Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the WisdomTree CBOE Russell 2000 PutWrite Strategy Fund, a Series of the WisdomTree Trust, Under Rule 14.11(c)(3), Index Fund Shares, 42399-42407 [2017-18935]
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Federal Register / Vol. 82, No. 172 / Thursday, September 7, 2017 / Notices
consequences. By doing so, the
proposed rule change would provide for
the public disclosure of the rules and
procedures through which FICC
assesses, collects and withholds certain
margin charges, credits and/or
entitlements from members on the
Watch List. By providing information
regarding the assessment, collection and
withholding of certain margin charges
and other consequences of the Watch
List, the proposed rule change would
also enable FICC’s members to identify
and evaluate the risks and material costs
they incur by participating in FICC. As
such, FICC believes the proposed rule
change is consistent with Rule 17Ad–
22(e)(23)(i) and (ii) under the Act.23
(B) Clearing Agency’s Statement on
Burden on Competition
FICC does not believe that the
proposed rule change would impact
competition.24 The proposed rule
change provides interpretive guidance
with respect to existing Rules and
would increase the transparency of the
Rules regarding the Watch List and its
impact on FICC members’ respective
Clearing Fund deposits and other
consequences by clarifying FICC’s
current practices with respect to the
assessment, collection and withholding
of certain margin charges, credits and/
or entitlements from members on the
Watch List. The proposed rule change
would not change such current
practices. As such, FICC believes that
the proposed rule change will not
impact FICC members or have any
impact on competition.
mstockstill on DSK30JT082PROD with NOTICES
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to this
proposed rule change have not been
solicited or received. FICC will notify
the Commission of any written
comments received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 25 and paragraph (f) of Rule
19b–4 thereunder.26 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
23 17
CFR 240.17Ad–22(e)(23)(i), (ii).
U.S.C. 78q–1(b)(3)(I).
25 15 U.S.C. 78s(b)(3)(A).
26 17 CFR 240.19b–4(f).
24 15
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17:42 Sep 06, 2017
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public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FICC–2017–019 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File
Number SR–FICC–2017–019. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of FICC and on DTCC’s Web site
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FICC–
2017–019 and should be submitted on
or before September 28, 2017.
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42399
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–18936 Filed 9–6–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81510; File No. SR–
BatsBZX–2017–53]
Self-Regulatory Organizations; Bats
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To List and
Trade Shares of the WisdomTree
CBOE Russell 2000 PutWrite Strategy
Fund, a Series of the WisdomTree
Trust, Under Rule 14.11(c)(3), Index
Fund Shares
August 31, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
18, 2017, Bats BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to list
and trade shares of the WisdomTree
CBOE Russell 2000 PutWrite Strategy
Fund, a series of the WisdomTree Trust,
under Rule 14.11(c)(3) (‘‘Index Fund
Shares’’). The text of the proposed rule
change is available at the Exchange’s
Web site at www.bats.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
mstockstill on DSK30JT082PROD with NOTICES
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the
WisdomTree CBOE Russell 2000
PutWrite Strategy Fund (‘‘Fund’’) under
Rule 14.11(c)(3), which governs the
listing and trading of Index Fund Shares
on the Exchange. The Fund will be an
index-based exchange traded fund
(‘‘ETF’’).
The Shares will be offered by the
WisdomTree Trust (‘‘Trust’’), which was
established as a Delaware statutory trust
on December 15, 2005. The Trust is
registered with the Commission as an
investment company and has filed a
registration statement on Form N–1A
(‘‘Registration Statement’’) with the
Commission on behalf of the Fund.3
The Fund’s investment objective is to
seek investment results that track the
price and yield performance, before fees
and expenses, of the CBOE Russell 2000
PutWrite Index (‘‘Index’’). The Index
was developed and is maintained by the
Chicago Board Options Exchange, Inc.
(‘‘CBOE’’ or the ‘‘Index Provider’’), used
under license from The Frank Russell
Company. None of the Trust,
WisdomTree Asset Management, Inc.
(the ‘‘Adviser’’), Mellon Capital
Management (the ‘‘Sub-Adviser’’), State
Street Bank and Trust Company (the
‘‘Administrator, ‘‘Custodian,’’ and
‘‘Transfer Agent’’), or Foreside Fund
Services, LLC (the ‘‘Distributor’’) is
affiliated with the Index Provider.
The Index tracks the value of a
passive investment strategy, which
consists of selling (or ‘‘writing’’) Russell
2000 Index put options (‘‘RUT Puts’’)
and investing the sale proceeds in onemonth Treasury bills (‘‘RUT Strategy’’).
The RUT Puts are struck at-the-money
and are sold on a monthly basis, usually
the third Friday of the month (i.e., the
‘‘Roll Date’’), which matches the
expiration date of the RUT Puts. All
RUT Puts are standardized options
traded on the CBOE. The Index consists
of only two components: RUT Puts and
one-month Treasury bills.
3 See Post-Effective Amendment No. 595 to
Registration Statement on Form N–1A for the Trust,
dated July 27, 2017 (File Nos. 333–132380 and 811–
21864). The descriptions of the Fund and the
Shares contained herein are based on information
in the Registration Statement.
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17:42 Sep 06, 2017
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The Exchange is submitting this
proposed rule change because the Index
for the Fund does not meet the listing
requirements of Rule 14.11(c)(5)
applicable to an Index that consists of
both U.S. Component Stocks 4 and Fixed
Income Securities,5 which requires that
the equity and fixed income component
securities separately meet the criteria set
forth in Rule 14.11(c)(3)(A)(i) and
14.11(c)(4), respectively. Specifically,
the Fund does not meet all of the
‘‘generic’’ listing requirements of Rule
14.11(c)(3)(A)(i), applicable to the
listing of Index Fund Shares based upon
an index of U.S. Component Stocks.
Rule 14.11(c)(3)(A)(i) sets forth the
requirements to be met by components
of an index or portfolio of U.S.
Component Stocks. Because the Index
consists primarily of RUT Puts, rather
than ‘‘U.S. Component Stocks’’ as
defined in Rule 14.11(c)(1)(D), the Index
does not satisfy the requirements of
Rule 14.11(c)(3)(A)(i).6 The Fixed
Income Security component of the
Index, which consists of only onemonth Treasury bills, meets the
‘‘generic’’ listing requirements of Rule
14.11(c)(4).
The Shares will conform to the initial
and continued listing criteria under
Rule 14.11(c), except that the Index will
4 As defined in Rule 14.11(c)(1)(D), the term ‘‘U.S.
Component Stock’’ shall mean an equity security
that is registered under Sections 12(b) or 12(g) of
the Act, or an American Depositary receipt, the
underlying equity security of which is registered
under Sections 12(b) or 12(g) of the Act.
5 As defined in Rule 14.11(c)(4), the term ‘‘Fixed
Income Security’’ shall mean debt securities that are
notes, bonds, debentures or evidence of
indebtedness that include, but are not limited to,
U.S. Department of Treasury securities (‘‘Treasury
Securities’’), government-sponsored entity
securities (‘‘GSE Securities’’), municipal securities,
trust preferred securities supranational debt and
debt of a foreign country or subdivision thereof.
6 The Exchange notes that the Russell 2000 Index
has been previously approved by the Commission
under Section 19(b)(2) of the Act in connection
with the listing and trading of FLEX Options and
Quarterly Index Options, as well as other securities.
See, e.g., Securities Exchange Act Release Nos.
32694 (July 29, 1993), 58 FR 41814 (July 5, 1993)
(approving the listing and trading of FLEX Options
based on the Russell 2000 Index); 32693 (July 29,
1993), 58 FR 41817 (August 5, 1993) (approving the
listing and trading of Quarterly Index Option based
on the Russell 2000 Index). Rule 14.11(c)(3)(A)(i)(e)
provides that all securities in the applicable index
or portfolio shall be U.S. Component Stocks listed
on a national securities exchange and shall be NMS
Stocks as defined in Rule 600 under Regulation
NMS of the Act. Each component stock of the
Russell 2000 Index is a U.S. Component Stock that
is listed on a national securities exchange and is an
NMS Stock. Options are excluded from the
definition of NMS Stock. The Fund and the Index
meet all of the requirements of the listing standards
for Index Fund Shares in Rule 14.11(c)(3), except
the requirements in Rule 14.11(c)(3)(A)(i)(a)–(e), as
the Index consists of options on U.S. Component
Stocks. The Russell 2000 Index consists of U.S.
Component Stocks and satisfies the requirements of
Rule 14.11(c)(3)(A)(i)(a)–(e).
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
not meet the requirements of Rule
14.11(c)(3)(A)(i)(a)–(e) in that the Index
will consist of one series of options
based on U.S. Component Stocks (i.e.,
RUT Puts), rather than U.S. Component
Stocks. The Exchange notes that the
Commission has previously approved a
fund that employs a very similar
strategy.7
WisdomTree CBOE Russell 2000
PutWrite Strategy Fund Index
Methodology
The Fund seeks to track the
performance of an underlying index, the
CBOE Russell 2000 PutWrite Index
(‘‘Index’’). The Index is based on a
passive investment strategy which
consists of overlapping hypothetical
investments in a single series of
exchange-listed Russell 2000 Index
options (‘‘RUT Puts’’) over a money
market account hypothetically invested
in one-month Treasury bills.
Specifically, the Index hypothetically
writes at-the-money RUT Puts on a
monthly basis, usually on the third
Friday of the month (i.e., the Roll Date),
which matches the expiration date of
the hypothetical RUT Puts. All RUT
Puts hypothetically invested in by the
Index are standardized options traded
on the CBOE. At each Roll Date, any
settlement loss in the Index based on
the expiring RUT Puts is financed by the
Treasury bill account and a new batch
of hypothetical at-the-money RUT Puts
is sold. Revenue from their sale is added
to the Index’s hypothetical Treasury bill
account. On each Roll Date, the revenue
from the hypothetical sale of RUT Puts
is hypothetically invested separately at
the one-month Treasury bill rate, and
where applicable, any one-month
Treasury bills purchased in the prior
month are deemed to mature and
hypothetically invested in new onemonth Treasury bills at the one-month
Treasury bill rate. As stated above, all
investments used to determine Index
value are hypothetical.
Fund’s Investment Methodology
Under Normal Market Conditions,8
the Fund will invest not less than 80%
7 See Securities Exchange Act Release Nos. 74675
(April 8, 2015), 80 FR 20038 (April 14, 2015) (order
approving proposed rule change to list shares of the
Wisdom Tree Put Write Strategy Fund) and 77045
(February 3, 2016), 81 FR 6916 (February 9, 2016)
(order approving a proposed rule change relating to
the index underlying the WisdomTree Put Write
Strategy Fund).
8 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 manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar
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of its assets in RUT Puts and one month
or three-month U.S. Treasury bills. The
Fund may invest up to 20% of its net
assets (in the aggregate) in other
investments, that are not included in the
Index, but which the Adviser or the
Sub-Adviser believes will help the Fund
to track the Index and that will be
disclosed daily (‘‘Other Assets’’). The
Fund’s investment strategy will be
designed to write a sequence of onemonth, at-the-money, RUT Puts and
invest cash and Other Assets targeted to
achieve one-month Treasury bill rates.
