Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order Granting Approval 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), 48861-48865 [2017-22752]
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Federal Register / Vol. 82, No. 202 / Friday, October 20, 2017 / Notices
S&P Select Sector Index option
promotes competition and efficiency by
incentivizing more Market-Makers to
obtain an appointment in the newly
listed classes. The Exchange believes
this may result in liquidity and
competitive pricing in these classes,
which ultimately benefits investors. The
proposed rule change does not result in
unfair discrimination, as the
appointment cost will apply to all
Market-Makers in these classes.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not:
A. Significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. become operative for 30 days from
the date on which it was filed, or such
shorter time as the Commission may
designate, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 16 and Rule 19b–4(f)(6) 17
thereunder.18 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
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
srobinson on DSKBC5CHB2PROD with NOTICES
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:
16 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
18 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
17 17
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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–
CBOE–2017–065 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2017–065. 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 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 Number SR–CBOE–
2017–065 and should be submitted on
or before November 13, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–22754 Filed 10–19–17; 8:45 am]
BILLING CODE 8011–01–P
19 17
PO 00000
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81876; File No. SR–
BatsBZX–2017–53]
Self-Regulatory Organizations; Bats
BZX Exchange, Inc.; Order Granting
Approval 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)
October 16, 2017.
I. Introduction
On August 18, 2017, Bats BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the WisdomTree CBOE
Russell 2000 PutWrite Strategy Fund
(‘‘Fund’’). The proposed rule change
was published for comment in the
Federal Register on September 7, 2017.3
The Commission has received no
comments on the proposal. This order
approves the proposed rule change.
II. Exchange’s Description of the
Proposed Rule Change
The Exchange proposes to list and
trade Shares of the Fund under Rule
14.11(c), which governs the listing and
trading of Index Fund Shares on the
Exchange. The Fund will be an indexbased exchange-traded fund (‘‘ETF’’).
The Shares will be offered by the
WisdomTree Trust (‘‘Trust’’), which 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.4
The Fund will seek investment results
that track the price and yield
performance, before fees and expenses,
of the CBOE Russell 2000 PutWrite
Index (‘‘Index’’), which was developed
and is maintained by the Chicago Board
Options Exchange, Inc. (‘‘CBOE’’ or
‘‘Index Provider’’).5 The Index consists
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 81510
(Aug. 31, 2017), 82 FR 42399 (‘‘Notice’’).
4 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).
5 According to the Exchange, none of the Trust,
WisdomTree Asset Management, Inc. (‘‘Adviser’’),
Mellon Capital Management (‘‘Sub-Adviser’’), State
Street Bank and Trust Company (administrator,
2 17
CFR 200.30–3(a)(12).
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Federal Register / Vol. 82, No. 202 / Friday, October 20, 2017 / Notices
of only two components: RUT Puts and
one-month Treasury bills. The Index
tracks the value of a passive investment
strategy, which consists of selling
(writing) Russell 2000 Index put options
(‘‘RUT Puts’’) and investing the sale
proceeds in one-month Treasury bills.
All RUT Puts are standardized options
traded on CBOE.6
The Exchange submitted the proposed
rule change because the Index
underlying the Fund does not meet all
of the ‘‘generic’’ listing requirements of
Rule 14.11(c), and more specifically, the
requirements of Rule 14.11(c)(5)
applicable to Index Fund Shares based
on an Index of component securities
representing a combination of the equity
and the fixed income markets. Rule
14.11(c)(5) requires that the equity and
fixed income component securities
separately meet the criteria set forth in
Rules 14.11(c)(3) and 14.11(c)(4),
respectively. With respect to the Fund,
the Index does not meet all of the
generic requirements of Rule 14.11(c)(3)
because the Index consists primarily of
RUT Puts.7 The Exchange represents
that 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) in that the Index will
consist of options based on equity
securities (i.e., RUT Puts).8
The Exchange has made the following
representations and statements in
describing the Fund and its investment
strategies, including other assets and
investment restrictions.9
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A. Description of the Index Methodology
The Index is based on a passive
investment strategy that consists of
overlapping hypothetical investments in
a single series of exchange-listed RUT
Puts over a money market account
custodian, and transfer agent for the Fund), or
Foreside Fund Services, LLC (distributor for the
Fund) is affiliated with the Index Provider.
