Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the FormulaFolios Sector Rotation ETF, a Series of the Northern Lights Fund Trust IV, Under Rule 14.11(i), Managed Fund Shares, 53343-53347 [2018-22909]

Download as PDF Federal Register / Vol. 83, No. 204 / Monday, October 22, 2018 / Notices limitations in section 12(d)(1)(A) and permit the Master Fund, and any principal underwriter for the Master Fund, to sell shares of the Master Fund to the Feeder Fund beyond the limitations in section 12(d)(1)(B). 10. Section 6(c) of the Act permits the Commission to exempt any persons or transactions from any provision of the Act if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Section 17(b) of the Act authorizes the Commission to grant an order permitting a transaction otherwise prohibited by section 17(a) if it finds that (a) the terms of the proposed transaction are fair and reasonable and do not involve overreaching on the part of any person concerned; (b) the proposed transaction is consistent with the policies of each registered investment company involved; and (c) the proposed transaction is consistent with the general purposes of the Act. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–22996 Filed 10–19–18; 8:45 am] BILLING CODE 8011–01–P Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the FormulaFolios Sector Rotation ETF, a Series of the Northern Lights Fund Trust IV, Under Rule 14.11(i), Managed Fund Shares daltland on DSKBBV9HB2PROD with NOTICES October 16, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 2, 2018, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 18:12 Oct 19, 2018 Jkt 247001 The Exchange filed a proposal to list and trade shares of the FormulaFolios Sector Rotation ETF (the ‘‘Fund’’), a series of the Northern Lights Fund Trust IV (the ‘‘Trust’’), under Rule 14.11(i) (‘‘Managed Fund Shares’’). The shares of the Fund are referred to herein as the ‘‘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. 1. Purpose [Release No. 34–84438; File No. SR– CboeBZX–2018–076] 2 17 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 1 15 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. The Exchange proposes to list and trade the Shares under Rule 14.11(i), which governs the listing and trading of Managed Fund Shares on the Exchange.3 The Fund will be an actively managed exchange-traded fund that seeks to provide a long-term total return which exceeds the total return of its Primary Benchmark Index, as further described below. The Exchange submits this proposal in order to allow the Fund to hold over-the-counter (‘‘OTC’’) derivatives, in a manner that may not 3 The Commission originally approved BZX 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 Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22, 2016), 81 FR 49698 (July 28, 2016) (SR–BATS–2015–100). PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 53343 comply with Rule 14.11(i)(4)(C)(v),4 as further described below. Otherwise, the Fund will comply with all other listing requirements on an initial and continued listing basis under Rule 14.11(i). The Shares will be offered by the Trust, which was established as a Delaware statutory trust on June 2, 2015. FormulaFolio Investments, LLC (the ‘‘Adviser’’) is the investment adviser to the Fund. The Trust is registered with the Commission as an open-end investment company and has filed a registration statement on behalf of the Fund on Form N–1A (‘‘Registration Statement’’) with the Commission.5 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 brokerdealer with respect to access to information concerning the composition and/or changes to such investment company portfolio.6 In addition, Rule 4 Rule 14.11(i)(4)(C)(v) provides that ‘‘the portfolio may, on both an initial and continuing basis, hold OTC derivatives, including forwards, options, and swaps on commodities, currencies and financial instruments (e.g., stocks, fixed income, interest rates, and volatility) or a basket or index of any of the foregoing, however the aggregate gross notional value of OTC Derivatives shall not exceed 20% of the weight of the portfolio (including gross notional exposures).’’ The Exchange is proposing that the Fund be exempt from this requirement only as it relates to the Fund’s holdings in OTC derivatives, which include total return swaps and certain Inflation Swaps and interest rate swaps, as further described below. 5 See Registration Statement on Form N–1A for the Trust, dated July 27, 2018 (File Nos. 333– 204808 and 811–23066). The descriptions of the Fund 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 Trust under the Investment Company Act of 1940 (15 U.S.C. 80a– 1) (‘‘1940 Act’’) (the ‘‘Exemptive Order’’). See Investment Company Act Release No. 29571 (May 16, 2017) (File No. 812–32367). 6 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) E:\FR\FM\22OCN1.SGM Continued 22OCN1 53344 Federal Register / Vol. 83, No. 204 / Monday, October 22, 2018 / Notices 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. Rule 14.11(i)(7) is similar to Rule 14.11(b)(5)(A)(i), however, 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 currently affiliated with any brokerdealers. In addition, Adviser personnel who make decisions regarding the Fund’s portfolio are subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the Fund’s portfolio. In the event that (a) the Adviser becomes registered as a brokerdealer or newly affiliated with a brokerdealer, or (b) any new adviser or subadviser 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 Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. daltland on DSKBBV9HB2PROD with NOTICES FormulaFolios Sector Rotation ETF According to the Registration Statement, the Fund will be an actively managed exchange-traded fund that will seek to provide a long-term total return which exceeds the total return of its Primary Benchmark Index.7 The Fund seeks to achieve its investment objective, under Normal Market Conditions,8 by utilizing derivatives, or 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. 7 The Fund’s Primary Benchmark Index is the S&P 500 Index. 