those requirements regarding the Disclosed 
Portfolio and the requirement that the Disclosed Portfolio and the NAV 
will be made available to all market participants at the same time,\21\ 
Intraday Indicative Value,\22\ suspension of trading or removal,\23\ 
trading halts,\24\ disclosure,\25\ and firewalls.\26\
---------------------------------------------------------------------------

    \21\ See Rules 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \22\ See Rule 14.11(i)(4)(B)(i).
    \23\ See Rule 14.11(i)(4)(B)(iii).
    \24\ See Rule 14.11(i)(4)(B)(iv).
    \25\ See Rule 14.11(i)(6).
    \26\ See Rule 14.11(i)(7).
---------------------------------------------------------------------------

    (2) Trading of the Shares through the Exchange will be subject to 
the Exchange's surveillance procedures for derivative products, 
including Managed Fund Shares. All of the equity securities held by the 
Fund will trade on markets that are a member of Intermarket 
Surveillance Group (``ISG'') or affiliated with a member of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement. The Exchange, the Financial Industry Regulatory Authority, 
Inc. (``FINRA''), on behalf of the Exchange, or both will communicate 
regarding trading in the Shares and the underlying equity securities 
held by the Fund with the ISG, other markets or entities who are 
members or affiliates of the ISG, or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. The 
Exchange, FINRA, on behalf of the Exchange, or both may obtain 
information regarding trading in the Shares and the underlying equity 
securities held by the Fund via the ISG from other markets or entities 
who are members or affiliates of the ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. 
Additionally, the Exchange or FINRA, on behalf of the Exchange, may 
access, as needed, trade information for certain fixed income 
instruments reported to FINRA's Trade Reporting and Compliance Engine. 
The Exchange has a policy prohibiting the distribution of material non-
public information by its employees.
    (3) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) BZX Rule 3.7, which imposes 
suitability obligations on Exchange members with respect to 
recommending transactions in the Shares to customers; (c) how 
information regarding the Intraday Indicative Value and the Disclosed 
Portfolio is disseminated; (d) the risks involved in trading the Shares 
during the Pre-Opening \27\ and After Hours Trading Sessions \28\ when 
an updated Intraday Indicative Value and Underlying Index value will 
not be calculated or publicly disseminated; (e) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information. In addition, the Information Circular will 
advise members, prior to the commencement of trading, of the prospectus 
delivery requirements applicable to the Fund. Members purchasing Shares 
from the Fund for resale to investors will deliver a prospectus to such 
investors. The Information Circular will also discuss any exemptive, 
no-action, and interpretive relief granted by the Commission from any 
rules under the Act.
---------------------------------------------------------------------------

    \27\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \28\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    (4) The Fund's investments, including derivatives, will be 
consistent with the 1940 Act, and the Fund's investment objective and 
policies and will not be used to enhance leverage (although certain 
derivatives and other investments may result in leverage).\29\
---------------------------------------------------------------------------

    \29\ According to the Exchange, the Fund will include 
appropriate risk disclosure in its offering documents, including 
leveraging risk, which 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. The Fund's investments in derivative instruments will be 
made in accordance with the 1940 Act and consistent with the Fund's 
investment objective and policies. To mitigate leveraging risk, the 
Fund will segregate or earmark liquid assets determined to be liquid 
by the Adviser in accordance with procedures established by the 
Trust's Board and in accordance with the 1940 Act (or, as permitted 
by applicable regulations, enter into certain offsetting positions) 
to cover its obligations under derivative instruments. These 
procedures have been adopted consistent with Section 18 of the 1940 
Act and related Commission guidance.
---------------------------------------------------------------------------

    (5) The Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the 
Fund's primary broad-based securities benchmark index (as defined in 
Form N-1A).
    (6) The Fund will only use those derivatives included in the 
defined term ``Sector Swaps.'' The Fund's use of derivative instruments 
will be collateralized.
    (7) The Trust is required to comply with Rule 10A-3 under the Act 
\30\ for the initial and continued listing of the Shares of the Fund, 
and at least 100,000 Shares will be outstanding upon the commencement 
of trading.
---------------------------------------------------------------------------

    \30\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (8) The Fund will attempt to limit counterparty risk in Sector 
Swaps by entering into such contracts only with counterparties the 
Adviser believes are creditworthy and by limiting the Fund's exposure 
to each counterparty. The Adviser will monitor the creditworthiness of 
each counterparty and the Fund's exposure to each counterparty on an 
ongoing basis.
    (9) 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 index, reference asset, and intraday indicative 
values, and the applicability of Exchange rules specified in this 
filing shall constitute continued listing requirements for the Fund. 
The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund or the Shares to comply with the 
continued listing requirements, and, pursuant to its

[[Page 63692]]

obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If the 
Fund or the Shares are not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 14.12.
    This approval order is based on all of the Exchange's 
representations and description of the Shares and the Fund, including 
those set forth above and in Amendment Nos. 1 and 2 to the proposed 
rule change. Except as described herein, the Commission notes that the 
Shares must comply with all applicable requirements of BZX Rule 
14.11(i) to be listed and traded on the Exchange on an initial and 
continuing basis.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment Nos. 1 and 2, is consistent with 
Section 6(b)(5) of the Act \31\ and the rules and regulations 
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change (SR-CboeBZX-2017-076), as 
modified by Amendment Nos. 1 and 2, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26735 Filed 12-10-18; 8:45 am]
 BILLING CODE 8011-01-P