6 The Exchange notes that CBOE is a member of
the Intermarket Surveillance Group (‘‘ISG’’).
7 According to the Exchange, 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).
8 As defined in Rule 14.11(c)(1)(D), the term ‘‘U.S.
Component Stock’’ shall mean an equity security
that is registered under Sections 12(b) or 12(g) of
the Act, or an American Depositary Receipt, the
underlying equity security of which is registered
under Sections 12(b) or 12(g) of the Act.
9 Additional information regarding the Trust, the
Fund, and the Shares, including information
relating to the underlying Index, investment
strategies, risks, net asset value (‘‘NAV’’)
calculation, creation and redemption procedures,
fees, portfolio holdings disclosure policies,
distributions, and taxes, among other information,
is included in the Notice and the Registration
Statement, as applicable. See Notice, supra note 3
and Registration Statement, supra note 4.
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16:22 Oct 19, 2017
Jkt 244001
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 (‘‘Roll Date’’),
which matches the expiration date of
the hypothetical RUT Puts. 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-themoney RUT Puts is sold. Revenue from
the sale of RUT Puts 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.
B. Principal Investments of the Fund
The Fund seeks to track the
performance of an underlying index, the
Index. Under Normal Market
Conditions,10 the Fund will invest not
less than 80% 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 (as
discussed below, ‘‘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.
10 The term ‘‘Normal Market Conditions’’
includes, but is not limited to, the absence of
trading halts in the applicable financial markets
generally; operational issues causing dissemination
of inaccurate market information or system failures;
or force majeure type events such as natural or manmade 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.
PO 00000
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According to the Exchange, 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
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. RUT Puts are cash-settled
and trade in competitive auction
markets with price and quote
transparency. According to the
Exchange, 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.11
The Exchange represents that trading
in the Shares and the underlying Fund
investments will be subject to the
federal securities laws and Exchange,
CBOE, and Financial Industry
Regulatory Authority (‘‘FINRA’’) rules
and surveillance programs.12 In
addition, 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.
C. Other Investments of the Fund
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
11 The Exchange states that 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.
12 The Exchange also 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.
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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srobinson on DSKBC5CHB2PROD with NOTICES
agencies and instrumentalities, and 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
instruments’’); 14 Russell 2000 ETF put
options; 15 Russell 2000 Index futures
and 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
funds); and variable or floating interest
rate securities.19 The foregoing
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.
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 the rules
promulgated by the Commodity Futures Trading
Commission, as such rules may be amended from
time to time. According to the Exchange, 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. All of the
ETPs in which the Fund may invest will be listed
and traded on U.S. exchanges. The Fund may invest
in the securities of ETPs registered under the
Investment Company Act of 1940 (‘‘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
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16:22 Oct 19, 2017
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48863
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.
III. Discussion and Commission’s
Price information on fixed income
Findings
portfolio securities, including money
After careful review, the Commission
market instruments, and other Fund
finds that the proposed rule change is
assets traded in the over-the-counter
consistent with the requirements of
markets, is available from major broker20 and the rules and
Section 6 of the Act
dealer firms or market data vendors, as
regulations thereunder applicable to a
well as from automated quotation
national securities exchange.21 In
systems, published or other public
particular, the Commission finds that
sources, or online information services.
the proposal is consistent with Section
In addition, the value of the Index will
6(b)(5) of the Act,22 which requires,
be published by one or more major
among other things, that the Exchange’s market data vendors every 15 seconds
rules be designed to promote just and
during Regular Trading Hours 24 on the
equitable principles of trade, to remove
Exchange. Information about the Index
impediments to and perfect the
constituents, the weighting of the
mechanism of a free and open market
constituents, the Index’s methodology,
and a national market system, and, in
and the Index’s rules will be available
general, to protect investors and the
at no charge on the Index Provider’s
public interest. The Commission also
Web site. In addition, the Intraday
finds that the proposal to list and trade
Indicative Value (‘‘IIV’’), as defined in
the Shares on the Exchange is consistent Rule 14.11(c)(3)(C), will be widely
with Section 11A(a)(1)(C)(iii) of the
disseminated at least every 15 seconds
Act,23 which sets forth Congress’ finding during Regular Trading Hours by one or
more major market vendors.25 All Fund
that it is in the public interest and
holdings will be included in calculating
appropriate for the protection of
the IIV.