The number of RUT Puts written will
vary from month to month, but will be
limited to permit the amount held in the
Fund’s investment in Treasury bills to
finance the maximum possible loss from
final settlement of the RUT Puts.
According to the Registration Statement,
the Fund will generally use a sampling
strategy in seeking to track the Index.
The new RUT Puts will be struck and
sold on a monthly basis on the Roll
Date, (i.e., the same Roll Date at that
used by the Index), which matches the
expiration date of the current RUT Puts.
The strike price of the new RUT Puts
will be based on the strike price of
Russell 2000 Index put options listed on
the CBOE with the closest strike price
below the last value of the Russell 2000
Index reported before 11:00 a.m. ET. For
example, if the last Russell 2000 Index
value reported before 11:00 a.m. ET is
1,137.02 and the closest listed Russell
2000 Index put option with a strike
price below 1,137.02 is 1,130, then the
1,130 strike RUT put option will be sold
by the Fund.
Russell 2000 Index options traded on
CBOE are highly liquid, with average
daily trading volume in 2016 of 71,365
contracts, with a notional size per
contract of $117,169. The Exchange
represents that the daily trading volume
of at-the-money 30-day RUT Puts on
each of the three recent Roll Dates was
as follows: For Roll Date of April 21,
2017 (expiry May 19, 2017), strike price
of 1375, 315 contracts on Roll Date, 209
average contracts per day through
expiration; for Roll Date of May 19, 2017
(expiry June 16, 2017), strike price of
1370, 1,133 contracts on Roll Date, 701
average contracts per day through
expiration; and for Roll Date of June 16,
2017 (expiry July 21, 2017), strike price
of 1400, 545 contracts on Roll Date, 527
intervening circumstance. In response to adverse
market, economic, political, or other conditions, the
Fund reserves the right to invest in U.S. government
securities, other money market instruments (as
defined below), and cash, without limitation, as
determined by the Adviser or Sub-Adviser. In the
event the Fund engages in these temporary
defensive strategies that are inconsistent with its
investment strategies, the Fund’s ability to achieve
its investment objectives may be limited.
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17:42 Sep 06, 2017
Jkt 241001
average contracts per day through
expiration.9 Moreover, the proceeds of
the sales of the RUT Puts will be
invested in U.S. Treasury bills, which
are also highly liquid instruments.
The daily high, low and last reported
sales prices on each of the Roll Dates for
RUT Puts at-the-money are as follows:
Roll Date of April 21, 2017 (expiry May
19, 2017, strike price of 1375, daily
high: $23.54, low: $21.88, last: $22.40;
Roll Date of May 19, 2017 (expiry June
16, 2017), strike price of 1370, daily
high: $27.39, low: $20.15, last: $23.97;
and Roll Date of June 16, 2017 (expiry
July 21, 2017), strike price of 1400, daily
high: $24.90, low: $18.46, last: $18.67.10
The Exchange estimates that on
launch date, the Fund would hold
approximately $2.5–$5.0 million in cash
and cash equivalents (e.g., one-month
Treasury bills). This estimate is based
on a minimum of 100,000–200,000
Shares being created at an estimated
initial offering price of $25 per Share.
The Exchange believes that sufficient
protections are in place to protect
against market manipulation of the
Fund’s Shares and RUT Puts for several
reasons: (i) Surveillance by the
Exchange, CBOE 11 and the Financial
Industry Regulatory Authority
(‘‘FINRA’’) designed to detect violations
of the federal securities laws and selfregulatory organization (‘‘SRO’’) rules;
(ii) the large number of financial
instruments tied to the specified
securities; and (iii) the ETF creation/
redemption arbitrage mechanism tied to
the large pool of liquidity of the Fund’s
underlying investments, as more fully
described below.
Trading in the Shares and the
underlying Fund investments will be
subject to the federal securities laws and
Exchange, CBOE and FINRA rules and
surveillance programs.12 In this regard,
the Exchange has in place a surveillance
program for transactions in ETFs to
ensure the availability of information
necessary to detect and deter potential
manipulations and other trading abuses,
thereby making the Shares less readily
susceptible to manipulation as assets in
the portfolio—comprised primarily of
RUT Puts and U.S. Treasury bills—will
9 Source:
CBOE.
CBOE.
11 The Exchange notes that CBOE is a member of
the Intermarket Surveillance Group (‘‘ISG’’).
12 The Exchange notes that CBOE is a member of
the Option Price Regulatory Surveillance Authority,
which was established in 2006, to provide
efficiencies in looking for insider trading and serves
as a central organization to facilitate collaboration
in insider trading and investigations for the U.S.
options exchanges. For more information, see
https://www.cboe.com/aboutcboe/legal/
departments/orsareg.aspx.
10 Source:
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42401
be acquired in extremely liquid and
highly regulated markets.
Russell 2000 index options are among
the most liquid options in the U.S. and
derive their value from the actively
traded Russell 2000 Index components.
RUT Puts are cash-settled with no
delivery of stocks or ETFs, and trade in
competitive auction markets with price
and quote transparency. The Exchange
believes the highly regulated Russell
2000 Index options markets and the
broad base and scope of the Russell
2000 Index make securities that derive
their value from the index, including
RUT Puts, less susceptible to market
manipulation in view of market
capitalization and liquidity of the
Russell 2000 Index components, price
and quote transparency, and arbitrage
opportunities.
Because the pricing of the Shares is
tied to the Fund’s underlying assets
(RUT Puts and U.S. Treasury bills), all
of which are traded in efficient,
diversified and liquid markets, the
Exchange also expects the liquidity in
the congruent creation/redemption
arbitrage mechanism to keep the Shares’
market pricing in line such that the
Shares’ pricing would not materially
differ from their net asset value. The
Exchange believes that the efficiency
and liquidity of the markets for RUT
Puts, related derivatives, and U.S.
Treasury bills are sufficiently great to
deter fraudulent or manipulative acts
associated with the Fund’s Shares price.
Coupled with the extensive surveillance
programs of the SROs described above,
the Exchange does not believe that
trading in the Fund’s Shares would
present manipulation concerns.
Other Assets
The Fund may invest up to 20% of its
net assets (in the aggregate) in Other
Assets. Other Assets includes only the
following: Short-term, high quality
securities issued or guaranteed by the
U.S. government and non-U.S.
governments,13 and each of their
agencies and instrumentalities; U.S.
government sponsored enterprises;
repurchase agreements backed by U.S.
government and non-U.S. government
securities; money market mutual funds;
deposit and other obligations of U.S.
and non-U.S. banks and financial
institutions (‘‘money market
13 The Treasury securities in which the Fund may
invest will include variable rate Treasury securities,
whose rates are adjusted daily (or at such other
increment as may later be determined by the
Department of the Treasury) to generally
correspond with the rate paid on one-month
Treasury securities.
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mstockstill on DSK30JT082PROD with NOTICES
instruments’’); 14 Russell 2000 ETF put
options,15 Russell 2000 Index futures
and/or options on Russell 2000 Index
futures; 16 total return swaps; 17 other
exchange traded products (‘‘ETPs’’); 18
non-exchange-traded registered openend investment companies (i.e., mutual
14 All money market instruments acquired by the
Fund will be rated investment grade, except that a
Fund may invest in unrated money market
instruments that are deemed by the Adviser or SubAdviser to be of comparable quality to money
market securities rated investment grade. The term
‘‘investment grade,’’ for purposes of money market
instruments only, is intended to mean securities
rated A1 or A2 by one or more nationally
recognized statistical rating organizations.
15 The Fund may invest up to 10% of its assets
in over-the-counter Russell 2000 put options (‘‘OTC
Russell 2000 Index put options’’).
16 The Fund will limit its direct investments in
futures and options on futures to the extent
necessary for the Adviser to claim the exclusion
from regulation as a ‘‘commodity pool operator’’
with respect to the Fund under Rule 4.5
promulgated by the Commodity Futures Trading
Commission (‘‘CFTC’’), as such rule may be
amended from time to time. Under Rule 4.5 as
currently in effect, the Fund would limit its trading
activity in futures and options on futures (excluding
activity for ‘‘bona fide hedging purposes,’’ as
defined by the CFTC) such that it will meet one of
the following tests: (i) Aggregate initial margin and
premiums required to establish its futures and
options on futures positions will not exceed 5% of
the liquidation value of the Fund’s portfolio, after
taking into account unrealized profits and losses on
such positions; or (ii) aggregate net notional value
of its futures and options on futures positions will
not exceed 100% of the liquidation value of the
Fund’s portfolio, after taking into account
unrealized profits and losses on such positions. The
exchange-listed futures contracts in which the Fund
may invest will be listed on exchanges in the U.S.
Each of the exchange-listed futures contracts in
which the Fund may invest will be listed on
exchanges that are members of ISG.
17 The Fund may use total return swaps to create
positions equivalent to investments in RUT Puts
and the component securities underlying the
Russell 2000 Index. The Fund’s investments in total
return swap agreements will be backed by
investments in U.S. government securities in an
amount equal to the exposure of such contracts.
18 The Fund may invest in shares of both taxable
and tax-exempted money market funds. When used
herein, ETPs may include, without limitation, Index
Fund Shares (as described in Rule 14.11(c)); Linked
Securities (as described in Rule 14.11(d)); Portfolio
Depositary Receipts (as described in Rule 14.11(b));
Trust-Issued Receipts (as described in Rule
14.11(f)); Commodity-Based Trust Shares (as
described in Rule 14.11(e)(4)); Currency Trust
Shares (as described in Rule 14.11(e)(5));
Commodity Index Trust Shares (as described in
Rule 14.11(e)(6)); Trust Units (as described in Rule
14.11(e)(9)); Managed Fund Shares (as described in
Rule 14.11(i)), and closed-end funds. The ETPs in
which the Fund may invest all will be listed and
traded on U.S. exchanges. The Fund may invest in
the securities of ETPs registered under the 1940 Act
consistent with the requirements of Section 12(d)(1)
of the 1940 Act or any rule, regulation or order of
the Commission or interpretation thereof. The Fund
will only make such investments in conformity
with the requirements of Section 817 of the Internal
Revenue Code of 1986. The ETPs in which the Fund
may invest will primarily be index-based ETFs that
hold substantially all of their assets in securities
representing a specific index. The Fund will not
invest in leveraged (e.g., 2X, ¥2X, 3X, or ¥3X)
ETPs.
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17:42 Sep 06, 2017
Jkt 241001
funds); and variable or floating interest
rate securities.19 The foregoing
investments shall include buying the
applicable derivative instrument or
selling the applicable derivative
instrument (i.e., writing the applicable
put option) and investing the proceeds.
Investment Restrictions
The Fund may hold up to an aggregate
of 15% of its net assets in illiquid assets
(calculated at the time of investment).