                                                                         Federal Register / Vol. 83, No. 237 / Tuesday, December 11, 2018 / Notices                                                         63689

                                              first paragraph should be replaced with                 30, 2018, the Exchange filed                                The Fund will be an actively managed
                                              the following: ‘‘The NRC has terminated                 Amendment No. 2 to the proposed rule                     exchange-traded fund that seeks to
                                              License No. DPR–54, held by                             change.5 The Commission has received                     provide a long-term total return which
                                              Sacramento Municipal Utility District                   no comments on the proposal. This                        exceeds the total return of its Primary
                                              (SMUD), for Rancho Seco in Herald,                      order grants approval of the proposed                    Benchmark Index.8 The Fund will seek
                                              California, and has approved the site for               rule change, as modified by Amendment                    to achieve its investment objective,
                                              unrestricted release. Accordingly, the                  Nos. 1 and 2.                                            under Normal Market Conditions,9 by
                                              existing indemnity agreement between                                                                             utilizing derivatives, or a combination
                                                                                                      II. Exchange’s Description of the
                                              SMUD and the NRC has been                                                                                        of derivatives and direct investments, to
                                                                                                      Proposal, as Modified by Amendment
                                              amended.’’                                                                                                       gain 100% equity exposure. The
                                                                                                      Nos. 1 and 2
                                                 Specifically, the last word                                                                                   Exchange submits this proposal in order
                                              (terminated) in the first paragraph,                       The Exchange proposes to list and                     to allow the Fund to hold over-the-
                                              should be replaced with ‘‘amended’’ to                  trade the Shares of the Fund under BZX                   counter (‘‘OTC’’) derivatives, in a
                                              accurately reflect the action.                          Rule 14.11(i), which governs the listing                 manner that may not comply with BZX
                                                                                                      and trading of Managed Fund Shares on                    Rule 14.11(i)(4)(C)(v), which requires,
                                                Dated at Rockville, Maryland, this 4th day            the Exchange. The Shares will be
                                              of December 2018.                                                                                                among other things, that the aggregate
                                                                                                      offered by the Trust, which was                          gross notional value of OTC derivatives
                                                For the Nuclear Regulatory Commission.                established as a Delaware statutory trust                not exceed 20% of the weight of the
                                              Amy Snyder,                                             on June 2, 2015. The Exchange                            portfolio (including gross notional
                                              Acting Chief, Reactor Decommissioning                   represents that Trust is registered with                 exposures).10 Specifically, the Exchange
                                              Branch, Division of Decommissioning,                    the Commission as an open-end                            is proposing that the Fund may hold up
                                              Uranium Recovery, and Waste Programs,                   investment company and has filed a
                                              Office of Nuclear Material Safety and                                                                            to 75% of the weight of its portfolio in
                                                                                                      registration statement on behalf of the                  OTC derivatives, including gross
                                              Safeguards.
                                                                                                      Fund on Form N–1A (‘‘Registration                        notional exposures. Otherwise, the
                                              [FR Doc. 2018–26744 Filed 12–10–18; 8:45 am]
                                                                                                      Statement’’) with the Commission.6                       Exchange represents that the Fund will
                                              BILLING CODE 7590–01–P
                                                                                                      FormulaFolio Investments, LLC is the                     comply with all other listing
                                                                                                      investment adviser to the Fund                           requirements on an initial and
                                                                                                      (‘‘Adviser’’).7                                          continued listing basis under BZX Rule
                                              SECURITIES AND EXCHANGE                                                                                          14.11(i).11
                                              COMMISSION                                              the Exchange: (a) clarified references to certain OTC
                                                                                                      derivatives that the Fund intends to invest; (b)
                                              [Release No. 34–84719; File No. SR-                                                                              affiliated with any broker-dealers. In addition, the
                                                                                                      clarified that, in the event that Sector Swaps (as       Exchange represents that Adviser personnel who
                                              CboeBZX–2018–076]                                       defined herein) are unavailable or the pricing for       make decisions regarding the Fund’s portfolio are
                                                                                                      such contracts are unfavorable, the Fund may             subject to procedures designed to prevent the use
                                              Self-Regulatory Organizations; Cboe                     attempt to replicate the desired equity exposure by      and dissemination of material nonpublic
                                              BZX Exchange, Inc.; Order Granting                      purchasing some or all of the equity securities that     information regarding the Fund’s portfolio. In the
                                                                                                      are listed on a U.S. national securities exchange,
                                              Approval of a Proposed Rule Change,                     including ETFs, comprising the top four sectors at
                                                                                                                                                               event that (a) the Adviser becomes registered as a
                                              as Modified by Amendment Nos. 1 and                                                                              broker-dealer or newly affiliated with a broker-
                                                                                                      the time; and (c) made other non-substantive,            dealer, or (b) any new adviser or sub-adviser is a
                                              2, To List and Trade Shares of the                      technical, and clarifying corrections to the proposal.   registered broker-dealer or becomes affiliated with
                                              FormulaFolios Sector Rotation ETF, a                    Because Amendment No. 1 does not materially alter        a broker-dealer, it will implement and maintain a
                                                                                                      the substance of the proposed rule change or raise       fire wall with respect to its relevant personnel or
                                              Series of the Northern Lights Fund                      unique or novel regulatory issues under the Act,         such broker-dealer affiliate, as applicable, regarding
                                              Trust IV, Under Rule 14.11(i), Managed                  Amendment No. 1 is not subject to notice and             access to information concerning the composition
                                              Fund Shares                                             comment. Amendment No. 1 to the proposed rule            of, and/or changes to, the portfolio, and will be
                                                                                                      change is available at: https://www.sec.gov/             subject to procedures designed to prevent the use
                                              December 4, 2018.                                       comments/sr-cboebzx-2018-076/srcboebzx2018076-           and dissemination of material non-public
                                                                                                      4716147-176694.pdf.                                      information regarding such portfolio.
                                              I. Introduction                                            5 In Amendment No. 2, the Exchange: (a) Clarified        8 The Fund’s Primary Benchmark Index is the
                                                                                                      that the Fund will meet the requirements of Rule         S&P 500 Index.
                                                 On October 2, 2018, Cboe BZX                         14.11(i)(4)(C)(vi), which requires that, to the extent      9 As defined in BZX Rule 14.11(i)(3)(E), the term
                                              Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)                that listed or OTC derivatives are used to gain          ‘‘Normal Market Conditions’’ includes, but is not
                                              filed with the Securities and Exchange                  exposure to individual equities and/or fixed income      limited to, the absence of trading halts in the
                                              Commission (‘‘Commission’’), pursuant                   securities, or to indexes of equities and/or indexes     applicable financial markets generally; operational
                                                                                                      of fixed income securities, the aggregate gross          issues causing dissemination of inaccurate market
                                              to Section 19(b)(1) of the Securities                   notional value of such exposure shall meet the           information or system failures; or force majeure
                                              Exchange Act of 1934 (‘‘Act’’) 1 and Rule               criteria set forth in BZX Rule 14.11(i)(4)(C)(i) and     type events such as natural or man-made disaster,
                                              19b-4 thereunder,2 a proposed rule                      (ii) (including gross notional exposures),               act of God, armed conflict, act of terrorism, riot or
                                              change to list and trade shares                         respectively; and (b) made other non-substantive,        labor disruption, or any similar intervening
                                                                                                      technical, and clarifying corrections to the proposal.   circumstance.
                                              (‘‘Shares’’) of the FormulaFolios Sector                Because Amendment No. 2 does not materially alter           10 BZX Rule 14.11(i)(4)(C)(v) provides that ‘‘the
                                              Rotation ETF (‘‘Fund’’) of the Northern                 the substance of the proposed rule change or raise       portfolio may, on both an initial and continuing
                                              Lights Fund Trust IV (‘‘Trust’’) under                  unique or novel regulatory issues under the Act,         basis, hold OTC derivatives, including forwards,
                                              BZX Rule 14.11(i). The proposed rule                    Amendment No. 2 is not subject to notice and             options, and swaps on commodities, currencies and
                                                                                                      comment. Amendment No. 2 to the proposed rule            financial instruments (e.g., stocks, fixed income,
                                              change was published for comment in                     change is available at: https://www.sec.gov/             interest rates, and volatility) or a basket or index of
                                              the Federal Register on October 22,                     comments/sr-cboebzx-2018-076/srcboebzx2018076-           any of the foregoing, however the aggregate gross
                                              2018.3 On November 8, 2018, the                         4716146-176693.pdf.                                      notional value of OTC derivatives [sic] shall not
                                              Exchange filed Amendment No. 1 to the                      6 See Registration Statement on Form N–1A for
                                                                                                                                                               exceed 20% of the weight of the portfolio
amozie on DSK3GDR082PROD with NOTICES1