8 As defined in Rule 14.11(i)(3)(E), the term ‘‘Normal Market Conditions’’ includes, but is not limited to, the absence of trading halts in the applicable financial markets generally; operational VerDate Sep<11>2014 18:12 Oct 19, 2018 Jkt 247001 a combination of derivatives and direct investments, to gain 100% equity exposure. The Adviser allocates the Fund’s assets based on two proprietary investment models. The Adviser’s first investment model identifies trends for the individual sectors within its Primary Benchmark Index. Each month, the model analyzes the strength of the US economy and ranks the sectors of its Primary Benchmark Index based on a blend of various technical momentum indicators, volatility gauges, and valuation multiples. When the economy appears healthy, sectors with the highest risk-adjusted returns (lower volatility and higher price momentum) and the lowest valuations (lower price ratios) are ranked higher. When the economy appears unhealthy, sectors with more stable price movements and lower volatility are ranked higher. The Fund invests in the top four sectors in an equal weight. In order to achieve such exposure, the Fund will use OTC swap contracts that reference each applicable sector index (‘‘Sector Swaps’’).9 In the event that such Sector Swaps are unavailable or the pricing for such contracts are unfavorable, the Fund may attempt to replicate the desired equity exposure by purchasing some or all of the equity securities that are listed on a U.S. national securities exchange, including ETFs,10 comprising the model weights at the time.11 If the model issues causing dissemination of inaccurate market information or system failures; or force majeure type events such as natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption, or any similar intervening circumstance. 9 The Fund will attempt to limit counterparty risk in non-cleared swap contracts by entering into such contracts only with counterparties the Adviser believes are creditworthy and by limiting the Fund’s exposure to each counterparty. The Adviser will monitor the creditworthiness of each counterparty and the Fund’s exposure to each counterparty on an ongoing basis. The Sector Swaps will reference the individual sector indices that underlie the Primary Benchmark Index, which include S&P 500 Consumer Discretionary, S&P 500 Consumer Staples, S&P 500 Health Care, S&P 500 Industrials, S&P 500 Information Technology, S&P 500 Materials, S&P 500 Real Estate, S&P 500 Telecommunication Services, S&P 500 Utilities, S&P 500 Financials, and S&P 500 Energy (each a ‘‘Primary Benchmark Sector Index’’ and, collectively, the ‘‘Primary Benchmark Sector Indexes’’). 10 For purposes of this proposal, the term ETF includes Portfolio Depositary Receipts, Index Fund Shares, and Managed Fund Shares as defined in Rule 14.11(b), (c), and (i), respectively, and their equivalents on other national securities exchanges. 11 Such equity securities may include either component securities of the Primary Benchmark Index, ETFs based on the Primary Benchmark Index, or ETFs based on the sectors underlying the Primary Benchmark Index. Any such holdings will meet the listing requirements for U.S. Component Stocks as provided in Rule 14.11(i)(4)(C)(i)(a). PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 indicates the market is doing poorly, and if not enough sectors pass the screening criteria, the Fund can invest a portion or all of its assets in cash or Cash Equivalents.12 The Exchange is proposing to allow the Fund to hold up to 75% of the weight of its portfolio (including gross notional exposure) in Sector Swaps, collectively, in a manner that may not comply with 14.11(i)(4)(C)(v),13 as discussed above. The Adviser’s second investment model is used to manage an active bond allocation exclusively through holding fixed income ETFs. This model analyzes various major fixed income asset classes (U.S. treasuries, investment grade U.S. bonds, high-yield U.S. bonds, high-yield municipal bonds, and floating rate bonds) based on a blend of yield spreads, interest rates, and price momentum. Following the ranking process, the Fund will invest in ETFs based on the highest-ranked asset classes, with the lowest ranked asset classes left out of the Fund.14 When not enough of the asset classes meet the model’s criteria, the Fund may invest heavily in cash or Cash Equivalents until more asset classes become favorable for investing. The Fund’s investments, including derivatives, will be consistent with the 1940 Act and the Fund’s investment objective and policies and will not be used to enhance leverage (although certain derivatives and other investments may result in leverage).15 12 As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash Equivalents are shortterm instruments with maturities of less than three months, which includes only the following: (i) U.S. Government securities, including bills, notes, and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities; (ii) certificates of deposit issued against funds deposited in a bank or savings and loan association; (iii) bankers acceptances, which are short-term credit instruments used to finance commercial transactions; (iv) repurchase agreements and reverse repurchase agreements; (v) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; (vi) commercial paper, which are short-term unsecured promissory notes; and (vii) money market funds. 13 See supra note 4. 14 All of the Fund’s investments made pursuant to this second investment model will meet the listing requirements for U.S. equity securities as provided in Rule 14.11(i)(4)(C)(i)(a). 15 The Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of a fund, including a fund’s use of derivatives, may give rise to leverage, causing a fund to be more volatile than if it had not been leveraged. The Fund’s investments in in derivative instruments will be made in accordance with the 1940 Act and consistent with the Fund’s investment objective and policies. To mitigate leveraging risk, the Fund will segregate or earmark liquid assets E:\FR\FM\22OCN1.SGM 22OCN1 Federal Register / Vol. 83, No. 204 / Monday, October 22, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund’s primary broad-based securities benchmark index (as defined in Form N–1A). The Fund will only use those derivatives included in the defined term Sector Swaps. The Fund’s use of derivative instruments will be collateralized. As noted above, the Fund may also hold certain equity securities and cash and Cash Equivalents in compliance with Rules 14.11(i)(4)(C)(i)(a) and 14.11(i)(4)(C)(iii). The Exchange represents that, except for the exception to BZX Rule 14.11(i)(4)(C)(v) described above, the Fund’s proposed investments will satisfy, on an initial and continued listing basis, all of the generic listing standards under BZX Rule 14.11(i)(4)(C) and all other applicable requirements for Managed Fund Shares under Rule 14.11(i). The Trust is required to comply with Rule 10A–3 under the Act for the initial and continued listing of the Shares of the Fund. In addition, the Exchange represents that the Shares of the Fund will comply with all other requirements applicable to Managed Fund Shares including, but not limited to, requirements relating to the dissemination of key information such as the Disclosed Portfolio, Net Asset Value, and the Intraday Indicative Value, rules governing the trading of equity securities, trading hours, trading halts, surveillance, firewalls, and the information circular, as set forth in Exchange rules applicable to Managed Fund Shares and the orders approving such rules. At least 100,000 Shares will be outstanding upon the commencement of trading. Moreover, all of the equity securities held by the Fund will trade on markets that are a member of Intermarket Surveillance Group (‘‘ISG’’) or affiliated with a member of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.16 determined to be liquid by the Adviser in accordance with procedures established by the Trust’s Board and in accordance with the 1940 Act (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under derivative instruments. These procedures have been adopted consistent with Section 18 of the 1940 Act and related Commission guidance. See 15 U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18, 1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset Management, L.P., Commission No-Action Letter (July 2, 1996). 