The Fund will monitor its portfolio
liquidity on an ongoing basis to
determine whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid assets. Illiquid assets include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.20
The Fund will not invest in any nonU.S. equity securities. The Fund’s
investments will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage.21
19 The Fund may invest in securities (in addition
to U.S. Treasury securities, described above) that
have variable or floating interest rates which are
readjusted on set dates (such as the last day of the
month) in the case of variable rates or whenever a
specified interest rate change occurs in the case of
a floating rate instrument. Variable or floating
interest rates generally reduce changes in the
market price of securities from their original
purchase price because, upon readjustment, such
rates approximate market rates. Accordingly, as
interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for
variable or floating rate securities than for fixed rate
obligations.
20 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933 (15 U.S.C. 77a).
21 The Fund will include appropriate risk
disclosure in its offering documents, including
leveraging risk. Leveraging risk is the risk that
certain transactions of a fund, including a fund’s
use of derivatives, may give rise to leverage, causing
a fund to be more volatile than if it had not been
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In order to reduce interest rate risk,
the Fund will generally maintain a
weighted average portfolio maturity of
180 days or less on average (not to
exceed 18 months) and will not
purchase any money market instrument
with a remaining maturity of more than
397 calendar days. The ‘‘average
portfolio maturity’’ of a Fund is the
average of all current maturities of the
individual securities in the Fund’s
portfolio. The Fund’s actual portfolio
duration may be longer or shorter
depending on market conditions.
The Fund intends to qualify each year
as a regulated investment company (a
‘‘RIC’’) under Subchapter M of the
Internal Revenue Code of 1986, as
amended.22 The Fund will invest its
respective assets, and otherwise conduct
its operations, in a manner that is
intended to satisfy the qualifying
income, diversification and distribution
requirements necessary to establish and
maintain RIC qualification under
Subchapter M. The Fund is to be
considered ‘‘non-diversified.’’ A nondiversified classification means that the
Fund is not limited by the 1940 Act
with regard to the percentage of total
assets that be invested in the securities
of a single issuer. As a result, the Fund
may invest more of its total assets in the
securities of a single issuer or a smaller
number of issuers than if it were
classified as a diversified fund.
Creation and Redemption of Shares
According to the Registration
Statement, the Fund will issue and
redeem Shares on a continuous basis at
net asset value (‘‘NAV’’),23 only in large
blocks of shares (‘‘Creation Units’’), in
transactions with Authorized
Participants. Creation Units generally
will consist of 50,000 Shares, though
this may change from time to time.
Creation Units are not expected to
consist of less than 25,000 Shares.
The consideration for purchase of a
Creation Unit of the Fund generally will
consist of either (i) the in-kind deposit
of a designated portfolio of securities
(the ‘‘Deposit Securities’’) per Creation
leveraged. To mitigate leveraging risk, the Adviser
will segregate or earmark liquid assets or otherwise
cover the transactions that give rise to such risk. See
15 U.S.C. 80a–18; Investment Company Act Release
No. 10666 (April 18, 1979), 44 FR 25128 (April 27,
1979); Dreyfus Strategic Investing, Commission NoAction Letter (June 22, 1987); Merrill Lynch Asset
Management, L.P., Commission No-Action Letter
(July 2, 1996).
22 26 U.S.C. 851.
23 The NAV of the Fund’s Shares generally will
be calculated once daily Monday through Friday as
of the close of regular trading on the New York
Stock Exchange (NYSE’’), generally 4:00 p.m. ET
(the ‘‘NAV Calculation Time’’). NAV per Share will
be calculated by dividing the Fund’s net assets by
the number of Fund shares outstanding.
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Unit and the ‘‘Cash Component’’
(defined below), computed as described
below or (ii) the cash value of the
Deposit Securities (‘‘Deposit Cash’’) and
the ‘‘Cash Component,’’ computed as
described below. Because non-exchange
traded derivatives and certain listed
derivatives are not currently eligible for
in-kind transfer, they will be substituted
with an amount of cash of equal value
(i.e., Deposit Cash) when the Fund
processes purchases of Creation Units
in-kind. Specifically, the Fund will not
accept exchange-traded or over-thecounter options, exchange traded
futures (or options on futures), and total
return swaps as Deposit Securities.
When accepting purchases of Creation
Units for cash, the Fund may incur
additional costs associated with the
acquisition of Deposit Securities that
would otherwise be provided by an inkind purchase. Together, the Deposit
Securities or Deposit Cash, as
applicable, and the Cash Component
constitute the ‘‘Fund Deposit,’’ which
represents the minimum initial and
subsequent investment amount for a
Creation Unit of the Fund. The Cash
Component is an amount equal to the
difference between the NAV of the
Shares (per Creation Unit) and the
market value of the Deposit Securities or
Deposit Cash, as applicable. The Cash
Component serves the function of
compensating for any difference
between the NAV per Creation Unit and
the market value of the Deposit
Securities or Deposit Cash, as
applicable.
A portfolio composition file, to be
sent via the National Securities Clearing
Corporation (‘‘NSCC’’), will be made
available on each business day, prior to
the opening of business on the Exchange
(currently 9:30 a.m. ET) containing a list
of the names and the required amount
of each security in the Deposit
Securities to be included in the current
Fund Deposit for the Fund (based on
information about the Fund’s portfolio
at the end of the previous business day).
In addition, on each business day, the
estimated Cash Component, effective
through and including the previous
business day, will be made available
through NSCC. The Fund Deposit is
subject to any applicable adjustments as
described in the Registration Statement.
All purchase orders must be placed by
an ‘‘Authorized Participant.’’ An
Authorized Participant must be either a
broker-dealer or other participant in the
Continuous Net Settlement System
(‘‘Clearing Process’’) of the NSCC or a
participant in The Depository Trust
Company (‘‘DTC’’) with access to the
DTC system, and must execute an
agreement with the Distributor that
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governs transactions in the Fund’s
Creation Units. In-kind portions of
purchase orders will be processed
though the Clearing Process when it is
available.
Shares of the Fund may be redeemed
only in Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the Fund
through the Distributor and only on a
business day. The Fund, through the
NSCC, will make available immediately
prior to the opening of business on each
business day, the list of the names and
quantities of the Fund’s portfolio
securities that will be applicable
(subject to possible amendment or
correction) to redemption requests
received in proper form on that day
(‘‘Fund Securities’’). Redemption
proceeds for a Creation Unit will be
paid either in-kind or in cash or a
combination thereof, and Fund
Securities and Deposit Securities may
differ. With respect to in-kind
redemptions of the Fund, redemption
proceeds for a Creation Unit will consist
of Fund Securities plus cash in an
amount equal to the difference between
the NAV of the Shares being redeemed,
as next determined after a receipt of a
request in proper form, and the value of
the Fund Securities (the ‘‘Cash
Redemption Amount’’). In the event that
the Fund Securities have a value greater
than the NAV of the Shares, a
compensating cash payment equal to the
differential will be required to be made
by or through an Authorized Participant
by the redeeming shareholder.
Notwithstanding the foregoing, at the
Trust’s discretion, an Authorized
Participant may receive the
corresponding cash value of the
securities in lieu of the in-kind
securities representing one or more
Fund Securities.24 Because nonexchange traded derivatives and certain
listed derivatives are not eligible for inkind transfer, they will be substituted
with an amount of cash of equal value
when the Fund processes redemptions
of Creation Units in-kind. Specifically,
the Fund will transfer the corresponding
cash value of exchange-traded options,
exchange-traded futures, exchangetraded options on futures contracts, and
total return swap agreements in lieu of
in-kind securities.
For an order involving a Creation Unit
to be effectuated at the Fund’s NAV on
a particular day, it must be received by
the Distributor by or before the deadline
for such order (‘‘Order Cut-Off Time’’).
24 The Adviser represents that, to the extent the
Trust effects the redemption of Shares in cash, the
value of the redemption payment will equal the
NAV per share.
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42403
The Order Cut-Off Time for creation and
redemption orders for the Fund will be
as described in the Registration
Statement, but not later than 4:00 p.m.
ET. A standard creation or redemption
transaction fee (as applicable) will be
imposed to offset transfer and other
transaction costs that may be incurred
by the Fund.
Availability of Information
The Trust’s Web site
(www.wisdomtree.com), which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Web site will
include additional quantitative
information updated on a daily basis,
including, for the Fund: (1) The most
recently reported NAV, mid-point of the
bid/ask spread at the time of calculation
of such NAV (the ‘‘Bid/Ask Price’’),25
and a calculation of the premium and
discount of the Bid/Ask Price against
the NAV; and (2) data in chart format
displaying the frequency distribution of
discounts and premiums of the daily
Bid/Ask Price against the NAV, within
appropriate ranges, for each of the four
previous calendar quarters.
On each business day, before
commencement of trading in Shares
during Regular Trading Hours on the
Exchange, the Trust will disclose on its
Web site the following information
regarding each portfolio holding, as
applicable to the type of holding: Ticker
symbol, CUSIP number or other
identifier, if any; a description of the
holding (including the type of holding,
such as the type of swap); the identity
of the security, index or other asset or
instrument underlying the holding, if
any; for options, the option strike price;
quantity held (as measured by, for
example, par value, notional value or
number of shares, contracts or units);
maturity date, if any; effective date, if
any; coupon rate, if any; market value of
the holding; and the percentage
weighting of the holding in the Fund’s
portfolio. The Web site information will
be publicly available at no charge.
In addition, a portfolio composition
file, which will include the security
names and quantities of securities and
other assets required to be delivered in
exchange for the Fund’s Shares, together
with estimates and actual cash
components, will be publicly
disseminated prior to the opening of the
Exchange via the NSCC. The portfolio
25 The Bid/Ask Price of the Fund will be
determined using the midpoint of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
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will represent one Creation Unit of the
Fund. Authorized Participants may refer
to the portfolio composition file for
information regarding RUT Puts, shortterm U.S. Treasury Securities, money
market instruments, and any other
instrument that may comprise the
Fund’s portfolio on a given day.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and its Form N–CSR and Form
N–SAR, filed twice a year. The Trust’s
SAI and Shareholder Reports will be
available free upon request from the
Trust, and those documents and the
Form N–CSR may be viewed on screen
or downloaded from the Commission’s
Web site at www.sec.gov. Information
regarding market price and trading
volume for the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume information for the Shares will
be published daily in the financial
section of newspapers. Quotation and
last sale information for the Shares and
any ETPs it which it invests will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line.
Quotation and last sale information for
U.S. exchange-listed options contracts
cleared by The Options Clearing
Corporation will be available via the
Options Price Reporting Authority. The
intra-day, closing and settlement prices
of exchange-traded portfolio assets,
including ETPs, futures and options will
be readily available from the securities
exchanges and futures exchanges
trading such securities and futures, as
the case may be, automated quotation
systems, published or other public
sources, or online information services
such as Bloomberg or Reuters. Price
information on fixed income portfolio
securities, including money market
instruments, and other Fund assets
traded in the over-the-counter markets,
is available from major broker-dealer
firms or market data vendors, as well as
from automated quotation systems,
published or other public sources, or
online information services. In addition,
the value of the Index will be published
by one or more major market data
vendors every 15 seconds during
Regular Trading Hours 26 on the
Exchange. Information about the Index
constituents, the weighting of the
constituents, the Index’s methodology
and the Index’s rules will be available
26 As defined in Rule 1.5(w), the term ‘‘Regular
Trading Hours’’ means the time between 9:30 a.m.
and 4:00 p.m. Eastern Time.