                                              proposed rule change.4 On November                      the Trust, dated July 27, 2018 (File Nos. 333–           (including gross notional exposures).’’
                                                                                                      204808 and 811–23066). According to the                     11 In particular, the Exchange notes that the Fund
                                                                                                      Exchange, the Trust has obtained an order granting       will meet the requirements of BZX Rule
                                                1 15 U.S.C. 78s(b)(1).                                certain exemptive relief under the Investment            14.11(i)(4)(C)(vi), which requires that, to the extent
                                                2 17 CFR 240.19b–4.                                   Company Act of 1940 (‘‘1940 Act’’). See Investment       that listed or OTC derivatives are used to gain
                                                3 See Securities Exchange Act Release No. 84438       Company Act Release No. 29571 (May 16, 2017)             exposure to individual equities and/or fixed income
                                              (October 16, 2018), 83 FR 53343.                        (File No. 812–32367).                                    securities, or to indexes of equities and/or indexes
                                                4 In Amendment No. 1, which amended and                  7 The Exchange represents that the Adviser is not     of fixed income securities, the aggregate gross
                                              replaced the proposed rule change in its entirety,      a registered broker-dealer and is not currently                                                       Continued




                                         VerDate Sep<11>2014   17:51 Dec 10, 2018   Jkt 247001   PO 00000   Frm 00078   Fmt 4703   Sfmt 4703   E:\FR\FM\11DEN1.SGM     11DEN1