investors and the maintenance of fair
On each business day, before
and orderly markets to assure the
commencement of trading in Shares
availability to brokers, dealers, and
during Regular Trading Hours on the
investors of information with respect to
Exchange, the Trust will disclose on its
quotations for, and transactions in,
Web site the following information
securities.
regarding each portfolio holding, as
Quotation and last-sale information
applicable to the type of holding: Ticker
for the Shares and any ETPs in which
symbol, CUSIP number or other
it invests will be available via the
Consolidated Tape Association (‘‘CTA’’) identifier, if any; a description of the
high-speed line. Quotation and last-sale holding (including the type of holding,
such as the type of swap); the identity
information for U.S. exchange-listed
of the security, index, or other asset or
options contracts cleared by The
instrument underlying the holding, if
Options Clearing Corporation will be
any; for options, the option strike price;
available via the Options Price
quantity held (as measured by, for
Reporting Authority. The intra-day,
example, par value, notional value, or
closing, and settlement prices of
number of shares, contracts, or units);
exchange-traded portfolio assets,
maturity date, if any; effective date, if
including ETPs, futures, and options
any; coupon rate, if any; market value of
will be readily available from the
the holding; and the percentage
weighting of the holding in the Fund’s
have variable or floating interest rates which are
readjusted on set dates (such as the last day of the
portfolio. The Web site information will
month) in the case of variable rates or whenever a
be publicly available at no charge.
specified interest rate change occurs in the case of
Information regarding market price and
a floating rate instrument. Variable or floating
trading volume for the Shares will be
interest rates generally reduce changes in the
continually available on a real-time
market price of securities from their original
purchase price because, upon readjustment, such
basis throughout the day on brokers’
rates approximate market rates. Accordingly, as
computer screens and other electronic
interest rates decrease or increase, the potential for
services. Information regarding the
capital appreciation or depreciation is less for
variable or floating rate securities than for fixed rate previous day’s closing price and trading
investments include buying the
derivative instrument or selling the
derivative instrument (i.e., writing the
applicable put option) and investing the
proceeds.
obligations.
20 15 U.S.C. 78f.
21 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
22 15 U.S.C. 78f(b)(5).
23 15 U.S.C. 78k–1(a)(1)(C)(iii).
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24 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. ET.
25 According to the Exchange, several major
market data vendors display and/or make widely
available IIV’s taken from the CTA or other data
feeds.
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Federal Register / Vol. 82, No. 202 / Friday, October 20, 2017 / Notices
srobinson on DSKBC5CHB2PROD with NOTICES
volume information for the Shares will
be published daily in the financial
section of newspapers. The Trust’s Web
site, 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 and
additional quantitative information
updated on a daily basis relating to the
Fund.
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 National Securities
Clearing Corporation. The portfolio 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 constitute the
Fund’s portfolio on a given day. The
NAV of the Fund’s Shares will be
calculated once daily Monday through
Friday as of the close of regular trading
on the New York Stock Exchange,
generally 4:00 p.m. ET.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. 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. Trading may be halted
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable.26 The Exchange states that
it has a general policy prohibiting the
distribution of material, non-public
information by its employees. In
addition, the Exchange states that the
Index Provider is not registered as an
investment adviser or broker-dealer and
26 These may include: (1) The extent to which
trading is not occurring in the securities or the
financial instruments composing the daily
disclosed portfolio of the Fund; or (2) whether other
unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are
present. 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 Fund. 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.
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16:22 Oct 19, 2017
Jkt 244001
is not affiliated with any broker-dealers.
