Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of Filing of Amendments No. 2 and No. 3, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendments No. 2 and No. 3, To List and Trade Shares of the Aptus Fortified Value ETF, a Series of ETF Series Solutions, Under Rule 14.11(c), 50472-50475 [2017-23583]
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Finally, the Exchange further believes
that the proposed change is not unfairly
discriminatory because it applies
equally to all members and ADV
calculations.
The proposed rule change is designed
adopt a new provision covering the
Market Make Plus tier calculation. The
proposed language for removing a day
from the Market Maker Plus tier
calculation mirrors the language
currently in place for the ADV
calculation, except that the Exchange
proposes that it will not remove days
where the Exchange closes early for
holiday observance. While Market
Makers can plan for known events, such
as a holiday, they are unable to plan for
market events which may close the
market for part of a trading day. The
Exchange believes that permitting the
exception for the unanticipated event
therefore provides flexibility to Market
Makers in anticipating where to send
order flow. The Exchange desires to
incentivize Market Makers to send order
flow to ISE to meet their tier
requirements. The Exchange believes
that the proposed modifications to its
ADV and Market Maker Plus tier
calculations are pro-competitive and
will result in lower total costs to end
users, a positive outcome of competitive
markets.
The Exchange operates in a highly
competitive market in which market
participants can readily direct their
order flow to competing venues. In such
an environment, the Exchange must
continually review, and consider
adjusting, its fees and rebates to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed fee
changes reflect this competitive
environment.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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)(ii) of the Act 18 and Rule
19b–4(f)(2) 19 thereunder. 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: (i)
18 15
19 17
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
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Necessary or appropriate in the public
interest; (ii) for the protection of
investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
Number SR–ISE–2017–93 and should be
submitted on or before November 21,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
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:
[FR Doc. 2017–23580 Filed 10–30–17; 8:45 am]
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–
ISE–2017–93 on the subject line.
Self-Regulatory Organizations; Bats
BZX Exchange, Inc.; Notice of Filing of
Amendments No. 2 and No. 3, and
Order Granting Accelerated Approval
of a Proposed Rule Change, as
Modified by Amendments No. 2 and
No. 3, To List and Trade Shares of the
Aptus Fortified Value ETF, a Series of
ETF Series Solutions, Under Rule
14.11(c)
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–ISE–2017–93. 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
PO 00000
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81947; File No. SR–
BatsBZX–2017–46]
October 25, 2017.
I. Introduction
On July 10, 2017, Bats BZX Exchange,
Inc. (‘‘Exchange’’) 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
Aptus Fortified Value ETF (‘‘Fund’’), a
series of ETF Series Solutions (‘‘Trust’’),
under Rule 14.11(c). The proposed rule
change was published for comment in
the Federal Register on July 28, 2017.3
On August 31, 2017, the Exchange filed
Amendment No. 1 to the proposed rule
change. On September 8, 2017, pursuant
to Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 On October 6,
2017, the Exchange filed Amendment
No. 2 to the proposed rule change,
which replaced the proposed rule
change, as modified by Amendment
No. 1, in its entirety.6 On October 24,
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 81191
(July 24, 2017), 82 FR 35256.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 81558,
82 FR 43278 (September 14, 2017).
6 In Amendment No. 2, the Exchange: (1)
Provided additional information regarding the
1 15
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2017, the Exchange filed Amendment
No. 3 to the proposed rule change.7 The
Commission received no comments on
the proposal. The Commission is
publishing this notice to solicit
comments on Amendments No. 2 and
No. 3 from interested persons, and is
approving the proposed rule change, as
modified by Amendments No. 2 and No.
3, on an accelerated basis.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
II. Description of the Proposed Rule
Change, as Modified by Amendments
No. 2 and No. 3
The Exchange proposes to list and
trade the Shares under Rule 14.11(c)(3),
which governs the listing and trading of
Index Fund Shares on the Exchange.