16 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 VerDate Sep<11>2014 18:12 Oct 19, 2018 Jkt 247001 Additionally, the Exchange or FINRA, on behalf of the Exchange, are able to access, as needed, trade information for certain Cash Equivalents reported to FINRA’s Trade Reporting and Compliance Engine (‘‘TRACE’’). All statements and representations made in this filing regarding the description of the portfolio or reference assets, limitations on portfolio holdings or reference assets, dissemination and availability of index, reference asset, and intraday indicative values, and the applicability of Exchange rules specified in this filing shall constitute continued listing requirements for the Fund. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund or the Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will surveil for compliance with the continued listing requirements. If the Fund or the Shares are not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12. 53345 last sale information on the Shares will be available through the Consolidated Tape Association. 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. Information Circular As noted above, the Fund will 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 equity securities, will be readily available from the securities exchanges trading such securities, automated quotation systems, published or other public sources, or online information services such as Bloomberg or Reuters. Intraday price quotations on OTC swaps and fixed income instruments are available from major broker-dealer firms and from thirdparties, 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. The Disclosed Portfolio will be available on the issuer’s website free of charge. The Fund’s website includes a form of the prospectus for the Fund and additional information related to NAV and other applicable quantitative information. Information regarding market price and trading volume of the Shares will be continuously available throughout the day on brokers’ computer screens and other electronic services. Quotation and Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) BZX Rule 3.7, which imposes suitability obligations on Exchange members with respect to recommending transactions in the Shares to customers; (3) how information regarding the Intraday Indicative Value and the Disclosed Portfolio is disseminated; (4) the risks involved in trading the Shares during the Pre-Opening 17 and After Hours Trading Sessions 18 when an updated Intraday Indicative Value and Underlying Index 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 Fund. Members purchasing Shares from the Fund for resale to investors will deliver a prospectus to such investors. The Information Circular will also discuss any exemptive, no-action and interpretive relief granted by the Commission from any rules under the Act. In addition, the Information Circular will reference that the Fund is subject 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. 17 The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. Eastern Time. 18 The After Hours Trading Session is from 4:00 p.m. to 5:00 p.m. Eastern Time. Availability of Information PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 E:\FR\FM\22OCN1.SGM 22OCN1 53346 Federal Register / Vol. 83, No. 204 / Monday, October 22, 2018 / Notices to various fees and expenses described in the Registration Statement. The Information Circular will also disclose the trading hours of the Shares of the Fund and the applicable NAV calculation time for the Shares. The Information Circular will disclose that information about the Shares of the Fund will be publicly available on the Fund’s website. daltland on DSKBBV9HB2PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act 19 in general and Section 6(b)(5) of the Act 20 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices, 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 in that the Shares will meet each of the initial and continued listing criteria in BZX Rule 14.11(i) except that the Fund may not comply with Rule 14.11(i)(4)(C)(v).21 The Exchange believes that the size and liquidity of the securities underlying the Primary Benchmark Index and each of the Primary Benchmark Index Sectors mitigates manipulation concerns relating to Sector Swaps held by the Fund.22 Further, the Fund will attempt to limit counterparty risk in Sector Swaps by entering into such contracts only with counterparties the Adviser believes are creditworthy and by limiting the Fund’s exposure to each counterparty. The Adviser will monitor the creditworthiness of each counterparty and the Fund’s exposure to each counterparty on an ongoing basis. The Exchange also notes that notional 19 15 U.S.C. 78f. U.S.C. 78f(b)(5). 21 See supra note 4. 22 The Exchange notes that the Primary Benchmark Index and each Primary Benchmark Sector Index separately meet the generic listing standards applicable to Index Fund Shares under Rule 14.11(c)(3)(A)(i). 20 15 VerDate Sep<11>2014 18:12 Oct 19, 2018 Jkt 247001 principal never changes hands in such swaps transactions, and it is a theoretical value used to base the exchanged payments. A more accurate representation of the swaps value in order to monitor total counterparty risk would be the mark-to market value of the swap since inception, which the Adviser generally expects to remain at around 10% of the Fund’s net assets.23 Trading of the Shares through the Exchange will be subject to the Exchange’s surveillance procedures for derivative products, including Managed Fund Shares. All of the equity securities held by the Fund will trade on markets that are a member of ISG or affiliated with a member of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Exchange, FINRA, on behalf of the Exchange, or both will communicate regarding trading in the Shares and the underlying equity securities held by the Fund with the ISG, other markets or entities who are members or affiliates of the ISG, or with which the Exchange has entered into a comprehensive surveillance sharing agreement.24 The