                                              63690                      Federal Register / Vol. 83, No. 237 / Tuesday, December 11, 2018 / Notices

                                                 The Adviser will allocate the Fund’s                 poorly, and if not enough sectors pass                     requires, among other things, that the
                                              assets based on two proprietary                         the screening criteria, the Fund can                       Exchange’s rules be designed to prevent
                                              investment models. The Adviser’s first                  invest a portion or all of its assets in                   fraudulent and manipulative acts and
                                              investment model will identify trends                   cash or Cash Equivalents.15 The                            practices, to promote just and equitable
                                              for the individual sectors within its                   Exchange is proposing to allow the                         principles of trade, to remove
                                              Primary Benchmark Index. Each month,                    Fund to hold up to 75% of the weight                       impediments to and perfect the
                                              the model will analyze the strength of                  of its portfolio (including gross notional                 mechanism of a free and open market
                                              the US economy and rank the sectors of                  exposure) in Sector Swaps, collectively,                   and a national market system, and, in
                                              its Primary Benchmark Index based on                    in a manner that may not comply with                       general, to protect investors and the
                                              a blend of various technical momentum                   14.11(i)(4)(C)(v).16                                       public interest. The Commission also
                                              indicators, volatility gauges, and                         The Adviser’s second investment                         finds that the proposal to list and trade
                                              valuation multiples. When the economy                   model is used to manage an active bond                     the Shares on the Exchange is consistent
                                              appears healthy, sectors with the                       allocation exclusively through holding                     with Section 11A(a)(1)(C)(iii) of the
                                              highest risk-adjusted returns (lower                    fixed income ETFs. This model analyzes                     Act 20 which sets forth Congress’ finding
                                              volatility and higher price momentum)                   various major fixed income asset classes                   that it is in the public interest and
                                              and the lowest valuations (lower price                  (U.S. treasuries, investment grade U.S.                    appropriate for the protection of
                                              ratios) are ranked higher. When the                     bonds, high-yield U.S. bonds, high-yield                   investors and the maintenance of fair
                                              economy appears unhealthy, sectors                      municipal bonds, and floating rate                         and orderly markets to assure the
                                              with more stable price movements and                    bonds) based on a blend of yield                           availability to brokers, dealers and
                                              lower volatility are ranked higher. The                 spreads, interest rates, and price                         investors of information with respect to
                                              Fund will invest in the top four sectors                momentum. Following the ranking                            quotations for and transactions in
                                              in an equal weight. In order to achieve                 process, the Fund will invest in ETFs                      securities.
                                              such exposure, the Fund will use OTC                    based on the highest-ranked asset                             According to the Exchange, apart from
                                              swap contracts that reference each                      classes, with the lowest ranked asset                      the exception to BZX Rule
                                              applicable sector index (‘‘Sector                       classes left out of the Fund.17 When not                   14.11(i)(4)(C)(v) described above, the
                                              Swaps’’).12 In the event that such Sector               enough of the asset classes meet the                       Fund’s proposed investments will
                                              Swaps are unavailable or the pricing for                model’s criteria, the Fund may invest                      satisfy, on an initial and continued
                                              such contracts are unfavorable, the                     heavily in cash or Cash Equivalents                        listing basis, all of the generic listing
                                              Fund may attempt to replicate the                       until more asset classes become                            standards under BZX Rule 14.11(i)(4)(C)
                                              desired equity exposure by purchasing                   favorable for investing.                                   and all other applicable requirements
                                              some or all of the equity securities that                                                                          for Managed Fund Shares under Rule
                                              are listed on a U.S. national securities                III. Discussion and Commission                             14.11(i). In addition, the Exchange
                                              exchange, including ETFs,13 comprising                  Findings                                                   represents that the Shares of the Fund
                                              the top four sectors at the time.14 If the                 After careful review, the Commission                    will comply with all other requirements
                                              model indicates the market is doing                     finds that the Exchange’s proposal to list                 applicable to Managed Fund Shares
                                                                                                      and trade the Shares, as modified by                       including, but not limited to,
                                              notional value of such exposure shall meet the          Amendment Nos. 1 and 2, is consistent                      requirements relating to the
                                              criteria set forth in BZX Rule 14.11(i)(4)(C)(i) and    with the Act and the rules and                             dissemination of key information such
                                              (ii) (including gross notional exposures),                                                                         as the Disclosed Portfolio, Net Asset
                                              respectively.
                                                                                                      regulations thereunder applicable to a
                                                 12 The Fund will attempt to limit counterparty       national securities exchange.18 In                         Value (‘‘NAV’’), and the Intraday
                                              risk in non-cleared swap contracts by entering into     particular, the Commission finds that                      Indicative Value, rules governing the
                                              such contracts only with counterparties the Adviser     the proposed rule change is consistent                     trading of equity securities, trading
                                              believes are creditworthy and by limiting the           with Section 6(b)(5) of the Act,19 which                   hours, trading halts, surveillance,
                                              Fund’s exposure to each counterparty. The Adviser                                                                  firewalls, and the information circular,
                                              will monitor the creditworthiness of each
                                              counterparty and the Fund’s exposure to each
                                                                                                         15 As defined in BZX Rule 14.11(i)(4)(C)(iii)(b),       as set forth in Exchange rules applicable
                                              counterparty on an ongoing basis. The Sector Swaps      Cash Equivalents are short-term instruments with           to Managed Fund Shares and the orders
                                              will reference the individual sector indices that       maturities of less than three months, which                approving such rules.
                                              underlie the Primary Benchmark Index, which             includes only the following: (i) U.S. Government
                                                                                                      securities, including bills, notes, and bonds
                                                                                                                                                                    The Exchange also represents that the
                                              include S&P 500 Consumer Discretionary, S&P 500
                                              Consumer Staples, S&P 500 Health Care, S&P 500          differing as to maturity and rates of interest, which      intra-day, closing, and settlement prices
                                              Industrials, S&P 500 Information Technology, S&P        are either issued or guaranteed by the U.S. Treasury       of exchange-traded portfolio assets,
                                              500 Materials, S&P 500 Real Estate, S&P 500             or by U.S. Government agencies or                          including equity securities, will be
                                              Telecommunication Services, S&P 500 Utilities,          instrumentalities; (ii) certificates of deposit issued
                                                                                                      against funds deposited in a bank or savings and
                                                                                                                                                                 readily available from the securities
                                              S&P 500 Financials, and S&P 500 Energy                                                                             exchanges trading such securities,
                                              (individually, ‘‘Primary Benchmark Sector Index,’’      loan association; (iii) bankers acceptances, which
                                              and, collectively, ‘‘Primary Benchmark Sector           are short-term credit instruments used to finance          automated quotation systems, published
                                              Indexes’’). The Exchange notes that the Primary         commercial transactions; (iv) repurchase                   or other public sources, or online
                                              Benchmark Index and each Primary Benchmark              agreements and reverse repurchase agreements; (v)          information services such as Bloomberg
                                              Sector Index separately meet the generic listing        bank time deposits, which are monies kept on
                                                                                                      deposit with banks or savings and loan associations        or Reuters. Intraday price quotations on
                                              standards applicable to Index Fund Shares under
                                              BZX Rule 14.11(c)(3)(A)(i).                             for a stated period of time at a fixed rate of interest;   OTC swaps and fixed income
                                                 13 For purposes of this proposal, the term ETF       (vi) commercial paper, which are short-term                instruments are available from major
                                              includes Portfolio Depositary Receipts, Index Fund      unsecured promissory notes; and (vii) money                broker-dealer firms and from third-
                                              Shares, and Managed Fund Shares as defined in           market funds.
                                                                                                         16 See supra note 10.
                                                                                                                                                                 parties, which may provide prices free
                                              BZX Rules 14.11(b), (c), and (i), respectively, and
                                                                                                                                                                 with a time delay or in real-time for a
amozie on DSK3GDR082PROD with NOTICES1