The Shares will be offered by the Trust,
which was established as a Delaware
statutory trust on February 9, 2012. The
Trust is registered with the Commission
as an open-end investment company
and has filed a registration statement on
behalf of the Fund on Form N–1A
(‘‘Registration Statement’’) with the
Commission.8 Aptus Capital Advisors,
LLC (‘‘Adviser’’ or ‘‘Index Provider’’)
serves as investment adviser and index
provider to the Fund. The Index
Provider is not a broker-dealer and is
not affiliated with a broker-dealer. The
Index Provider will implement and
maintain a ‘‘fire wall’’ around the
personnel who have access to
information concerning changes and
adjustments to the Index. The Index is
calculated by an unaffiliated third party
who is not a broker-dealer or fund
advisor. In addition, any advisory
committee, supervisory board, or similar
entity that advises the Index Provider or
that makes decisions on the Index or
portfolio composition, methodology and
Adviser (as defined below), the Index Provider (as
defined below), and the index calculation agent; (2)
amended and provided additional discussions
regarding constituents of the Aptus Fortified Value
Index (‘‘Index’’) and permitted holdings of the
Fund; (3) clarified the types of statements and
representations made in the proposal that will
constitute continued listing requirements; and (4)
made other technical, non-substantive, and
conforming changes. Amendment No. 2 is available
at: https://www.sec.gov/comments/sr-batsbzx-201746/batsbzx201746-2630920-161197.pdf.
7 In Amendment No. 3, the Exchange: (1) Clarified
that all securities included in the Index—rather
than held by the Fund—are listed on U.S. securities
exchanges that are members of the Intermarket
Surveillance Group (‘‘ISG’’); and (2) clarified the
Fund’s compliance with various applicable
requirements. Amendment No. 3 is available at:
https://www.sec.gov/comments/sr-batsbzx-2017-46/
batsbzx201746-2651203-161342.pdf.
8 See Registration Statement on Form N–1A for
the Trust, dated June 8, 2017 (File Nos. 333–179562
and 811–22668). According to the Exchange, the
Commission has issued an order, upon which the
Trust may rely, granting certain exemptive relief
under the Investment Company Act of 1940. See
Investment Company Act Release No. 32110 (May
10, 2016) (File No. 812–14604).
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related matters, will implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material non-public
information regarding the Index.
The Fund will seek to track the
performance, before fees and expenses,
of the Aptus Fortified Value Index.
According to the Exchange, the Index
does not meet all of the generic listing
requirements of Rule 14.11(c)(3)(A)(i).
Specifically, Rule 14.11(c)(3)(A)(i) sets
forth the requirements for components
of an index or portfolio of U.S.
Component Stocks, but the Index may
include put options, which are not
included in the definition of U.S.
Component Stocks.9 The Index will
otherwise conform to the initial and
continued listing criteria under Rule
14.11(c).
According to the Exchange, the Index
is a rules-based, equal-weighted index
that is designed to gain exposure to 50
of the most undervalued U.S.-listed
common stocks and real estate
investment trusts (‘‘REITs’’), while
hedging against significant U.S. equity
market declines when the market is
overvalued. More specifically, the Index
is composed of an equity component of
50 common stocks and REITs 10 and,
when the Index determines that the U.S.
equity market is overvalued, a ‘‘tail
hedge’’ component of long put options
on a large, highly liquid ETF 11 listed on
a national securities exchange that
tracks the performance of the large-cap
U.S. equity market (‘‘Underlying
ETF’’).12 All of the securities included
in the Index are and will be listed on
U.S. exchanges, and all such exchanges
are members of the ISG.
When the tail hedge is not in effect,
the Index will be composed 100% of the
equity component. At the time the tail
hedge is implemented, the Index will be
composed 99.5% of the equity
component and 0.50% the tail hedge
(based on the theoretical dollar value of
the Index at the time that the options are
added to the Index). Any tail hedge
implementation will occur on the last
9 A ‘‘U.S. Component Stock’’ is 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. See Rule
14.11(c)(1)(D).
10 The equity component of the Index will meet
the requirements of Rule 14.11(c)(3)(A)(i).