The Exchange also represents that the
Adviser is not registered as, or affiliated
with, any broker-dealer. The Exchange
represents that the Sub-Adviser is
affiliated with multiple broker-dealers
and has implemented a ‘‘fire wall’’ with
respect to those broker-dealers and their
personnel regarding access to
information concerning the composition
of, and 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, non-public
information regarding the Fund’s
portfolio. According to the Exchange,
the Adviser and the Index Provider
represent that a fire wall exists around
the respective personnel who have
access to information concerning
changes and adjustments to the Index.
The Exchange represents that 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 further
represents that these 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. Moreover, 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.
The Commission notes that the Shares
and the Fund must comply with the
initial and continued listing criteria in
Rule 14.11(c) for the Shares to be listed
and traded on the Exchange. In
addition, the Commission notes it has
previously approved a proposal to list
and trade shares of an ETF that employs
a very similar strategy.27
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. In support of this
proposal, the Exchange has also made
the following representations:
(1) The Shares will conform to the
initial and continued listing criteria
27 See, e.g., Securities Exchange Act Release Nos.
74675 (Apr. 8, 2015), 80 FR 20038 (Apr. 14, 2015)
(SR–NYSEArca–2015–05) (order approving
proposed rule change to list shares of the
WisdomTree Put Write Strategy Fund); and 77045
(Feb. 3, 2016), 81 FR 6916 (Feb. 9, 2016) (SR–
NYSEArca–2015–113) (order approving a proposed
rule change relating to the index underlying the
WisdomTree Put Write Strategy Fund).
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
under Rule 14.11(c), except that the
Index will not meet the requirements of
Rule 14.11(c)(3) because the Index will
consist of options.
(2) The Exchange has the appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) 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
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.
(4) Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (a) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (b) BZX Rule 3.7, which
imposes suitability obligations on
Exchange members with respect to
recommending transactions in the
Shares to customers; (c) how
information regarding the IIV and Index
value is disseminated; (d) the risks
involved in trading the Shares during
the Pre-Opening 28 and After Hours
Trading Sessions 29 when an updated
Intraday Indicative Value will not be
calculated or publicly disseminated; (e)
the requirement that members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (f) trading information.
(5) For initial and continued listing,
the Fund will be in compliance with
Rule 10A–3 under the Act,30 as
provided by Rule 14.10.
(6) The Fund may hold up to an
aggregate amount of 15% of its net
28 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m. ET.
29 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m. ET.
30 See 17 CFR 240.10A–3.
E:\FR\FM\20OCN1.SGM
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Federal Register / Vol. 82, No. 202 / Friday, October 20, 2017 / Notices
srobinson on DSKBC5CHB2PROD with NOTICES
assets in illiquid assets (calculated at
the time of investment).
(7) A minimum of 100,000 Shares for
the Fund will be outstanding at the
commencement of trading on the
Exchange.
(8) 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.
(9) The Fund will not invest in any
non-U.S. equity securities.
(10) The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage.31 The Fund will not
invest in leveraged (e.g., 2X, –2X, 3X, or
–3X) ETPs.
(11) 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 those contracts.
(12) The Fund may invest up to 10%
of its assets in over-the-counter Russell
2000 put options.
(13) 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.
(14) The Russell 2000 Index options
traded on CBOE are highly liquid, with
average daily trading volume in 2016 of
71,365 contracts and a notional size per
contract of $117,169. CBOE is a member
of the Option Price Regulatory
Surveillance Authority, which was
established 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.
The Exchange further represents that
all statements and representations made
in the 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 the filing
31 The
Exchange represents that 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.
VerDate Sep<11>2014
16:22 Oct 19, 2017
Jkt 244001
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. The
Exchange further represents that FINRA
conducts certain cross-market
surveillances on behalf of the Exchange
pursuant to a regulatory services
agreement, and 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
Rule 14.12.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice. For the foregoing reasons,
the Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 32 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,33 that the
proposed rule change (SR–BatsBZX–
2017–53) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–22752 Filed 10–19–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81882; File No. SR–ISE–
2017–87]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Assess Fees for
Specialized Quote Feed and SQF
Purge Ports
October 16, 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 October
32 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
34 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
33 15
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
48865
2, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to proposal to
amend its Schedule of Fees, as
described further below.
The text of the proposed rule change
is available on the Exchange’s Web site
at www.ise.com, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects 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 is proposing to amend
its Schedule of Fees to assess fees for
Specialized Quote Feed (‘‘SQF’’) 3 and
SQF Purge 4 Ports that Market Makers 5
utilize to connect to the Exchange. The
Exchange recently completed the
migration of the Exchange’s T7 trading
3 SQF is an interface that allows market makers
to connect and send quotes, sweeps and auction
responses into the Exchange. Data includes the
following: (1) Options Auction Notifications (e.g.,
opening imbalance, Flash, PIM, Solicitation and
Facilitation or other information); (2) Options
Symbol Directory Messages; (3) System Event
Messages (e.g., start of messages, start of system
hours, start of quoting, start of opening); (4) Option
Trading Action Messages (e.g., halts, resumes); (5)
Execution Messages; (6) Quote Messages (quote/
sweep messages, risk protection triggers or purge
notifications).
4 SQF Purge is a specific port for the SQF
interface that only receives and notifies of purge
requests from the market maker.
5 The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See ISE Rule 100(a)(25).
E:\FR\FM\20OCN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 202 (Friday, October 20, 2017)]
[Notices]
[Pages 48861-48865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22752]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81876; File No. SR-BatsBZX-2017-53]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order
Granting Approval 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)
October 16, 2017.
I. Introduction
On August 18, 2017, Bats BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (``Fund''). The
proposed rule change was published for comment in the Federal Register
on September 7, 2017.\3\ The Commission has received no comments on the
proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 81510 (Aug. 31,
2017), 82 FR 42399 (``Notice'').
---------------------------------------------------------------------------
II. Exchange's Description of the Proposed Rule Change
The Exchange proposes to list and trade Shares of the Fund under
Rule 14.11(c), 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 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.\4\
---------------------------------------------------------------------------
\4\ 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 Fund will seek investment results that track the price and
yield performance, before fees and expenses, of the CBOE Russell 2000
PutWrite Index (``Index''), which was developed and is maintained by
the Chicago Board Options Exchange, Inc. (``CBOE'' or ``Index
Provider'').\5\ The Index consists
[[Page 48862]]
of only two components: RUT Puts and one-month Treasury bills. The
Index tracks the value of a passive investment strategy, which consists
of selling (writing) Russell 2000 Index put options (``RUT Puts'') and
investing the sale proceeds in one-month Treasury bills. All RUT Puts
are standardized options traded on CBOE.\6\
---------------------------------------------------------------------------
\5\ According to the Exchange, none of the Trust, WisdomTree
Asset Management, Inc. (``Adviser''), Mellon Capital Management
(``Sub-Adviser''), State Street Bank and Trust Company
(administrator, custodian, and transfer agent for the Fund), or
Foreside Fund Services, LLC (distributor for the Fund) is affiliated
with the Index Provider.
\6\ The Exchange notes that CBOE is a member of the Intermarket
Surveillance Group (``ISG'').
---------------------------------------------------------------------------
The Exchange submitted the proposed rule change because the Index
underlying the Fund does not meet all of the ``generic'' listing
requirements of Rule 14.11(c), and more specifically, the requirements
of Rule 14.11(c)(5) applicable to Index Fund Shares based on an Index
of component securities representing a combination of the equity and
the fixed income markets. Rule 14.11(c)(5) requires that the equity and
fixed income component securities separately meet the criteria set
forth in Rules 14.11(c)(3) and 14.11(c)(4), respectively. With respect
to the Fund, the Index does not meet all of the generic requirements of
Rule 14.11(c)(3) because the Index consists primarily of RUT Puts.\7\
The Exchange represents that 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) in that the Index
will consist of options based on equity securities (i.e., RUT Puts).\8\
---------------------------------------------------------------------------
\7\ According to the Exchange, 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).
\8\ As defined in Rule 14.11(c)(1)(D), the term ``U.S. Component
Stock'' shall mean an equity security that is registered under
Sections 12(b) or 12(g) of the Act, or an American Depositary
Receipt, the underlying equity security of which is registered under
Sections 12(b) or 12(g) of the Act.