                                                                                                         17 All of the Fund’s investments made pursuant
                                              their equivalents on other national securities
                                              exchanges.                                              to this second investment model will meet the              paid fee. Price information for Cash
                                                 14 Such equity securities may include either         listing requirements for U.S. equity securities as         Equivalents will be available from major
                                              component securities of the Primary Benchmark           provided in BZX Rule 14.11(i)(4)(C)(i)(a).                 market data vendors. In addition, the
                                                                                                         18 In approving this proposed rule change, the
                                              Index, ETFs based on the Primary Benchmark                                                                         Disclosed Portfolio will be available on
                                              Index, or ETFs based on the sectors underlying the      Commission has considered the proposed rule’s
                                              Primary Benchmark Index. Any such holdings will         impact on efficiency, competition, and capital             the issuer’s website free of charge. The
                                              meet the listing requirements for U.S. Component        formation. See 15 U.S.C. 78c(f).
                                              Stocks as provided in BZX Rule 14.11(i)(4)(C)(i)(a).       19 15 U.S.C. 78f(b)(5).                                  20 15   U.S.C. 78k–1(a)(1)(C)(iii)



                                         VerDate Sep<11>2014   17:51 Dec 10, 2018   Jkt 247001   PO 00000   Frm 00079   Fmt 4703    Sfmt 4703   E:\FR\FM\11DEN1.SGM        11DEN1


                                                                          Federal Register / Vol. 83, No. 237 / Tuesday, December 11, 2018 / Notices                                                     63691

