Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Units of Each of (i) Cboe Vest S&P 500® Buffer Enhanced Growth Protect Strategy ETNs; (ii) Cboe Vest S&P 500® Enhanced Growth Strategy ETNs; (iii) Cboe Vest S&P 500® Accelerated Return Strategy ETNs; and (iv) Cboe Vest S&P 500® Power Buffer Strategy ETNs Under Rule 14.11(d), Equity Index-Linked Securities, 10863-10869 [2019-05459]
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Federal Register / Vol. 84, No. 56 / Friday, March 22, 2019 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85347; File No. SR–
CboeBZX–2019–015]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To List and
Trade Units of Each of (i) Cboe Vest
S&P 500® Buffer Enhanced Growth
Protect Strategy ETNs; (ii) Cboe Vest
S&P 500® Enhanced Growth Strategy
ETNs; (iii) Cboe Vest S&P 500®
Accelerated Return Strategy ETNs; and
(iv) Cboe Vest S&P 500® Power Buffer
Strategy ETNs Under Rule 14.11(d),
Equity Index-Linked Securities
March 18, 2019.
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 March 4,
2019, Cboe BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes a rule change
to list and trade units of each of (i) the
Cboe Vest S&P 500® Buffer Enhanced
Growth Protect Strategy ETNs; (ii) the
Cboe Vest S&P 500® Enhanced Growth
Strategy ETNs; (iii) the Cboe Vest S&P
500® Accelerated Return Strategy ETNs;
and (iv) the Cboe Vest S&P 500® Power
Buffer Strategy ETNs under Rule
14.11(d), which governs the listing and
trading of Equity Index-Linked
Securities on the Exchange.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade units (‘‘Units’’) of up to twelve
monthly series of each of the following
under Rule 14.11(d), which governs the
listing and trading of Linked Securities 3
on the Exchange: 4 Cboe Vest S&P 500®
Buffer Enhanced Growth Protect
Strategy ETNs (the ‘‘Buffer Notes’’),
Cboe Vest S&P 500® Enhanced Growth
Strategy ETNs (the ‘‘Enhanced Growth
Notes’’), Cboe Vest S&P 500®
Accelerated Return Strategy ETNs (the
‘‘Accelerated Return Notes’’), and Cboe
Vest S&P 500® Power Buffer Strategy
ETNs (the ‘‘Power Buffer Notes’’) (each
a ‘‘Series of Notes’’ and, collectively, the
‘‘Notes’’ or the ‘‘Target Outcome
Notes’’).
The Exchange is submitting this
proposal because the indexes
underlying the Notes (the ‘‘Indexes’’) do
not meet the listing requirements of
Rule 14.11(d)(2)(K)(i)(a) applicable to a
series of Equity Index-Linked
Securities,5 which requires that the
equity securities in the underlying
index meet the criteria set forth in Rule
14.11(d)(2)(K)(i)(a)(1) 6 or
14.11(d)(2)(K)(i)(a)(2).7 Specifically, the
Notes do not meet all of the ‘‘generic’’
listing requirements of Rule
3 As defined in Rule 14.11(d), ‘‘Linked Securities’’
includes Multifactor Index-Linked Securities,
Equity Index-Linked Securities, Commodity-Linked
Securities, Fixed Income Index-Linked Securities,
and Futures-Linked Securities.
4 The Commission originally approved BZX Rule
14.11(d) in Securities Exchange Act Release No.
65225 (August 30, 2011), 76 FR 55148 (September
6, 2011) (SR–BATS–2011–018).
5 As defined in Rule 14.11(d), ‘‘Equity IndexLinked Securities’’ are securities that provide for
the payment at maturity of a cash amount based on
the performance of an underlying equity index or
indexes (an ‘‘Equity Reference Asset’’).
6 Rule 14.11(d)(2)(K)(i)(a)(1) requires that the
index or indexes to which the security is linked
shall have been reviewed and approved for the
trading of Index Fund Shares or options or other
derivatives by the Commission under Section
19(b)(2) of the Act and rules thereunder and the
conditions set forth in the Commission’s approval
order, including comprehensive surveillance
sharing agreements for non-U.S. stocks, continue to
be satisfied. The Indexes have not been reviewed
and approved by the Commission under Section
19(b)(2) of the Act.
7 Rule 14.11(d)(2)(K)(i)(a)(2) provides certain
quantitative standards applicable to an underlying
index or indexes and constituent securities.
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10863
14.11(d)(2)(K)(i)(a)(2), applicable to the
listing of Equity Index-Linked
Securities. Rule 14.11(d)(2)(K)(i)(a)(2)
sets forth the requirements to be met by
components of an index of equity
securities. Because the Indexes consist
exclusively of standardized and/or
FLexible EXchange Options (‘‘FLEX
Options’’) on the S&P 500® Index
(together, ‘‘SPX Options’’), rather than
equity securities, the Indexes do not
satisfy the requirements of Rule
14.11(d)(2)(K)(i)(a)(2).8 However, the
Notes and the Issuer, as defined below,
will conform to all other initial and
continued listing criteria applicable to
Equity Index-Linked Securities under
Rule 14.11(d).
The Notes will be offered by Bank of
Montreal. Bank of Montreal (the
‘‘Issuer’’) is a company listed on NYSE.9
The Notes will be the non-convertible
debt of the Issuer. The Issuer is
currently and will continue to be in
compliance with Rule 10A–3 under the
Act prior to initial listing and on a
continual basis.10 Each Series of Notes
will: Have a term not less than one year
and not greater than thirty years, which
the Issuer expects will consist of a
twenty year term with two five-year
extensions at the discretion of the
Issuer; 11 have a minimum public
market value at the time of issuance of
at least $4 million; 12 be redeemable at
the option of holders thereof on at least
8 The Exchange notes that the Commission has
approved the listing and trading of several series of
funds, including both Index Fund Shares and
Managed Fund Shares, that employ similar target
outcome strategies as those of the Notes, as further
discussed below. See Securities Exchange Act
Release No. 83679 (July 26, 2018), 83 FR 35505
(July 26, 2018) (SR–BatsBZX–2017–72); and 83796
(August 8, 2018), 83 FR 40361 (August 14, 2018)
(SR–CboeBZX–2017–005) (the ‘‘Approval Order’’).
While such products are different product types
than the Notes, the Exchange believes that many of
the issues contemplated both in that proposal and
in the Approval Order are either very similar or
identical to those applicable to the Notes,
specifically related to the susceptibility to
manipulation of the underlying instruments, which
include FLEX Options and certain other
instruments based on the S&P 500® Index.
Rule 14.11(d)(2)(K)(i)(a)(2)(E) provides that all
U.S. listed equity securities in the applicable index
shall be, among other things, an NMS Stock as
defined in Rule 600 under Regulation NMS of the
Act. Options are excluded from the definition of
NMS Stock, meaning that the Indexes do not meet
this requirement because they are composed
exclusively of SPX Options. The Exchange,
however, notes that each component stock of the
S&P 500® Index is an NMS Stock and that the S&P
500® Index meets the requirements of Rule
14.11(d)(2)(K)(i)(a)(2)(A)–(E).
9 The Exchange notes that the Issuer will meet the
requirements applicable under Rules
14.8(b)(2)(A)(1), 14.11(d)(2)(E), 14.11(h)(1)(A), and
14.11(h)(1)(E) on both an initial and continual basis.
10 See Rule 14.11(d)(2)(F).
11 See Rule 14.11(d)(2)(B).
12 See Rule 14.11(h)(1)(D).
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Federal Register / Vol. 84, No. 56 / Friday, March 22, 2019 / Notices
a weekly basis; 13 and will not have a
loss (negative payment) at maturity
accelerated by a multiple that exceeds
three times the performance of the
applicable Index.14
Rule 14.11(d)(2)(G)(i) requires that if
the index is maintained by a brokerdealer, the broker-dealer shall erect and
maintain a ‘‘firewall’’ around the
personnel who have access to
information concerning changes and
adjustments to the index, and the index
shall be calculated by a third party who
is not a broker-dealer. The Indexes are
maintained by Cboe Exchange, Inc. (the
‘‘Index Provider’’ or ‘‘Cboe Options’’),
which is not a broker-dealer.
Cboe Vest Target Outcome Notes
The investment objective of each
Series of Notes is to track, before fees
and expenses, the performance of its
respective Index. The value of each
Index is calculated daily by the Index
Provider utilizing an options valuation
methodology. Each Index is a rulesbased options index that consists
exclusively of SPX Options and that is
designed to provide a targeted outcome
based on the performance of the S&P
500® Index over a period of one year, as
further described below.
Cboe Vest S&P 500® Buffer Enhanced
Growth Protect Strategy ETNs
The Exchange is proposing to list and
trade each monthly series of the Buffer
Notes,15 each of which is based on its
13 See Rule 14.11(d)(2)(A). Rule 14.11(d)(2)(A)
provides that both the issue and the issuer of a
security must meet the criteria applicable under
Rule 14.11(h); however, where a security is
redeemable at the option of holders thereof on at
least a weekly basis, then no minimum number of
holders and no minimum public distribution of
trading units shall be required. Because the Notes
will be redeemable at the option of a holder on at
least a weekly basis, the Issuer and the Notes will
not be required to meet such requirements under
Rule 14.11(h). The public distribution and trading
unit requirements under Rule 14.11(h) require a
minimum of 400 holders and a minimum public
distribution of 1,000,000 trading units. See Rule
14.11(h)(1)(B) and (C).