---------------------------------------------------------------------------
The Exchange has made the following representations and statements
in describing the Fund and its investment strategies, including other
assets and investment restrictions.\9\
---------------------------------------------------------------------------
\9\ Additional information regarding the Trust, the Fund, and
the Shares, including information relating to the underlying Index,
investment strategies, risks, net asset value (``NAV'') calculation,
creation and redemption procedures, fees, portfolio holdings
disclosure policies, distributions, and taxes, among other
information, is included in the Notice and the Registration
Statement, as applicable. See Notice, supra note 3 and Registration
Statement, supra note 4.
---------------------------------------------------------------------------
A. Description of the Index Methodology
The Index is based on a passive investment strategy that consists
of overlapping hypothetical investments in a single series of exchange-
listed 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 (``Roll Date''), which matches the expiration date of the
hypothetical RUT Puts. 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 the sale of RUT Puts 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.
B. Principal Investments of the Fund
The Fund seeks to track the performance of an underlying index, the
Index. Under Normal Market Conditions,\10\ the Fund will invest not
less than 80% 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 (as discussed
below, ``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 Exchange, the Fund
will generally use a sampling strategy in seeking to track the Index.
---------------------------------------------------------------------------
\10\ The term ``Normal Market Conditions'' includes, but is not
limited to, the absence of trading halts in the applicable financial
markets generally; operational issues causing dissemination of
inaccurate market information or system failures; or force majeure
type events such as natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or any similar
intervening circumstance. 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 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. RUT Puts are cash-
settled and trade in competitive auction markets with price and quote
transparency. According to the Exchange, 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.\11\
---------------------------------------------------------------------------
\11\ The Exchange states that 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 trading in the Shares and the
underlying Fund investments will be subject to the federal securities
laws and Exchange, CBOE, and Financial Industry Regulatory Authority
(``FINRA'') rules and surveillance programs.\12\ In addition, 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.
---------------------------------------------------------------------------
\12\ The Exchange also 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.
---------------------------------------------------------------------------
C. Other Investments of the Fund
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
[[Page 48863]]
agencies and instrumentalities, and 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 instruments''); \14\ Russell 2000 ETF put options; \15\
Russell 2000 Index futures and 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 include buying the derivative
instrument or selling the derivative instrument (i.e., writing the
applicable put option) and investing the proceeds.
---------------------------------------------------------------------------
\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.
\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 the rules promulgated by the Commodity
Futures Trading Commission, as such rules may be amended from time
to time. According to the Exchange, 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. All of the ETPs in which the
Fund may invest will be listed and traded on U.S. exchanges. The
Fund may invest in the securities of ETPs registered under the
Investment Company Act of 1940 (``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.
---------------------------------------------------------------------------
III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \20\
and the rules and regulations thereunder applicable to a national
securities exchange.\21\ In particular, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act,\22\ which
requires, among other things, that the Exchange's rules be designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest. The Commission also finds that the proposal to list and trade
the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii)
of the Act,\23\ which sets forth Congress' finding that it is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f.
\21\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\22\ 15 U.S.C. 78f(b)(5).
\23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------
Quotation and last-sale information for the Shares and any ETPs in
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 \24\ 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. 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.\25\
All Fund holdings will be included in calculating the IIV.
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\24\ 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. ET.
\25\ According to the Exchange, several major market data
vendors display and/or make widely available IIV's taken from the
CTA or other data feeds.
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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. 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
[[Page 48864]]
volume information for the Shares will be published daily in the
financial section of newspapers. The Trust's Web site, 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 and
additional quantitative information updated on a daily basis relating
to the Fund.
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 National Securities
Clearing Corporation. The portfolio 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 constitute the Fund's portfolio on a given day. The NAV of the
Fund's Shares will be calculated once daily Monday through Friday as of
the close of regular trading on the New York Stock Exchange, generally
4:00 p.m. ET.