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17:42 Sep 06, 2017
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at no charge on the Index Provider’s
Web site at www.CBOE.com.
In addition, the Intraday Indicative
Value (‘‘IIV’’), as defined in Rule
14.11(c)(3)(C), will be widely
disseminated at least every 15 seconds
during Regular Trading Hours by one or
more major market vendors.27 All Fund
holdings will be included in calculating
the IIV.
The dissemination of the IIV is
intended to allow investors to determine
the value of the underlying portfolio of
the Fund on a daily basis and to
approximate that value throughout the
trading day. The intra-day, closing and
settlement prices of debt securities and
money market instruments will be
readily available from published and
other public sources or on-line
information services. Price information
regarding investment company
securities, including ETFs, will be
available from on-line information
services and from the Web site for the
applicable investment company
security.
Additional information regarding the
Trust and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosures policies,
distributions and taxes is included in
the Registration Statement. All terms
relating to the Fund that are referred to,
but not defined in, this proposed rule
change are defined in the Registration
Statement.
Initial and Continued Listing
The Shares will conform to the initial
and continued listing criteria under Bats
Rule 14.11(c)(3), except that the Index
will not meet the requirements of Rule
14.11(c)(3)(A)(i)(a)–(e) in that the Index
will consist of one series of options
based on U.S. Component Stocks (i.e.,
RUT Puts), rather than U.S. Component
Stocks. The Exchange represents that,
for initial and/or continued listing, the
Fund will be in compliance with Rule
10A–3 28 under the Act, as provided by
Rule 14.10. A minimum of 100,000
Shares for the Fund will be outstanding
at the commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
will be made available to all market
participants at the same time.
27 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available IIV’s taken from the CTA
or other data feeds.
28 See 17 CFR 240.10A–3.
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Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Funds. The Exchange will halt
trading in the Shares under the
conditions specified in BZX Rule 11.18.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments composing the
daily disclosed portfolio of the Funds;
or (2) whether other unusual conditions
or circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares also will be subject to Rule
14.11(c)(1)(B)(iv), which sets forth
circumstances under which Shares of a
Fund may be halted.
Trading Rules
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 will
allow trading in the Shares from 8:00
a.m. until 5:00 p.m. Eastern Time and
has the appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in BZX
Rule 11.11(a), the minimum price
variation for quoting and entry of orders
in securities traded on the Exchange is
$0.01, with the exception of securities
that are priced less than $1.00, for
which the minimum price variation for
order entry is $0.0001.
Surveillance
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of the
Shares on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
Trading of the Shares through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including Index
Fund Shares. The issuer has represented
to the Exchange that it will advise the
Exchange of any failure by the Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Exchange Act, the Exchange will surveil
for compliance with the continued
listing requirements. FINRA conducts
certain cross-market surveillances on
behalf of the Exchange pursuant to a
regulatory services agreement. The
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Exchange is responsible for FINRA’s
performance under this regulatory
services agreement. If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Exchange Rule 14.12.
The Exchange or FINRA, on behalf of
the Exchange, will communicate as
needed regarding trading in the Shares,
futures contracts, ETPs, and exchangetraded options contracts with other
markets and other entities that are
members of the ISG and may obtain
trading information regarding trading in
the Shares, futures contracts, exchangetraded options contracts and ETPs from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, futures contracts, exchangetraded options contracts, and ETPs from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.29 All
futures contracts (and options on
futures), listed options and ETPs held
by the Fund will be traded on U.S.
exchanges, all of which are members of
ISG or are exchanges with which the
Exchange has in place a comprehensive
surveillance sharing agreement. In
addition, the Exchange is able to access,
as needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s Trade
Reporting and Compliance Engine
(‘‘TRACE’’).
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
Information Circular
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: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) BZX Rule 3.7, which
imposes suitability obligations on
Exchange members with respect to
recommending transactions in the
Shares to customers; (3) how
information regarding the IIV and Index
value is disseminated; (4) the risks
involved in trading the Shares during
29 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
of the components of the portfolio for the Fund may
trade on exchanges that are members of the ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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the Pre-Opening 30 and After Hours
Trading Sessions 31 when an updated
Intraday Indicative Value will not be
calculated or publicly disseminated; (5)
the requirement that members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (6) trading information.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Funds. Members
purchasing Shares from the Funds 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.
In addition, the Information Circular
will reference that each Fund is subject
to various fees and expenses described
in the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares of the
Funds and the applicable NAV
calculation time for the Shares. The
Information Circular will disclose that
information about the Shares of the
Funds will be publicly available on the
Funds’ Web site. In addition, the
Information Circular will reference that
the Trust is subject to various fees and
expenses described in each Fund’s
Registration Statement.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 32 in general and Section
6(b)(5) of the Act 33 in particular in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed on the Exchange pursuant to
the initial and continued listing criteria
in Bats Rule 14.11(c)(3), except that the
Index will consist solely of RUT Puts
30 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m. Eastern Time.
31 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m. Eastern Time.
32 15 U.S.C. 78f.
33 15 U.S.C. 78f(b)(5).
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42405
and Treasury bills, rather than U.S.
Component Stocks. The Exchange
believes that the proposed rule change
is designed to prevent fraudulent and
manipulative acts and practices in that
the Shares will be listed and traded on
the Exchange pursuant to the listing
criteria in Bats Rule 14.11(c). The
Exchange believes that its surveillances,
which generally focus on detecting
securities trading outside of their
normal patterns which could be
indicative of manipulative or other
violative activity, and associated
surveillance procedures are adequate to
properly monitor the trading of the
Shares on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
FINRA and the Exchange, as applicable,
may each obtain information via ISG
from other exchanges that are members
of ISG, and in the case of the Exchange,
from other market or entities with
which the Exchange has entered into a
comprehensive surveillance sharing
agreement.
The Index Provider is not registered
as an investment adviser or brokerdealer and is not affiliated with any
broker-dealers. The Adviser is not
registered as, or affiliated with, any
broker-dealer. The Sub-Adviser is
affiliated with multiple broker-dealers
and has implemented a ‘‘fire wall’’ with
respect to such broker-dealers and their
personnel regarding access to
information concerning the composition
and/or changes to the Index. In
addition, Sub-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. The Adviser and the Index
Provider have represented that a fire
wall exists around the respective
personnel who have access to
information concerning changes and
adjustments to the Index. All exchangelisted options, futures contracts and
ETPs held by the Fund will be traded on
U.S. exchanges, all of which are
members of ISG or are exchanges with
which the Exchange has in place a
comprehensive surveillance sharing
agreement.
Under Normal Market Conditions, not
less than 80% of the Fund’s total assets
will be comprised of RUT Puts and U.S.
Treasury bills, although the Fund may
also invest up to 20% of its total assets
in Other Assets. Other Assets includes
only the following: short-term, high
quality securities issued or guaranteed
by the U.S. government and non-U.S.
governments, and each of their agencies
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and instrumentalities; U.S. government
sponsored enterprises; repurchase
agreements backed by U.S. government
and non-U.S. government securities;
money market mutual funds; money
market instruments; Russell 2000 ETF
put options,34 Russell 2000 Index
futures and/or options on Russell 2000
Index futures; 35 total return swaps; 36
other ETPs; non-exchange-traded
registered open-end investment
companies (i.e., mutual funds); and
variable or floating interest rate
securities.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid assets (calculated at the time of
investment), consistent with
Commission guidance. The Fund
therefore will not use derivative
instruments to enhance leverage. The
Fund will not invest in non-U.S. equity
securities.
All statements and representations
made in this filing regarding the index
composition, the description of the
portfolio or reference assets, limitations
on portfolio holdings or reference assets,
dissemination and availability of index,
reference asset, and intraday indicative
values, 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 to comply with the
continued listing requirements, and,
pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange
will monitor for compliance with the
continued listing requirements. FINRA
conducts certain cross-market
surveillances on behalf of the Exchange
pursuant to a regulatory services
agreement. The Exchange is responsible
for FINRA’s performance under this
regulatory services agreement. If the
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under Bats Rule 14.12.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily every day the
34 The Fund may invest up to 10% of its net
assets in OTC Russell 2000 Index put options.
35 The Fund’s investments in listed futures
contracts will be backed by investments in U.S.
government securities in an amount equal to the
exposure of such contracts.
36 The Fund’s investments in total return swap
agreements will be backed by investments in U.S.
government securities in an amount equal to the
exposure of such contracts.
VerDate Sep<11>2014
17:42 Sep 06, 2017
Jkt 241001
NYSE is open, and that the NAV will be
made available to all market
participants at the same time. In
addition, a large amount of information
will be publicly available regarding the
Fund and the Shares, thereby promoting
market transparency.
Moreover, the IIV will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during Regular Trading Hours.
On each business day, before
commencement of trading in the Shares
on the Exchange during Regular Trading
Hours, the Fund will disclose on its
Web site the portfolio that will form the
basis for the Fund’s calculation of NAV
at the end of the business day.
Information regarding market price and
trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services, and quotations and last sale
information will be available via the
CTA high-speed line. Information
relating to U.S. exchange-listed options
is available via the Options Price
Reporting Authority. Quotation and last
sale information for the Shares and any
ETPs it which it invests will be
available via the CTA high-speed line.
Quotation and last sale information for
U.S. exchange-listed options contracts
cleared by The Options Clearing
Corporation will be available via the
Options Price Reporting Authority. The
intra-day, closing and settlement prices
of exchange-traded portfolio assets,
including ETPs, futures and exchangetraded options contracts will be readily
available from the securities exchanges
and futures exchange trading such
securities and futures, as the case may
be, automated quotation systems,
published or other public sources, or
online information services such as
Bloomberg or Reuters. Such price
information on fixed income portfolio
securities, including money market
instruments, and other Fund assets
traded in the over-the-counter markets,
including bonds and money market
instruments is available from major
broker-dealer firms or market data
vendors, as well as from automated
quotation systems, published or other
public sources, or online information
services. The Web site for the Fund will
include the prospectus for the Fund and
additional data relating to NAV and
other applicable quantitative
information. Moreover, prior to
commencement of trading, the Exchange
will inform its Members in an
Information Circular of the special
characteristics and risks associated with
trading the Shares. If the Exchange
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
becomes aware that the NAV is not
being disseminated to all market
participants at the same time, it will halt
trading in the Shares until such time as
the NAV is available to all market
participants. With respect to trading
halts, the Exchange may consider all
relevant factors in exercising its
discretion to halt or suspend trading in
the Shares of the Funds. Trading also
may be halted because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments composing the
daily disclosed portfolio of each Fund;
or (2) whether other unusual conditions
or circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares also will be subject to Rule
14.11(c)(1)(B)(iv), which sets forth
circumstances under which Shares of a
Fund may be halted. If the IIV of any of
[sic] the Fund or value of the Index are
[sic] not being disseminated as required,
the Exchange may halt trading during
the day in which the interruption to the
dissemination of the IIV or index value
occurs. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the IIV, the Fund’s portfolio,
and quotation and last sale information
for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of exchange-traded
product that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
As noted above, the Shares will be
subject to the existing trading
surveillances, which are designed to
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange. The Exchange
or FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares, ETPs, futures
contracts, and exchange-traded options
contracts with other market and other
entities that are members of ISG and
may obtain trading information in the
Shares, futures contracts, exchangetraded options contracts, and ETPs from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, futures contracts, exchangetraded options contracts, and ETPs from
markets and other entities that are
members of ISG or with which the
E:\FR\FM\07SEN1.SGM
07SEN1
Federal Register / Vol. 82, No. 172 / Thursday, September 7, 2017 / Notices
Exchange has in place a comprehensive
surveillance sharing agreement. In
addition, as noted above, investors will
have ready access to information
regarding the Fund’s holdings, the IIV,
and quotation and last sale information
for the Shares.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
additional type of Index Fund Shares
that will enhance competition among
market participants, to the benefit of
investors and the marketplace.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change; or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
mstockstill on DSK30JT082PROD with NOTICES
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposal is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
SR-BatsBZX–2017–53. This file number
should be included on the subject line
if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–BatsBZX–
2017–53 and should be submitted on or
before September 28, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–18935 Filed 9–6–17; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File No. SR–
BatsBZX–2017–53 on the subject line.
VerDate Sep<11>2014
17:42 Sep 06, 2017
Jkt 241001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81512; File No. SR–BX–
2017–039]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Address the
Application of Exchange Rule 11140
(Transactions in Securities ‘‘ExDividend,’’ ‘‘Ex-Rights’’ or ‘‘ExWarrants’’) as it Relates to Establishing
Ex-Dividend Dates in connection With
the Implementation of the T+2
Settlement Cycle on September 5, 2017
August 31, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
29, 2017, NASDAQ BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to address the
application of Exchange Rule 11140
(Transactions in Securities ‘‘ExDividend,’’ ‘‘Ex-Rights’’ or ‘‘ExWarrants’’) as it relates to establishing
ex-dividend dates in connection with
the implementation of the T+2
settlement cycle on September 5, 2017.
No change to the text of Rule
11140(b)(1) is required by this proposal.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
37 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00139
Fmt 4703
Sfmt 4703
42407
2 17
E:\FR\FM\07SEN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b-4.
07SEN1
]]>Agencies
[Federal Register Volume 82, Number 172 (Thursday, September 7, 2017)]
[Notices]
[Pages 42399-42407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18935]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81510; File No. SR-BatsBZX-2017-53]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
WisdomTree CBOE Russell 2000 PutWrite Strategy Fund, a Series of the
WisdomTree Trust, Under Rule 14.11(c)(3), Index Fund Shares
August 31, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 18, 2017, Bats BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to list and trade shares of the
WisdomTree CBOE Russell 2000 PutWrite Strategy Fund, a series of the
WisdomTree Trust, under Rule 14.11(c)(3) (``Index Fund Shares''). The
text of the proposed rule change is available at the Exchange's Web
site at www.bats.com, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the
[[Page 42400]]
places specified in Item IV below. The Exchange has prepared summaries,
set forth in Sections A, B, and C below, of the most significant parts
of such statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (``Fund'') under
Rule 14.11(c)(3), which governs the listing and trading of Index Fund
Shares on the Exchange. The Fund will be an index-based exchange traded
fund (``ETF'').
The Shares will be offered by the WisdomTree Trust (``Trust''),
which was established as a Delaware statutory trust on December 15,
2005. The Trust is registered with the Commission as an investment
company and has filed a registration statement on Form N-1A
(``Registration Statement'') with the Commission on behalf of the
Fund.\3\
---------------------------------------------------------------------------
\3\ See Post-Effective Amendment No. 595 to Registration
Statement on Form N-1A for the Trust, dated July 27, 2017 (File Nos.
333-132380 and 811-21864). The descriptions of the Fund and the
Shares contained herein are based on information in the Registration
Statement.
---------------------------------------------------------------------------
The Fund's investment objective is to seek investment results that
track the price and yield performance, before fees and expenses, of the
CBOE Russell 2000 PutWrite Index (``Index''). The Index was developed
and is maintained by the Chicago Board Options Exchange, Inc. (``CBOE''
or the ``Index Provider''), used under license from The Frank Russell
Company. None of the Trust, WisdomTree Asset Management, Inc. (the
``Adviser''), Mellon Capital Management (the ``Sub-Adviser''), State
Street Bank and Trust Company (the ``Administrator, ``Custodian,'' and
``Transfer Agent''), or Foreside Fund Services, LLC (the
``Distributor'') is affiliated with the Index Provider.
The Index tracks the value of a passive investment strategy, which
consists of selling (or ``writing'') Russell 2000 Index put options
(``RUT Puts'') and investing the sale proceeds in one-month Treasury
bills (``RUT Strategy''). The RUT Puts are struck at-the-money and are
sold on a monthly basis, usually the third Friday of the month (i.e.,
the ``Roll Date''), which matches the expiration date of the RUT Puts.
All RUT Puts are standardized options traded on the CBOE. The Index
consists of only two components: RUT Puts and one-month Treasury bills.
The Exchange is submitting this proposed rule change because the
Index for the Fund does not meet the listing requirements of Rule
14.11(c)(5) applicable to an Index that consists of both U.S. Component
Stocks \4\ and Fixed Income Securities,\5\ which requires that the
equity and fixed income component securities separately meet the
criteria set forth in Rule 14.11(c)(3)(A)(i) and 14.11(c)(4),
respectively. Specifically, the Fund does not meet all of the
``generic'' listing requirements of Rule 14.11(c)(3)(A)(i), applicable
to the listing of Index Fund Shares based upon an index of U.S.
Component Stocks. Rule 14.11(c)(3)(A)(i) sets forth the requirements to
be met by components of an index or portfolio of U.S. Component Stocks.
Because the Index consists primarily of RUT Puts, rather than ``U.S.
Component Stocks'' as defined in Rule 14.11(c)(1)(D), the Index does
not satisfy the requirements of Rule 14.11(c)(3)(A)(i).\6\ The Fixed
Income Security component of the Index, which consists of only one-
month Treasury bills, meets the ``generic'' listing requirements of
Rule 14.11(c)(4).
---------------------------------------------------------------------------
\4\ As defined in Rule 14.11(c)(1)(D), the term ``U.S. Component
Stock'' shall mean an equity security that is registered under
Sections 12(b) or 12(g) of the Act, or an American Depositary
receipt, the underlying equity security of which is registered under
Sections 12(b) or 12(g) of the Act.
\5\ As defined in Rule 14.11(c)(4), the term ``Fixed Income
Security'' shall mean debt securities that are notes, bonds,
debentures or evidence of indebtedness that include, but are not
limited to, U.S. Department of Treasury securities (``Treasury
Securities''), government-sponsored entity securities (``GSE
Securities''), municipal securities, trust preferred securities
supranational debt and debt of a foreign country or subdivision
thereof.
\6\ The Exchange notes that the Russell 2000 Index has been
previously approved by the Commission under Section 19(b)(2) of the
Act in connection with the listing and trading of FLEX Options and
Quarterly Index Options, as well as other securities. See, e.g.,
Securities Exchange Act Release Nos. 32694 (July 29, 1993), 58 FR
41814 (July 5, 1993) (approving the listing and trading of FLEX
Options based on the Russell 2000 Index); 32693 (July 29, 1993), 58
FR 41817 (August 5, 1993) (approving the listing and trading of
Quarterly Index Option based on the Russell 2000 Index). Rule
14.11(c)(3)(A)(i)(e) provides that all securities in the applicable
index or portfolio shall be U.S. Component Stocks listed on a
national securities exchange and shall be NMS Stocks as defined in
Rule 600 under Regulation NMS of the Act. Each component stock of
the Russell 2000 Index is a U.S. Component Stock that is listed on a
national securities exchange and is an NMS Stock. Options are
excluded from the definition of NMS Stock. The Fund and the Index
meet all of the requirements of the listing standards for Index Fund
Shares in Rule 14.11(c)(3), except the requirements in Rule
14.11(c)(3)(A)(i)(a)-(e), as the Index consists of options on U.S.
Component Stocks. The Russell 2000 Index consists of U.S. Component
Stocks and satisfies the requirements of Rule 14.11(c)(3)(A)(i)(a)-
(e).
---------------------------------------------------------------------------
The Shares will conform to the initial and continued listing
criteria under Rule 14.11(c), except that the Index will not meet the
requirements of Rule 14.11(c)(3)(A)(i)(a)-(e) in that the Index will
consist of one series of options based on U.S. Component Stocks (i.e.,
RUT Puts), rather than U.S. Component Stocks. The Exchange notes that
the Commission has previously approved a fund that employs a very
similar strategy.\7\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release Nos. 74675 (April 8,
2015), 80 FR 20038 (April 14, 2015) (order approving proposed rule
change to list shares of the Wisdom Tree Put Write Strategy Fund)
and 77045 (February 3, 2016), 81 FR 6916 (February 9, 2016) (order
approving a proposed rule change relating to the index underlying
the WisdomTree Put Write Strategy Fund).
---------------------------------------------------------------------------
WisdomTree CBOE Russell 2000 PutWrite Strategy Fund Index Methodology
The Fund seeks to track the performance of an underlying index, the
CBOE Russell 2000 PutWrite Index (``Index''). The Index is based on a
passive investment strategy which consists of overlapping hypothetical
investments in a single series of exchange-listed Russell 2000 Index
options (``RUT Puts'') over a money market account hypothetically
invested in one-month Treasury bills. Specifically, the Index
hypothetically writes at-the-money RUT Puts on a monthly basis, usually
on the third Friday of the month (i.e., the Roll Date), which matches
the expiration date of the hypothetical RUT Puts. All RUT Puts
hypothetically invested in by the Index are standardized options traded
on the CBOE. At each Roll Date, any settlement loss in the Index based
on the expiring RUT Puts is financed by the Treasury bill account and a
new batch of hypothetical at-the-money RUT Puts is sold. Revenue from
their sale is added to the Index's hypothetical Treasury bill account.
On each Roll Date, the revenue from the hypothetical sale of RUT Puts
is hypothetically invested separately at the one-month Treasury bill
rate, and where applicable, any one-month Treasury bills purchased in
the prior month are deemed to mature and hypothetically invested in new
one-month Treasury bills at the one-month Treasury bill rate. As stated
above, all investments used to determine Index value are hypothetical.