14 See Rule 14.11(d)(2)(D).
15 In total, the Exchange is proposing to list and
trade twelve monthly series of the Cboe Vest S&P
500® Enhanced Growth Buffer Protect Strategy
ETNs. The Buffer Notes will include the following:
Cboe Vest S&P 500® Buffer Enhanced Growth
Protect Strategy (January) ETN; Cboe Vest S&P 500®
Buffer Enhanced Growth Protect Strategy (February)
ETN; Cboe Vest S&P 500® Buffer Enhanced Growth
Protect Strategy (March) ETN; Cboe Vest S&P 500®
Buffer Enhanced Growth Protect Strategy (April)
ETN; Cboe Vest S&P 500® Buffer Enhanced Growth
Protect Strategy (May) ETN; Cboe Vest S&P 500®
Buffer Enhanced Growth Protect Strategy (June)
ETN; Cboe Vest S&P 500® Buffer Enhanced Growth
Protect Strategy (July) ETN; Cboe Vest S&P 500®
Buffer Enhanced Growth Protect Strategy (August)
ETN; Cboe Vest S&P 500® Buffer Enhanced Growth
Protect Strategy (September) ETN; Cboe Vest S&P
500® Buffer Enhanced Growth Protect Strategy
(October) ETN; Cboe Vest S&P 500® Buffer
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17:37 Mar 21, 2019
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respective Cboe S&P 500® Buffer
Enhanced Growth Protect Index. Each
Index is a rules-based options index that
consists exclusively of SPX Options.
The Indexes are designed to provide
exposure to the large capitalization U.S.
equity market, with lower volatility and
downside risk than traditional equity
indices, except in environments of rapid
appreciation in the U.S. equity market
over the course of one year. On a
specified day of the applicable month
for each Index, the SPX Options expire
(the ‘‘Expiry Date’’) and on the
following trading day (typically the last
trading day of that month, subject to
postponement; the applicable Index
implements a new portfolio of SPX
Options (the ‘‘Roll Date,’’ and the time
period from and including the Expiry
Date to and including the Roll Date, is
the ‘‘Roll Period’’),16 with expirations
on the next Expiry Date that, if held to
such Expiry Date, seeks to ‘‘buffer
protect’’ against the first 10% decline in
the value of the S&P 500® Index, while
providing 200% participation up to a
maximum capped gain in the value of
the S&P 500® Index (the ‘‘Capped
Level’’).
Each Index is designed to provide the
following outcomes between Roll Dates:
• If the S&P 500® Index declines
more than 10%: The Index declines
10% less than the S&P 500® Index (e.g.,
if the S&P 500® Index returns ¥35%,
the Index is designed to return ¥25%);
• If the S&P 500® Index declines
between 0% and 10%: The Index
provides a total return of zero (0%);
• If the S&P 500® Index appreciates
between 0% and the Capped Level: The
Index appreciates by an amount that
equals 200% of the gain in the level of
the S&P 500® Index; and
• If the S&P 500® Index appreciates
more than the Capped Level: The Index
appreciates by the amount equal to the
Capped Level.
Each Index includes a mix of
purchased and written (sold) SPX
Enhanced Growth Protect Strategy (November)
ETN; and Cboe Vest S&P 500® Buffer Enhanced
Growth Protect Strategy (December) ETN. Each Note
will be based on the Cboe S&P 500® Buffer
Enhanced Growth Protect Index (Month) Series,
where ‘‘Month’’ is the corresponding month
associated with the Roll Date as defined below, of
the applicable Series of Notes.
16 Each of the twelve Indexes are designed to
provide returns over a defined year long period and,
thus, there is an Index associated with each month.
As such, the Roll Date for a specific Index is
dependent on the monthly series for which the
Index is associated. For example, the Roll Date for
the Cboe® S&P 500® Enhanced Growth Buffer
Protect Index January Series is in January and the
Roll Date for the Cboe® S&P 500® Enhanced Growth
Buffer Protect Index February Series is in February,
a pattern which continues through the rest of the
calendar year.
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Options structured to achieve the results
described above. Such results are only
applicable for each full 12-month period
from one Roll Date to the next Roll Date,
and the Index may not return such
results for shorter or longer periods. The
value of each Index is calculated daily
by Cboe Options utilizing a rules-based
options valuation methodology, which
utilizes the prices at which the
component SPX Options that comprise
the Index trade on that day or prices
that are derived from a valuation model
when a traded price is not available or
appropriate.
Cboe Vest S&P 500® Enhanced Growth
Strategy ETN
The Exchange is proposing to list and
trade each monthly series of the
Enhanced Growth Notes,17 each of
which is based on its respective Cboe
S&P 500® Enhanced Growth Index. Each
Index is a rules-based options index that
consists exclusively of SPX Options.
The Indexes are designed to provide
exposure to the large capitalization U.S.
equity market with similar volatility and
downside risk, but higher upside
potential in market environments with
modest gains in the U.S. equity market
over the course of one year. On a
specified day of the applicable month
for each Index the SPX Options expire
(the ‘‘Expiry Date’’) and on the
following trading day (typically the last
trading day of that month, subject to
postponement, the applicable Index
implements a new portfolio of SPX
Options (the ‘‘Roll Date,’’ and the time
period from and including the Expiry
Date to and including the Roll Date, is
the ‘‘Roll Period’’),18 with expirations
17 In total, the Exchange is proposing to list and
trade twelve monthly series of the Cboe Vest S&P
500® Enhanced Growth Strategy ETNs. The
Enhanced Growth Notes will include the following:
Cboe Vest S&P 500® Enhanced Growth Strategy
ETN. Each Note will be an index-based exchange
traded note (‘‘ETN’’). The Notes will be the
following: Cboe Vest S&P 500® Enhanced Growth
Strategy (January) ETN; Cboe Vest S&P 500®
Enhanced Growth Strategy (February) ETN; Cboe
Vest S&P 500® Enhanced Growth Strategy (March)
ETN; Cboe Vest S&P 500® Enhanced Growth
Strategy (April) ETN; Cboe Vest S&P 500®
Enhanced Growth Strategy (May) ETN; Cboe Vest
S&P 500® Enhanced Growth Strategy (June) ETN;
Cboe Vest S&P 500® Enhanced Growth Strategy
(July) ETN; Cboe Vest S&P 500® Enhanced Growth
Strategy (August) ETN; Cboe Vest S&P 500®
Enhanced Growth Strategy (September) ETN; Cboe
Vest S&P 500® Enhanced Growth Strategy (October)
ETN; Cboe Vest S&P 500® Enhanced Growth
Strategy (November) ETN; and Cboe Vest S&P 500®
Enhanced Growth Strategy (December) ETN. Each
Note will be based on the Cboe S&P 500 Enhanced
Growth Index (Month) Series, where ‘‘Month’’ is the
corresponding month associated with the Roll Date
of the applicable Series of Notes.
18 Each of the twelve Indexes are designed to
provide returns over a defined year long period and,
thus, there is an Index associated with each month.
As such, the Roll Date for a specific Index is
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on the next Expiry Date that, if held to
such Expiry Date, seeks to provide
200% participation up to a maximum
capped gain in the value of the S&P
500® Index (the ‘‘Capped Level’’) and
100% participation in losses in the
value of the S&P 500® Index.
Each Index is designed to provide the
following outcomes between Roll Dates:
• If the S&P 500® Index declines: The
Index declines by the same amount as
the S&P 500® Index (e.g., if the S&P
500® Index returns ¥35%, the Index is
designed to return ¥35%);
• If the S&P 500® Index appreciates
between 0% and the Capped Level: The
Index appreciates by an amount that
equals 200% of the gain in the price of
the S&P 500® Index; and
• If the S&P 500® Index appreciates
more than the Capped Level: The Index
appreciates by the amount equal to the
Capped Level.
Each Index includes a mix of
purchased and written (sold) SPX
Options structured to achieve the results
described above. Such results are only
applicable for each full 12-month period
from one Roll Date to the next Roll Date,
and the Index may not return such
results for shorter or longer periods. The
value of each Index is calculated daily
by Cboe Options utilizing a rules-based
options valuation methodology, which
utilizes the prices at which the
component SPX Options that comprise
the Index trade on that day or prices
that are derived from a valuation model
when a traded price is not available or
appropriate.
Cboe Vest S&P 500® Accelerated Return
Strategy ETN
The Exchange is proposing to list and
trade each monthly series of the
Accelerated Return Notes,19 each of
dependent on the monthly series for which the
Index is associated. For example, the Roll Date for
the Cboe® S&P 500® Enhanced Growth Index
January Series is in January and the Roll Date for
the Cboe® S&P 500® Enhanced Growth Index
February Series is in February, a pattern which
continues through the rest of the calendar year.
19 In total, the Exchange is proposing to list and
trade twelve monthly series of the Cboe Vest S&P
500® Accelerated Return Strategy ETNs. The
Accelerated Return Notes will include the
following: Cboe Vest S&P 500® Accelerated Return
Strategy ETN. Each Note will be an index-based
exchange traded note (‘‘ETN’’). The Notes will be
the following: Cboe Vest S&P 500® Accelerated
Return Strategy (January) ETN; Cboe Vest S&P 500®
Accelerated Return Strategy (February) ETN; Cboe
Vest S&P 500® Accelerated Return Strategy (March)
ETN; Cboe Vest S&P 500® Accelerated Return
Strategy (April) ETN; Cboe Vest S&P 500®
Accelerated Return Strategy (May) ETN; Cboe Vest
S&P 500® Accelerated Return Strategy (June) ETN;
Cboe Vest S&P 500® Accelerated Return Strategy
(July) ETN; Cboe Vest S&P 500® Accelerated Return
Strategy (August) ETN; Cboe Vest S&P 500®
Accelerated Return Strategy (September) ETN; Cboe
Vest S&P 500® Accelerated Return Strategy
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17:37 Mar 21, 2019
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which is based on its respective Cboe
S&P 500® Accelerated Return Index.
Each Index is a rules-based options
index that consists exclusively of SPX
Options. The Indexes are designed to
provide exposure to the large
capitalization U.S. equity market with
similar volatility and downside risk, but
higher upside potential in market
environments with modest gains in the
U.S. equity market over the course of
one year. On a specified day of the
applicable month for each Index the
SPX Options expire (the ‘‘Expiry Date’’)
and on the following trading day
(typically the last trading day of that
month, subject to postponement, the
applicable Index implements a new
portfolio of SPX Options (the ‘‘Roll
Date,’’ and the time period from and
including the Expiry Date to and
including the Roll Date, is the ‘‘Roll
Period’’),20 with expirations on the next
Expiry Date that, if held to such Expiry
Date, seeks to provide 300%
participation up to a maximum capped
gain in the value of the S&P 500® Index
(the ‘‘Capped Level’’) and 100%
participation in losses in the value of
the S&P 500® Index.
Each Index is designed to provide the
following outcomes between Roll Dates:
• If the S&P 500® Index declines: The
Index declines by the same amount as
the S&P 500® Index (e.g., if the S&P
500® Index returns ¥35%, the Index is
designed to return ¥35%);
• If the S&P 500® Index appreciates
between 0% and the Capped Level: The
Index appreciates by an amount that
equals 300% of the gain in the price of
the S&P 500® Index; and
• If the S&P 500® Index appreciates
more than the Capped Level: The Index
appreciates by the amount equal to the
Capped Level.
Each Index includes a mix of
purchased and written (sold) SPX
Options structured to achieve the results
described above. Such results are only
applicable for each full 12-month period
from one Roll Date to the next Roll Date,
(October) ETN; Cboe Vest S&P 500® Accelerated
Return Strategy (November) ETN; and Cboe Vest
S&P 500® Accelerated Return Strategy (December)
ETN. Each Note will be based on the Cboe S&P
500® Accelerated Return Index (Month) Series,
where ‘‘Month’’ is the corresponding month
associated with the Roll Date of the applicable
Series of Notes.
20 Each of the twelve Indexes are designed to
provide returns over a defined year long period and,
thus, there is an Index associated with each month.
As such, the Roll Date for a specific Index is
dependent on the monthly series for which the
Index is associated. For example, the Roll Date for
the Cboe® S&P 500® Accelerated Return Index
January Series is in January and the Roll Date for
the Cboe® S&P 500® Accelerated Return Index
February Series is in February, a pattern which
continues through the rest of the calendar year.
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Fmt 4703
Sfmt 4703
10865
and the Index may not return such
results for shorter or longer periods. The
value of each Index is calculated daily
by Cboe Options utilizing a rules-based
options valuation methodology, which
utilizes the prices at which the
component SPX Options that comprise
the Index trade on that day or prices
that are derived from a valuation model
when a traded price is not available or
appropriate.
Cboe Vest S&P 500® Power Buffer
Strategy ETN
The Exchange is proposing to list and
trade each monthly series of the Power
Buffer Notes,21 each of which is based
on its respective Cboe S&P 500® Power
Buffer Index. Each Index is a rulesbased options index that consists
exclusively of SPX Options. The
Indexes are designed to provide
exposure to the large capitalization U.S.
equity market with lower volatility and
downside risks than traditional equity
indices, except in environments of rapid
appreciation in the U.S. equity market
over the course of one year. On a
specified day of the applicable month
for each Index the SPX Options expire
(the ‘‘Expiry Date’’) and on the
following trading day (typically the last
trading day of that month, subject to
postponement, the applicable Index
implements a new portfolio of SPX
Options (the ‘‘Roll Date,’’ and the time
period from and including the Expiry
Date to and including the Roll Date, is
the ‘‘Roll Period’’),22 with expirations
on the next Expiry Date that, if held to
such Expiry Date, seeks to ‘‘buffer
21 In total, the Exchange is proposing to list and
trade twelve monthly series of the Cboe Vest S&P
500® Power Buffer Strategy ETNs. The Power Buffer
Notes will include the following: Cboe Vest S&P
500® Power Buffer Strategy (January) ETN; Cboe
Vest S&P 500® Power Buffer Strategy (February)
ETN; Cboe Vest S&P 500® Power Buffer Strategy
(March) ETN; Cboe Vest S&P 500® Power Buffer
Strategy (April) ETN; Cboe Vest S&P 500® Power
Buffer Strategy (May) ETN; Cboe Vest S&P 500®
Power Buffer Strategy (June) ETN; Cboe Vest S&P
500® Power Buffer Strategy (July) ETN; Cboe Vest
S&P 500® Power Buffer Strategy (August) ETN;
Cboe Vest S&P 500® Power Buffer Strategy
(September) ETN; Cboe Vest S&P 500® Power Buffer
Strategy (October) ETN; Cboe Vest S&P 500® Power
Buffer Strategy (November) ETN; and Cboe Vest
S&P 500® Power Buffer Strategy (December) ETN.
Each Note will be based on the Cboe S&P 500®
Power Buffer Index (Month) Series, where ‘‘Month’’
is the corresponding month associated with the Roll
Date of the applicable Series of Notes.
22 Each of the twelve Indexes are designed to
provide returns over a defined year long period and,
thus, there is an Index associated with each month.
As such, the Roll Date for a specific Index is
dependent on the monthly series for which the
Index is associated. For example, the Roll Date for
the Cboe® S&P 500® Power Buffer Index January
Series is in January and the Roll Date for the Cboe®
S&P 500® Power Buffer Index February Series is in
February, a pattern which continues through the
rest of the calendar year.
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protect’’ against the first 15% decline in
the value of the S&P 500® Index, while
providing 100% participation up to a
maximum capped gain in the value of
the S&P 500® Index (the ‘‘Capped
Level’’).
Each Index is designed to provide the
following outcomes between Roll Dates:
• If the S&P 500® Index declines
more than 15%: The Index declines
15% less than the S&P 500® Index (e.g.,
if the S&P 500® Index returns ¥35%,
the Index is designed to return ¥20%);
• If the S&P 500® Index declines
between 0% and 15%: The Index
provides a total return of zero (0%);
• If the S&P 500® Index appreciates
between 0% and the Capped Level: The
Index appreciates by an amount that
equals the gain in the price of the S&P
500® Index; and
• If the S&P 500® Index appreciates
more than the Capped Level: The Index
appreciates by the amount equal to the
Capped Level.
Each Index includes a mix of
purchased and written (sold) SPX
Options structured to achieve the results
described above. Such results are only
applicable for each full 12-month period
from one Roll Date to the next Roll Date,
and the Index may not return such
results for shorter or longer periods. The
value of each Index is calculated daily
by Cboe Options utilizing a rules-based
options valuation methodology, which
utilizes the prices at which the
component SPX Options that comprise
the Index trade on that day or prices
that are derived from a valuation model
when a traded price is not available or
appropriate.
S&P 500® Options
The market for options contracts on
the S&P 500® Index traded on Cboe
Options is among the most liquid
markets in the world. According to
publicly available data, more than 1.48
million options contracts on the S&P
500® Index were traded per day on Cboe
Options in 2018, which is more than
$350 billion in notional volume traded
on a daily basis. While FLEX Options
are traded differently than standardized
options contracts, the Exchange believes
that this liquidity bolsters the market for
FLEX Options, as described below.
Every FLEX Option order submitted to
Cboe Options is exposed to a
competitive auction process for price
discovery. The process begins with a
request for quote (‘‘RFQ’’) in which the
interested party establishes the terms of
the FLEX Options contract. The RFQ
solicits interested market participants,
including on-floor market makers,
remote market makers trading
electronically, and member firm traders,
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to respond to the RFQ with bids or
offers through a competitive process.
This solicitation contains all of the
contract specifications-underlying, size,
type of option, expiration date, strike
price, exercise style and settlement
basis. During a specified amount of
time, responses to the RFQ are received
and at the end of that time period, the
initiator can decide whether to accept
the best bid or offer. The process occurs
under the rules of Cboe Options, which
means that customer transactions are
effected according to the principles of a
fair and orderly market following
trading procedures and policies
developed by Cboe Options.