11 ETF includes Portfolio Depositary Receipts and
Index Fund Shares, as defined in Rules 14.11(b) and
14.11(c), respectively, or their equivalents on other
national securities exchanges.
12 The large-cap U.S. equity market tracking ETF
with the highest average daily options volume (as
determined annually by the Index rules) will be the
Underlying ETF.
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50473
business day of the applicable month.13
At the time the tail hedge is
implemented, the put options on the
Underlying ETF will have an expiration
date of approximately three months
from the date the tail hedge is
implemented, and the strike price will
be approximately 30% less than the
most recent closing price of the
Underlying ETF.
According to the Exchange, the Fund
may hold: (1) Securities that are
possible constituents of the Index; (2)
cash and cash equivalents; 14 (3) U.S.
Government securities, including bills,
notes, and bonds differing as to maturity
and rates of interest, which are either
issued or guaranteed by the U.S.
Treasury or by U.S. Government
agencies or instrumentalities; and (4)
other ETFs.15
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendments No. 2 and No.
3, is consistent with the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.16 In particular, the
Commission finds that the proposal is
consistent with Section 6(b)(5) of the
13 On the last business day of each month, any
options held by the Index are removed. If the tail
hedge will not be in effect for the following month,
the weight of such options, if any, will be
reallocated pro rata to the securities in the Index’s
equity component. If the tail hedge will continue
in effect for the following month, the Index is
rebalanced such that the tail hedge (with new
options purchased) has a weight of 0.50% and the
equity component securities are adjusted up or
down pro rata to have a weight of 99.5%.
14 Cash equivalents include short-term
instruments (instruments with maturities of less
than 3 months) of the following types: (1) U.S.
Government securities, including bills, notes, and
bonds differing as to maturity and rates of interest,
which are either issued or guaranteed by the U.S.
Treasury or by U.S. Government agencies or
instrumentalities; (2) certificates of deposit issued
against funds deposited in a bank or savings and
loan association; (3) bankers’ acceptances, which
are short-term credit instruments used to finance
commercial transactions; (4) repurchase agreements
and reverse repurchase agreements; (5) bank time
deposits, which are monies kept on deposit with
banks or savings and loan associations for a stated
period of time at a fixed rate of interest; (6)
commercial paper, which are short-term unsecured
promissory notes; and (7) money market funds.
15 These ETFs include Portfolio Depository
Receipts (as described in Rule 14.11(b)), Index Fund
Shares (as described in Rule 14.11(c)), and Managed
Fund Shares (as described in Rule 14.11(i)). The
ETFs in which the Fund may invest all will be
listed and traded in the U.S. on national securities
exchanges. The Fund may invest in inverse ETFs,
but will not invest in leveraged (e.g., 2X, ¥2X, 3X,
or ¥3X) ETFs.
16 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).
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asabaliauskas on DSKBBXCHB2PROD with NOTICES
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Federal Register / Vol. 82, No. 209 / Tuesday, October 31, 2017 / Notices
Act,17 which requires, among other
things, that the Exchange’s rules be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
The Commission notes that, except for
the options position that may be
included in the Index (the aggregate
market value of which is capped at
0.50% of the theoretical dollar value of
the Index at the time that the options are
added to the Index),18 the Index will
satisfy, on an initial and continued
listing basis, all of the generic listing
standards under Rule 14.11(c)(3)(A)(i).
All of the securities included in the
Index are and will be listed on U.S.
securities exchanges, and all such
exchanges are members of the ISG.
Moreover, the Fund may hold only the
following: Securities that are possible
constituents of the Index (all of which
will be listed on U.S. securities
exchanges); cash; cash equivalents; U.S.
Government securities; and other ETFs
(all of which will be listed on U.S.
securities exchanges).
The Exchange states 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. The
Exchange also states that it may obtain
information regarding trading in the
Shares and the underlying equities and
options contracts held by the Fund and
included in the Index via the ISG from
other exchanges who are members or
affiliates of the ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement.