                                              Fund’s website includes a form of the                     securities held by the Fund with the                  Commission from any rules under the
                                              prospectus for the Fund and additional                    ISG, other markets or entities who are                Act.
                                              information related to NAV and other                      members or affiliates of the ISG, or with                (4) The Fund’s investments, including
                                              applicable quantitative information.                      which the Exchange has entered into a                 derivatives, will be consistent with the
                                              Information regarding market price and                    comprehensive surveillance sharing                    1940 Act, and the Fund’s investment
                                              trading volume of the Shares will be                      agreement. The Exchange, FINRA, on                    objective and policies and will not be
                                              continuously available throughout the                     behalf of the Exchange, or both may                   used to enhance leverage (although
                                              day on brokers’ computer screens and                      obtain information regarding trading in               certain derivatives and other
                                              other electronic services. Quotation and                  the Shares and the underlying equity                  investments may result in leverage).29
                                              last-sale information on the Shares will                  securities held by the Fund via the ISG                  (5) The Fund’s investments will not
                                              be available through the Consolidated                     from other markets or entities who are                be used to seek performance that is the
                                              Tape Association. Trading in the Shares                   members or affiliates of the ISG or with              multiple or inverse multiple (i.e., 2Xs
                                              may be halted for market conditions or                    which the Exchange has entered into a                 and 3Xs) of the Fund’s primary broad-
                                              for reasons that, in the view of the                      comprehensive surveillance sharing                    based securities benchmark index (as
                                              Exchange, make trading inadvisable.                       agreement. Additionally, the Exchange                 defined in Form N–1A).
                                              The Exchange deems the Shares to be                                                                                (6) The Fund will only use those
                                                                                                        or FINRA, on behalf of the Exchange,
                                              equity securities, thus rendering trading                                                                       derivatives included in the defined term
                                                                                                        may access, as needed, trade
                                              in the Shares subject to the Exchange’s                                                                         ‘‘Sector Swaps.’’ The Fund’s use of
                                                                                                        information for certain fixed income                  derivative instruments will be
                                              existing rules governing the trading of                   instruments reported to FINRA’s Trade
                                              equity securities. The Exchange                                                                                 collateralized.
                                                                                                        Reporting and Compliance Engine. The                     (7) The Trust is required to comply
                                              represents that it has appropriate rules                  Exchange has a policy prohibiting the                 with Rule 10A–3 under the Act 30 for the
                                              to facilitate trading in the Shares during                distribution of material non-public                   initial and continued listing of the
                                              all trading sessions.                                     information by its employees.                         Shares of the Fund, and at least 100,000
                                                 The Commission notes that, in
                                                                                                           (3) Prior to the commencement of                   Shares will be outstanding upon the
                                              support of its proposal, the Exchange
                                                                                                        trading, the Exchange will inform its                 commencement of trading.
                                              has made the following additional                                                                                  (8) The Fund will attempt to limit
                                              representations:                                          members in an Information Circular of
                                                                                                        the special characteristics and risks                 counterparty risk in Sector Swaps by
                                                 (1) As noted above, the Exchange                                                                             entering into such contracts only with
                                              represents that, apart from the exception                 associated with trading the Shares.
                                                                                                        Specifically, the Information Circular                counterparties the Adviser believes are
                                              to BZX Rule 14.11(i)(4)(C)(v) relating to                                                                       creditworthy and by limiting the Fund’s
                                              holdings in OTC derivatives, the Fund                     will discuss the following: (a) The
                                                                                                        procedures for purchases and                          exposure to each counterparty. The
                                              will meet and be subject to all other                                                                           Adviser will monitor the
                                              requirements of the generic listing                       redemptions of Shares in Creation Units
                                                                                                        (and that Shares are not individually                 creditworthiness of each counterparty
                                              standards and other applicable                                                                                  and the Fund’s exposure to each
                                              continued listing requirements for                        redeemable); (b) BZX Rule 3.7, which
                                                                                                        imposes suitability obligations on                    counterparty on an ongoing basis.
                                              Managed Fund Shares under BZX Rule                                                                                 (9) All statements and representations
                                              14.11(i), including those requirements                    Exchange members with respect to
                                                                                                        recommending transactions in the                      made in this filing regarding the
                                              regarding the Disclosed Portfolio and                                                                           description of the portfolio or reference
                                              the requirement that the Disclosed                        Shares to customers; (c) how
                                                                                                        information regarding the Intraday                    assets, limitations on portfolio holdings
                                              Portfolio and the NAV will be made                                                                              or reference assets, dissemination and
                                              available to all market participants at                   Indicative Value and the Disclosed
                                                                                                        Portfolio is disseminated; (d) the risks              availability of index, reference asset,
                                              the same time,21 Intraday Indicative                                                                            and intraday indicative values, and the
                                              Value,22 suspension of trading or                         involved in trading the Shares during
                                                                                                        the Pre-Opening 27 and After Hours                    applicability of Exchange rules specified
                                              removal,23 trading halts,24 disclosure,25                                                                       in this filing shall constitute continued
                                              and firewalls.26                                          Trading Sessions 28 when an updated
                                                                                                                                                              listing requirements for the Fund. The
                                                 (2) Trading of the Shares through the                  Intraday Indicative Value and
                                                                                                                                                              issuer has represented to the Exchange
                                              Exchange will be subject to the                           Underlying Index value will not be
                                                                                                                                                              that it will advise the Exchange of any
                                              Exchange’s surveillance procedures for                    calculated or publicly disseminated; (e)
                                                                                                                                                              failure by the Fund or the Shares to
                                              derivative products, including Managed                    the requirement that members deliver a
                                                                                                                                                              comply with the continued listing
                                              Fund Shares. All of the equity securities                 prospectus to investors purchasing
                                                                                                                                                              requirements, and, pursuant to its
                                              held by the Fund will trade on markets                    newly issued Shares prior to or
                                              that are a member of Intermarket                          concurrently with the confirmation of a                  29 According to the Exchange, the Fund will

                                              Surveillance Group (‘‘ISG’’) or affiliated                transaction; and (f) trading information.             include appropriate risk disclosure in its offering
                                              with a member of ISG or with which the                    In addition, the Information Circular                 documents, including leveraging risk, which is the
                                              Exchange has in place a comprehensive                     will advise members, prior to the                     risk that certain transactions of a fund, including a
                                                                                                        commencement of trading, of the                       fund’s use of derivatives, may give rise to leverage,
                                              surveillance sharing agreement. The                                                                             causing a fund to be more volatile than if it had not
                                              Exchange, the Financial Industry                          prospectus delivery requirements                      been leveraged. The Fund’s investments in
                                              Regulatory Authority, Inc. (‘‘FINRA’’),                   applicable to the Fund. Members                       derivative instruments will be made in accordance
                                              on behalf of the Exchange, or both will                   purchasing Shares from the Fund for                   with the 1940 Act and consistent with the Fund’s
                                                                                                        resale to investors will deliver a                    investment objective and policies. To mitigate
                                              communicate regarding trading in the                                                                            leveraging risk, the Fund will segregate or earmark
                                              Shares and the underlying equity                          prospectus to such investors. The                     liquid assets determined to be liquid by the Adviser
amozie on DSK3GDR082PROD with NOTICES1