The Exchange believes that sufficient
protections are in place to protect
against market manipulation of the
Notes and SPX Options for several
reasons: (i) The diversity, liquidity, and
market cap of the securities underlying
the S&P 500® Index; (ii) the significant
liquidity in the market for options on
the S&P 500® Index; (iii) the
competitive quoting process for FLEX
Options combined with the significant
liquidity in the market for options on
the S&P 500® Index results in a wellestablished price discovery process that
provides meaningful guideposts for
FLEX Option pricing; and (iv)
surveillance by the Exchange, Cboe
Options 23 and the Financial Industry
Regulatory Authority (‘‘FINRA’’)
designed to detect violations of the
federal securities laws and selfregulatory organization (‘‘SRO’’) rules.
The Exchange has in place a
surveillance program for derivative
products, including Linked Securities,
to ensure the availability of information
necessary to detect and deter potential
manipulations and other trading abuses,
thereby making the Notes less readily
susceptible to manipulation. Further,
the Exchange believes that because the
Indexes will consist only of SPX
Options, which trade in extremely
liquid and highly regulated markets, the
Notes are less readily susceptible to
manipulation.
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of the
Notes on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
23 The Exchange notes that Cboe Options is a
member of the Option Price Regulatory Surveillance
Authority, which was established in 2006, to
provide efficiencies in looking for insider trading
and serves as a central organization to facilitate
collaboration in insider trading and investigations
for the U.S. options exchanges. For more
information, see https://www.cboe.com/aboutcboe/
legal/departments/orsareg.aspx.
PO 00000
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Fmt 4703
Sfmt 4703
Trading of the Notes through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including Linked
Securities. All statements and
representations made in this filing
regarding (a) the description of the
portfolio, reference assets, and index, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules shall constitute
continued listing requirements for
listing the Notes on the Exchange. The
Issuer has represented to the Exchange
that it will advise the Exchange of any
failure by a Series of Notes 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
Series of Notes is not in compliance
with the applicable listing requirements,
then, with respect to such Series of
Notes, the Exchange will commence
delisting procedures under Exchange
Rule 14.12. FINRA conducts certain
cross-market surveillances on behalf of
the Exchange pursuant to a regulatory
services agreement. The Exchange is
responsible for FINRA’s performance
under this regulatory services
agreement.
The Exchange or FINRA, on behalf of
the Exchange, will communicate as
needed regarding trading in the Units
and exchange-traded options contracts
with other markets and other entities
that are members of the Intermarket
Surveillance Group (‘‘ISG’’) 24 and may
obtain trading information regarding
trading in the Units and exchangetraded options contracts from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Units and SPX
Options from Cboe Options. In addition,
the Exchange also has a general policy
prohibiting the distribution of material,
non-public information by its
employees.
As noted above, options on the S&P
500® Index are among the most liquid
options in the world and derive their
value from the actively traded S&P 500®
Index components. The contracts are
cash-settled with no delivery of stocks
or ETFs, and trade in competitive
auction markets with price and quote
transparency. The Exchange believes the
highly regulated options markets and
the broad base and scope of the S&P
24 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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500® Index make securities that derive
their value from that index less
susceptible to market manipulation in
view of the market capitalization and
liquidity of the S&P 500® Index
components, price and quote
transparency, and arbitrage
opportunities.
The Exchange believes that the
liquidity of the markets for S&P 500®
Index securities, options on the S&P
500® Index, and other related
derivatives is sufficiently great to deter
fraudulent or manipulative acts
associated with the price of the Units.
The Exchange also believes that such
liquidity is sufficient to support the
creation and redemption mechanism.
Coupled with the extensive surveillance
programs of the SROs described above,
the Exchange does not believe that
trading in the Notes would present
manipulation concerns.
The Exchange represents that, except
for the exception to Rule
14.11(d)(2)(K)(i)(a), the Indexes will
satisfy, on an initial and continued
listing basis, all of the listing standards
under BZX Rule 14.11(d)(K)(i) and all
other requirements under Rule 14.11(d)
that are applicable to Equity IndexLinked Securities. The Issuer is required
to comply with Rule 10A–3 under the
Act for the initial and continued listing
of the Notes. In addition, the Exchange
represents that the Notes will comply
with all other requirements applicable
to Equity Index-Linked Securities,
which includes index dissemination,25
suspension of trading or removal,26
trading halts,27 surveillance,28
minimum price variation for quoting
and order entry,29 and the information
circular,30 as set forth in Exchange rules
applicable Equity Index-Linked
Securities. Further, all statements or
representations regarding the
description of the portfolio or reference
assets, limitations on portfolio holdings
or reference assets, dissemination and
availability of the index, reference asset,
and intraday indicative values, or the
applicability of Exchange listing rules
shall constitute continued listing
requirements for the Notes. Moreover,
all of the options contracts included in
the Indexes 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.
Quotation and last sale information for
25 See
Rule 14.11(d)(2)(G).
Rule 14.11(d)(2)(K)(i)(b).
27 See Rule 14.11(d)(2)(H).
28 See Rule 14.11(d)(2)(I).
29 See Rule 11.11(a).
30 See Rule 14.11(h)(1)(F).
26 See
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17:37 Mar 21, 2019
U.S. exchange-listed options contracts
cleared by The Options Clearing
Corporation will be available via the
Options Price Reporting Authority. RFQ
information for FLEX Options will be
available directly from Cboe Options.
The intra-day, closing and settlement
prices of exchange-traded options will
be readily available from the options
exchanges, automated quotation
systems, published or other public
sources, or online information services
such as Bloomberg or Reuters.
Lastly, the Issuer represents that there
will be a publicly available web tool for
each Series of Notes on a website that
provides existing and prospective
investors with important information to
help inform investment decisions. The
information provided will include the
start and end dates of the current
outcome period, the time remaining in
the outcome period, the Index’s current
value, the applicable cap for the
outcome period and the maximum
investment gain available up to the cap
for an investor purchasing Notes at the
current Index value. For each of the
Series of Notes, the web tool will also
provide information regarding its buffer.
This information will include the
remaining buffer available for an
investor purchasing Notes at the current
Index value or the amount of losses that
an investor purchasing Notes at the
Index value would incur before
benefitting from the protection of the
buffer.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 31 in general and Section
6(b)(5) of the Act 32 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
31 15
32 15
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U.S.C. 78f.
U.S.C. 78f(b)(5).
Frm 00098
Fmt 4703
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10867
general, to protect investors and the
public interest in that the Notes will
meet each of the initial and continued
listing criteria in BZX Rule 14.11(d)
with the exception of Rule
14.11(d)(2)(K)(i)(a)(2), because the
Indexes consist exclusively of SPX
Options, rather than equity securities.
Rule 14.11(d)(2)(K)(i)(a)(2) is intended
to ensure that a series of Equity IndexLinked Securities is not subject to
manipulation by requiring that the
underlying reference index is composed
of equity securities that are sufficiently
large, liquid, and diverse to mitigate
manipulation concerns. The Exchange
believes that these manipulation
concerns are otherwise mitigated.
Specifically, the Exchange believes
that sufficient protections are in place to
protect against market manipulation of
the Units and SPX Options for several
reasons: (i) The diversity, liquidity, and
market cap of the securities underlying
the S&P 500® Index; (ii) the significant
liquidity in the market for options on
the S&P 500® Index; (iii) the
competitive quoting process for FLEX
Options combined with the significant
liquidity in the market for options on
the S&P 500® Index results in a wellestablished price discovery process that
provides meaningful guideposts for
FLEX Option pricing; and (iv)
surveillance by the Exchange, Cboe
Options and FINRA designed to detect
violations of the federal securities laws
and SRO rules. The Exchange has in
place a surveillance program for
transactions in Linked Securities to
ensure the availability of information
necessary to detect and deter potential
manipulations and other trading abuses,
thereby making the Notes less readily
susceptible to manipulation. Further,
the Exchange believes that because the
assets in each Index, which are
comprised entirely of SPX Options on
the S&P 500® Index, are priced in
extremely liquid and highly regulated
markets, the Notes are less readily
susceptible to manipulation.
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of the
Notes 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 Notes through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including Linked
Securities. All statements and
representations made in this filing
regarding (a) the description of the
portfolio, reference assets, and index, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
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of Exchange rules shall constitute
continued listing requirements for
listing the Notes on the Exchange. The
Issuer has represented to the Exchange
that it will advise the Exchange of any
failure by a Series of Notes 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
Series of Notes is not in compliance
with the applicable listing requirements,
then, with respect to such Notes, the
Exchange will commence delisting
procedures under Exchange Rule 14.12.
FINRA conducts certain cross-market
surveillances on behalf of the Exchange
pursuant to a regulatory services
agreement. The Exchange is responsible
for FINRA’s performance under this
regulatory services agreement. If a Series
of Notes is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures with respect to such Series
of Notes under Exchange Rule 14.12.
The Exchange or FINRA, on behalf of
the Exchange, will communicate as
needed regarding trading in the Notes
and exchange-traded options contracts
with other markets and other entities
that are members of the ISG and may
obtain trading information regarding
trading in the Notes and exchangetraded options contracts from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Notes and
exchange-traded options contracts from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. In
addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees. As noted
above, options on the S&P 500® Index
are among the most liquid options in the
world and derive their value from the
actively traded S&P 500® Index
components. The contracts are cashsettled with no delivery of stocks or
ETFs, and trade in competitive auction
markets with price and quote
transparency. The Exchange believes the
highly regulated options markets and
the broad base and scope of the S&P
500® Index make securities that derive
their value from that index less
susceptible to market manipulation in
view of the market capitalization and
liquidity of the S&P 500® Index
components, price and quote
transparency, and arbitrage
opportunities.
The Exchange believes that the
liquidity of the markets for S&P 500®
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Jkt 247001
Index securities, options on the S&P
500® Index, and other related
derivatives is sufficiently great to deter
fraudulent or manipulative acts
associated with the price of the Notes.
Coupled with the extensive surveillance
programs of the SROs described above,
the Exchange does not believe that
trading in the Units would present
manipulation concerns.
The Exchange represents that, except
as described above, the Notes will meet
and be subject to all other requirements
of the listing standards and other
applicable continued listing
requirements for Equity Index-Linked
Securities, including index
dissemination,33 suspension of trading
or removal,34 trading halts,35
surveillance,36 minimum price variation
for quoting and order entry,37 and the
information circular.38 The Issuer is
required to comply with Rule 10A–3
under the Act for the initial and
continued listing of each Series of
Notes. Moreover, all of the options
contracts included in the Indexes 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.
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
several additional types of exchangetraded products 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.
33 See
Rule 14.11(d)(2)(G).
Rule 14.11(d)(2)(K)(i)(b).
35 See Rule 14.11(d)(2)(H).
36 See Rule 14.11(d)(2)(I).
37 See Rule 11.11(a).
38 See Rule 14.11(h)(1)(F).
34 See
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
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 proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2019–015 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–2019–015. 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 the
filing also will be available for
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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–2019–015, and
should be submitted on or before April
12, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–05459 Filed 3–21–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85350; File No. SR–ICEEU–
2019–006]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change, SecurityBased Swap Submission or Advance
Notice Relating to Amendments to the
CDS Risk Management Model
Description Document
March 18, 2019.
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 13,
2019, ICE Clear Europe Limited (‘‘ICE
Clear Europe’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change described in Items I, II, and III
below, which Items have been prepared
primarily by ICE Clear Europe. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
ICE Clear Europe proposes to make
certain amendments to its CDS Risk
Model Description document to
incorporate risk model enhancements
related to the single name credit default
swap (‘‘CDS’’) liquidity charge
methodology.3
39 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Capitalized terms used but not defined herein
have the meanings specified in the Rules.
1 15
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17:37 Mar 21, 2019
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II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, ICE
Clear Europe 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. ICE
Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C)
below, of the most significant aspects of
these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(a) Purpose
The ICE Clear Europe CDS risk model
includes explicit provision to account
for the additional liquidation cost due to
the exposure to Bid/Offer Width
(‘‘BOW’’) as, in the event of Clearing
Member default, the Clearing House
might incur in additional costs to
unwind the positions. Specifically, a
bid/offer risk requirement, named
liquidity charge, is introduced. Such
liquidity charges are computed
separately for single names and indices.
ICE Clear Europe proposes a revised
approach to computing single name
CDS liquidity charges. Specifically, ICE
Clear Europe proposes to introduce
minimum instrument liquidity
requirements independent of instrument
maturities. ICE Clear Europe’s current
spread-based liquidity charge approach
features instrument liquidity
requirements that decay with time to
maturity for fixed credit spread levels.
The proposed approach introduces
minimum liquidity requirements for
individual instruments, independent of
time to maturity for the considered
instruments, and thus establishes
minimum liquidity charges that do not
decay over time as contract maturity is
approached. The proposed calculation
for single name CDS liquidity charges at
the instrument level incorporates a
price-based bid-offer width floor
component to provide stability and antiprocyclicality requirements, as well as a
dynamic spread-based BOW component
to reflect the additional risk associated
with distressed market conditions. The
values of such price-based BOW and
spread-based BOW are fixed factors,
which are subject to at least monthly
reviews and updates by ICE Clear
Europe Risk Management Department
with consultation with the Risk
Working Group.
ICE Clear Europe also proposes
enhancements to the liquidity charge
PO 00000
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10869
calculation at the single name level. The
current liquidity charge approach at the
single name level accounts for the
liquidation cost across the curve. All
positions are aggregated and priced at
each maturity interval separately as a
synthetic forward CDS instrument. This
current approach introduces potential
sub-additivity at the single name level,
as it may result in a higher liquidity
charge than the sum of the single name
instrument requirements.
Under the proposed calculation,
liquidity charges at single name level
will be computed by first calculating the
liquidity requirements for each
individual instrument position in the
portfolio, and then summing all
instrument liquidity requirements for
positions with the same directionality,
i.e. bought or sold protection. The
liquidity charge requirements at the
single name level will be the greatest
liquidity requirement associated with
either the sum of all bought protection
position liquidity requirements, or the
sum of all sold protection position
liquidity requirements. Under this
proposed approach, the portfolios’
liquidity charge cannot exceed the sum
of the individual instrument’s
requirements. There are no changes to
the liquidity charge calculation at the
portfolio level.
ICE Clear Europe expects these
enhancements will ensure more stable
liquidity requirements for instruments
across the curve. Further, the
enhancements simplify ICE Clear
Europe’s liquidity charge methodology,
which promotes ease of understanding.
As stated above, the current single name
level liquidity requirements are based
on forward CDS spread levels and are,
in general, more difficult to calculate as
forward spread levels are not observable
across the term structure (‘‘curve’’). ICE
Clear Europe, as part of its end-of-day
price discovery process, provides endof-day pricing data for instruments in
which clients have open positions,
which will, under the proposed
approach, allow for easier replication
for clients who wish to estimate
liquidity charges for hypothetical and
current positions.
(b) Statutory Basis
ICE Clear Europe believes that the
proposed amendments are consistent
with the requirements of Section 17A of
the Act 4 and the regulations thereunder
applicable to it, including the standards
under Rule 17Ad–22.5 Section
4 15
5 17
U.S.C. 78q–1.
CFR 240.17Ad–22.
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]]>Agencies
[Federal Register Volume 84, Number 56 (Friday, March 22, 2019)]
[Notices]
[Pages 10863-10869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05459]
[[Page 10863]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85347; File No. SR-CboeBZX-2019-015]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Units of Each of (i)
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy ETNs;
(ii) Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETNs; (iii)
Cboe Vest S&P 500[supreg] Accelerated Return Strategy ETNs; and (iv)
Cboe Vest S&P 500[supreg] Power Buffer Strategy ETNs Under Rule
14.11(d), Equity Index-Linked Securities
March 18, 2019.
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 March 4, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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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 proposes a rule change to list and trade units of each
of (i) the Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect
Strategy ETNs; (ii) the Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy ETNs; (iii) the Cboe Vest S&P 500[supreg] Accelerated Return
Strategy ETNs; and (iv) the Cboe Vest S&P 500[supreg] Power Buffer
Strategy ETNs under Rule 14.11(d), which governs the listing and
trading of Equity Index-Linked Securities on the Exchange.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade units (``Units'') of up to
twelve monthly series of each of the following under Rule 14.11(d),
which governs the listing and trading of Linked Securities \3\ on the
Exchange: \4\ Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect
Strategy ETNs (the ``Buffer Notes''), Cboe Vest S&P 500[supreg]
Enhanced Growth Strategy ETNs (the ``Enhanced Growth Notes''), Cboe
Vest S&P 500[supreg] Accelerated Return Strategy ETNs (the
``Accelerated Return Notes''), and Cboe Vest S&P 500[supreg] Power
Buffer Strategy ETNs (the ``Power Buffer Notes'') (each a ``Series of
Notes'' and, collectively, the ``Notes'' or the ``Target Outcome
Notes'').
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\3\ As defined in Rule 14.11(d), ``Linked Securities'' includes
Multifactor Index-Linked Securities, Equity Index-Linked Securities,
Commodity-Linked Securities, Fixed Income Index-Linked Securities,
and Futures-Linked Securities.
\4\ The Commission originally approved BZX Rule 14.11(d) in
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR
55148 (September 6, 2011) (SR-BATS-2011-018).
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The Exchange is submitting this proposal because the indexes
underlying the Notes (the ``Indexes'') do not meet the listing
requirements of Rule 14.11(d)(2)(K)(i)(a) applicable to a series of
Equity Index-Linked Securities,\5\ which requires that the equity
securities in the underlying index meet the criteria set forth in Rule
14.11(d)(2)(K)(i)(a)(1) \6\ or 14.11(d)(2)(K)(i)(a)(2).\7\
Specifically, the Notes do not meet all of the ``generic'' listing
requirements of Rule 14.11(d)(2)(K)(i)(a)(2), applicable to the listing
of Equity Index-Linked Securities. Rule 14.11(d)(2)(K)(i)(a)(2) sets
forth the requirements to be met by components of an index of equity
securities. Because the Indexes consist exclusively of standardized
and/or FLexible EXchange Options (``FLEX Options'') on the S&P
500[supreg] Index (together, ``SPX Options''), rather than equity
securities, the Indexes do not satisfy the requirements of Rule
14.11(d)(2)(K)(i)(a)(2).\8\ However, the Notes and the Issuer, as
defined below, will conform to all other initial and continued listing
criteria applicable to Equity Index-Linked Securities under Rule
14.11(d).
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\5\ As defined in Rule 14.11(d), ``Equity Index-Linked
Securities'' are securities that provide for the payment at maturity
of a cash amount based on the performance of an underlying equity
index or indexes (an ``Equity Reference Asset'').
\6\ Rule 14.11(d)(2)(K)(i)(a)(1) requires that the index or
indexes to which the security is linked shall have been reviewed and
approved for the trading of Index Fund Shares or options or other
derivatives by the Commission under Section 19(b)(2) of the Act and
rules thereunder and the conditions set forth in the Commission's
approval order, including comprehensive surveillance sharing
agreements for non-U.S. stocks, continue to be satisfied. The
Indexes have not been reviewed and approved by the Commission under
Section 19(b)(2) of the Act.
\7\ Rule 14.11(d)(2)(K)(i)(a)(2) provides certain quantitative
standards applicable to an underlying index or indexes and
constituent securities.
\8\ The Exchange notes that the Commission has approved the
listing and trading of several series of funds, including both Index
Fund Shares and Managed Fund Shares, that employ similar target
outcome strategies as those of the Notes, as further discussed
below. See Securities Exchange Act Release No. 83679 (July 26,
2018), 83 FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72); and 83796
(August 8, 2018), 83 FR 40361 (August 14, 2018) (SR-CboeBZX-2017-
005) (the ``Approval Order''). While such products are different
product types than the Notes, the Exchange believes that many of the
issues contemplated both in that proposal and in the Approval Order
are either very similar or identical to those applicable to the
Notes, specifically related to the susceptibility to manipulation of
the underlying instruments, which include FLEX Options and certain
other instruments based on the S&P 500[supreg] Index.
Rule 14.11(d)(2)(K)(i)(a)(2)(E) provides that all U.S. listed
equity securities in the applicable index shall be, among other
things, an NMS Stock as defined in Rule 600 under Regulation NMS of
the Act. Options are excluded from the definition of NMS Stock,
meaning that the Indexes do not meet this requirement because they
are composed exclusively of SPX Options. The Exchange, however,
notes that each component stock of the S&P 500[supreg] Index is an
NMS Stock and that the S&P 500[supreg] Index meets the requirements
of Rule 14.11(d)(2)(K)(i)(a)(2)(A)-(E).
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The Notes will be offered by Bank of Montreal. Bank of Montreal
(the ``Issuer'') is a company listed on NYSE.\9\ The Notes will be the
non-convertible debt of the Issuer. The Issuer is currently and will
continue to be in compliance with Rule 10A-3 under the Act prior to
initial listing and on a continual basis.\10\ Each Series of Notes
will: Have a term not less than one year and not greater than thirty
years, which the Issuer expects will consist of a twenty year term with
two five-year extensions at the discretion of the Issuer; \11\ have a
minimum public market value at the time of issuance of at least $4
million; \12\ be redeemable at the option of holders thereof on at
least
[[Page 10864]]
a weekly basis; \13\ and will not have a loss (negative payment) at
maturity accelerated by a multiple that exceeds three times the
performance of the applicable Index.\14\
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\9\ The Exchange notes that the Issuer will meet the
requirements applicable under Rules 14.8(b)(2)(A)(1),
14.11(d)(2)(E), 14.11(h)(1)(A), and 14.11(h)(1)(E) on both an
initial and continual basis.
\10\ See Rule 14.11(d)(2)(F).
\11\ See Rule 14.11(d)(2)(B).
\12\ See Rule 14.11(h)(1)(D).
\13\ See Rule 14.11(d)(2)(A). Rule 14.11(d)(2)(A) provides that
both the issue and the issuer of a security must meet the criteria
applicable under Rule 14.11(h); however, where a security is
redeemable at the option of holders thereof on at least a weekly
basis, then no minimum number of holders and no minimum public
distribution of trading units shall be required. Because the Notes
will be redeemable at the option of a holder on at least a weekly
basis, the Issuer and the Notes will not be required to meet such
requirements under Rule 14.11(h). The public distribution and
trading unit requirements under Rule 14.11(h) require a minimum of
400 holders and a minimum public distribution of 1,000,000 trading
units. See Rule 14.11(h)(1)(B) and (C).
\14\ See Rule 14.11(d)(2)(D).
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Rule 14.11(d)(2)(G)(i) requires that if the index is maintained by
a broker-dealer, the broker-dealer shall erect and maintain a
``firewall'' around the personnel who have access to information
concerning changes and adjustments to the index, and the index shall be
calculated by a third party who is not a broker-dealer. The Indexes are
maintained by Cboe Exchange, Inc. (the ``Index Provider'' or ``Cboe
Options''), which is not a broker-dealer.
Cboe Vest Target Outcome Notes
The investment objective of each Series of Notes is to track,
before fees and expenses, the performance of its respective Index. The
value of each Index is calculated daily by the Index Provider utilizing
an options valuation methodology. Each Index is a rules-based options
index that consists exclusively of SPX Options and that is designed to
provide a targeted outcome based on the performance of the S&P
500[supreg] Index over a period of one year, as further described
below.
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy ETNs
The Exchange is proposing to list and trade each monthly series of
the Buffer Notes,\15\ each of which is based on its respective Cboe S&P
500[supreg] Buffer Enhanced Growth Protect Index. Each Index is a
rules-based options index that consists exclusively of SPX Options. The
Indexes are designed to provide exposure to the large capitalization
U.S. equity market, with lower volatility and downside risk than
traditional equity indices, except in environments of rapid
appreciation in the U.S. equity market over the course of one year. On
a specified day of the applicable month for each Index, the SPX Options
expire (the ``Expiry Date'') and on the following trading day
(typically the last trading day of that month, subject to postponement;
the applicable Index implements a new portfolio of SPX Options (the
``Roll Date,'' and the time period from and including the Expiry Date
to and including the Roll Date, is the ``Roll Period''),\16\ with
expirations on the next Expiry Date that, if held to such Expiry Date,
seeks to ``buffer protect'' against the first 10% decline in the value
of the S&P 500[supreg] Index, while providing 200% participation up to
a maximum capped gain in the value of the S&P 500[supreg] Index (the
``Capped Level'').
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\15\ In total, the Exchange is proposing to list and trade
twelve monthly series of the Cboe Vest S&P 500[supreg] Enhanced
Growth Buffer Protect Strategy ETNs. The Buffer Notes will include
the following: Cboe Vest S&P 500[supreg] Buffer Enhanced Growth
Protect Strategy (January) ETN; Cboe Vest S&P 500[supreg] Buffer
Enhanced Growth Protect Strategy (February) ETN; Cboe Vest S&P
500[supreg] Buffer Enhanced Growth Protect Strategy (March) ETN;
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy
(April) ETN; Cboe Vest S&P 500[supreg] Buffer Enhanced Growth
Protect Strategy (May) ETN; Cboe Vest S&P 500[supreg] Buffer
Enhanced Growth Protect Strategy (June) ETN; Cboe Vest S&P
500[supreg] Buffer Enhanced Growth Protect Strategy (July) ETN; Cboe
Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy
(August) ETN; Cboe Vest S&P 500[supreg] Buffer Enhanced Growth
Protect Strategy (September) ETN; Cboe Vest S&P 500[supreg] Buffer
Enhanced Growth Protect Strategy (October) ETN; Cboe Vest S&P
500[supreg] Buffer Enhanced Growth Protect Strategy (November) ETN;
and Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect
Strategy (December) ETN. Each Note will be based on the Cboe S&P
500[supreg] Buffer Enhanced Growth Protect Index (Month) Series,
where ``Month'' is the corresponding month associated with the Roll
Date as defined below, of the applicable Series of Notes.
\16\ Each of the twelve Indexes are designed to provide returns
over a defined year long period and, thus, there is an Index
associated with each month. As such, the Roll Date for a specific
Index is dependent on the monthly series for which the Index is
associated. For example, the Roll Date for the Cboe[supreg] S&P
500[supreg] Enhanced Growth Buffer Protect Index January Series is
in January and the Roll Date for the Cboe[supreg] S&P 500[supreg]
Enhanced Growth Buffer Protect Index February Series is in February,
a pattern which continues through the rest of the calendar year.
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Each Index is designed to provide the following outcomes between
Roll Dates:
If the S&P 500[supreg] Index declines more than 10%: The
Index declines 10% less than the S&P 500[supreg] Index (e.g., if the
S&P 500[supreg] Index returns -35%, the Index is designed to return -
25%);
If the S&P 500[supreg] Index declines between 0% and 10%:
The Index provides a total return of zero (0%);
If the S&P 500[supreg] Index appreciates between 0% and
the Capped Level: The Index appreciates by an amount that equals 200%
of the gain in the level of the S&P 500[supreg] Index; and
If the S&P 500[supreg] Index appreciates more than the
Capped Level: The Index appreciates by the amount equal to the Capped
Level.
Each Index includes a mix of purchased and written (sold) SPX
Options structured to achieve the results described above. Such results
are only applicable for each full 12-month period from one Roll Date to
the next Roll Date, and the Index may not return such results for
shorter or longer periods. The value of each Index is calculated daily
by Cboe Options utilizing a rules-based options valuation methodology,
which utilizes the prices at which the component SPX Options that
comprise the Index trade on that day or prices that are derived from a
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETN
The Exchange is proposing to list and trade each monthly series of
the Enhanced Growth Notes,\17\ each of which is based on its respective
Cboe S&P 500[supreg] Enhanced Growth Index. Each Index is a rules-based
options index that consists exclusively of SPX Options. The Indexes are
designed to provide exposure to the large capitalization U.S. equity
market with similar volatility and downside risk, but higher upside
potential in market environments with modest gains in the U.S. equity
market over the course of one year. On a specified day of the
applicable month for each Index the SPX Options expire (the ``Expiry
Date'') and on the following trading day (typically the last trading
day of that month, subject to postponement, the applicable Index
implements a new portfolio of SPX Options (the ``Roll Date,'' and the
time period from and including the Expiry Date to and including the
Roll Date, is the ``Roll Period''),\18\ with expirations
[[Page 10865]]
on the next Expiry Date that, if held to such Expiry Date, seeks to
provide 200% participation up to a maximum capped gain in the value of
the S&P 500[supreg] Index (the ``Capped Level'') and 100% participation
in losses in the value of the S&P 500[supreg] Index.
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\17\ In total, the Exchange is proposing to list and trade
twelve monthly series of the Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy ETNs. The Enhanced Growth Notes will include the
following: Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETN.
Each Note will be an index-based exchange traded note (``ETN''). The
Notes will be the following: Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (January) ETN; Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (February) ETN; Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (March) ETN; Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (April) ETN; Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (May) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (June) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (July) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (August) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (September) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (October) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (November) ETN; and Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (December) ETN. Each Note will be based on the Cboe
S&P 500 Enhanced Growth Index (Month) Series, where ``Month'' is the
corresponding month associated with the Roll Date of the applicable
Series of Notes.
\18\ Each of the twelve Indexes are designed to provide returns
over a defined year long period and, thus, there is an Index
associated with each month. As such, the Roll Date for a specific
Index is dependent on the monthly series for which the Index is
associated. For example, the Roll Date for the Cboe[supreg] S&P
500[supreg] Enhanced Growth Index January Series is in January and
the Roll Date for the Cboe[supreg] S&P 500[supreg] Enhanced Growth
Index February Series is in February, a pattern which continues
through the rest of the calendar year.
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Each Index is designed to provide the following outcomes between
Roll Dates:
If the S&P 500[supreg] Index declines: The Index declines
by the same amount as the S&P 500[supreg] Index (e.g., if the S&P
500[supreg] Index returns -35%, the Index is designed to return -35%);
If the S&P 500[supreg] Index appreciates between 0% and
the Capped Level: The Index appreciates by an amount that equals 200%
of the gain in the price of the S&P 500[supreg] Index; and
If the S&P 500[supreg] Index appreciates more than the
Capped Level: The Index appreciates by the amount equal to the Capped
Level.
Each Index includes a mix of purchased and written (sold) SPX
Options structured to achieve the results described above. Such results
are only applicable for each full 12-month period from one Roll Date to
the next Roll Date, and the Index may not return such results for
shorter or longer periods. The value of each Index is calculated daily
by Cboe Options utilizing a rules-based options valuation methodology,
which utilizes the prices at which the component SPX Options that
comprise the Index trade on that day or prices that are derived from a
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Accelerated Return Strategy ETN
The Exchange is proposing to list and trade each monthly series of
the Accelerated Return Notes,\19\ each of which is based on its
respective Cboe S&P 500[supreg] Accelerated Return Index. Each Index is
a rules-based options index that consists exclusively of SPX Options.
The Indexes are designed to provide exposure to the large
capitalization U.S. equity market with similar volatility and downside
risk, but higher upside potential in market environments with modest
gains in the U.S. equity market over the course of one year. On a
specified day of the applicable month for each Index the SPX Options
expire (the ``Expiry Date'') and on the following trading day
(typically the last trading day of that month, subject to postponement,
the applicable Index implements a new portfolio of SPX Options (the
``Roll Date,'' and the time period from and including the Expiry Date
to and including the Roll Date, is the ``Roll Period''),\20\ with
expirations on the next Expiry Date that, if held to such Expiry Date,
seeks to provide 300% participation up to a maximum capped gain in the
value of the S&P 500[supreg] Index (the ``Capped Level'') and 100%
participation in losses in the value of the S&P 500[supreg] Index.
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\19\ In total, the Exchange is proposing to list and trade
twelve monthly series of the Cboe Vest S&P 500[supreg] Accelerated
Return Strategy ETNs. The Accelerated Return Notes will include the
following: Cboe Vest S&P 500[supreg] Accelerated Return Strategy
ETN. Each Note will be an index-based exchange traded note
(``ETN''). The Notes will be the following: Cboe Vest S&P
500[supreg] Accelerated Return Strategy (January) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (February) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (March) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (April) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (May) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (June) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (July) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (August) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (September) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (October) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (November) ETN; and Cboe
Vest S&P 500[supreg] Accelerated Return Strategy (December) ETN.
Each Note will be based on the Cboe S&P 500[supreg] Accelerated
Return Index (Month) Series, where ``Month'' is the corresponding
month associated with the Roll Date of the applicable Series of
Notes.
\20\ Each of the twelve Indexes are designed to provide returns
over a defined year long period and, thus, there is an Index
associated with each month. As such, the Roll Date for a specific
Index is dependent on the monthly series for which the Index is
associated. For example, the Roll Date for the Cboe[supreg] S&P
500[supreg] Accelerated Return Index January Series is in January
and the Roll Date for the Cboe[supreg] S&P 500[supreg] Accelerated
Return Index February Series is in February, a pattern which
continues through the rest of the calendar year.
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Each Index is designed to provide the following outcomes between
Roll Dates:
If the S&P 500[supreg] Index declines: The Index declines
by the same amount as the S&P 500[supreg] Index (e.g., if the S&P
500[supreg] Index returns -35%, the Index is designed to return -35%);
If the S&P 500[supreg] Index appreciates between 0% and
the Capped Level: The Index appreciates by an amount that equals 300%
of the gain in the price of the S&P 500[supreg] Index; and
If the S&P 500[supreg] Index appreciates more than the
Capped Level: The Index appreciates by the amount equal to the Capped
Level.
Each Index includes a mix of purchased and written (sold) SPX
Options structured to achieve the results described above. Such results
are only applicable for each full 12-month period from one Roll Date to
the next Roll Date, and the Index may not return such results for
shorter or longer periods. The value of each Index is calculated daily
by Cboe Options utilizing a rules-based options valuation methodology,
which utilizes the prices at which the component SPX Options that
comprise the Index trade on that day or prices that are derived from a
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Power Buffer Strategy ETN
The Exchange is proposing to list and trade each monthly series of
the Power Buffer Notes,\21\ each of which is based on its respective
Cboe S&P 500[supreg] Power Buffer Index. Each Index is a rules-based
options index that consists exclusively of SPX Options. The Indexes are
designed to provide exposure to the large capitalization U.S. equity
market with lower volatility and downside risks than traditional equity
indices, except in environments of rapid appreciation in the U.S.
equity market over the course of one year. On a specified day of the
applicable month for each Index the SPX Options expire (the ``Expiry
Date'') and on the following trading day (typically the last trading
day of that month, subject to postponement, the applicable Index
implements a new portfolio of SPX Options (the ``Roll Date,'' and the
time period from and including the Expiry Date to and including the
Roll Date, is the ``Roll Period''),\22\ with expirations on the next
Expiry Date that, if held to such Expiry Date, seeks to ``buffer
[[Page 10866]]
protect'' against the first 15% decline in the value of the S&P
500[supreg] Index, while providing 100% participation up to a maximum
capped gain in the value of the S&P 500[supreg] Index (the ``Capped
Level'').
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\21\ In total, the Exchange is proposing to list and trade
twelve monthly series of the Cboe Vest S&P 500[supreg] Power Buffer
Strategy ETNs. The Power Buffer Notes will include the following:
Cboe Vest S&P 500[supreg] Power Buffer Strategy (January) ETN; Cboe
Vest S&P 500[supreg] Power Buffer Strategy (February) ETN; Cboe Vest
S&P 500[supreg] Power Buffer Strategy (March) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (April) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (May) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (June) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (July) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (August) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (September) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (October) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (November) ETN; and Cboe Vest S&P
500[supreg] Power Buffer Strategy (December) ETN. Each Note will be
based on the Cboe S&P 500[supreg] Power Buffer Index (Month) Series,
where ``Month'' is the corresponding month associated with the Roll
Date of the applicable Series of Notes.