Exchange, FINRA, on behalf of the Exchange, or both may obtain information regarding trading in the Shares and the underlying equity securities held by the Fund via the ISG from other markets or entities who are members or affiliates of the ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement.25 Additionally, the Exchange or FINRA, on behalf of the Exchange, may access, as needed, trade information for certain fixed income instruments reported to TRACE. The Exchange has a policy prohibiting the distribution of material non-public information by its employees. The Exchange notes that the Fund will meet and be subject to all other requirements of the Generic Listing Rules and other applicable continued listing requirements for Managed Fund Shares under Rule 14.11(i), including those requirements regarding the Disclosed Portfolio and the requirement that the Disclosed Portfolio and the NAV will be made available to all 23 The Exchange notes that the Trust, on behalf of the Fund, will file a notice of eligibility for exclusion from the definition of the term ‘‘commodity pool operator’’ in accordance with CFTC Rule 4.5, and, therefore, the Fund would not be subject to registration or regulation as a commodity pool operator under the Commodity Exchange Act (‘‘CEA’’) to the extent that it complies with the requirements of the rule. To the extent that the Fund makes investments regulated by the CFTC, it will do so in accordance with Rule 4.5 under the CEA. 24 See note 19 [sic], supra. 25 See note 19 [sic], supra. PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 market participants at the same time,26 Intraday Indicative Value,27 suspension of trading or removal,28 trading halts,29 disclosure,30 and firewalls.31 Further, at least 100,000 Shares will be outstanding upon the commencement of trading.32 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, rather will facilitate the listing and trading of an additional activelymanaged exchange-traded product that will enhance competition among both market participants and listing venues, to the benefit of investors and the marketplace. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) by order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: 26 See Rules 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii). 27 See Rule 14.11(i)(4)(B)(i). 28 See Rule 14.11(i)(4)(B)(iii). 29 See Rule 14.11(i)(4)(B)(iv). 30 See Rule 14.11(i)(6). 31 See Rule 14.11(i)(7). 32 See Rule 14.11(i)(4)(A)(i). E:\FR\FM\22OCN1.SGM 22OCN1 Federal Register / Vol. 83, No. 204 / Monday, October 22, 2018 / Notices 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–2018–076 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–CboeBZX–2018–076. 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 this 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 Number SR–CboeBZX–2018–076 and should be submitted on or before November 13, 2018. daltland on DSKBBV9HB2PROD with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.33 Eduardo A. Aleman, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–84430; File No. SR– NYSENAT–2018–23] Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Schedule of Fees To Adopt the Same Billing Dispute Practice as the Exchange’s Affiliates and Other Exchanges October 16, 2018. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on October 3, 2018, NYSE National, Inc. (the ‘‘Exchange’’ or ‘‘NYSE National’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Schedule of Fees and Rebates to adopt the same billing dispute practice as the Exchange’s affiliates and other exchanges. The proposed rule change is available on the Exchange’s website at www.nyse.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 self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. [FR Doc. 2018–22909 Filed 10–19–18; 8:45 am] BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 33 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:12 Oct 19, 2018 Jkt 247001 PO 00000 Frm 00142 Fmt 4703 53347 A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its Schedule of Fees and Rebates to adopt the same billing dispute practice as the Exchange’s affiliates and other exchanges. As discussed below, the proposed provision would be identical to provision [sic] in the fee schedules of the Exchange’s affiliates the New York Stock Exchange LLC (‘‘NYSE’’), NYSE Arca, Inc. (‘‘NYSE Arca’’), and NYSE American LLC (‘‘NYSE American’’) as well as other equities and options exchanges. Background The Exchange proposes to amend its Schedule of Fees and Rebates to adopt a billing procedure to prevent ETP Holders from contesting their bills long after they have been sent an invoice. The procedure proposed by the Exchange is the same as that in place at the Exchange’s equities and options affiliates 4 and substantially the same as that in place at other equities and options exchanges.5 4 See New York Stock Exchange Price List 2018, available at https://www.nyse.com/publicdocs/nyse/ markets/nyse/NYSE_Price_List.pdf (‘‘All fee disputes concerning fees billed by the Exchange must be submitted to the Exchange in writing and must be accompanied by supporting documentation. All fee disputes must be submitted no later than sixty (60) days after receipt of a billing invoice’’); NYSE Arca Equities Fees and Charges, available at https://www.nyse.com/publicdocs/nyse/ markets/nyse-arca/NYSE_Arca_Marketplace_ Fees.pdf (same); NYSE Arca Options Fees and Charges, available at https://www.nyse.com/ publicdocs/nyse/markets/arca-options/NYSE_Arca_ Options_Fee_Schedule.pdf (same); NYSE American Equities Price List, available at https:// www.nyse.com/publicdocs/nyse/markets/nyseamerican/NYSE_America_Equities_Price_List.pdf (same); and NYSE American Options Fee Schedule, available at https://www.nyse.com/publicdocs/nyse/ markets/american-options/NYSE_American_ Options_Fee_Schedule.pdf (same). 5 See NASDAQ Equity Rule 7007(b) (All pricing disputes concerning fees or rebates, which are listed in paragraph (a), which are billed by the Exchange must be submitted to the Exchange in writing and must be accompanied by supporting documentation and all pricing disputes must be submitted no later than sixty (60) days after receipt of a billing invoice); NASDAQ Options Rules, Chapter XV, Sect. 7 (same); NASDAQ BX Options Rules, Chapter XV (Options Pricing), Sec. 7(b)[sic] (BX Options Fee Disputes) (same); NASDAQ PHLX LLC Pricing Schedule, available at https://nasdaqtrader.com/ Micro.aspx?id=PHLXPricing (same); NASDAQ ISE Schedule of Fees Preface, available at https:// ise.cchwallstreet.com/tools/PlatformViewer.asp? selectednode=chp_1_1_1&manual=%2Fcontents %2Fise%2Fise-fee%2F (same); NASDAQ GEMX Schedule of Fees, available at https:// nasdaqgemx.cchwallstreet.com/tools/ PlatformViewer.asp?selectednode=chp_1_1_ 1&manual=%2Fcontents%2Fgemx%2Fise-fee- Continued Sfmt 4703 E:\FR\FM\22OCN1.SGM 22OCN1