Fund's Investment Methodology
Under Normal Market Conditions,\8\ the Fund will invest not less
than 80%
[[Page 42401]]
of its assets in RUT Puts and one month or three-month U.S. Treasury
bills. The Fund may invest up to 20% of its net assets (in the
aggregate) in other investments, that are not included in the Index,
but which the Adviser or the Sub-Adviser believes will help the Fund to
track the Index and that will be disclosed daily (``Other Assets'').
The Fund's investment strategy will be designed to write a sequence of
one-month, at-the-money, RUT Puts and invest cash and Other Assets
targeted to achieve one-month Treasury bill rates. The number of RUT
Puts written will vary from month to month, but will be limited to
permit the amount held in the Fund's investment in Treasury bills to
finance the maximum possible loss from final settlement of the RUT
Puts. According to the Registration Statement, the Fund will generally
use a sampling strategy in seeking to track the Index.
---------------------------------------------------------------------------
\8\ The term ``Normal Market Conditions'' includes, but is not
limited to, the absence of trading halts in the applicable financial
markets generally; operational issues causing dissemination of
inaccurate market information or system failures; or force majeure
type events such as natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or any similar
intervening circumstance. In response to adverse market, economic,
political, or other conditions, the Fund reserves the right to
invest in U.S. government securities, other money market instruments
(as defined below), and cash, without limitation, as determined by
the Adviser or Sub-Adviser. In the event the Fund engages in these
temporary defensive strategies that are inconsistent with its
investment strategies, the Fund's ability to achieve its investment
objectives may be limited.
---------------------------------------------------------------------------
The new RUT Puts will be struck and sold on a monthly basis on the
Roll Date, (i.e., the same Roll Date at that used by the Index), which
matches the expiration date of the current RUT Puts. The strike price
of the new RUT Puts will be based on the strike price of Russell 2000
Index put options listed on the CBOE with the closest strike price
below the last value of the Russell 2000 Index reported before 11:00
a.m. ET. For example, if the last Russell 2000 Index value reported
before 11:00 a.m. ET is 1,137.02 and the closest listed Russell 2000
Index put option with a strike price below 1,137.02 is 1,130, then the
1,130 strike RUT put option will be sold by the Fund.
Russell 2000 Index options traded on CBOE are highly liquid, with
average daily trading volume in 2016 of 71,365 contracts, with a
notional size per contract of $117,169. The Exchange represents that
the daily trading volume of at-the-money 30-day RUT Puts on each of the
three recent Roll Dates was as follows: For Roll Date of April 21, 2017
(expiry May 19, 2017), strike price of 1375, 315 contracts on Roll
Date, 209 average contracts per day through expiration; for Roll Date
of May 19, 2017 (expiry June 16, 2017), strike price of 1370, 1,133
contracts on Roll Date, 701 average contracts per day through
expiration; and for Roll Date of June 16, 2017 (expiry July 21, 2017),
strike price of 1400, 545 contracts on Roll Date, 527 average contracts
per day through expiration.\9\ Moreover, the proceeds of the sales of
the RUT Puts will be invested in U.S. Treasury bills, which are also
highly liquid instruments.
---------------------------------------------------------------------------
\9\ Source: CBOE.
---------------------------------------------------------------------------
The daily high, low and last reported sales prices on each of the
Roll Dates for RUT Puts at-the-money are as follows: Roll Date of April
21, 2017 (expiry May 19, 2017, strike price of 1375, daily high:
$23.54, low: $21.88, last: $22.40; Roll Date of May 19, 2017 (expiry
June 16, 2017), strike price of 1370, daily high: $27.39, low: $20.15,
last: $23.97; and Roll Date of June 16, 2017 (expiry July 21, 2017),
strike price of 1400, daily high: $24.90, low: $18.46, last:
$18.67.\10\
---------------------------------------------------------------------------
\10\ Source: CBOE.
---------------------------------------------------------------------------
The Exchange estimates that on launch date, the Fund would hold
approximately $2.5-$5.0 million in cash and cash equivalents (e.g.,
one-month Treasury bills). This estimate is based on a minimum of
100,000-200,000 Shares being created at an estimated initial offering
price of $25 per Share.
The Exchange believes that sufficient protections are in place to
protect against market manipulation of the Fund's Shares and RUT Puts
for several reasons: (i) Surveillance by the Exchange, CBOE \11\ and
the Financial Industry Regulatory Authority (``FINRA'') designed to
detect violations of the federal securities laws and self-regulatory
organization (``SRO'') rules; (ii) the large number of financial
instruments tied to the specified securities; and (iii) the ETF
creation/redemption arbitrage mechanism tied to the large pool of
liquidity of the Fund's underlying investments, as more fully described
below.
---------------------------------------------------------------------------
\11\ The Exchange notes that CBOE is a member of the Intermarket
Surveillance Group (``ISG'').
---------------------------------------------------------------------------
Trading in the Shares and the underlying Fund investments will be
subject to the federal securities laws and Exchange, CBOE and FINRA
rules and surveillance programs.\12\ In this regard, the Exchange has
in place a surveillance program for transactions in ETFs to ensure the
availability of information necessary to detect and deter potential
manipulations and other trading abuses, thereby making the Shares less
readily susceptible to manipulation as assets in the portfolio--
comprised primarily of RUT Puts and U.S. Treasury bills--will be
acquired in extremely liquid and highly regulated markets.
---------------------------------------------------------------------------
\12\ The Exchange notes that CBOE is a member of the Option
Price Regulatory Surveillance Authority, which was established in
2006, to provide efficiencies in looking for insider trading and
serves as a central organization to facilitate collaboration in
insider trading and investigations for the U.S. options exchanges.
For more information, see https://www.cboe.com/aboutcboe/legal/departments/orsareg.aspx.
---------------------------------------------------------------------------
Russell 2000 index options are among the most liquid options in the
U.S. and derive their value from the actively traded Russell 2000 Index
components. RUT Puts are cash-settled with no delivery of stocks or
ETFs, and trade in competitive auction markets with price and quote
transparency. The Exchange believes the highly regulated Russell 2000
Index options markets and the broad base and scope of the Russell 2000
Index make securities that derive their value from the index, including
RUT Puts, less susceptible to market manipulation in view of market
capitalization and liquidity of the Russell 2000 Index components,
price and quote transparency, and arbitrage opportunities.
Because the pricing of the Shares is tied to the Fund's underlying
assets (RUT Puts and U.S. Treasury bills), all of which are traded in
efficient, diversified and liquid markets, the Exchange also expects
the liquidity in the congruent creation/redemption arbitrage mechanism
to keep the Shares' market pricing in line such that the Shares'
pricing would not materially differ from their net asset value. The
Exchange believes that the efficiency and liquidity of the markets for
RUT Puts, related derivatives, and U.S. Treasury bills are sufficiently
great to deter fraudulent or manipulative acts associated with the
Fund's Shares price. Coupled with the extensive surveillance programs
of the SROs described above, the Exchange does not believe that trading
in the Fund's Shares would present manipulation concerns.
Other Assets
The Fund may invest up to 20% of its net assets (in the aggregate)
in Other Assets. Other Assets includes only the following: Short-term,
high quality securities issued or guaranteed by the U.S. government and
non-U.S. governments,\13\ and each of their agencies and
instrumentalities; U.S. government sponsored enterprises; repurchase
agreements backed by U.S. government and non-U.S. government
securities; money market mutual funds; deposit and other obligations of
U.S. and non-U.S. banks and financial institutions (``money market
[[Page 42402]]
instruments''); \14\ Russell 2000 ETF put options,\15\ Russell 2000
Index futures and/or options on Russell 2000 Index futures; \16\ total
return swaps; \17\ other exchange traded products (``ETPs''); \18\ non-
exchange-traded registered open-end investment companies (i.e., mutual
funds); and variable or floating interest rate securities.\19\ The
foregoing investments shall include buying the applicable derivative
instrument or selling the applicable derivative instrument (i.e.,
writing the applicable put option) and investing the proceeds.
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\13\ The Treasury securities in which the Fund may invest will
include variable rate Treasury securities, whose rates are adjusted
daily (or at such other increment as may later be determined by the
Department of the Treasury) to generally correspond with the rate
paid on one-month Treasury securities.
\14\ All money market instruments acquired by the Fund will be
rated investment grade, except that a Fund may invest in unrated
money market instruments that are deemed by the Adviser or Sub-
Adviser to be of comparable quality to money market securities rated
investment grade. The term ``investment grade,'' for purposes of
money market instruments only, is intended to mean securities rated
A1 or A2 by one or more nationally recognized statistical rating
organizations.
\15\ The Fund may invest up to 10% of its assets in over-the-
counter Russell 2000 put options (``OTC Russell 2000 Index put
options'').
\16\ The Fund will limit its direct investments in futures and
options on futures to the extent necessary for the Adviser to claim
the exclusion from regulation as a ``commodity pool operator'' with
respect to the Fund under Rule 4.5 promulgated by the Commodity
Futures Trading Commission (``CFTC''), as such rule may be amended
from time to time. Under Rule 4.5 as currently in effect, the Fund
would limit its trading activity in futures and options on futures
(excluding activity for ``bona fide hedging purposes,'' as defined
by the CFTC) such that it will meet one of the following tests: (i)
Aggregate initial margin and premiums required to establish its
futures and options on futures positions will not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account
unrealized profits and losses on such positions; or (ii) aggregate
net notional value of its futures and options on futures positions
will not exceed 100% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and losses
on such positions. The exchange-listed futures contracts in which
the Fund may invest will be listed on exchanges in the U.S. Each of
the exchange-listed futures contracts in which the Fund may invest
will be listed on exchanges that are members of ISG.
\17\ The Fund may use total return swaps to create positions
equivalent to investments in RUT Puts and the component securities
underlying the Russell 2000 Index. The Fund's investments in total
return swap agreements will be backed by investments in U.S.
government securities in an amount equal to the exposure of such
contracts.
\18\ The Fund may invest in shares of both taxable and tax-
exempted money market funds. When used herein, ETPs may include,
without limitation, Index Fund Shares (as described in Rule
14.11(c)); Linked Securities (as described in Rule 14.11(d));
Portfolio Depositary Receipts (as described in Rule 14.11(b));
Trust-Issued Receipts (as described in Rule 14.11(f)); Commodity-
Based Trust Shares (as described in Rule 14.11(e)(4)); Currency
Trust Shares (as described in Rule 14.11(e)(5)); Commodity Index
Trust Shares (as described in Rule 14.11(e)(6)); Trust Units (as
described in Rule 14.11(e)(9)); Managed Fund Shares (as described in
Rule 14.11(i)), and closed-end funds. The ETPs in which the Fund may
invest all will be listed and traded on U.S. exchanges. The Fund may
invest in the securities of ETPs registered under the 1940 Act
consistent with the requirements of Section 12(d)(1) of the 1940 Act
or any rule, regulation or order of the Commission or interpretation
thereof. The Fund will only make such investments in conformity with
the requirements of Section 817 of the Internal Revenue Code of
1986. The ETPs in which the Fund may invest will primarily be index-
based ETFs that hold substantially all of their assets in securities
representing a specific index. The Fund will not invest in leveraged
(e.g., 2X, -2X, 3X, or -3X) ETPs.