                                                                                                        Information Circular will also discuss                in accordance with procedures established by the
                                                21 See Rules 14.11(i)(4)(A)(ii) and                     any exemptive, no-action, and                         Trust’s Board and in accordance with the 1940 Act
                                                                                                        interpretive relief granted by the                    (or, as permitted by applicable regulations, enter
                                              14.11(i)(4)(B)(ii).
                                                22 See Rule 14.11(i)(4)(B)(i).
                                                                                                                                                              into certain offsetting positions) to cover its
                                                                                                                                                              obligations under derivative instruments. These
                                                23 See Rule 14.11(i)(4)(B)(iii).                          27 The Pre-Opening Session is from 8:00 a.m. to     procedures have been adopted consistent with
                                                24 See Rule 14.11(i)(4)(B)(iv).
                                                                                                        9:30 a.m. Eastern Time.                               Section 18 of the 1940 Act and related Commission
                                                25 See Rule 14.11(i)(6).                                  28 The After Hours Trading Session is from 4:00     guidance.
                                                26 See Rule 14.11(i)(7).                                p.m. to 5:00 p.m. Eastern Time.                          30 See 17 CFR 240.10A–3.




                                         VerDate Sep<11>2014   17:51 Dec 10, 2018     Jkt 247001   PO 00000   Frm 00080   Fmt 4703   Sfmt 4703   E:\FR\FM\11DEN1.SGM   11DEN1


                                              63692                      Federal Register / Vol. 83, No. 237 / Tuesday, December 11, 2018 / Notices

                                              obligations under Section 19(g)(1) of the               (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the             renamed and modified the current
                                              Act, the Exchange will surveil for                      Securities and Exchange Commission                      OTTO protocol as ‘‘Quote Using
                                              compliance with the continued listing                   (‘‘Commission’’) the proposed rule                      Orders’’ or ‘‘QUO’’.5 The Prior Rule
                                              requirements. If the Fund or the Shares                 change as described in Items I and II                   Change, which is effective but not yet
                                              are not in compliance with the                          below, which Items have been prepared                   operative, renamed and modified the
                                              applicable listing requirements, the                    by the Exchange. The Commission is                      current OTTO protocol to ‘‘QUO.’’ The
                                              Exchange will commence delisting                        publishing this notice to solicit                       Exchange subsequently filed a rule
                                              procedures under Exchange Rule 14.12.                   comments on the proposed rule change                    change to amend Chapter VI, Section
                                                This approval order is based on all of                from interested persons.                                6(e), titled ‘‘Detection of Loss of
                                              the Exchange’s representations and                                                                              Communication’’ which describes the
                                                                                                      I. Self-Regulatory Organization’s
                                              description of the Shares and the Fund,                                                                         impact to NOM protocols in the event
                                                                                                      Statement of the Terms of Substance of
                                              including those set forth above and in                                                                          of a loss of a communication. The
                                                                                                      the Proposed Rule Change
                                              Amendment Nos. 1 and 2 to the                                                                                   Exchange accounted for both the new
                                              proposed rule change. Except as                            The Exchange proposes to a proposal                  OTTO and renamed and modified QUO
                                              described herein, the Commission notes                  to delay a new protocol ‘‘Ouch to Trade                 within this rule. Similarly, the Exchange
                                              that the Shares must comply with all                    Options’’ or ‘‘OTTO’’ on The Nasdaq                     amended Chapter VI, Section 8,
                                              applicable requirements of BZX Rule                     Options Market LLC (‘‘NOM’’).                           ‘‘Nasdaq Opening and Halt Cross’’ to
                                              14.11(i) to be listed and traded on the                    The text of the proposed rule change                 account for the new OTTO and renamed
                                              Exchange on an initial and continuing                   is available on the Exchange’s website at               and modified QUO within this rule.
                                              basis.                                                  http://nasdaq.cchwallstreet.com, at the                 Finally, the Exchange amended Chapter
                                                For the foregoing reasons, the                        principal office of the Exchange, and at                VI, Section 19, ‘‘Data Feeds and Trade
                                              Commission finds that the proposed                      the Commission’s Public Reference                       Information’’ to amend ‘‘OTTO DROP’’
                                              rule change, as modified by Amendment                   Room.
                                                                                                                                                              to ‘‘QUO DROP’’ and noted within
                                              Nos. 1 and 2, is consistent with Section                II. Self-Regulatory Organization’s                      Chapter VI, Section 18(a)(1) related to
                                              6(b)(5) of the Act 31 and the rules and                 Statement of the Purpose of, and                        Order Price Protection rule or ‘‘OPP’’
                                              regulations thereunder applicable to a                  Statutory Basis for, the Proposed Rule                  that OPP shall not apply to orders
                                              national securities exchange.                           Change                                                  entered through QUO.6
                                              IV. Conclusion                                             In its filing with the Commission, the                  Both the Prior Rule Change and the
                                                                                                      Exchange included statements                            Subsequent Rule Change indicated the
                                                It is therefore ordered, pursuant to                                                                          aforementioned rule changes would be
                                              Section 19(b)(2) of the Act,32 that the                 concerning the purpose of and basis for
                                                                                                      the proposed rule change and discussed                  implemented for QUO and OTTO in Q4
                                              proposed rule change (SR–CboeBZX–                                                                               of 2018 with the date announced via an
                                              2017–076), as modified by Amendment                     any comments it received on the
                                                                                                      proposed rule change. The text of these                 Options Traders Alert. At this time, the
                                              Nos. 1 and 2, be, and it hereby is,                                                                             Exchange proposes to immediately
                                              approved.                                               statements may be examined at the
                                                                                                      places specified in Item IV below. The                  implement QUO and delay the
                                                For the Commission, by the Division of                Exchange has prepared summaries, set                    introduction of new OTTO functionality
                                              Trading and Markets, pursuant to delegated                                                                      until Q1 2019 by announcing the date
                                                                                                      forth in sections A, B, and C below, of
                                              authority.33                                                                                                    of implementation via an Options
                                                                                                      the most significant aspects of such
                                              Eduardo A. Aleman,                                                                                              Traders Alert. The Exchange proposes to
                                                                                                      statements.
                                              Assistant Secretary.                                                                                            provide for the delay of the OTTO
                                              [FR Doc. 2018–26735 Filed 12–10–18; 8:45 am]            A. Self-Regulatory Organization’s                       functionality by inserting the following
                                              BILLING CODE 8011–01–P
                                                                                                      Statement of the Purpose of, and                        rule text at the beginning of NOM Rules
                                                                                                      Statutory Basis for, the Proposed Rule                  at Chapter VI, Sections 6, 9 and 21 to
                                                                                                      Change                                                  make clear that OTTO functionality is
                                              SECURITIES AND EXCHANGE                                 1. Purpose                                              not yet implemented: ‘‘OTTO
                                              COMMISSION                                                                                                      functionality implementation shall be
                                                                                                         Nasdaq recently filed a rule change 3
                                              [Release No. 34–84723; File No. SR–                                                                             delayed until Q1 2019. The Exchange
                                                                                                      which adopted a new protocol ‘‘Ouch to
                                              NASDAQ–2018–097]                                                                                                will issue an Options Trader Alert
                                                                                                      Trade Options’’ or ‘‘OTTO’’ 4 and
                                                                                                                                                              notifying Participants when this
                                              Self-Regulatory Organizations; The                         3 See Securities Exchange Act Release No. 83888      functionality will be available.’’
                                              Nasdaq Stock Market LLC; Notice of                      (August 20, 2018), 83 FR 42954 (August 24, 2018)           The Exchange proposes this delay to
                                              Filing and Immediate Effectiveness of                   (SR–NASDAQ–2018–069) (‘‘Prior Rule Change’’).           allow the Exchange additional time to
                                              Proposed Rule Change To Delay a New                     This rule change is immediately effective but will      implement this functionality and for
                                              Protocol ‘‘Ouch to Trade Options’’ or                   not be operative until such time as the Exchange
                                                                                                      issues an Options Trader Alert announcing the
                                              ‘‘OTTO’’ on The Nasdaq Options Market                   implementation date. This notification will be             5 QUO is an interface that allows NOM Market