The Fund will meet and be subject to
the requirements of Rule 14.11(c), and
other applicable requirements for Index
Fund Shares based on a U.S. equity
index or portfolio, including, but not
limited to, requirements relating to the
dissemination of key information such
as the Net Asset Value, the Intraday
Indicative Value, rules governing the
trading of equity securities, trading
hours, trading halts, surveillance, and
the information circular, as set forth in
Exchange rules applicable to Index
Fund Shares and the orders approving
17 15
U.S.C. 78f(b)(5).
noted above, the options will overlie a large,
highly liquid ETF listed on a national securities
exchange that tracks the performance of the largecap U.S. equity market.
18 As
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17:37 Oct 30, 2017
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such rules. In addition, for initial and/
or continued listing, the Fund must be
in compliance with Rule 10A–3 under
the Act.19
The Exchange represents that all
statements and representations
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 assets,
and intraday indicative values, and the
applicability of Exchange listing 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 or
the Shares to comply with the
continued listing requirements.
Pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange
will surveil for compliance with the
continued listing requirements. If the
Fund or the Shares are 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 statements and
representations, including those set
forth above and in Amendments No. 2
and No. 3.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by
Amendments No. 2 and No. 3, is
consistent with Section 6(b)(5) of the
Act 20 and the rules and regulations
thereunder applicable to a national
securities exchange.
All submissions should refer to File
Number SR–BatsBZX–2017–46. 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BatsBZX–2017–46, and
should be submitted on or before
November 21, 2017.
IV. Solicitation of Comments on
Amendments No. 2 and No. 3 to the
Proposed Rule Change
Interested persons are invited to
submit written data, views, and
arguments concerning whether
Amendments No. 2 and No. 3 are
consistent with the Act. Comments may
be submitted by any of the following
methods:
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendments No. 2 and No. 3
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendments No. 2 and No.
3, prior to the thirtieth day after the date
of publication of notice of the filing of
Amendments No. 2 and No. 3 in the
Federal Register. The Commission
believes that Amendments No. 2 and
No. 3 supplement the proposed rule
change by providing clarification and
additional information regarding the
Index and the Fund.21 The changes and
additional information helped the
Commission to evaluate the Shares’
susceptibility to manipulation, and
whether the listing and trading of the
Shares would be consistent with the
protection of investors and the public
interest. Accordingly, the Commission
finds good cause, pursuant to Section
19(b)(2) of the Act,22 to approve the
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–
BatsBZX–2017–46 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.
19 17
20 15
PO 00000
CFR 240.10A–3.
U.S.C. 78f(b)(5).
Frm 00104
Fmt 4703
21 See
22 15
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E:\FR\FM\31OCN1.SGM
supra notes 6 and 7.
U.S.C. 78s(b)(2).
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proposed rule change, as modified by
Amendments No. 2 and No. 3, on an
accelerated basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,23 that the
proposed rule change (SR–BatsBZX–
2017–46), as modified by Amendments
No. 2 and No. 3 be, and it hereby is,
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–23583 Filed 10–30–17; 8:45 am]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81943; File No. SR–
NYSEAMER–2017–25]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend NYSE
American Equities Rules 7.31E To
Establish a Minimum Dollar Threshold
Into the Price Protection Mechanisms
October 25, 2017.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on October
13, 2017, NYSE American LLC (the
‘‘Exchange’’ or ‘‘NYSE American’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. 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 amend
NYSE American Equities Rules 7.31E
(Orders and Modifiers) to establish a
minimum dollar threshold into the price
protection mechanisms provided for in
the rule. The proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
23 Id.
24 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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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
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1. Purpose
The Exchange proposes to amend
NYSE American Equities Rules 7.31E
(Orders and Modifiers) (‘‘Rule 7.31E’’) to
establish a minimum dollar threshold
into the price protection mechanisms
provided for in the rule.
Background
Rule 7.31E(a)(1)(B) describes the price
protection mechanism for Market
Orders, i.e., Trading Collars. Currently,
Rule 7.31E(a)(1)(B)(i) provides that the
Trading Collar will be based on a price
that is a specified percentage away from
the consolidated last sale price. Rule
7.31E(a)(1)(B)(i) further provides that
the upper (lower) boundary of the
Trading Collar is the consolidated last
sale price increased (decreased) by the
specified percentage truncated to the
minimum price variation (‘‘MPV’’) for
the security.
Additionally, Rule 7.31E(a)(2)(B)
(‘‘Limit Order Price Protection’’)
provides the price protection
mechanism for Limit Orders and that a
Limit Order to buy (sell) will be rejected
if it is priced at or above (below) a
specified percentage away from the
National Best Offer (National Best Bid)
(‘‘NBO’’ and ‘‘NBB’’, respectively).
Proposed Changes
• Trading Collar: The Exchange
proposes to amend Rule 7.31E(a)(1)(B)(i)
to introduce a minimum dollar
threshold, of $0.15, into the calculation
of the Trading Collar. As such, the
proposed rule would provide that the
Trading Collar would be based on a
price that is the greater of $0.15 or a
specified percentage away from the
consolidated last sale price.
Accordingly, the upper (lower)
boundary of the Trading Collar would
be the consolidated last sale price
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
50475
increased (decreased), by the greater of
$0.15 or the specified percentage.
• Limit Order Price Protection: The
Exchange proposes to amend Rule
7.31E(a)(2)(B) to introduce the same
proposed minimum dollar threshold
that is specified above for the Trading
Collar, of $0.15, into the Limit Order
Price Protection calculation.
Accordingly, the proposed rule would
provide that a Limit Order to buy (sell)
would be rejected if it was priced at or
above (below) the greater of $0.15 or a
specified percentage away from the
NBO (NBB). The Exchange believes that
the introduction of a minimum dollar
threshold enhances the Limit Order
Price Protection and encourages price
continuity specifically in lower priced
illiquid securities.
The Exchange believes that adding a
minimum dollar threshold to the
Trading Collar and Limit Order Price
Protection calculations would enhance
the respective price protection
mechanisms for securities with a
consolidated last sale price below $1.50
because using the current 10 percent
multiplier for such securities would
result in too narrow of a price protection
mechanism. This proposed rule change
is consistent with how other exchanges
specify static price collar thresholds for
lower-price securities. For example,
NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule
7.35–E(e)(7) 4 provides that for securities
with a consolidated last sale price under
$3.00, the price collar threshold for
auction collars would be a static $0.15
instead of 5 percent.5
In addition, the Exchange proposes to
replace the word ‘‘truncated’’ with the
words ‘‘rounded down’’ 6 in Rule
7.31E(a)(1)(B)(i). The Exchange that
believes that conforming the
terminology used within Rule 7.31E 7
and elsewhere in Exchange’s rules
promotes clarity and transparency.
4 See Securities Exchange Act Release No. 79846
(January 19, 2017), 82 FR 8548 (January 26, 2017)
(SR–NYSEArca–2016–130).
5 See also Nasdaq Stock Market LLC (‘‘Nasdaq’’)
Rule 4703(d) (providing that ‘‘any portion of a
Primary Pegging Order or Market Pegging Order that
would execute . . . at a price more than $0.25 or
5 percent worse that the NBBO . . . will be
cancelled)’’ and Bats BZX Exchange, Inc. (‘‘Bats’’)
Rule 27.2, Interpretations and Policies .01 and Bats
Rule 11.13 (stating that Bats ‘‘will not execute any
portion of a bid at a price more than the greater of
5 cents or 0.5 percent higher than the lowest
Protected Offer’’).
6 See Rule 7.46E(f)(2)(A), which provides that
references to truncating to the MPV in Exchange
rules instead mean rounding down to the applicable
quoting MPV.
7 See Rule 7.31E(a)(2)(B) which provides that
‘‘Limit Order Price Protection will be rounded
down to the nearest price at the applicable MPV.’’
E:\FR\FM\31OCN1.SGM
31OCN1
]]>Agencies
[Federal Register Volume 82, Number 209 (Tuesday, October 31, 2017)]
[Notices]
[Pages 50472-50475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23583]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81947; File No. SR-BatsBZX-2017-46]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of
Filing of Amendments No. 2 and No. 3, and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendments No. 2 and
No. 3, To List and Trade Shares of the Aptus Fortified Value ETF, a
Series of ETF Series Solutions, Under Rule 14.11(c)
October 25, 2017.
I. Introduction
On July 10, 2017, Bats BZX Exchange, Inc. (``Exchange'') 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 Aptus Fortified Value ETF (``Fund''), a
series of ETF Series Solutions (``Trust''), under Rule 14.11(c). The
proposed rule change was published for comment in the Federal Register
on July 28, 2017.\3\ On August 31, 2017, the Exchange filed Amendment
No. 1 to the proposed rule change. On September 8, 2017, pursuant to
Section 19(b)(2) of the Act,\4\ the Commission designated a longer
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ On October 6, 2017, the
Exchange filed Amendment No. 2 to the proposed rule change, which
replaced the proposed rule change, as modified by Amendment No. 1, in
its entirety.\6\ On October 24,
[[Page 50473]]
2017, the Exchange filed Amendment No. 3 to the proposed rule
change.\7\ The Commission received no comments on the proposal. The
Commission is publishing this notice to solicit comments on Amendments
No. 2 and No. 3 from interested persons, and is approving the proposed
rule change, as modified by Amendments No. 2 and No. 3, on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 81191 (July 24,
2017), 82 FR 35256.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 81558, 82 FR 43278
(September 14, 2017).
\6\ In Amendment No. 2, the Exchange: (1) Provided additional
information regarding the Adviser (as defined below), the Index
Provider (as defined below), and the index calculation agent; (2)
amended and provided additional discussions regarding constituents
of the Aptus Fortified Value Index (``Index'') and permitted
holdings of the Fund; (3) clarified the types of statements and
representations made in the proposal that will constitute continued
listing requirements; and (4) made other technical, non-substantive,
and conforming changes. Amendment No. 2 is available at: https://www.sec.gov/comments/sr-batsbzx-2017-46/batsbzx201746-2630920-161197.pdf.
\7\ In Amendment No. 3, the Exchange: (1) Clarified that all
securities included in the Index--rather than held by the Fund--are
listed on U.S. securities exchanges that are members of the
Intermarket Surveillance Group (``ISG''); and (2) clarified the
Fund's compliance with various applicable requirements. Amendment
No. 3 is available at: https://www.sec.gov/comments/sr-batsbzx-2017-46/batsbzx201746-2651203-161342.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendments
No. 2 and No. 3
The Exchange proposes to list and trade the Shares under Rule
14.11(c)(3), which governs the listing and trading of Index Fund Shares
on the Exchange. The Shares will be offered by the Trust, which was
established as a Delaware statutory trust on February 9, 2012. The
Trust is registered with the Commission as an open-end investment
company and has filed a registration statement on behalf of the Fund on
Form N-1A (``Registration Statement'') with the Commission.\8\ Aptus
Capital Advisors, LLC (``Adviser'' or ``Index Provider'') serves as
investment adviser and index provider to the Fund. The Index Provider
is not a broker-dealer and is not affiliated with a broker-dealer. The
Index Provider will implement and maintain a ``fire wall'' around the
personnel who have access to information concerning changes and
adjustments to the Index. The Index is calculated by an unaffiliated
third party who is not a broker-dealer or fund advisor. In addition,
any advisory committee, supervisory board, or similar entity that
advises the Index Provider or that makes decisions on the Index or
portfolio composition, methodology and related matters, will implement
and maintain, or be subject to, procedures designed to prevent the use
and dissemination of material non-public information regarding the
Index.
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\8\ See Registration Statement on Form N-1A for the Trust, dated
June 8, 2017 (File Nos. 333-179562 and 811-22668). According to the
Exchange, the Commission has issued an order, upon which the Trust
may rely, granting certain exemptive relief under the Investment
Company Act of 1940. See Investment Company Act Release No. 32110
(May 10, 2016) (File No. 812-14604).
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The Fund will seek to track the performance, before fees and
expenses, of the Aptus Fortified Value Index. According to the
Exchange, the Index does not meet all of the generic listing
requirements of Rule 14.11(c)(3)(A)(i). Specifically, Rule
14.11(c)(3)(A)(i) sets forth the requirements for components of an
index or portfolio of U.S. Component Stocks, but the Index may include
put options, which are not included in the definition of U.S. Component
Stocks.\9\ The Index will otherwise conform to the initial and
continued listing criteria under Rule 14.11(c).
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\9\ A ``U.S. Component Stock'' is 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. See Rule
14.11(c)(1)(D).
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According to the Exchange, the Index is a rules-based, equal-
weighted index that is designed to gain exposure to 50 of the most
undervalued U.S.-listed common stocks and real estate investment trusts
(``REITs''), while hedging against significant U.S. equity market
declines when the market is overvalued. More specifically, the Index is
composed of an equity component of 50 common stocks and REITs \10\ and,
when the Index determines that the U.S. equity market is overvalued, a
``tail hedge'' component of long put options on a large, highly liquid
ETF \11\ listed on a national securities exchange that tracks the
performance of the large-cap U.S. equity market (``Underlying
ETF'').\12\ All of the securities included in the Index are and will be
listed on U.S. exchanges, and all such exchanges are members of the
ISG.
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\10\ The equity component of the Index will meet the
requirements of Rule 14.11(c)(3)(A)(i).
\11\ ETF includes Portfolio Depositary Receipts and Index Fund
Shares, as defined in Rules 14.11(b) and 14.11(c), respectively, or
their equivalents on other national securities exchanges.
\12\ The large-cap U.S. equity market tracking ETF with the
highest average daily options volume (as determined annually by the
Index rules) will be the Underlying ETF.
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When the tail hedge is not in effect, the Index will be composed
100% of the equity component. At the time the tail hedge is
implemented, the Index will be composed 99.5% of the equity component
and 0.50% the tail hedge (based on the theoretical dollar value of the
Index at the time that the options are added to the Index). Any tail
hedge implementation will occur on the last business day of the
applicable month.\13\ At the time the tail hedge is implemented, the
put options on the Underlying ETF will have an expiration date of
approximately three months from the date the tail hedge is implemented,
and the strike price will be approximately 30% less than the most
recent closing price of the Underlying ETF.
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\13\ On the last business day of each month, any options held by
the Index are removed. If the tail hedge will not be in effect for
the following month, the weight of such options, if any, will be
reallocated pro rata to the securities in the Index's equity
component. If the tail hedge will continue in effect for the
following month, the Index is rebalanced such that the tail hedge
(with new options purchased) has a weight of 0.50% and the equity
component securities are adjusted up or down pro rata to have a
weight of 99.5%.
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According to the Exchange, the Fund may hold: (1) Securities that
are possible constituents of the Index; (2) cash and cash equivalents;
\14\ (3) U.S. Government securities, including bills, notes, and bonds
differing as to maturity and rates of interest, which are either issued
or guaranteed by the U.S. Treasury or by U.S. Government agencies or
instrumentalities; and (4) other ETFs.\15\
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\14\ Cash equivalents include short-term instruments
(instruments with maturities of less than 3 months) of the following
types: (1) U.S. Government securities, including bills, notes, and
bonds differing as to maturity and rates of interest, which are
either issued or guaranteed by the U.S. Treasury or by U.S.
Government agencies or instrumentalities; (2) certificates of
deposit issued against funds deposited in a bank or savings and loan
association; (3) bankers' acceptances, which are short-term credit
instruments used to finance commercial transactions; (4) repurchase
agreements and reverse repurchase agreements; (5) bank time
deposits, which are monies kept on deposit with banks or savings and
loan associations for a stated period of time at a fixed rate of
interest; (6) commercial paper, which are short-term unsecured
promissory notes; and (7) money market funds.
\15\ These ETFs include Portfolio Depository Receipts (as
described in Rule 14.11(b)), Index Fund Shares (as described in Rule
14.11(c)), and Managed Fund Shares (as described in Rule 14.11(i)).
The ETFs in which the Fund may invest all will be listed and traded
in the U.S. on national securities exchanges. The Fund may invest in
inverse ETFs, but will not invest in leveraged (e.g., 2X, -2X, 3X,
or -3X) ETFs.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendments No. 2 and No. 3, is consistent with
the Act and the rules and regulations thereunder applicable to a
national securities exchange.\16\ In particular, the Commission finds
that the proposal is consistent with Section 6(b)(5) of the
[[Page 50474]]
Act,\17\ which requires, among other things, that the Exchange's rules
be designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\16\ 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).
\17\ 15 U.S.C. 78f(b)(5).
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The Commission notes that, except for the options position that may
be included in the Index (the aggregate market value of which is capped
at 0.50% of the theoretical dollar value of the Index at the time that
the options are added to the Index),\18\ the Index will satisfy, on an
initial and continued listing basis, all of the generic listing
standards under Rule 14.11(c)(3)(A)(i). All of the securities included
in the Index are and will be listed on U.S. securities exchanges, and
all such exchanges are members of the ISG. Moreover, the Fund may hold
only the following: Securities that are possible constituents of the
Index (all of which will be listed on U.S. securities exchanges); cash;
cash equivalents; U.S. Government securities; and other ETFs (all of
which will be listed on U.S. securities exchanges).
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\18\ As noted above, the options will overlie a large, highly
liquid ETF listed on a national securities exchange that tracks the
performance of the large-cap U.S. equity market.
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The Exchange states 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. The Exchange also
states that it may obtain information regarding trading in the Shares
and the underlying equities and options contracts held by the Fund and
included in the Index via the ISG from other exchanges who are members
or affiliates of the ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
The Fund will meet and be subject to the requirements of Rule
14.11(c), and other applicable requirements for Index Fund Shares based
on a U.S. equity index or portfolio, including, but not limited to,
requirements relating to the dissemination of key information such as
the Net Asset Value, the Intraday Indicative Value, rules governing the
trading of equity securities, trading hours, trading halts,
surveillance, and the information circular, as set forth in Exchange
rules applicable to Index Fund Shares and the orders approving such
rules. In addition, for initial and/or continued listing, the Fund must
be in compliance with Rule 10A-3 under the Act.\19\
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\19\ 17 CFR 240.10A-3.
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The Exchange represents that all statements and representations
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 assets, and
intraday indicative values, and the applicability of Exchange listing
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 or the Shares to comply
with the continued listing requirements. Pursuant to its obligations
under Section 19(g)(1) of the Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Fund or the
Shares are 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 statements and
representations, including those set forth above and in Amendments No.
2 and No. 3.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendments No. 2 and No. 3, is consistent
with Section 6(b)(5) of the Act \20\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\20\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments on Amendments No. 2 and No. 3 to the
Proposed Rule Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendments No. 2 and No. 3 are 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 [email protected]. Please include
File Number SR-BatsBZX-2017-46 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-BatsBZX-2017-46. 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. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-BatsBZX-2017-46, and should
be submitted on or before November 21, 2017.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendments No. 2 and No. 3
The Commission finds good cause to approve the proposed rule
change, as modified by Amendments No. 2 and No. 3, prior to the
thirtieth day after the date of publication of notice of the filing of
Amendments No. 2 and No. 3 in the Federal Register. The Commission
believes that Amendments No. 2 and No. 3 supplement the proposed rule
change by providing clarification and additional information regarding
the Index and the Fund.\21\ The changes and additional information
helped the Commission to evaluate the Shares' susceptibility to
manipulation, and whether the listing and trading of the Shares would
be consistent with the protection of investors and the public interest.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\22\ to approve the
[[Page 50475]]
proposed rule change, as modified by Amendments No. 2 and No. 3, on an
accelerated basis.
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\21\ See supra notes 6 and 7.
\22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-BatsBZX-2017-46), as
modified by Amendments No. 2 and No. 3 be, and it hereby is, approved
on an accelerated basis.
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\23\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23583 Filed 10-30-17; 8:45 am]
BILLING CODE 8011-01-P