Agencies

[Federal Register Volume 83, Number 204 (Monday, October 22, 2018)]
[Notices]
[Pages 53343-53347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22909]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84438; File No. SR-CboeBZX-2018-076]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
FormulaFolios Sector Rotation ETF, a Series of the Northern Lights Fund 
Trust IV, Under Rule 14.11(i), Managed Fund Shares

October 16, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 2, 2018, Cboe BZX Exchange, Inc. (the ``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to list and trade shares of the 
FormulaFolios Sector Rotation ETF (the ``Fund''), a series of the 
Northern Lights Fund Trust IV (the ``Trust''), under Rule 14.11(i) 
(``Managed Fund Shares''). The shares of the Fund are referred to 
herein as the ``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 the Shares under Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Fund will be an actively managed exchange-
traded fund that seeks to provide a long-term total return which 
exceeds the total return of its Primary Benchmark Index, as further 
described below. The Exchange submits this proposal in order to allow 
the Fund to hold over-the-counter (``OTC'') derivatives, in a manner 
that may not comply with Rule 14.11(i)(4)(C)(v),\4\ as further 
described below. Otherwise, the Fund will comply with all other listing 
requirements on an initial and continued listing basis under Rule 
14.11(i).
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    \3\ The Commission originally approved BZX 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 
Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22, 
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100).
    \4\ Rule 14.11(i)(4)(C)(v) provides that ``the portfolio may, on 
both an initial and continuing basis, hold OTC derivatives, 
including forwards, options, and swaps on commodities, currencies 
and financial instruments (e.g., stocks, fixed income, interest 
rates, and volatility) or a basket or index of any of the foregoing, 
however the aggregate gross notional value of OTC Derivatives shall 
not exceed 20% of the weight of the portfolio (including gross 
notional exposures).'' The Exchange is proposing that the Fund be 
exempt from this requirement only as it relates to the Fund's 
holdings in OTC derivatives, which include total return swaps and 
certain Inflation Swaps and interest rate swaps, as further 
described below.
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    The Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on June 2, 2015. FormulaFolio Investments, LLC 
(the ``Adviser'') is the investment adviser to the Fund. The Trust is 
registered with the Commission as an open-end investment company and 
has filed a registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\5\
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    \5\ See Registration Statement on Form N-1A for the Trust, dated 
July 27, 2018 (File Nos. 333-204808 and 811-23066). The descriptions 
of the Fund 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 Trust under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') (the 
``Exemptive Order''). See Investment Company Act Release No. 29571 
(May 16, 2017) (File No. 812-32367).
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    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.\6\ In addition, Rule