                                              LLC (‘‘NOM’’)                                           issued in Q4 2018. The Exchange notes that this         Makers to connect, send, and receive messages
                                                                                                      filing renamed and modified the current OTTO            related to single-sided orders to and from the
                                              December 4, 2018.                                       protocol as ‘‘QUO’’ and also proposed the adoption      Exchange. Order Features include the following: (1)
                                                 Pursuant to Section 19(b)(1) of the                  of a new OTTO protocol.                                 Options symbol directory messages (e.g.,
                                                                                                         4 New OTTO is an interface that allows               underlying); (2) system event messages (e.g., start of
                                              Securities Exchange Act of 1934                                                                                 trading hours messages and start of opening); (3)
                                                                                                      Participants and their Sponsored Customers to
                                              (‘‘Act’’),1 and Rule 19b–4 thereunder,2                 connect, send, and receive messages related to          trading action messages (e.g., halts and resumes); (4)
amozie on DSK3GDR082PROD with NOTICES1




                                              notice is hereby given that on November                 orders to and from the Exchange. Features include       execution messages; (5) order messages; and (6) risk
                                              26, 2018, The Nasdaq Stock Market LLC                   the following: (1) Options symbol directory             protection triggers and cancel notifications. Orders
                                                                                                      messages (e.g., underlying); (2) system event           submitted by NOM Market Makers over this
                                                31 15                                                 messages (e.g., start of trading hours messages and     interface are treated as quotes. See NOM Rules at
                                                      U.S.C. 78f(b)(5).                                                                                       Chapter VI, Section 21(a)(i)(D).
                                                32 15
                                                                                                      start of opening); (3) trading action messages (e.g.,
                                                      U.S.C. 78s(b)(2).                               halts and resumes); (4) execution messages; (5)            6 See Securities Exchange Act Release No. 84559
                                                33 17 CFR 200.30–3(a)(12).
                                                                                                      order messages; and (6) risk protection triggers and    (November 9, 2019), 83 FR 57774 (November 16,
                                                1 15 U.S.C. 78s(b)(1).
                                                                                                      cancel notifications. See NOM Rules at Chapter VI,      2018) (SR–NASDAQ–2018–085) (‘‘Subsequent Rule
                                                2 17 CFR 240.19b–4.                                   Section 21(a)(i)(C).                                    Change’’).



                                         VerDate Sep<11>2014   17:51 Dec 10, 2018   Jkt 247001   PO 00000   Frm 00081   Fmt 4703   Sfmt 4703   E:\FR\FM\11DEN1.SGM    11DEN1



Document Created: 2018-12-11 01:06:53
Document Modified: 2018-12-11 01:06:53
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 63689 

2024 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR