Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List on the Exchange Eighteen ADRPLUS Funds of the Precidian ETFs Trust Under Rule 14.11(i), Managed Fund Shares, 12449-12454 [2018-05647]
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Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82881; File No. SR–
CboeBZX–2018–019]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To List on the
Exchange Eighteen ADRPLUS Funds
of the Precidian ETFs Trust Under Rule
14.11(i), Managed Fund Shares
March 15, 2018.
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 March 5,
2018, Cboe BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to list
on the Exchange eighteen ADRPLUS
Funds of the Precidian ETFs Trust (the
‘‘Trust’’), under Rule 14.11(i) (‘‘Managed
Fund Shares’’).
The text of the proposed rule change
is available at the Exchange’s website at
www.markets.cboe.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
sradovich on DSK3GMQ082PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of eighteen
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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different series of the Trust under Rule
14.11(i), which governs the listing and
trading of Managed Fund Shares.3
Specifically, the Exchange is proposing
to list shares of Anheuser-Busch InBev
SA/NV ADRPLUS Fund, AstraZeneca
PLC ADRPLUS Fund, Banco Santander,
S.A. ADRPLUS Fund, BP P.L.C.
ADRPLUS Fund, British American
Tobacco p.l.c. ADRPLUS Fund, Diageo
plc ADRPLUS Fund, GlaxoSmithKline
plc ADRPLUS Fund, HSBC Holdings Plc
ADRPLUS Fund, Mitsubishi UFJ
Financial Group, Inc. ADRPLUS Fund,
Novartis AG ADRPLUS Fund, Novo
Nordisk A/S (B Shares) ADRPLUS
Fund, Royal Dutch Shell plc (Class A)
ADRPLUS Fund, Royal Dutch Shell plc
(Class B) ADRPLUS Fund, Sanofi
ADRPLUS Fund, SAP AG ADRPLUS
Fund, Total S.A. ADRPLUS Fund,
Toyota Motor Corporation ADRPLUS
Fund, and Vodafone Group Plc
ADRPLUS Fund. The Funds are a series
of, and the Shares will be offered by, the
Trust, which was organized as a
Delaware statutory trust on August 27,
2010. Precidian Funds LLC (the
‘‘Advisor’’) will serve as the investment
adviser to the Funds. The Trust is
registered with the Commission as an
open-end management investment
company and has filed a registration
statement on behalf of the Funds on
Form N–1A (‘‘Registration Statement’’)
with the Commission.4
Exchange Rule 14.11(i)(7) provides
that, if the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, such investment adviser shall
erect and maintain a ‘‘fire wall’’
between the investment adviser and the
broker-dealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.5 In addition,
3 The
Commission originally approved Exchange
Rule 14.11(i) in Securities Exchange Act Release
No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR–BATS–2011–018) and
subsequently approved generic listing standards for
Managed Fund Shares under Exchange Rule
14.11(i)(4)(C) in Securities Exchange Act Release
No. 78396 (July 22, 2016), 81 FR 49698 (July 28,
2016) (SR–BATS–2015–100) (‘‘Generic Listing
Rules’’).
4 See Registration Statement on Form N–1A for
the Trust, filed with the Commission on June 14,
2017 (File Nos. 333–171987 and 811–22524). The
descriptions of the Funds and the Shares contained
herein are based, in part, on information in the
Registration Statement. The Commission has issued
an order granting certain exemptive relief to the
Adviser and open-end management companies
advised by the Adviser under the Investment
Company Act of 1940 (15 U.S.C. 80a–1). See
Investment Company Act Release No. 32622 (May
2, 2017) (File No. 812–14584).
5 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
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Exchange Rule 14.11(i)(7) further
requires that personnel who make
decisions on the investment company’s
portfolio composition must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable investment company
portfolio. Exchange Rule 14.11(i)(7) is
similar to Exchange Rule
14.11(b)(5)(A)(i) (which applies to
index-based funds); however, Exchange
Rule 14.11(i)(7) in connection with the
establishment of a ‘‘fire wall’’ between
the investment adviser and the brokerdealer reflects the applicable open-end
fund’s portfolio, not an underlying
benchmark index, as is the case with
index-based funds. The Adviser is not a
registered broker-dealer and is not
affiliated with a broker-dealer. In
addition, Adviser personnel who make
decisions regarding a Fund’s portfolio
are subject to procedures designed to
prevent the use and dissemination of
material nonpublic information
regarding the Fund’s portfolio. In the
event that (a) the Adviser becomes
registered as a broker-dealer or newly
affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a
registered broker-dealer or becomes
affiliated with a broker-dealer, it will
implement and maintain a fire wall with
respect to its relevant personnel or such
broker-dealer affiliate, as applicable,
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
The Funds do not intend to qualify
each year as a regulated investment
company under Subchapter M of the
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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Internal Revenue Code of 1986, as
amended, but rather as a grantor trust.
The Exchange submits this proposal
in order to allow the Funds to hold U.S.
Component Stocks 6 and listed and/or
OTC derivatives in a manner that does
not comply with Exchange Rules
14.11(i)(4)(C)(i)(3)–(4) [sic],7
14.11(i)(4)(C)(iv)(b),8 and
14.11(i)(4)(C)(v),9 respectively.
Otherwise, the Funds will comply with
all other listing requirements on an
initial and continued listing basis under
Exchange Rule 14.11(i) for Managed
Fund Shares.
ADRPLUS Funds
Each Fund seeks to provide
investment results that correspond
generally, before fees and expenses, to
the price and yield performance of a
particular American Depositary Receipt,
hedged against fluctuations in the
exchange rate between the U.S. dollar
and the local currency of the foreign
security underlying the American
Depositary Receipt (‘‘Local Currency’’).
For example, the Anheuser-Busch InBev
SA/NV ADRPLUS Fund seeks to
provide investment results that
correspond generally, before fees and
expenses, to the price and yield
performance of Anheuser-Busch InBev
SA/NV (ADR), hedged against
fluctuations in the exchange rate
between the U.S. dollar and the euro.
The following chart includes the
underlying company and the Local
Currency for each of the Funds.
Fund name
Underlying company
Local currency
Anheuser-Busch InBev SA/NV ADRPLUS Fund ......................
AstraZeneca PLC ADRPLUS Fund ...........................................
Banco Santander, S.A. ADRPLUS Fund ..................................
BP P.L.C. ADRPLUS Fund .......................................................
British American Tobacco p.l.c. ADRPLUS Fund .....................
Diageo plc ADRPLUS Fund ......................................................
GlaxoSmithKline plc ADRPLUS Fund .......................................
HSBC Holdings Plc ADRPLUS Fund ........................................
Mitsubishi UFJ Financial Group, Inc. ADRPLUS Fund .............
Novartis AG ADRPLUS Fund ....................................................
Novo Nordisk A/S (B Shares) ADRPLUS Fund ........................
Royal Dutch Shell plc (Class A) ADRPLUS Fund .....................
Royal Dutch Shell plc (Class B) ADRPLUS Fund .....................
Sanofi ADRPLUS Fund .............................................................
SAP AG ADRPLUS Fund ..........................................................
Total S.A. ADRPLUS Fund .......................................................
Toyota Motor Corporation ADRPLUS Fund ..............................
Vodafone Group Plc ADRPLUS Fund .......................................
Anheuser-Busch InBev SA/NV ................................................
AstraZeneca PLC .....................................................................
Banco Santander, S.A. ............................................................
BP p.l.c. ....................................................................................
British American Tobacco p.l.c. ...............................................
Diageo plc ................................................................................
GlaxoSmithKline plc .................................................................
HSBC Holdings Plc ..................................................................
Mitsubishi UFJ Financial Group, Inc. .......................................
Novartis AG ..............................................................................
Novo Nordisk A/S (B Shares) ..................................................
Royal Dutch Shell plc (Class A) ..............................................
Royal Dutch Shell plc (Class B) ..............................................
Sanofi .......................................................................................
SAP AG ....................................................................................
Total S.A. .................................................................................
Toyota Motor Corporation ........................................................
Vodafone Group Plc .................................................................
Euro.
British pound.
Euro.
British pound
British pound.
British pound.
British pound.
British pound.
Japanese yen
Swiss franc.
Danish krone.
Euro.
British pound.
Euro.
Euro.
Euro.
Japanese yen.
British pound.
sradovich on DSK3GMQ082PROD with NOTICES
Each of the Funds will hold only: (i)
Shares of an American Depositary
Receipt (an ‘‘Unhedged ADR’’) listed on
a national securities exchange; (ii) listed
and/or OTC derivatives that hedge
against fluctuations in the exchange rate
(the ‘‘Exchange Rate’’) between the U.S.
dollar and the Local Currency (the
‘‘Currency Hedge’’); and (iii) cash and
cash equivalents.10
The Funds will provide investors
with the opportunity to easily eliminate
currency exposure that they may not
even realize exists with Unhedged ADRs
without having to transact in the
currency derivatives market. The
Exchange believes that this confers a
significant benefit to investors and the
broader marketplace by adding
transparency and simplifying the
process of eliminating risk from an
investor’s portfolio. As further described
below in the section entitled Policy
Discussion, the Exchange believes that
the policy concerns underlying the
listing rules which the Funds would not
meet, specifically Rules
14.11(i)(4)(C)(i)(3)–(4) [sic],11
14.11(i)(4)(C)(iv)(b),12 and
14.11(i)(4)(C)(v),13 are mitigated by the
structure, holdings, and purpose of the
Funds and, as such, this proposal to list
and trade the ADRPLUS Funds should
be approved.
The Trust is required to comply with
Rule 10A–3 under the Act 14 for the
initial and continued listing of the
Shares of each Fund. In addition, the
Exchange represents that the Shares of
each Fund will meet and be subject to
all other requirements of the Generic
Listing Rules, as defined below, and
6 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 Depository Receipt, the
underlying equity security of which is registered
under Sections 12(b) or 12(g) of the Act.
7 In particular, the Funds will not meet: (i) The
requirement under Exchange Rule
14.11(i)(4)(C)(i)(3) [sic] that the most heavily
weighted component stock shall not exceed 30% of
the equity weight of the portfolio; and (ii) the
requirement under Exchange Rule
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the
portfolio shall include a minimum of 13 component
stocks.
8 In particular, the Funds may not meet the
requirement under Exchange Rule
14.11(i)(4)(C)(iv)(b) that the aggregate gross notional
value of listed derivatives based on any single
underlying reference asset shall not exceed 30% of
the weight of the portfolio (including gross notional
exposures).
9 In particular, the Funds may not meet the
requirement under Exchange Rule 14.11(i)(4)(C)(v)
that the aggregate gross notional value of OTC
derivatives shall not exceed 20% of the weight of
the portfolio (including gross notional exposures).
10 As defined in Rule 14.11(i)(4)(C)(iii), cash
equivalents include short-term instruments with
maturities of less than three months, including: (i)
U.S. Government securities, including bills, notes,
and bonds differing as to maturity and rates of
interest, which are either issued or guaranteed by
the U.S. Treasury or by U.S. Government agencies
or instrumentalities; (ii) certificates of deposit
issued against funds deposited in a bank or savings
and loan association; (iii) bankers acceptances,
which are short-term credit instruments used to
finance commercial transactions; (iv) repurchase
agreements and reverse repurchase agreements; (v)
bank time deposits, which are monies kept on
deposit with banks or savings and loan associations
for a stated period of time at a fixed rate of interest;
(vi) commercial paper, which are short-term
unsecured promissory notes; and (vii) money
market funds.
11 In particular, the Funds will not meet: (i) The
requirement under Exchange Rule
14.11(i)(4)(C)(i)(3) [sic] that the most heavily
weighted component stock shall not exceed 30% of
the equity weight of the portfolio; and (ii) the
requirement under Exchange Rule
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the
portfolio shall include a minimum of 13 component
stocks.
12 In particular, the Funds may not meet the
requirement under Exchange Rule
14.11(i)(4)(C)(iv)(b) that the aggregate gross notional
value of listed derivatives based on any single
underlying reference asset shall not exceed 30% of
the weight of the portfolio (including gross notional
exposures).
13 In particular, the Funds may not meet the
requirement under Exchange Rule 14.11(i)(4)(C)(v)
that the aggregate gross notional value of OTC
derivatives shall not exceed 20% of the weight of
the portfolio (including gross notional exposures).
14 17 CFR 240.10A–3.
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other applicable continued listing
requirements for Managed Fund Shares
under Exchange Rule 14.11(i), including
those requirements regarding the
Disclosed Portfolio (as defined in the
Exchange rules) and the requirement
that the Disclosed Portfolio and the net
asset value (‘‘NAV’’) will be made
available to all market participants at
the same time,15 intraday indicative
value,16 suspension of trading or
removal,17 trading halts,18 disclosure,19
and firewalls.20 Further, at least 100,000
Shares of each Fund will be outstanding
upon the commencement of trading.21
All statements and representations
made in this filing regarding the
description of the portfolio or reference
assets, limitations on portfolio holdings
or reference assets, dissemination and
availability of reference assets and
intraday indicative values, and the
applicability of Exchange listing rules
specified in this filing shall constitute
continued listing requirements for the
Funds. The Trust, on behalf of the
Funds, has represented to the Exchange
that it will advise the Exchange of any
failure by a Fund or the Shares to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will surveil for
compliance with the continued listing
requirements. If a Fund or the Shares
are not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under Exchange Rule 14.12.
Policy Discussion
sradovich on DSK3GMQ082PROD with NOTICES
The generic listing standards for
listing Managed Fund Shares pursuant
to Rule 19b–4(e) (the ‘‘Generic Listing
Standards’’), as approved by the
Commission,22 are designed to ensure
that the holdings of the portfolio of a
series of Managed Fund Shares listed
pursuant to 19b–4(e) are sufficiently
liquid, diverse, and non-concentrated as
to mitigate the policy concerns
regarding the manipulability and
liquidity for the creation and
redemption mechanism associated with
that series of Managed Fund Shares. As
15 See Exchange Rules 14.11(i)(4)(A)(ii) and
14.11(i)(4)(B)(ii).
16 See Exchange Rule 14.11(i)(4)(B)(i).
17 See Exchange Rule 14.11(i)(4)(B)(iii).
18 See Exchange Rule 14.11(i)(4)(B)(iv). The
Exchange will also halt trading in a Fund where
there has been a regulatory trading halt declared in
the associated Unhedged ADR until trading in the
Unhedged ADR resumes.
19 See Exchange Rule 14.11(i)(6).
20 See Exchange Rule 14.11(i)(7).
21 See Exchange Rule 14.11(i)(4)(A)(i).
22 See supra note 3.
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described above, the Funds do not meet
the Generic Listing Standards.
The Exchange believes that, while the
Funds would not meet the Generic
Listing Standards, in particular Rules
14.11(i)(4)(C)(i)(a)(3) and (4),
14.11(i)(4)(C)(iv)(b), and
14.11(i)(4)(C)(v), the policy issues that
those rules are intended to address are
otherwise mitigated by the structure,
holdings, and purpose of the Funds.
Rule 14.11(i)(4)(C)(i)(a)(3) is intended to
ensure that no single equity security
constitutes too concentrated of a
position in a series of Managed Fund
Shares and Rule 14.11(i)(4)(C)(i)(a)(4) is
similarly intended to diversify the
holdings of a series of Managed Fund
Shares. The Exchange believes that
these policy concerns are mitigated as it
relates to the Funds because: (i) The
Unhedged ADR will meet the market
cap and liquidity requirements of Rules
14.11(i)(4)(C)(i)(a)(1) and (2); and (ii) the
intended function of the Funds is to
eliminate currency exposure risk for a
single security, which means that the
Funds are necessarily concentrated. As
described above, the creation and
redemption mechanism will provide a
near frictionless arbitrage opportunity
that would minimize the risk of
manipulation of either the Unhedged
ADR or the applicable Fund and, thus,
mitigate the manipulation concerns that
Rule 14.11(i)(4)(C)(i)(a)(3) and (4) were
intended to address.
The Exchange also believes that the
policy issues that Rules
14.11(i)(4)(C)(iv)(b) and 14.11(i)(4)(C)(v)
are intended to address are also
mitigated by the way that the Funds
would use derivatives, whether listed or
OTC. Such rules are intended to
mitigate concerns around the
manipulability of a particular
underlying reference asset or derivatives
contract and, for OTC derivatives, to
minimize counterparty risk. While the
Currency Hedge positions taken by the
Currency Hedged ADRs would not meet
the Generic Listing Standards, the
policy concerns that the Generic Listing
Standards are intended to address are
otherwise mitigated by the liquidity in
the underlying spot currency market
that prevents manipulation of the
reference prices used by the Currency
Hedge. The Funds will attempt to limit
counterparty risk in OTC derivatives by:
(i) Entering into such contracts only
with counterparties the Advisor believes
are creditworthy; (ii) limiting a Fund’s
exposure to each counterparty; and (iii)
monitoring the creditworthiness of each
counterparty and the Fund’s exposure to
each counterparty on an ongoing basis.
The Exchange also believes that the
counterparty risk associated with OTC
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12451
derivatives is further mitigated because
the currency swaps are settled on a
daily basis and, thus, the counterparty
risk for any particular swap is limited in
two ways—first that the counterparty
credit exposure is always limited to a 24
hour period and second that the
exposure of the swap is only to the
movement in the currencies over that
same 24 hour period.
Availability of Information
As noted above, the Funds will each
comply with the requirements for
Managed Fund Shares related to
Disclosed Portfolio, Net Asset Value,
and the Intraday Indicative Value.
Additionally, the intra-day, closing and
settlement prices of exchange-traded
portfolio assets, including Unhedged
ADRs and listed derivatives, will be
readily available from the securities
exchanges, futures exchanges, and swap
execution facilities 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. Intraday price
quotations on both listed and OTC
swaps are available from major brokerdealer firms and from third-parties,
which may provide prices free with a
time delay or in real-time for a paid fee.
Price information for cash equivalents
will be available from major market data
vendors. Each Fund’s Disclosed
Portfolio will be available on the
issuer’s website free of charge. Each
Fund’s website will include the
prospectus for the applicable Fund and
additional information related to NAV
and other applicable quantitative
information. Information regarding
market price and trading volume of the
Shares will be continuously available
throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume for the Shares will be published
daily in the financial section of
newspapers. Trading in the Shares may
be halted for market conditions or for
reasons that, in the view of the
Exchange, make trading inadvisable.
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. The Exchange has
appropriate rules to facilitate trading in
the shares during all trading sessions.
Surveillance
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of the
Funds on the Exchange during all
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trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
Trading of the Funds through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including Managed
Fund Shares. The issuer has represented
to the Exchange that it will advise the
Exchange of any failure by a Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will surveil for
compliance with the continued listing
requirements. If a Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting proceedings under
Rule 14.12. The Exchange will also
consider the suspension of trading and
commence delisting proceedings
pursuant to Rule 14.12 for a Fund if the
Unhedged ADR held by the Fund has
been suspended from trading or delisted
by the Unhedged ADR’s listing
exchange. As described above, all
Unhedged ADRs will be listed on a U.S.
national securities exchange, all of
which are members of the Intermarket
Surveillance Group (‘‘ISG’’) or are
exchanges with which the Exchange has
in place a comprehensive surveillance
sharing agreement.23 The Exchange may
obtain information regarding trading in
the Funds, Unhedged ADRs, and listed
derivative instruments held by each
Fund via the ISG, from other exchanges
that are members or affiliates of the ISG,
or with which the Exchange has entered
into a comprehensive surveillance
sharing agreement.
sradovich on DSK3GMQ082PROD with NOTICES
Creation and Redemption Process
The Funds will create and redeem
shares in large blocks of a specified
number of shares or multiples thereof
(‘‘Creation Units’’) in transactions with
Authorized Participants 24 that have
entered into agreements with the
distributor for each Fund, Foreside
Fund Services, LLC (the ‘‘Distributor’’).
The Exchange expects that a Creation
Unit for a Fund will consist of 25,000
or more shares. The Trust will issue and
sell shares of each Fund in Creation
Units on a continuous basis through the
Distributor or the Distributor’s agent,
without a sales load, at a price based on
the Fund’s net asset value (‘‘NAV’’) per
Share next determined after receipt of
the purchase or redemption order, on
any day that the Exchange is open for
trading (a ‘‘Business Day’’). Explained
simply, for a creation, an Authorized
Participant will be required to deliver
the Unhedged ADRs in an amount equal
to that day’s NAV (the ‘‘Deposit Assets’’)
plus a cash amount representing the
value of fractional shares (the ‘‘Cash
Component’’ and, collectively with the
Deposit Assets, the ‘‘Fund Deposit’’);
and for a redemption, the Trust will
deliver Unhedged ADRs to the
Authorized Participant equal to the
value of that day’s NAV plus the Cash
Component (the ‘‘Redemption Basket’’).
To initiate an order for a Creation
Unit, an Authorized Participant must
submit to the Distributor or its agent an
irrevocable order to purchase Shares, in
proper form, generally before 4:00 p.m.,
Eastern Time, on any Business Day to
receive that day’s NAV. On days when
the Exchange closes earlier than normal,
a Fund may require orders to be placed
earlier in the day. The consideration for
a purchase of a Creation Unit of a Fund
generally will consist only of the
Deposit Assets and the Cash
Component.
A portfolio composition file, to be
sent via the National Securities Clearing
Corporation (‘‘NSCC’’), will be made
available on each Business Day, prior to
the opening of business of the Exchange
(currently 9:30 a.m., Eastern Time)
which includes the required number of
shares of the Deposit Assets and Cash
Component to be included in the
current Fund Deposit (based on
information at the end of the previous
Business Day). Such Fund Deposit is
applicable, subject to any adjustments,25
to purchases of Creation Units of Shares
of the applicable Fund until such time
as the next-announced Fund Deposit
composition is made available.
An order to redeem Creation Units of
a Fund is deemed received by the
Distributor on the transmittal date if (i)
such order is received not later than
23 For a list of the current members and affiliate
members of ISG, see www.isgportal.com. The
Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
24 For purposes of this proposal, the term
‘‘Authorized Participant’’ is either (1) a
‘‘Participating Party,’’ (i.e., a broker-dealer or other
participant in the clearing process of the
Continuous Net Settlement System of the NSCC)
(‘‘Clearing Process’’); or (2) a participant of the
Depository Trust Company (the ‘‘DTC’’) (a ‘‘DTC
Participant’’).
25 The Funds may permit or require the
substitution of a ‘‘cash in lieu’’ amount to be added
to the Cash Component in the event that the Deposit
Asset is not available in sufficient quantity for
delivery. The Funds also reserve the right to permit
or require a ‘‘cash in lieu’’ amount in certain
circumstances, including circumstances in which
the delivery of the Deposit Asset by the Authorized
Participant would be restricted under applicable
securities or other local laws or in certain other
situations, such as if the Authorized Participant is
not able to trade due to a trading restriction. The
Funds also reserve the right to permit or require
Creation Units to be issued solely in exchange for
cash.
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18:34 Mar 20, 2018
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Frm 00120
Fmt 4703
Sfmt 4703
4:00 p.m. Eastern Time on such
transmittal date; (ii) such order is
preceded or accompanied by the
requisite amount of Shares based on the
Creation Units specified in such order,
which delivery must be made through
DTC to the Distributor by a specified
time on such transmittal date (the ‘‘DTC
Cut-Off Time’’); and (iii) all other
procedures set forth in the Participant
Agreement are properly followed.
Each Fund’s custodian will make
available through the NSCC, prior to the
opening of business on the Exchange on
each Business Day, the Redemption
Basket (subject to possible amendment
or correction) that will be applicable to
redemption requests received in proper
form on that day. Orders to redeem
Creation Units of a Fund must be
delivered through a DTC Participant
that has executed the Participant
Agreement with the Distributor. A DTC
Participant who wishes to place an
order for redemption of Creation Units
of a Fund to be effected need not be a
Participating Party, but such orders
must state that redemption of Creation
Units of the Fund will instead be
effected through transfer of Creation
Units of the Fund directly through DTC.
An order to redeem Creation Units of a
Fund is deemed received by the
Distributor on the transmittal date if (i)
such order is received not later than
4:00 p.m. Eastern Time on such
transmittal date; (ii) such order is
preceded or accompanied by the
requisite number of Shares of Creation
Units specified in such order, which
delivery must be made through DTC to
the Distributor no later than the DTC
Cut-Off Time on such transmittal date;
and (iii) all other procedures set forth in
the Participant Agreement are properly
followed.
After the Distributor has deemed an
order for redemption received, the
Distributor will initiate procedures to
transfer the requisite Fund Securities
which are expected to be delivered
within two Business Days and the Cash
Amount to the redeeming beneficial
owner by the second Business Day
following the transmittal date on which
such redemption order is deemed
received.
Information Circular
Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
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Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
redeemable); (2) BZX Rule 3.7, which
imposes suitability obligations on
Exchange members with respect to
recommending transactions in the
Shares to customers; (3) how
information regarding the Intraday
Indicative Value is disseminated; (4) the
risks involved in trading the Shares
during the Pre-Opening 26 and After
Hours Trading Sessions 27 when an
updated Intraday Indicative Value will
not be calculated or publicly
disseminated; (5) the requirement that
members deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Funds. Members
purchasing Shares from a Fund for
resale to investors will deliver a
prospectus to such investors. The
Information Circular will also discuss
any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Act. The Information Circular will also
reference that the Funds are subject to
various fees and expenses described in
the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares and the
applicable NAV calculation time for the
Shares. The Information Circular will
disclose that information about the
Shares will be publicly available on
each Fund’s website.
sradovich on DSK3GMQ082PROD with NOTICES
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 28 in general and Section
6(b)(5) of the Act 29 in particular in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest given that the Shares will
meet each of the initial and continued
listing criteria in Exchange Rule 14.11(i)
with the exception of Exchange Rules
26 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m. Eastern Time.
27 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m. Eastern Time.
28 15 U.S.C. 78f.
29 15 U.S.C. 78f(b)(5).
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18:34 Mar 20, 2018
Jkt 244001
14.11(i)(4)(C)(i)(3)–(4)[sic],30
14.11(i)(4)(C)(iv)(b),31 and
14.11(i)(4)(C)(v).32 The Generic Listing
Standards are designed to ensure that
the holdings of the portfolio of a series
of Managed Fund Shares listed pursuant
to 19b–4(e) are sufficiently liquid,
diverse, and non-concentrated as to
mitigate the policy concerns regarding
the manipulability and liquidity for the
creation and redemption mechanism
associated with that series of Managed
Fund Shares. As described above, the
Funds do not meet the Generic Listing
Standards.
The Exchange believes that, while the
Funds would not meet the Generic
Listing Standards, in particular Rules
14.11(i)(4)(C)(i)(a)(3) and (4),
14.11(i)(4)(C)(iv)(b), and
14.11(i)(4)(C)(v), the policy issues that
those rules are intended to address are
otherwise mitigated by the structure,
holdings, and purpose of the Funds.
Rule 14.11(i)(4)(C)(i)(a)(3) is intended to
ensure that no single equity security
constitutes too concentrated of a
position in a series of Managed Fund
Shares and Rule 14.11(i)(4)(C)(i)(a)(4) is
similarly intended to diversify the
holdings of a series of Managed Fund
Shares. The Exchange believes that
these policy concerns are mitigated as it
relates to the Funds because: (i) The
Unhedged ADR will meet the market
cap and liquidity requirements of Rules
14.11(i)(4)(C)(i)(a)(1) and (2); and (ii) the
intended function of the Funds is to
eliminate currency exposure risk for a
single security, which means that the
Funds are necessarily concentrated. As
described above, the creation and
redemption mechanism will provide a
near frictionless arbitrage opportunity
that would minimize the risk of
manipulation of either the Unhedged
ADR or the applicable Fund and, thus,
mitigate the manipulation concerns that
Rule 14.11(i)(4)(C)(i)(a)(3) and (4) were
intended to address.
30 In particular, the Funds will not meet: (i) The
requirement under Exchange Rule
14.11(i)(4)(C)(i)(3) [sic] that the most heavily
weighted component stock shall not exceed 30% of
the equity weight of the portfolio; and (ii) the
requirement under Exchange Rule
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the
portfolio shall include a minimum of 13 component
stocks.
31 In particular, the Funds may not meet the
requirement under Exchange Rule
14.11(i)(4)(C)(iv)(b) that the aggregate gross notional
value of listed derivatives based on any single
underlying reference asset shall not exceed 30% of
the weight of the portfolio (including gross notional
exposures).
32 In particular, the Funds may not meet the
requirement under Exchange Rule 14.11(i)(4)(C)(v)
that the aggregate gross notional value of OTC
derivatives shall not exceed 20% of the weight of
the portfolio (including gross notional exposures).
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
12453
The Exchange also believes that the
policy issues that Rules
14.11(i)(4)(C)(iv)(b) and 14.11(i)(4)(C)(v)
are intended to address are also
mitigated by the way that the Funds
would use derivatives, whether listed or
OTC. Such rules are intended to
mitigate concerns around the
manipulability of a particular
underlying reference asset or derivatives
contract and, for OTC derivatives, to
minimize counterparty risk. While the
Currency Hedge positions taken by the
Currency Hedged ADRs would not meet
the Generic Listing Standards, the
policy concerns that the Generic Listing
Standards are intended to address are
otherwise mitigated by the liquidity in
the underlying spot currency market
that prevents manipulation of the
reference prices used by the Currency
Hedge. The Funds will attempt to limit
counterparty risk in OTC derivatives by:
(i) Entering into such contracts only
with counterparties the Advisor believes
are creditworthy; (ii) limiting a Fund’s
exposure to each counterparty; and (iii)
monitoring the creditworthiness of each
counterparty and the Fund’s exposure to
each counterparty on an ongoing basis.
The Exchange also believes that the
counterparty risk associated with OTC
derivatives is further mitigated because
the currency swaps are settled on a
daily basis and, thus, the counterparty
risk for any particular swap is limited in
two ways—first that the counterparty
credit exposure is always limited to a 24
hour period and second that the
exposure of the swap is only to the
movement in the currencies over that
same 24 hour period.
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of the
Funds on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
Trading of the Funds through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including Managed
Fund Shares. All statements and
representations made in this filing
regarding the description of the
portfolio or reference assets, limitations
on portfolio holdings or reference assets,
dissemination and availability of
reference assets and intraday indicative
values, and the applicability of
Exchange listing rules specified in this
filing shall constitute continued listing
requirements for the Funds. The Trust,
on behalf of the Funds, has represented
to the Exchange that it will advise the
Exchange of any failure by a Fund or the
Shares to comply with the continued
E:\FR\FM\21MRN1.SGM
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Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
listing requirements, and, pursuant to
its obligations under Section 19(g)(1) of
the Act, the Exchange will surveil for
compliance with the continued listing
requirements. If a Fund or the Shares
are not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under Exchange Rule 14.12.
The Exchange will also consider the
suspension of trading and commence
delisting proceedings pursuant to Rule
14.12 for a Fund if the Unhedged ADR
held by the Fund has been suspended
from trading or delisted by the
Unhedged ADR’s listing exchange. As
described above, all Unhedged ADRs
will be listed on a U.S. national
securities exchange, all of which are
members of ISG or are exchanges with
which the Exchange has in place a
comprehensive surveillance sharing
agreement.33 The Exchange may obtain
information regarding trading in the
Funds, Unhedged ADRs, and listed
derivative instruments held by each
Fund via the ISG, from other exchanges
that are members or affiliates of the ISG,
or with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. At least 100,000
Shares of each Fund will be outstanding
upon the commencement of trading.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
additional type of Managed Fund Shares
that will enhance competition among
market participants, to the benefit of
investors and the marketplace.
sradovich on DSK3GMQ082PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
33 For a list of the current members and affiliate
members of ISG, see www.isgportal.com. The
Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
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18:34 Mar 20, 2018
Jkt 244001
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposal is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2018–019 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File No.
SR-CboeBZX–2018–019. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing will also be available for
Frm 00122
Fmt 4703
Sfmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–05647 Filed 3–20–18; 8:45 am]
IV. Solicitation of Comments
PO 00000
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 No.
SR–CboeBZX–2018–019 and should be
submitted on or before April 11, 2018.
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15322 and #15323;
Puerto Rico Disaster Number PR–00031]
Presidential Declaration Amendment of
a Major Disaster for the
Commonwealth of Puerto Rico
U.S. Small Business
Administration.
ACTION: Amendment 4.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for the Commonwealth of
Puerto Rico (FEMA–4339–DR), dated
09/20/2017.
Incident: Hurricane Maria.
Incident Period: 09/17/2017 through
11/15/2017.
DATES: Issued on 03/14/2018.
Physical Loan Application Deadline
Date: 06/18/2018.
Economic Injury (EIDL) Loan
Application Deadline Date: 06/20/2018.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: The notice
of the President’s major disaster
declaration for the Commonwealth of
Puerto Rico, dated 09/20/2017, is hereby
amended to extend the deadline for
filing applications for physical damages
as a result of this disaster to 06/18/2018.
All other information in the original
declaration remains unchanged.
SUMMARY:
34 17
E:\FR\FM\21MRN1.SGM
CFR 200.30–3(a)(12).
21MRN1
]]>Agencies
[Federal Register Volume 83, Number 55 (Wednesday, March 21, 2018)]
[Notices]
[Pages 12449-12454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05647]
[[Page 12449]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82881; File No. SR-CboeBZX-2018-019]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List on the Exchange Eighteen
ADRPLUS Funds of the Precidian ETFs Trust Under Rule 14.11(i), Managed
Fund Shares
March 15, 2018.
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 March 5, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to list on the Exchange eighteen
ADRPLUS Funds of the Precidian ETFs Trust (the ``Trust''), under Rule
14.11(i) (``Managed Fund Shares'').
The text of the proposed rule change is available at the Exchange's
website at www.markets.cboe.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of
eighteen different series of the Trust under Rule 14.11(i), which
governs the listing and trading of Managed Fund Shares.\3\
Specifically, the Exchange is proposing to list shares of Anheuser-
Busch InBev SA/NV ADRPLUS Fund, AstraZeneca PLC ADRPLUS Fund, Banco
Santander, S.A. ADRPLUS Fund, BP P.L.C. ADRPLUS Fund, British American
Tobacco p.l.c. ADRPLUS Fund, Diageo plc ADRPLUS Fund, GlaxoSmithKline
plc ADRPLUS Fund, HSBC Holdings Plc ADRPLUS Fund, Mitsubishi UFJ
Financial Group, Inc. ADRPLUS Fund, Novartis AG ADRPLUS Fund, Novo
Nordisk A/S (B Shares) ADRPLUS Fund, Royal Dutch Shell plc (Class A)
ADRPLUS Fund, Royal Dutch Shell plc (Class B) ADRPLUS Fund, Sanofi
ADRPLUS Fund, SAP AG ADRPLUS Fund, Total S.A. ADRPLUS Fund, Toyota
Motor Corporation ADRPLUS Fund, and Vodafone Group Plc ADRPLUS Fund.
The Funds are a series of, and the Shares will be offered by, the
Trust, which was organized as a Delaware statutory trust on August 27,
2010. Precidian Funds LLC (the ``Advisor'') will serve as the
investment adviser to the Funds. The Trust is registered with the
Commission as an open-end management investment company and has filed a
registration statement on behalf of the Funds on Form N-1A
(``Registration Statement'') with the Commission.\4\
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\3\ The Commission originally approved Exchange Rule 14.11(i) in
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR
55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently
approved generic listing standards for Managed Fund Shares under
Exchange Rule 14.11(i)(4)(C) in Securities Exchange Act Release No.
78396 (July 22, 2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-
100) (``Generic Listing Rules'').
\4\ See Registration Statement on Form N-1A for the Trust, filed
with the Commission on June 14, 2017 (File Nos. 333-171987 and 811-
22524). The descriptions of the Funds and the Shares contained
herein are based, in part, on information in the Registration
Statement. The Commission has issued an order granting certain
exemptive relief to the Adviser and open-end management companies
advised by the Adviser under the Investment Company Act of 1940 (15
U.S.C. 80a-1). See Investment Company Act Release No. 32622 (May 2,
2017) (File No. 812-14584).
---------------------------------------------------------------------------
Exchange Rule 14.11(i)(7) provides that, if the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser shall erect and maintain
a ``fire wall'' between the investment adviser and the broker-dealer
with respect to access to information concerning the composition and/or
changes to such investment company portfolio.\5\ In addition, Exchange
Rule 14.11(i)(7) further requires that personnel who make decisions on
the investment company's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable investment company
portfolio. Exchange Rule 14.11(i)(7) is similar to Exchange Rule
14.11(b)(5)(A)(i) (which applies to index-based funds); however,
Exchange Rule 14.11(i)(7) in connection with the establishment of a
``fire wall'' between the investment adviser and the broker-dealer
reflects the applicable open-end fund's portfolio, not an underlying
benchmark index, as is the case with index-based funds. The Adviser is
not a registered broker-dealer and is not affiliated with a broker-
dealer. In addition, Adviser personnel who make decisions regarding a
Fund's portfolio are subject to procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
Fund's portfolio. In the event that (a) the Adviser becomes registered
as a broker-dealer or newly affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement and maintain a fire
wall with respect to its relevant personnel or such broker-dealer
affiliate, as applicable, regarding access to information concerning
the composition and/or changes to the portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material
non-public information regarding such portfolio.
---------------------------------------------------------------------------
\5\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
---------------------------------------------------------------------------
The Funds do not intend to qualify each year as a regulated
investment company under Subchapter M of the
[[Page 12450]]
Internal Revenue Code of 1986, as amended, but rather as a grantor
trust.
The Exchange submits this proposal in order to allow the Funds to
hold U.S. Component Stocks \6\ and listed and/or OTC derivatives in a
manner that does not comply with Exchange Rules 14.11(i)(4)(C)(i)(3)-
(4) [sic],\7\ 14.11(i)(4)(C)(iv)(b),\8\ and 14.11(i)(4)(C)(v),\9\
respectively. Otherwise, the Funds will comply with all other listing
requirements on an initial and continued listing basis under Exchange
Rule 14.11(i) for Managed Fund Shares.
---------------------------------------------------------------------------
\6\ 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 Depository
Receipt, the underlying equity security of which is registered under
Sections 12(b) or 12(g) of the Act.
\7\ In particular, the Funds will not meet: (i) The requirement
under Exchange Rule 14.11(i)(4)(C)(i)(3) [sic] that the most heavily
weighted component stock shall not exceed 30% of the equity weight
of the portfolio; and (ii) the requirement under Exchange Rule
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the portfolio
shall include a minimum of 13 component stocks.
\8\ In particular, the Funds may not meet the requirement under
Exchange Rule 14.11(i)(4)(C)(iv)(b) that the aggregate gross
notional value of listed derivatives based on any single underlying
reference asset shall not exceed 30% of the weight of the portfolio
(including gross notional exposures).
\9\ In particular, the Funds may not meet the requirement under
Exchange Rule 14.11(i)(4)(C)(v) that the aggregate gross notional
value of OTC derivatives shall not exceed 20% of the weight of the
portfolio (including gross notional exposures).
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ADRPLUS Funds
Each Fund seeks to provide investment results that correspond
generally, before fees and expenses, to the price and yield performance
of a particular American Depositary Receipt, hedged against
fluctuations in the exchange rate between the U.S. dollar and the local
currency of the foreign security underlying the American Depositary
Receipt (``Local Currency''). For example, the Anheuser-Busch InBev SA/
NV ADRPLUS Fund seeks to provide investment results that correspond
generally, before fees and expenses, to the price and yield performance
of Anheuser-Busch InBev SA/NV (ADR), hedged against fluctuations in the
exchange rate between the U.S. dollar and the euro. The following chart
includes the underlying company and the Local Currency for each of the
Funds.
------------------------------------------------------------------------
Fund name Underlying company Local currency
------------------------------------------------------------------------
Anheuser-Busch InBev SA/NV Anheuser-Busch InBev Euro.
ADRPLUS Fund. SA/NV.
AstraZeneca PLC ADRPLUS Fund AstraZeneca PLC..... British pound.
Banco Santander, S.A. Banco Santander, Euro.
ADRPLUS Fund. S.A..
BP P.L.C. ADRPLUS Fund...... BP p.l.c............ British pound
British American Tobacco British American British pound.
p.l.c. ADRPLUS Fund. Tobacco p.l.c..
Diageo plc ADRPLUS Fund..... Diageo plc.......... British pound.
GlaxoSmithKline plc ADRPLUS GlaxoSmithKline plc. British pound.
Fund.
HSBC Holdings Plc ADRPLUS HSBC Holdings Plc... British pound.
Fund.
Mitsubishi UFJ Financial Mitsubishi UFJ Japanese yen
Group, Inc. ADRPLUS Fund. Financial Group,
Inc..
Novartis AG ADRPLUS Fund.... Novartis AG......... Swiss franc.
Novo Nordisk A/S (B Shares) Novo Nordisk A/S (B Danish krone.
ADRPLUS Fund. Shares).
Royal Dutch Shell plc (Class Royal Dutch Shell Euro.
A) ADRPLUS Fund. plc (Class A).
Royal Dutch Shell plc (Class Royal Dutch Shell British pound.
B) ADRPLUS Fund. plc (Class B).
Sanofi ADRPLUS Fund......... Sanofi.............. Euro.
SAP AG ADRPLUS Fund......... SAP AG.............. Euro.
Total S.A. ADRPLUS Fund..... Total S.A........... Euro.
Toyota Motor Corporation Toyota Motor Japanese yen.
ADRPLUS Fund. Corporation.
Vodafone Group Plc ADRPLUS Vodafone Group Plc.. British pound.
Fund.
------------------------------------------------------------------------
Each of the Funds will hold only: (i) Shares of an American
Depositary Receipt (an ``Unhedged ADR'') listed on a national
securities exchange; (ii) listed and/or OTC derivatives that hedge
against fluctuations in the exchange rate (the ``Exchange Rate'')
between the U.S. dollar and the Local Currency (the ``Currency
Hedge''); and (iii) cash and cash equivalents.\10\
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\10\ As defined in Rule 14.11(i)(4)(C)(iii), cash equivalents
include short-term instruments with maturities of less than three
months, including: (i) U.S. Government securities, including bills,
notes, and bonds differing as to maturity and rates of interest,
which are either issued or guaranteed by the U.S. Treasury or by
U.S. Government agencies or instrumentalities; (ii) certificates of
deposit issued against funds deposited in a bank or savings and loan
association; (iii) bankers acceptances, which are short-term credit
instruments used to finance commercial transactions; (iv) repurchase
agreements and reverse repurchase agreements; (v) bank time
deposits, which are monies kept on deposit with banks or savings and
loan associations for a stated period of time at a fixed rate of
interest; (vi) commercial paper, which are short-term unsecured
promissory notes; and (vii) money market funds.
---------------------------------------------------------------------------
The Funds will provide investors with the opportunity to easily
eliminate currency exposure that they may not even realize exists with
Unhedged ADRs without having to transact in the currency derivatives
market. The Exchange believes that this confers a significant benefit
to investors and the broader marketplace by adding transparency and
simplifying the process of eliminating risk from an investor's
portfolio. As further described below in the section entitled Policy
Discussion, the Exchange believes that the policy concerns underlying
the listing rules which the Funds would not meet, specifically Rules
14.11(i)(4)(C)(i)(3)-(4) [sic],\11\ 14.11(i)(4)(C)(iv)(b),\12\ and
14.11(i)(4)(C)(v),\13\ are mitigated by the structure, holdings, and
purpose of the Funds and, as such, this proposal to list and trade the
ADRPLUS Funds should be approved.
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\11\ In particular, the Funds will not meet: (i) The requirement
under Exchange Rule 14.11(i)(4)(C)(i)(3) [sic] that the most heavily
weighted component stock shall not exceed 30% of the equity weight
of the portfolio; and (ii) the requirement under Exchange Rule
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the portfolio
shall include a minimum of 13 component stocks.
\12\ In particular, the Funds may not meet the requirement under
Exchange Rule 14.11(i)(4)(C)(iv)(b) that the aggregate gross
notional value of listed derivatives based on any single underlying
reference asset shall not exceed 30% of the weight of the portfolio
(including gross notional exposures).
\13\ In particular, the Funds may not meet the requirement under
Exchange Rule 14.11(i)(4)(C)(v) that the aggregate gross notional
value of OTC derivatives shall not exceed 20% of the weight of the
portfolio (including gross notional exposures).
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The Trust is required to comply with Rule 10A-3 under the Act \14\
for the initial and continued listing of the Shares of each Fund. In
addition, the Exchange represents that the Shares of each Fund will
meet and be subject to all other requirements of the Generic Listing
Rules, as defined below, and
[[Page 12451]]
other applicable continued listing requirements for Managed Fund Shares
under Exchange Rule 14.11(i), including those requirements regarding
the Disclosed Portfolio (as defined in the Exchange rules) and the
requirement that the Disclosed Portfolio and the net asset value
(``NAV'') will be made available to all market participants at the same
time,\15\ intraday indicative value,\16\ suspension of trading or
removal,\17\ trading halts,\18\ disclosure,\19\ and firewalls.\20\
Further, at least 100,000 Shares of each Fund will be outstanding upon
the commencement of trading.\21\ All statements and representations
made in this filing regarding the description of the portfolio or
reference assets, limitations on portfolio holdings or reference
assets, dissemination and availability of reference assets and intraday
indicative values, and the applicability of Exchange listing rules
specified in this filing shall constitute continued listing
requirements for the Funds. The Trust, on behalf of the Funds, has
represented to the Exchange that it will advise the Exchange of any
failure by a Fund or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Act, the Exchange will surveil for compliance with the continued
listing requirements. If a Fund or the Shares are not in compliance
with the applicable listing requirements, the Exchange will commence
delisting procedures under Exchange Rule 14.12.
---------------------------------------------------------------------------
\14\ 17 CFR 240.10A-3.
\15\ See Exchange Rules 14.11(i)(4)(A)(ii) and
14.11(i)(4)(B)(ii).
\16\ See Exchange Rule 14.11(i)(4)(B)(i).
\17\ See Exchange Rule 14.11(i)(4)(B)(iii).
\18\ See Exchange Rule 14.11(i)(4)(B)(iv). The Exchange will
also halt trading in a Fund where there has been a regulatory
trading halt declared in the associated Unhedged ADR until trading
in the Unhedged ADR resumes.
\19\ See Exchange Rule 14.11(i)(6).
\20\ See Exchange Rule 14.11(i)(7).
\21\ See Exchange Rule 14.11(i)(4)(A)(i).
---------------------------------------------------------------------------
Policy Discussion
The generic listing standards for listing Managed Fund Shares
pursuant to Rule 19b-4(e) (the ``Generic Listing Standards''), as
approved by the Commission,\22\ are designed to ensure that the
holdings of the portfolio of a series of Managed Fund Shares listed
pursuant to 19b-4(e) are sufficiently liquid, diverse, and non-
concentrated as to mitigate the policy concerns regarding the
manipulability and liquidity for the creation and redemption mechanism
associated with that series of Managed Fund Shares. As described above,
the Funds do not meet the Generic Listing Standards.
---------------------------------------------------------------------------
\22\ See supra note 3.
---------------------------------------------------------------------------
The Exchange believes that, while the Funds would not meet the
Generic Listing Standards, in particular Rules 14.11(i)(4)(C)(i)(a)(3)
and (4), 14.11(i)(4)(C)(iv)(b), and 14.11(i)(4)(C)(v), the policy
issues that those rules are intended to address are otherwise mitigated
by the structure, holdings, and purpose of the Funds. Rule
14.11(i)(4)(C)(i)(a)(3) is intended to ensure that no single equity
security constitutes too concentrated of a position in a series of
Managed Fund Shares and Rule 14.11(i)(4)(C)(i)(a)(4) is similarly
intended to diversify the holdings of a series of Managed Fund Shares.
The Exchange believes that these policy concerns are mitigated as it
relates to the Funds because: (i) The Unhedged ADR will meet the market
cap and liquidity requirements of Rules 14.11(i)(4)(C)(i)(a)(1) and
(2); and (ii) the intended function of the Funds is to eliminate
currency exposure risk for a single security, which means that the
Funds are necessarily concentrated. As described above, the creation
and redemption mechanism will provide a near frictionless arbitrage
opportunity that would minimize the risk of manipulation of either the
Unhedged ADR or the applicable Fund and, thus, mitigate the
manipulation concerns that Rule 14.11(i)(4)(C)(i)(a)(3) and (4) were
intended to address.
The Exchange also believes that the policy issues that Rules
14.11(i)(4)(C)(iv)(b) and 14.11(i)(4)(C)(v) are intended to address are
also mitigated by the way that the Funds would use derivatives, whether
listed or OTC. Such rules are intended to mitigate concerns around the
manipulability of a particular underlying reference asset or
derivatives contract and, for OTC derivatives, to minimize counterparty
risk. While the Currency Hedge positions taken by the Currency Hedged
ADRs would not meet the Generic Listing Standards, the policy concerns
that the Generic Listing Standards are intended to address are
otherwise mitigated by the liquidity in the underlying spot currency
market that prevents manipulation of the reference prices used by the
Currency Hedge. The Funds will attempt to limit counterparty risk in
OTC derivatives by: (i) Entering into such contracts only with
counterparties the Advisor believes are creditworthy; (ii) limiting a
Fund's exposure to each counterparty; and (iii) monitoring the
creditworthiness of each counterparty and the Fund's exposure to each
counterparty on an ongoing basis. The Exchange also believes that the
counterparty risk associated with OTC derivatives is further mitigated
because the currency swaps are settled on a daily basis and, thus, the
counterparty risk for any particular swap is limited in two ways--first
that the counterparty credit exposure is always limited to a 24 hour
period and second that the exposure of the swap is only to the movement
in the currencies over that same 24 hour period.
Availability of Information
As noted above, the Funds will each comply with the requirements
for Managed Fund Shares related to Disclosed Portfolio, Net Asset
Value, and the Intraday Indicative Value. Additionally, the intra-day,
closing and settlement prices of exchange-traded portfolio assets,
including Unhedged ADRs and listed derivatives, will be readily
available from the securities exchanges, futures exchanges, and swap
execution facilities 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. Intraday
price quotations on both listed and OTC swaps are available from major
broker-dealer firms and from third-parties, which may provide prices
free with a time delay or in real-time for a paid fee. Price
information for cash equivalents will be available from major market
data vendors. Each Fund's Disclosed Portfolio will be available on the
issuer's website free of charge. Each Fund's website will include the
prospectus for the applicable Fund and additional information related
to NAV and other applicable quantitative information. Information
regarding market price and trading volume of the Shares will be
continuously available throughout the day on brokers' computer screens
and other electronic services. Information regarding the previous day's
closing price and trading volume for the Shares will be published daily
in the financial section of newspapers. Trading in the Shares may be
halted for market conditions or for reasons that, in the view of the
Exchange, make trading inadvisable. The Exchange deems the Shares to be
equity securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
The Exchange has appropriate rules to facilitate trading in the shares
during all trading sessions.
Surveillance
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Funds on the Exchange during all
[[Page 12452]]
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. Trading of the Funds
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Managed Fund Shares. The
issuer has represented to the Exchange that it will advise the Exchange
of any failure by a Fund to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Act, the Exchange will surveil for compliance with the continued
listing requirements. If a Fund is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
proceedings under Rule 14.12. The Exchange will also consider the
suspension of trading and commence delisting proceedings pursuant to
Rule 14.12 for a Fund if the Unhedged ADR held by the Fund has been
suspended from trading or delisted by the Unhedged ADR's listing
exchange. As described above, all Unhedged ADRs will be listed on a
U.S. national securities exchange, all of which are members of the
Intermarket Surveillance Group (``ISG'') or are exchanges with which
the Exchange has in place a comprehensive surveillance sharing
agreement.\23\ The Exchange may obtain information regarding trading in
the Funds, Unhedged ADRs, and listed derivative instruments held by
each Fund via the ISG, from other exchanges that are members or
affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
\23\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
Creation and Redemption Process
The Funds will create and redeem shares in large blocks of a
specified number of shares or multiples thereof (``Creation Units'') in
transactions with Authorized Participants \24\ that have entered into
agreements with the distributor for each Fund, Foreside Fund Services,
LLC (the ``Distributor''). The Exchange expects that a Creation Unit
for a Fund will consist of 25,000 or more shares. The Trust will issue
and sell shares of each Fund in Creation Units on a continuous basis
through the Distributor or the Distributor's agent, without a sales
load, at a price based on the Fund's net asset value (``NAV'') per
Share next determined after receipt of the purchase or redemption
order, on any day that the Exchange is open for trading (a ``Business
Day''). Explained simply, for a creation, an Authorized Participant
will be required to deliver the Unhedged ADRs in an amount equal to
that day's NAV (the ``Deposit Assets'') plus a cash amount representing
the value of fractional shares (the ``Cash Component'' and,
collectively with the Deposit Assets, the ``Fund Deposit''); and for a
redemption, the Trust will deliver Unhedged ADRs to the Authorized
Participant equal to the value of that day's NAV plus the Cash
Component (the ``Redemption Basket'').
---------------------------------------------------------------------------
\24\ For purposes of this proposal, the term ``Authorized
Participant'' is either (1) a ``Participating Party,'' (i.e., a
broker-dealer or other participant in the clearing process of the
Continuous Net Settlement System of the NSCC) (``Clearing
Process''); or (2) a participant of the Depository Trust Company
(the ``DTC'') (a ``DTC Participant'').
---------------------------------------------------------------------------
To initiate an order for a Creation Unit, an Authorized Participant
must submit to the Distributor or its agent an irrevocable order to
purchase Shares, in proper form, generally before 4:00 p.m., Eastern
Time, on any Business Day to receive that day's NAV. On days when the
Exchange closes earlier than normal, a Fund may require orders to be
placed earlier in the day. The consideration for a purchase of a
Creation Unit of a Fund generally will consist only of the Deposit
Assets and the Cash Component.
A portfolio composition file, to be sent via the National
Securities Clearing Corporation (``NSCC''), will be made available on
each Business Day, prior to the opening of business of the Exchange
(currently 9:30 a.m., Eastern Time) which includes the required number
of shares of the Deposit Assets and Cash Component to be included in
the current Fund Deposit (based on information at the end of the
previous Business Day). Such Fund Deposit is applicable, subject to any
adjustments,\25\ to purchases of Creation Units of Shares of the
applicable Fund until such time as the next-announced Fund Deposit
composition is made available.
---------------------------------------------------------------------------
\25\ The Funds may permit or require the substitution of a
``cash in lieu'' amount to be added to the Cash Component in the
event that the Deposit Asset is not available in sufficient quantity
for delivery. The Funds also reserve the right to permit or require
a ``cash in lieu'' amount in certain circumstances, including
circumstances in which the delivery of the Deposit Asset by the
Authorized Participant would be restricted under applicable
securities or other local laws or in certain other situations, such
as if the Authorized Participant is not able to trade due to a
trading restriction. The Funds also reserve the right to permit or
require Creation Units to be issued solely in exchange for cash.
---------------------------------------------------------------------------
An order to redeem Creation Units of a Fund is deemed received by
the Distributor on the transmittal date if (i) such order is received
not later than 4:00 p.m. Eastern Time on such transmittal date; (ii)
such order is preceded or accompanied by the requisite amount of Shares
based on the Creation Units specified in such order, which delivery
must be made through DTC to the Distributor by a specified time on such
transmittal date (the ``DTC Cut-Off Time''); and (iii) all other
procedures set forth in the Participant Agreement are properly
followed.
Each Fund's custodian will make available through the NSCC, prior
to the opening of business on the Exchange on each Business Day, the
Redemption Basket (subject to possible amendment or correction) that
will be applicable to redemption requests received in proper form on
that day. Orders to redeem Creation Units of a Fund must be delivered
through a DTC Participant that has executed the Participant Agreement
with the Distributor. A DTC Participant who wishes to place an order
for redemption of Creation Units of a Fund to be effected need not be a
Participating Party, but such orders must state that redemption of
Creation Units of the Fund will instead be effected through transfer of
Creation Units of the Fund directly through DTC. An order to redeem
Creation Units of a Fund is deemed received by the Distributor on the
transmittal date if (i) such order is received not later than 4:00 p.m.
Eastern Time on such transmittal date; (ii) such order is preceded or
accompanied by the requisite number of Shares of Creation Units
specified in such order, which delivery must be made through DTC to the
Distributor no later than the DTC Cut-Off Time on such transmittal
date; and (iii) all other procedures set forth in the Participant
Agreement are properly followed.
After the Distributor has deemed an order for redemption received,
the Distributor will initiate procedures to transfer the requisite Fund
Securities which are expected to be delivered within two Business Days
and the Cash Amount to the redeeming beneficial owner by the second
Business Day following the transmittal date on which such redemption
order is deemed received.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually
[[Page 12453]]
redeemable); (2) BZX Rule 3.7, which imposes suitability obligations on
Exchange members with respect to recommending transactions in the
Shares to customers; (3) how information regarding the Intraday
Indicative Value is disseminated; (4) the risks involved in trading the
Shares during the Pre-Opening \26\ and After Hours Trading Sessions
\27\ when an updated Intraday Indicative Value will not be calculated
or publicly disseminated; (5) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
---------------------------------------------------------------------------
\26\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.
Eastern Time.
\27\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. Eastern Time.
---------------------------------------------------------------------------
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Funds. Members purchasing Shares from a Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Act. The Information Circular will also reference that the Funds are
subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares and the applicable NAV calculation time for the
Shares. The Information Circular will disclose that information about
the Shares will be publicly available on each Fund's website.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \28\ in general and Section 6(b)(5) of the Act \29\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest given that the Shares will meet each of the initial and
continued listing criteria in Exchange Rule 14.11(i) with the exception
of Exchange Rules 14.11(i)(4)(C)(i)(3)-(4)[sic],\30\
14.11(i)(4)(C)(iv)(b),\31\ and 14.11(i)(4)(C)(v).\32\ The Generic
Listing Standards are designed to ensure that the holdings of the
portfolio of a series of Managed Fund Shares listed pursuant to 19b-
4(e) are sufficiently liquid, diverse, and non-concentrated as to
mitigate the policy concerns regarding the manipulability and liquidity
for the creation and redemption mechanism associated with that series
of Managed Fund Shares. As described above, the Funds do not meet the
Generic Listing Standards.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78f.
\29\ 15 U.S.C. 78f(b)(5).
\30\ In particular, the Funds will not meet: (i) The requirement
under Exchange Rule 14.11(i)(4)(C)(i)(3) [sic] that the most heavily
weighted component stock shall not exceed 30% of the equity weight
of the portfolio; and (ii) the requirement under Exchange Rule
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the portfolio
shall include a minimum of 13 component stocks.
\31\ In particular, the Funds may not meet the requirement under
Exchange Rule 14.11(i)(4)(C)(iv)(b) that the aggregate gross
notional value of listed derivatives based on any single underlying
reference asset shall not exceed 30% of the weight of the portfolio
(including gross notional exposures).
\32\ In particular, the Funds may not meet the requirement under
Exchange Rule 14.11(i)(4)(C)(v) that the aggregate gross notional
value of OTC derivatives shall not exceed 20% of the weight of the
portfolio (including gross notional exposures).
---------------------------------------------------------------------------
The Exchange believes that, while the Funds would not meet the
Generic Listing Standards, in particular Rules 14.11(i)(4)(C)(i)(a)(3)
and (4), 14.11(i)(4)(C)(iv)(b), and 14.11(i)(4)(C)(v), the policy
issues that those rules are intended to address are otherwise mitigated
by the structure, holdings, and purpose of the Funds. Rule
14.11(i)(4)(C)(i)(a)(3) is intended to ensure that no single equity
security constitutes too concentrated of a position in a series of
Managed Fund Shares and Rule 14.11(i)(4)(C)(i)(a)(4) is similarly
intended to diversify the holdings of a series of Managed Fund Shares.
The Exchange believes that these policy concerns are mitigated as it
relates to the Funds because: (i) The Unhedged ADR will meet the market
cap and liquidity requirements of Rules 14.11(i)(4)(C)(i)(a)(1) and
(2); and (ii) the intended function of the Funds is to eliminate
currency exposure risk for a single security, which means that the
Funds are necessarily concentrated. As described above, the creation
and redemption mechanism will provide a near frictionless arbitrage
opportunity that would minimize the risk of manipulation of either the
Unhedged ADR or the applicable Fund and, thus, mitigate the
manipulation concerns that Rule 14.11(i)(4)(C)(i)(a)(3) and (4) were
intended to address.
The Exchange also believes that the policy issues that Rules
14.11(i)(4)(C)(iv)(b) and 14.11(i)(4)(C)(v) are intended to address are
also mitigated by the way that the Funds would use derivatives, whether
listed or OTC. Such rules are intended to mitigate concerns around the
manipulability of a particular underlying reference asset or
derivatives contract and, for OTC derivatives, to minimize counterparty
risk. While the Currency Hedge positions taken by the Currency Hedged
ADRs would not meet the Generic Listing Standards, the policy concerns
that the Generic Listing Standards are intended to address are
otherwise mitigated by the liquidity in the underlying spot currency
market that prevents manipulation of the reference prices used by the
Currency Hedge. The Funds will attempt to limit counterparty risk in
OTC derivatives by: (i) Entering into such contracts only with
counterparties the Advisor believes are creditworthy; (ii) limiting a
Fund's exposure to each counterparty; and (iii) monitoring the
creditworthiness of each counterparty and the Fund's exposure to each
counterparty on an ongoing basis. The Exchange also believes that the
counterparty risk associated with OTC derivatives is further mitigated
because the currency swaps are settled on a daily basis and, thus, the
counterparty risk for any particular swap is limited in two ways--first
that the counterparty credit exposure is always limited to a 24 hour
period and second that the exposure of the swap is only to the movement
in the currencies over that same 24 hour period.
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Funds on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. Trading of the Funds
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Managed Fund Shares. All
statements and representations made in this filing regarding the
description of the portfolio or reference assets, limitations on
portfolio holdings or reference assets, dissemination and availability
of reference assets and intraday indicative values, and the
applicability of Exchange listing rules specified in this filing shall
constitute continued listing requirements for the Funds. The Trust, on
behalf of the Funds, has represented to the Exchange that it will
advise the Exchange of any failure by a Fund or the Shares to comply
with the continued
[[Page 12454]]
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will surveil for compliance with the
continued listing requirements. If a Fund or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12.
The Exchange will also consider the suspension of trading and
commence delisting proceedings pursuant to Rule 14.12 for a Fund if the
Unhedged ADR held by the Fund has been suspended from trading or
delisted by the Unhedged ADR's listing exchange. As described above,
all Unhedged ADRs will be listed on a U.S. national securities
exchange, all of which are members of ISG or are exchanges with which
the Exchange has in place a comprehensive surveillance sharing
agreement.\33\ The Exchange may obtain information regarding trading in
the Funds, Unhedged ADRs, and listed derivative instruments held by
each Fund via the ISG, from other exchanges that are members or
affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement. At least 100,000 Shares
of each Fund will be outstanding upon the commencement of trading.
---------------------------------------------------------------------------
\33\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of Managed Fund Shares that will enhance competition
among market participants, to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal is
consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2018-019 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File No. SR-CboeBZX-2018-019. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing will also be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. 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 No. SR-CboeBZX-2018-019 and should be submitted on
or before April 11, 2018.
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. 2018-05647 Filed 3-20-18; 8:45 am]
BILLING CODE 8011-01-P