\19\ The Fund may invest in securities (in addition to U.S.
Treasury securities, described above) that have variable or floating
interest rates which are readjusted on set dates (such as the last
day of the month) in the case of variable rates or whenever a
specified interest rate change occurs in the case of a floating rate
instrument. Variable or floating interest rates generally reduce
changes in the market price of securities from their original
purchase price because, upon readjustment, such rates approximate
market rates. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less for
variable or floating rate securities than for fixed rate
obligations.
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Investment Restrictions
The Fund may hold up to an aggregate of 15% of its net assets in
illiquid assets (calculated at the time of investment). The Fund will
monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\20\
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\20\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act of 1933 (15 U.S.C.
77a).
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The Fund will not invest in any non-U.S. equity securities. The
Fund's investments will be consistent with the Fund's investment
objective and will not be used to enhance leverage.\21\
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\21\ The Fund will include appropriate risk disclosure in its
offering documents, including leveraging risk. Leveraging risk is
the risk that certain transactions of a fund, including a fund's use
of derivatives, may give rise to leverage, causing a fund to be more
volatile than if it had not been leveraged. To mitigate leveraging
risk, the Adviser will segregate or earmark liquid assets or
otherwise cover the transactions that give rise to such risk. See 15
U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18,
1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing,
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset
Management, L.P., Commission No-Action Letter (July 2, 1996).
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In order to reduce interest rate risk, the Fund will generally
maintain a weighted average portfolio maturity of 180 days or less on
average (not to exceed 18 months) and will not purchase any money
market instrument with a remaining maturity of more than 397 calendar
days. The ``average portfolio maturity'' of a Fund is the average of
all current maturities of the individual securities in the Fund's
portfolio. The Fund's actual portfolio duration may be longer or
shorter depending on market conditions.
The Fund intends to qualify each year as a regulated investment
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of
1986, as amended.\22\ The Fund will invest its respective assets, and
otherwise conduct its operations, in a manner that is intended to
satisfy the qualifying income, diversification and distribution
requirements necessary to establish and maintain RIC qualification
under Subchapter M. The Fund is to be considered ``non-diversified.'' A
non-diversified classification means that the Fund is not limited by
the 1940 Act with regard to the percentage of total assets that be
invested in the securities of a single issuer. As a result, the Fund
may invest more of its total assets in the securities of a single
issuer or a smaller number of issuers than if it were classified as a
diversified fund.
---------------------------------------------------------------------------
\22\ 26 U.S.C. 851.
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Creation and Redemption of Shares
According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis at net asset value (``NAV''),\23\
only in large blocks of shares (``Creation Units''), in transactions
with Authorized Participants. Creation Units generally will consist of
50,000 Shares, though this may change from time to time. Creation Units
are not expected to consist of less than 25,000 Shares.
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\23\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of regular trading
on the New York Stock Exchange (NYSE''), generally 4:00 p.m. ET (the
``NAV Calculation Time''). NAV per Share will be calculated by
dividing the Fund's net assets by the number of Fund shares
outstanding.
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The consideration for purchase of a Creation Unit of the Fund
generally will consist of either (i) the in-kind deposit of a
designated portfolio of securities (the ``Deposit Securities'') per
Creation
[[Page 42403]]
Unit and the ``Cash Component'' (defined below), computed as described
below or (ii) the cash value of the Deposit Securities (``Deposit
Cash'') and the ``Cash Component,'' computed as described below.
Because non-exchange traded derivatives and certain listed derivatives
are not currently eligible for in-kind transfer, they will be
substituted with an amount of cash of equal value (i.e., Deposit Cash)
when the Fund processes purchases of Creation Units in-kind.
Specifically, the Fund will not accept exchange-traded or over-the-
counter options, exchange traded futures (or options on futures), and
total return swaps as Deposit Securities.
When accepting purchases of Creation Units for cash, the Fund may
incur additional costs associated with the acquisition of Deposit
Securities that would otherwise be provided by an in-kind purchase.
Together, the Deposit Securities or Deposit Cash, as applicable, and
the Cash Component constitute the ``Fund Deposit,'' which represents
the minimum initial and subsequent investment amount for a Creation
Unit of the Fund. The Cash Component is an amount equal to the
difference between the NAV of the Shares (per Creation Unit) and the
market value of the Deposit Securities or Deposit Cash, as applicable.
The Cash Component serves the function of compensating for any
difference between the NAV per Creation Unit and the market value of
the Deposit Securities or Deposit Cash, as applicable.
A portfolio composition file, to be sent via the National
Securities Clearing Corporation (``NSCC''), will be made available on
each business day, prior to the opening of business on the Exchange
(currently 9:30 a.m. ET) containing a list of the names and the
required amount of each security in the Deposit Securities to be
included in the current Fund Deposit for the Fund (based on information
about the Fund's portfolio at the end of the previous business day). In
addition, on each business day, the estimated Cash Component, effective
through and including the previous business day, will be made available
through NSCC. The Fund Deposit is subject to any applicable adjustments
as described in the Registration Statement.
All purchase orders must be placed by an ``Authorized
Participant.'' An Authorized Participant must be either a broker-dealer
or other participant in the Continuous Net Settlement System
(``Clearing Process'') of the NSCC or a participant in The Depository
Trust Company (``DTC'') with access to the DTC system, and must execute
an agreement with the Distributor that governs transactions in the
Fund's Creation Units. In-kind portions of purchase orders will be
processed though the Clearing Process when it is available.
Shares of the Fund may be redeemed only in Creation Units at their
NAV next determined after receipt of a redemption request in proper
form by the Fund through the Distributor and only on a business day.
The Fund, through the NSCC, will make available immediately prior to
the opening of business on each business day, the list of the names and
quantities of the Fund's portfolio securities that will be applicable
(subject to possible amendment or correction) to redemption requests
received in proper form on that day (``Fund Securities''). Redemption
proceeds for a Creation Unit will be paid either in-kind or in cash or
a combination thereof, and Fund Securities and Deposit Securities may
differ. With respect to in-kind redemptions of the Fund, redemption
proceeds for a Creation Unit will consist of Fund Securities plus cash
in an amount equal to the difference between the NAV of the Shares
being redeemed, as next determined after a receipt of a request in
proper form, and the value of the Fund Securities (the ``Cash
Redemption Amount''). In the event that the Fund Securities have a
value greater than the NAV of the Shares, a compensating cash payment
equal to the differential will be required to be made by or through an
Authorized Participant by the redeeming shareholder. Notwithstanding
the foregoing, at the Trust's discretion, an Authorized Participant may
receive the corresponding cash value of the securities in lieu of the
in-kind securities representing one or more Fund Securities.\24\
Because non-exchange traded derivatives and certain listed derivatives
are not eligible for in-kind transfer, they will be substituted with an
amount of cash of equal value when the Fund processes redemptions of
Creation Units in-kind. Specifically, the Fund will transfer the
corresponding cash value of exchange-traded options, exchange-traded
futures, exchange-traded options on futures contracts, and total return
swap agreements in lieu of in-kind securities.
---------------------------------------------------------------------------
\24\ The Adviser represents that, to the extent the Trust
effects the redemption of Shares in cash, the value of the
redemption payment will equal the NAV per share.
---------------------------------------------------------------------------
For an order involving a Creation Unit to be effectuated at the
Fund's NAV on a particular day, it must be received by the Distributor
by or before the deadline for such order (``Order Cut-Off Time''). The
Order Cut-Off Time for creation and redemption orders for the Fund will
be as described in the Registration Statement, but not later than 4:00
p.m. ET. A standard creation or redemption transaction fee (as
applicable) will be imposed to offset transfer and other transaction
costs that may be incurred by the Fund.
Availability of Information
The Trust's Web site (www.wisdomtree.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Web site
will include additional quantitative information updated on a daily
basis, including, for the Fund: (1) The most recently reported NAV,
mid-point of the bid/ask spread at the time of calculation of such NAV
(the ``Bid/Ask Price''),\25\ and a calculation of the premium and
discount of the Bid/Ask Price against the NAV; and (2) data in chart
format displaying the frequency distribution of discounts and premiums
of the daily Bid/Ask Price against the NAV, within appropriate ranges,
for each of the four previous calendar quarters.
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\25\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
---------------------------------------------------------------------------
On each business day, before commencement of trading in Shares
during Regular Trading Hours on the Exchange, the Trust will disclose
on its Web site the following information regarding each portfolio
holding, as applicable to the type of holding: Ticker symbol, CUSIP
number or other identifier, if any; a description of the holding
(including the type of holding, such as the type of swap); the identity
of the security, index or other asset or instrument underlying the
holding, if any; for options, the option strike price; quantity held
(as measured by, for example, par value, notional value or number of
shares, contracts or units); maturity date, if any; effective date, if
any; coupon rate, if any; market value of the holding; and the
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge.
In addition, a portfolio composition file, which will include the
security names and quantities of securities and other assets required
to be delivered in exchange for the Fund's Shares, together with
estimates and actual cash components, will be publicly disseminated
prior to the opening of the Exchange via the NSCC. The portfolio
[[Page 42404]]
will represent one Creation Unit of the Fund. Authorized Participants
may refer to the portfolio composition file for information regarding
RUT Puts, short-term U.S. Treasury Securities, money market
instruments, and any other instrument that may comprise the Fund's
portfolio on a given day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports will be available free upon request from the Trust, and those
documents and the Form N-CSR may be viewed on screen or downloaded from
the Commission's Web site at www.sec.gov. Information regarding market
price and trading volume for the Shares will be continually available
on a real-time basis throughout the day on brokers' computer screens
and other electronic services. Information regarding the previous day's
closing price and trading volume information for the Shares will be
published daily in the financial section of newspapers. Quotation and
last sale information for the Shares and any ETPs it which it invests
will be available via the Consolidated Tape Association (``CTA'') high-
speed line. Quotation and last sale information for U.S. exchange-
listed options contracts cleared by The Options Clearing Corporation
will be available via the Options Price Reporting Authority. The intra-
day, closing and settlement prices of exchange-traded portfolio assets,
including ETPs, futures and options will be readily available from the
securities exchanges and futures exchanges trading such securities and
futures, as the case may be, automated quotation systems, published or
other public sources, or online information services such as Bloomberg
or Reuters. Price information on fixed income portfolio securities,
including money market instruments, and other Fund assets traded in the
over-the-counter markets, is available from major broker-dealer firms
or market data vendors, as well as from automated quotation systems,
published or other public sources, or online information services. In
addition, the value of the Index will be published by one or more major
market data vendors every 15 seconds during Regular Trading Hours \26\
on the Exchange. Information about the Index constituents, the
weighting of the constituents, the Index's methodology and the Index's
rules will be available at no charge on the Index Provider's Web site
at www.CBOE.com.
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\26\ As defined in Rule 1.5(w), the term ``Regular Trading
Hours'' means the time between 9:30 a.m. and 4:00 p.m. Eastern Time.