[[Page 53344]]

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. Rule 14.11(i)(7) is similar to Rule 14.11(b)(5)(A)(i), 
however, 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 currently affiliated with any 
broker-dealers. In addition, Adviser personnel who make decisions 
regarding the Fund's portfolio are subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the Fund's portfolio. In the event that (a) the Adviser 
becomes registered as a broker-dealer or newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement and maintain a fire wall with respect to its relevant 
personnel or such broker-dealer affiliate, as applicable, regarding 
access to information concerning the composition 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.
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    \6\ 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.
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    The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
FormulaFolios Sector Rotation ETF
    According to the Registration Statement, the Fund will be an 
actively managed exchange-traded fund that will seek to provide a long-
term total return which exceeds the total return of its Primary 
Benchmark Index.\7\ The Fund seeks to achieve its investment objective, 
under Normal Market Conditions,\8\ by utilizing derivatives, or a 
combination of derivatives and direct investments, to gain 100% equity 
exposure.
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    \7\ The Fund's Primary Benchmark Index is the S&P 500 Index.
    \8\ As defined in Rule 14.11(i)(3)(E), the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational 
issues causing dissemination of inaccurate market information or 
system failures; or force majeure type events such as natural or 
man-made disaster, act of God, armed conflict, act of terrorism, 
riot or labor disruption, or any similar intervening circumstance.
---------------------------------------------------------------------------

    The Adviser allocates the Fund's assets based on two proprietary 
investment models. The Adviser's first investment model identifies 
trends for the individual sectors within its Primary Benchmark Index. 
Each month, the model analyzes the strength of the US economy and ranks 
the sectors of its Primary Benchmark Index based on a blend of various 
technical momentum indicators, volatility gauges, and valuation 
multiples. When the economy appears healthy, sectors with the highest 
risk-adjusted returns (lower volatility and higher price momentum) and 
the lowest valuations (lower price ratios) are ranked higher. When the 
economy appears unhealthy, sectors with more stable price movements and 
lower volatility are ranked higher. The Fund invests in the top four 
sectors in an equal weight. In order to achieve such exposure, the Fund 
will use OTC swap contracts that reference each applicable sector index 
(``Sector Swaps'').\9\
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    \9\ The Fund will attempt to limit counterparty risk in non-
cleared swap contracts by entering into such contracts only with 
counterparties the Adviser believes are creditworthy and by limiting 
the Fund's exposure to each counterparty. The Adviser will monitor 
the creditworthiness of each counterparty and the Fund's exposure to 
each counterparty on an ongoing basis. The Sector Swaps will 
reference the individual sector indices that underlie the Primary 
Benchmark Index, which include S&P 500 Consumer Discretionary, S&P 
500 Consumer Staples, S&P 500 Health Care, S&P 500 Industrials, S&P 
500 Information Technology, S&P 500 Materials, S&P 500 Real Estate, 
S&P 500 Telecommunication Services, S&P 500 Utilities, S&P 500 
Financials, and S&P 500 Energy (each a ``Primary Benchmark Sector 
Index'' and, collectively, the ``Primary Benchmark Sector 
Indexes'').
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    In the event that such Sector Swaps are unavailable or the pricing 
for such contracts are unfavorable, the Fund may attempt to replicate 
the desired equity exposure by purchasing some or all of the equity 
securities that are listed on a U.S. national securities exchange, 
including ETFs,\10\ comprising the model weights at the time.\11\ If 
the model indicates the market is doing poorly, and if not enough 
sectors pass the screening criteria, the Fund can invest a portion or 
all of its assets in cash or Cash Equivalents.\12\ The Exchange is 
proposing to allow the Fund to hold up to 75% of the weight of its 
portfolio (including gross notional exposure) in Sector Swaps, 
collectively, in a manner that may not comply with 
14.11(i)(4)(C)(v),\13\ as discussed above.
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    \10\ For purposes of this proposal, the term ETF includes 
Portfolio Depositary Receipts, Index Fund Shares, and Managed Fund 
Shares as defined in Rule 14.11(b), (c), and (i), respectively, and 
their equivalents on other national securities exchanges.
    \11\ Such equity securities may include either component 
securities of the Primary Benchmark Index, ETFs based on the Primary 
Benchmark Index, or ETFs based on the sectors underlying the Primary 
Benchmark Index. Any such holdings will meet the listing 
requirements for U.S. Component Stocks as provided in Rule 
14.11(i)(4)(C)(i)(a).
    \12\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (i) U.S. Government 
securities, including bills, notes, and bonds differing as to 
maturity and rates of interest, which are either issued or 
guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities; (ii) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (iii) bankers 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (iv) repurchase agreements and reverse 
repurchase agreements; (v) bank time deposits, which are monies kept 
on deposit with banks or savings and loan associations for a stated 
period of time at a fixed rate of interest; (vi) commercial paper, 
which are short-term unsecured promissory notes; and (vii) money 
market funds.
    \13\ See supra note 4.
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    The Adviser's second investment model is used to manage an active 
bond allocation exclusively through holding fixed income ETFs. This 
model analyzes various major fixed income asset classes (U.S. 
treasuries, investment grade U.S. bonds, high-yield U.S. bonds, high-
yield municipal bonds, and floating rate bonds) based on a blend of 
yield spreads, interest rates, and price momentum. Following the 
ranking process, the Fund will invest in ETFs based on the highest-
ranked asset classes, with the lowest ranked asset classes left out of 
the Fund.\14\ When not enough of the asset classes meet the model's 
criteria, the Fund may invest heavily in cash or Cash Equivalents until 
more asset classes become favorable for investing.
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    \14\ All of the Fund's investments made pursuant to this second 
investment model will meet the listing requirements for U.S. equity 
securities as provided in Rule 14.11(i)(4)(C)(i)(a).
---------------------------------------------------------------------------

    The Fund's investments, including derivatives, will be consistent 
with the 1940 Act and the Fund's investment objective and policies and 
will not be used to enhance leverage (although certain derivatives and 
other investments may result in leverage).\15\

[[Page 53345]]

That is, while the Fund will be permitted to borrow as permitted under 
the 1940 Act, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (i.e., 2Xs and 
3Xs) of the Fund's primary broad-based securities benchmark index (as 
defined in Form N-1A). The Fund will only use those derivatives 
included in the defined term Sector Swaps. The Fund's use of derivative 
instruments will be collateralized.
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    \15\ The Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of a fund, including a fund's use 
of derivatives, may give rise to leverage, causing a fund to be more 
volatile than if it had not been leveraged. The Fund's investments 
in in derivative instruments will be made in accordance with the 
1940 Act and consistent with the Fund's investment objective and 
policies. To mitigate leveraging risk, the Fund will segregate or 
earmark liquid assets determined to be liquid by the Adviser in 
accordance with procedures established by the Trust's Board and in 
accordance with the 1940 Act (or, as permitted by applicable 
regulations, enter into certain offsetting positions) to cover its 
obligations under derivative instruments. These procedures have been 
adopted consistent with Section 18 of the 1940 Act and related 
Commission guidance. See 15 U.S.C. 80a-18; Investment Company Act 
Release No. 10666 (April 18, 1979), 44 FR 25128 (April 27, 1979); 
Dreyfus Strategic Investing, Commission No-Action Letter (June 22, 
1987); Merrill Lynch Asset Management, L.P., Commission No-Action 
Letter (July 2, 1996).
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    As noted above, the Fund may also hold certain equity securities 
and cash and Cash Equivalents in compliance with Rules 
14.11(i)(4)(C)(i)(a) and 14.11(i)(4)(C)(iii).
    The Exchange represents that, except for the exception to BZX Rule 
14.11(i)(4)(C)(v) described above, the Fund's proposed investments will 
satisfy, on an initial and continued listing basis, all of the generic 
listing standards under BZX Rule 14.11(i)(4)(C) and all other 
applicable requirements for Managed Fund Shares under Rule 14.11(i). 
The Trust is required to comply with Rule 10A-3 under the Act for the 
initial and continued listing of the Shares of the Fund. In addition, 
the Exchange represents that the Shares of the Fund will comply with 
all other requirements applicable to Managed Fund Shares including, but 
not limited to, requirements relating to the dissemination of key 
information such as the Disclosed Portfolio, Net Asset Value, and the 
Intraday Indicative Value, rules governing the trading of equity 
securities, trading hours, trading halts, surveillance, firewalls, and 
the information circular, as set forth in Exchange rules applicable to 
Managed Fund Shares and the orders approving such rules. At least 
100,000 Shares will be outstanding upon the commencement of trading.
    Moreover, all of the equity securities held by the Fund will trade 
on markets that are a member of Intermarket Surveillance Group 
(``ISG'') or affiliated with a member of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.\16\ 
Additionally, the Exchange or FINRA, on behalf of the Exchange, are 
able to access, as needed, trade information for certain Cash 
Equivalents reported to FINRA's Trade Reporting and Compliance Engine 
(``TRACE''). All statements and representations made in this filing 
regarding the description of the portfolio or reference assets, 
limitations on portfolio holdings or reference assets, dissemination 
and availability of index, reference asset, and intraday indicative 
values, and the applicability of Exchange rules specified in this 
filing shall constitute continued listing requirements for the Fund. 
The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund or the Shares to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will surveil for compliance 
with the continued listing requirements. If the Fund or the Shares are 
not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under Exchange Rule 14.12.
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    \16\ 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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Availability of Information
    As noted above, the Fund will 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 
equity securities, will be readily available from the securities 
exchanges trading such securities, automated quotation systems, 
published or other public sources, or online information services such 
as Bloomberg or Reuters. Intraday price quotations on OTC swaps and 
fixed income instruments are available from major broker-dealer firms 
and from third-parties, which may provide prices free with a time delay 
or in real-time for a paid fee. Price information for Cash Equivalents 
will be available from major market data vendors. The Disclosed 
Portfolio will be available on the issuer's website free of charge. The 
Fund's website includes a form of the prospectus for the Fund and 
additional information related to NAV and other applicable quantitative 
information. Information regarding market price and trading volume of 
the Shares will be continuously available throughout the day on 
brokers' computer screens and other electronic services. Quotation and 
last sale information on the Shares will be available through the 
Consolidated Tape Association. 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.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Opening \17\ and After Hours Trading Sessions \18\ when an updated 
Intraday Indicative Value and Underlying Index 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.
---------------------------------------------------------------------------