The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. 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. Trading may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable.\26\ The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees. In addition, the Exchange states that the Index Provider is
not registered as an investment adviser or broker-dealer and is not
affiliated with any broker-dealers. The Exchange also represents that
the Adviser is not registered as, or affiliated with, any broker-
dealer. The Exchange represents that the Sub-Adviser is affiliated with
multiple broker-dealers and has implemented a ``fire wall'' with
respect to those broker-dealers and their personnel regarding access to
information concerning the composition of, and 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, non-public information regarding the
Fund's portfolio. According to the Exchange, the Adviser and the Index
Provider represent that a fire wall exists around the respective
personnel who have access to information concerning changes and
adjustments to the Index.
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\26\ These may include: (1) The extent to which trading is not
occurring in the securities or the financial instruments composing
the daily disclosed portfolio of the Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance
of a fair and orderly market are present. 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 Fund.
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.
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The Exchange represents that 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 further represents that these 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. Moreover,
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.
The Commission notes that the Shares and the Fund must comply with
the initial and continued listing criteria in Rule 14.11(c) for the
Shares to be listed and traded on the Exchange. In addition, the
Commission notes it has previously approved a proposal to list and
trade shares of an ETF that employs a very similar strategy.\27\
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\27\ See, e.g., Securities Exchange Act Release Nos. 74675 (Apr.
8, 2015), 80 FR 20038 (Apr. 14, 2015) (SR-NYSEArca-2015-05) (order
approving proposed rule change to list shares of the WisdomTree Put
Write Strategy Fund); and 77045 (Feb. 3, 2016), 81 FR 6916 (Feb. 9,
2016) (SR-NYSEArca-2015-113) (order approving a proposed rule change
relating to the index underlying the WisdomTree Put Write Strategy
Fund).
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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. In support of this
proposal, the Exchange has also made the following representations:
(1) 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) because the Index will consist of
options.
(2) The Exchange has the appropriate rules to facilitate
transactions in the Shares during all trading sessions.
(3) 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 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.
(4) Prior to the commencement of trading, the Exchange will inform
its members in an Information Circular of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Circular will discuss the following: (a) The procedures for
purchases and redemptions of Shares in Creation Units (and that Shares
are not individually redeemable); (b) BZX Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (c) how
information regarding the IIV and Index value is disseminated; (d) the
risks involved in trading the Shares during the Pre-Opening \28\ and
After Hours Trading Sessions \29\ when an updated Intraday Indicative
Value will not be calculated or publicly disseminated; (e) the
requirement that members deliver a prospectus to investors purchasing
newly issued Shares prior to or concurrently with the confirmation of a
transaction; and (f) trading information.
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\28\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. ET.
\29\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. ET.
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(5) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Act,\30\ as provided by Rule
14.10.
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\30\ See 17 CFR 240.10A-3.
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(6) The Fund may hold up to an aggregate amount of 15% of its net
[[Page 48865]]
assets in illiquid assets (calculated at the time of investment).
(7) A minimum of 100,000 Shares for the Fund will be outstanding at
the commencement of trading on the Exchange.
(8) 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.
(9) The Fund will not invest in any non-U.S. equity securities.
(10) The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage.\31\ The
Fund will not invest in leveraged (e.g., 2X, -2X, 3X, or -3X) ETPs.
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\31\ The Exchange represents that 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.
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(11) 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 those contracts.
(12) The Fund may invest up to 10% of its assets in over-the-
counter Russell 2000 put options.
(13) 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.
(14) The Russell 2000 Index options traded on CBOE are highly
liquid, with average daily trading volume in 2016 of 71,365 contracts
and a notional size per contract of $117,169. CBOE is a member of the
Option Price Regulatory Surveillance Authority, which was established
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.
The Exchange further represents that all statements and
representations made in the 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 the filing 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. The
Exchange further represents that FINRA conducts certain cross-market
surveillances on behalf of the Exchange pursuant to a regulatory
services agreement, and 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 Rule 14.12.
This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice. For
the foregoing reasons, the Commission finds that the proposed rule
change is consistent with Section 6(b)(5) of the Act \32\ and the rules
and regulations thereunder applicable to a national securities
exchange.
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\32\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\33\ that the proposed rule change (SR-BatsBZX-2017-53) be, and it
hereby is, approved.
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\33\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22752 Filed 10-19-17; 8:45 am]
BILLING CODE 8011-01-P