---------------------------------------------------------------------------
In addition, the Intraday Indicative Value (``IIV''), as defined in
Rule 14.11(c)(3)(C), will be widely disseminated at least every 15
seconds during Regular Trading Hours by one or more major market
vendors.\27\ All Fund holdings will be included in calculating the IIV.
---------------------------------------------------------------------------
\27\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IIV's
taken from the CTA or other data feeds.
---------------------------------------------------------------------------
The dissemination of the IIV is intended to allow investors to
determine the value of the underlying portfolio of the Fund on a daily
basis and to approximate that value throughout the trading day. The
intra-day, closing and settlement prices of debt securities and money
market instruments will be readily available from published and other
public sources or on-line information services. Price information
regarding investment company securities, including ETFs, will be
available from on-line information services and from the Web site for
the applicable investment company security.
Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosures policies,
distributions and taxes is included in the Registration Statement. All
terms relating to the Fund that are referred to, but not defined in,
this proposed rule change are defined in the Registration Statement.
Initial and Continued Listing
The Shares will conform to the initial and continued listing
criteria under Bats Rule 14.11(c)(3), except that the Index will not
meet the requirements of Rule 14.11(c)(3)(A)(i)(a)-(e) in that the
Index will consist of one series of options based on U.S. Component
Stocks (i.e., RUT Puts), rather than U.S. Component Stocks. The
Exchange represents that, for initial and/or continued listing, the
Fund will be in compliance with Rule 10A-3 \28\ under the Act, as
provided by Rule 14.10. A minimum of 100,000 Shares for the Fund will
be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the NAV per Share will be calculated daily and that the NAV and
will be made available to all market participants at the same time.
---------------------------------------------------------------------------
\28\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Funds. The Exchange will halt trading in
the Shares under the conditions specified in BZX Rule 11.18. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable. These may
include: (1) The extent to which trading is not occurring in the
securities and/or the financial instruments composing the daily
disclosed portfolio of the Funds; or (2) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. Trading in the Shares also will be
subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances
under which Shares of a Fund may be halted.
Trading Rules
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 will
allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time
and has the appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a), the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01, with the exception of securities that
are priced less than $1.00, for which the minimum price variation for
order entry is $0.0001.
Surveillance
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Index Fund Shares. The
issuer has represented to the Exchange that it will advise the Exchange
of any failure by the Fund to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. FINRA conducts certain cross-market
surveillances on behalf of the Exchange pursuant to a regulatory
services agreement. The
[[Page 42405]]
Exchange is responsible for FINRA's performance under this regulatory
services agreement. If the Fund is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under Exchange Rule 14.12.
The Exchange or FINRA, on behalf of the Exchange, will communicate
as needed regarding trading in the Shares, futures contracts, ETPs, and
exchange-traded options contracts with other markets and other entities
that are members of the ISG and may obtain trading information
regarding trading in the Shares, futures contracts, exchange-traded
options contracts and ETPs from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares, futures contracts, exchange-traded options contracts, and ETPs
from markets and other entities that are members of ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement.\29\ All futures contracts (and options on futures), listed
options and ETPs held by the Fund will be traded on U.S. exchanges, all
of which are members of ISG or are exchanges with which the Exchange
has in place a comprehensive surveillance sharing agreement. In
addition, the Exchange is able to access, as needed, trade information
for certain fixed income securities held by the Fund reported to
FINRA's Trade Reporting and Compliance Engine (``TRACE'').
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\29\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all of the components
of the portfolio for the Fund may trade on exchanges that are
members of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Circular
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: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) BZX Rule 3.7, which imposes suitability
obligations on Exchange members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the IIV and Index value is disseminated; (4) the risks involved in
trading the Shares during the Pre-Opening \30\ and After Hours Trading
Sessions \31\ when an updated Intraday Indicative Value will not be
calculated or publicly disseminated; (5) the requirement that members
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; and (6)
trading information.
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\30\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.
Eastern Time.
\31\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. Eastern Time.
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In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Funds. Members purchasing Shares from the Funds 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.
In addition, the Information Circular will reference that each Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Funds and the applicable NAV calculation
time for the Shares. The Information Circular will disclose that
information about the Shares of the Funds will be publicly available on
the Funds' Web site. In addition, the Information Circular will
reference that the Trust is subject to various fees and expenses
described in each Fund's Registration Statement.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \32\ in general and Section 6(b)(5) of the Act \33\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\32\ 15 U.S.C. 78f.
\33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Bats Rule 14.11(c)(3), except that the
Index will consist solely of RUT Puts and Treasury bills, rather than
U.S. Component Stocks. The Exchange believes that the proposed rule
change is designed to prevent fraudulent and manipulative acts and
practices in that the Shares will be listed and traded on the Exchange
pursuant to the listing criteria in Bats Rule 14.11(c). The Exchange
believes that its surveillances, which generally focus on detecting
securities trading outside of their normal patterns which could be
indicative of manipulative or other violative activity, and associated
surveillance procedures are adequate to properly monitor the trading of
the Shares on the Exchange during all trading sessions and to deter and
detect violations of Exchange rules and the applicable federal
securities laws. FINRA and the Exchange, as applicable, may each obtain
information via ISG from other exchanges that are members of ISG, and
in the case of the Exchange, from other market or entities with which
the Exchange has entered into a comprehensive surveillance sharing
agreement.
The Index Provider is not registered as an investment adviser or
broker-dealer and is not affiliated with any broker-dealers. The
Adviser is not registered as, or affiliated with, any broker-dealer.
The Sub-Adviser is affiliated with multiple broker-dealers and has
implemented a ``fire wall'' with respect to such broker-dealers and
their personnel regarding access to information concerning the
composition and/or changes to the Index. In addition, Sub-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. The Adviser and
the Index Provider have represented that a fire wall exists around the
respective personnel who have access to information concerning changes
and adjustments to the Index. All exchange-listed options, futures
contracts and ETPs held by the Fund will be traded on U.S. exchanges,
all of which are members of ISG or are exchanges with which the
Exchange has in place a comprehensive surveillance sharing agreement.
Under Normal Market Conditions, not less than 80% of the Fund's
total assets will be comprised of RUT Puts and U.S. Treasury bills,
although the Fund may also invest up to 20% of its total assets in
Other Assets. Other Assets includes only the following: short-term,
high quality securities issued or guaranteed by the U.S. government and
non-U.S. governments, and each of their agencies
[[Page 42406]]
and instrumentalities; U.S. government sponsored enterprises;
repurchase agreements backed by U.S. government and non-U.S. government
securities; money market mutual funds; money market instruments;
Russell 2000 ETF put options,\34\ Russell 2000 Index futures and/or
options on Russell 2000 Index futures; \35\ total return swaps; \36\
other ETPs; non-exchange-traded registered open-end investment
companies (i.e., mutual funds); and variable or floating interest rate
securities.
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\34\ The Fund may invest up to 10% of its net assets in OTC
Russell 2000 Index put options.
\35\ The Fund's investments in listed futures contracts will be
backed by investments in U.S. government securities in an amount
equal to the exposure of such contracts.
\36\ The Fund's investments in total return swap agreements will
be backed by investments in U.S. government securities in an amount
equal to the exposure of such contracts.
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The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
consistent with Commission guidance. The Fund therefore will not use
derivative instruments to enhance leverage. The Fund will not invest in
non-U.S. equity securities.
All statements and representations made in this filing regarding
the index composition, the description of the portfolio or reference
assets, limitations on portfolio holdings or reference assets,
dissemination and availability of index, reference asset, and intraday
indicative values, 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 to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. FINRA conducts certain cross-market
surveillances on behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for FINRA's performance
under this regulatory services agreement. If the Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Bats Rule 14.12.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily every day the
NYSE is open, and that the NAV will be made available to all market
participants at the same time. In addition, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency.
Moreover, the IIV will be widely disseminated by one or more major
market data vendors at least every 15 seconds during Regular Trading
Hours. On each business day, before commencement of trading in the
Shares on the Exchange during Regular Trading Hours, the Fund will
disclose on its Web site the portfolio that will form the basis for the
Fund's calculation of NAV at the end of the business day. Information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotations
and last sale information will be available via the CTA high-speed
line. Information relating to U.S. exchange-listed options is available
via the Options Price Reporting Authority. Quotation and last sale
information for the Shares and any ETPs it which it invests will be
available via the CTA high-speed line. Quotation and last sale
information for U.S. exchange-listed options contracts cleared by The
Options Clearing Corporation will be available via the Options Price
Reporting Authority. The intra-day, closing and settlement prices of
exchange-traded portfolio assets, including ETPs, futures and exchange-
traded options contracts will be readily available from the securities
exchanges and futures exchange trading such securities and futures, as
the case may be, automated quotation systems, published or other public
sources, or online information services such as Bloomberg or Reuters.
Such price information on fixed income portfolio securities, including
money market instruments, and other Fund assets traded in the over-the-
counter markets, including bonds and money market instruments is
available from major broker-dealer firms or market data vendors, as
well as from automated quotation systems, published or other public
sources, or online information services. The Web site for the Fund will
include the prospectus for the Fund and additional data relating to NAV
and other applicable quantitative information. Moreover, prior to
commencement of trading, the Exchange will inform its Members in an
Information Circular of the special characteristics and risks
associated with trading the Shares. If the Exchange becomes aware that
the NAV is not being disseminated to all market participants at the
same time, it will halt trading in the Shares until such time as the
NAV is available to all market participants. With respect to trading
halts, the Exchange may consider all relevant factors in exercising its
discretion to halt or suspend trading in the Shares of the Funds.
Trading also may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments composing
the daily disclosed portfolio of each Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present. Trading in the Shares also will be
subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances
under which Shares of a Fund may be halted. If the IIV of any of [sic]
the Fund or value of the Index are [sic] not being disseminated as
required, the Exchange may halt trading during the day in which the
interruption to the dissemination of the IIV or index value occurs. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the IIV, the Fund's
portfolio, and quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Shares will be subject to the
existing trading surveillances, which are designed to detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange. The Exchange or FINRA, on behalf of the Exchange, will
communicate as needed regarding trading in the Shares, ETPs, futures
contracts, and exchange-traded options contracts with other market and
other entities that are members of ISG and may obtain trading
information in the Shares, futures contracts, exchange-traded options
contracts, and ETPs from such markets and other entities. In addition,
the Exchange may obtain information regarding trading in the Shares,
futures contracts, exchange-traded options contracts, and ETPs from
markets and other entities that are members of ISG or with which the
[[Page 42407]]
Exchange has in place a comprehensive surveillance sharing agreement.
In addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the IIV, and quotation and
last sale information for the Shares.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of Index Fund Shares that will enhance competition
among market participants, to the benefit of investors and the
marketplace.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding, or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change; or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal is
consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-BatsBZX-2017-53 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-BatsBZX-2017-53. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-BatsBZX-2017-53 and should be
submitted on or before September 28, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18935 Filed 9-6-17; 8:45 am]
BILLING CODE 8011-01-P