    \17\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \18\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
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    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject

[[Page 53346]]

to various fees and expenses described in the Registration Statement. 
The Information Circular will also disclose the trading hours of the 
Shares of the Fund and the applicable NAV calculation time for the 
Shares. The Information Circular will disclose that information about 
the Shares of the Fund will be publicly available on the Fund's 
website.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \19\ in general and Section 6(b)(5) of the Act \20\ 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices, 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 in that the Shares will meet 
each of the initial and continued listing criteria in BZX Rule 14.11(i) 
except that the Fund may not comply with Rule 14.11(i)(4)(C)(v).\21\ 
The Exchange believes that the size and liquidity of the securities 
underlying the Primary Benchmark Index and each of the Primary 
Benchmark Index Sectors mitigates manipulation concerns relating to 
Sector Swaps held by the Fund.\22\ Further, the Fund will attempt to 
limit counterparty risk in Sector Swaps by entering into such contracts 
only with counterparties the Adviser believes are creditworthy and by 
limiting the Fund's exposure to each counterparty. The Adviser will 
monitor the creditworthiness of each counterparty and the Fund's 
exposure to each counterparty on an ongoing basis. The Exchange also 
notes that notional principal never changes hands in such swaps 
transactions, and it is a theoretical value used to base the exchanged 
payments. A more accurate representation of the swaps value in order to 
monitor total counterparty risk would be the mark-to market value of 
the swap since inception, which the Adviser generally expects to remain 
at around 10% of the Fund's net assets.\23\
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    \21\ See supra note 4.
    \22\ The Exchange notes that the Primary Benchmark Index and 
each Primary Benchmark Sector Index separately meet the generic 
listing standards applicable to Index Fund Shares under Rule 
14.11(c)(3)(A)(i).
    \23\ The Exchange notes that the Trust, on behalf of the Fund, 
will file a notice of eligibility for exclusion from the definition 
of the term ``commodity pool operator'' in accordance with CFTC Rule 
4.5, and, therefore, the Fund would not be subject to registration 
or regulation as a commodity pool operator under the Commodity 
Exchange Act (``CEA'') to the extent that it complies with the 
requirements of the rule. To the extent that the Fund makes 
investments regulated by the CFTC, it will do so in accordance with 
Rule 4.5 under the CEA.
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    Trading of the Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products, including 
Managed Fund Shares. All of the equity securities held by the Fund will 
trade on markets that are a member of ISG or affiliated with a member 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. The Exchange, FINRA, on behalf of the 
Exchange, or both will communicate regarding trading in the Shares and 
the underlying equity securities held by the Fund with the ISG, other 
markets or entities who are members or affiliates of the ISG, or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement.\24\ The Exchange, FINRA, on behalf of the Exchange, 
or both may obtain information regarding trading in the Shares and the 
underlying equity securities held by the Fund via the ISG from other 
markets or entities who are members or affiliates of the ISG or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement.\25\ Additionally, the Exchange or FINRA, on behalf 
of the Exchange, may access, as needed, trade information for certain 
fixed income instruments reported to TRACE. The Exchange has a policy 
prohibiting the distribution of material non-public information by its 
employees.
---------------------------------------------------------------------------

    \24\ See note 19 [sic], supra.
    \25\ See note 19 [sic], supra.
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    The Exchange notes that the Fund will meet and be subject to all 
other requirements of the Generic Listing Rules and other applicable 
continued listing requirements for Managed Fund Shares under Rule 
14.11(i), including those requirements regarding the Disclosed 
Portfolio and the requirement that the Disclosed Portfolio and the NAV 
will be made available to all market participants at the same time,\26\ 
Intraday Indicative Value,\27\ suspension of trading or removal,\28\ 
trading halts,\29\ disclosure,\30\ and firewalls.\31\ Further, at least 
100,000 Shares will be outstanding upon the commencement of 
trading.\32\
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    \26\ See Rules 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \27\ See Rule 14.11(i)(4)(B)(i).
    \28\ See Rule 14.11(i)(4)(B)(iii).
    \29\ See Rule 14.11(i)(4)(B)(iv).
    \30\ See Rule 14.11(i)(6).
    \31\ See Rule 14.11(i)(7).
    \32\ See Rule 14.11(i)(4)(A)(i).
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    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, rather will facilitate the listing and trading of 
an additional actively-managed exchange-traded product that will 
enhance competition among both market participants and listing venues, 
to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 53347]]

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-2018-076 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2018-076. 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 this 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 Number SR-CboeBZX-2018-076 and should be submitted 
on or before November 13, 2018.

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

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    \33\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22909 Filed 10-19-18; 8:45 am]
 BILLING CODE 8011-01-P
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