\22\ Each of the twelve Indexes are designed to provide returns
over a defined year long period and, thus, there is an Index
associated with each month. As such, the Roll Date for a specific
Index is dependent on the monthly series for which the Index is
associated. For example, the Roll Date for the Cboe[supreg] S&P
500[supreg] Power Buffer Index January Series is in January and the
Roll Date for the Cboe[supreg] S&P 500[supreg] Power Buffer Index
February Series is in February, a pattern which continues through
the rest of the calendar year.
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Each Index is designed to provide the following outcomes between
Roll Dates:
If the S&P 500[supreg] Index declines more than 15%: The
Index declines 15% less than the S&P 500[supreg] Index (e.g., if the
S&P 500[supreg] Index returns -35%, the Index is designed to return -
20%);
If the S&P 500[supreg] Index declines between 0% and 15%:
The Index provides a total return of zero (0%);
If the S&P 500[supreg] Index appreciates between 0% and
the Capped Level: The Index appreciates by an amount that equals the
gain in the price of the S&P 500[supreg] Index; and
If the S&P 500[supreg] Index appreciates more than the
Capped Level: The Index appreciates by the amount equal to the Capped
Level.
Each Index includes a mix of purchased and written (sold) SPX
Options structured to achieve the results described above. Such results
are only applicable for each full 12-month period from one Roll Date to
the next Roll Date, and the Index may not return such results for
shorter or longer periods. The value of each Index is calculated daily
by Cboe Options utilizing a rules-based options valuation methodology,
which utilizes the prices at which the component SPX Options that
comprise the Index trade on that day or prices that are derived from a
valuation model when a traded price is not available or appropriate.
S&P 500[supreg] Options
The market for options contracts on the S&P 500[supreg] Index
traded on Cboe Options is among the most liquid markets in the world.
According to publicly available data, more than 1.48 million options
contracts on the S&P 500[supreg] Index were traded per day on Cboe
Options in 2018, which is more than $350 billion in notional volume
traded on a daily basis. While FLEX Options are traded differently than
standardized options contracts, the Exchange believes that this
liquidity bolsters the market for FLEX Options, as described below.
Every FLEX Option order submitted to Cboe Options is exposed to a
competitive auction process for price discovery. The process begins
with a request for quote (``RFQ'') in which the interested party
establishes the terms of the FLEX Options contract. The RFQ solicits
interested market participants, including on-floor market makers,
remote market makers trading electronically, and member firm traders,
to respond to the RFQ with bids or offers through a competitive
process. This solicitation contains all of the contract specifications-
underlying, size, type of option, expiration date, strike price,
exercise style and settlement basis. During a specified amount of time,
responses to the RFQ are received and at the end of that time period,
the initiator can decide whether to accept the best bid or offer. The
process occurs under the rules of Cboe Options, which means that
customer transactions are effected according to the principles of a
fair and orderly market following trading procedures and policies
developed by Cboe Options.
The Exchange believes that sufficient protections are in place to
protect against market manipulation of the Notes and SPX Options for
several reasons: (i) The diversity, liquidity, and market cap of the
securities underlying the S&P 500[supreg] Index; (ii) the significant
liquidity in the market for options on the S&P 500[supreg] Index; (iii)
the competitive quoting process for FLEX Options combined with the
significant liquidity in the market for options on the S&P 500[supreg]
Index results in a well-established price discovery process that
provides meaningful guideposts for FLEX Option pricing; and (iv)
surveillance by the Exchange, Cboe Options \23\ and the Financial
Industry Regulatory Authority (``FINRA'') designed to detect violations
of the federal securities laws and self-regulatory organization
(``SRO'') rules. The Exchange has in place a surveillance program for
derivative products, including Linked Securities, to ensure the
availability of information necessary to detect and deter potential
manipulations and other trading abuses, thereby making the Notes less
readily susceptible to manipulation. Further, the Exchange believes
that because the Indexes will consist only of SPX Options, which trade
in extremely liquid and highly regulated markets, the Notes are less
readily susceptible to manipulation.
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\23\ The Exchange notes that Cboe Options is a member of the
Option Price Regulatory Surveillance Authority, which was
established in 2006, to provide efficiencies in looking for insider
trading and serves as a central organization to facilitate
collaboration in insider trading and investigations for the U.S.
options exchanges. For more information, see https://www.cboe.com/aboutcboe/legal/departments/orsareg.aspx.
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The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Notes 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 Notes
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Linked Securities. All
statements and representations made in this filing regarding (a) the
description of the portfolio, reference assets, and index, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules shall constitute continued listing
requirements for listing the Notes on the Exchange. The Issuer has
represented to the Exchange that it will advise the Exchange of any
failure by a Series of Notes 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 Series of Notes is not in compliance with
the applicable listing requirements, then, with respect to such Series
of Notes, the Exchange will commence delisting procedures under
Exchange Rule 14.12. FINRA conducts certain cross-market surveillances
on behalf of the Exchange pursuant to a regulatory services agreement.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange or FINRA, on behalf of the Exchange, will communicate
as needed regarding trading in the Units and exchange-traded options
contracts with other markets and other entities that are members of the
Intermarket Surveillance Group (``ISG'') \24\ and may obtain trading
information regarding trading in the Units and exchange-traded options
contracts from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Units and SPX
Options from Cboe Options. In addition, the Exchange also has a general
policy prohibiting the distribution of material, non-public information
by its employees.
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\24\ 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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As noted above, options on the S&P 500[supreg] Index are among the
most liquid options in the world and derive their value from the
actively traded S&P 500[supreg] Index components. The contracts are
cash-settled with no delivery of stocks or ETFs, and trade in
competitive auction markets with price and quote transparency. The
Exchange believes the highly regulated options markets and the broad
base and scope of the S&P
[[Page 10867]]
500[supreg] Index make securities that derive their value from that
index less susceptible to market manipulation in view of the market
capitalization and liquidity of the S&P 500[supreg] Index components,
price and quote transparency, and arbitrage opportunities.
The Exchange believes that the liquidity of the markets for S&P
500[supreg] Index securities, options on the S&P 500[supreg] Index, and
other related derivatives is sufficiently great to deter fraudulent or
manipulative acts associated with the price of the Units. The Exchange
also believes that such liquidity is sufficient to support the creation
and redemption mechanism. Coupled with the extensive surveillance
programs of the SROs described above, the Exchange does not believe
that trading in the Notes would present manipulation concerns.
The Exchange represents that, except for the exception to Rule
14.11(d)(2)(K)(i)(a), the Indexes will satisfy, on an initial and
continued listing basis, all of the listing standards under BZX Rule
14.11(d)(K)(i) and all other requirements under Rule 14.11(d) that are
applicable to Equity Index-Linked Securities. The Issuer is required to
comply with Rule 10A-3 under the Act for the initial and continued
listing of the Notes. In addition, the Exchange represents that the
Notes will comply with all other requirements applicable to Equity
Index-Linked Securities, which includes index dissemination,\25\
suspension of trading or removal,\26\ trading halts,\27\
surveillance,\28\ minimum price variation for quoting and order
entry,\29\ and the information circular,\30\ as set forth in Exchange
rules applicable Equity Index-Linked Securities. Further, all
statements or representations regarding the description of the
portfolio or reference assets, limitations on portfolio holdings or
reference assets, dissemination and availability of the index,
reference asset, and intraday indicative values, or the applicability
of Exchange listing rules shall constitute continued listing
requirements for the Notes. Moreover, all of the options contracts
included in the Indexes 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. Quotation and
last sale information for U.S. exchange-listed options contracts
cleared by The Options Clearing Corporation will be available via the
Options Price Reporting Authority. RFQ information for FLEX Options
will be available directly from Cboe Options. The intra-day, closing
and settlement prices of exchange-traded options will be readily
available from the options exchanges, automated quotation systems,
published or other public sources, or online information services such
as Bloomberg or Reuters.
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\25\ See Rule 14.11(d)(2)(G).
\26\ See Rule 14.11(d)(2)(K)(i)(b).
\27\ See Rule 14.11(d)(2)(H).
\28\ See Rule 14.11(d)(2)(I).
\29\ See Rule 11.11(a).
\30\ See Rule 14.11(h)(1)(F).
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Lastly, the Issuer represents that there will be a publicly
available web tool for each Series of Notes on a website that provides
existing and prospective investors with important information to help
inform investment decisions. The information provided will include the
start and end dates of the current outcome period, the time remaining
in the outcome period, the Index's current value, the applicable cap
for the outcome period and the maximum investment gain available up to
the cap for an investor purchasing Notes at the current Index value.
For each of the Series of Notes, the web tool will also provide
information regarding its buffer. This information will include the
remaining buffer available for an investor purchasing Notes at the
current Index value or the amount of losses that an investor purchasing
Notes at the Index value would incur before benefitting from the
protection of the buffer.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \31\ in general and Section 6(b)(5) of the Act \32\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\31\ 15 U.S.C. 78f.
\32\ 15 U.S.C. 78f(b)(5).
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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 Notes will meet
each of the initial and continued listing criteria in BZX Rule 14.11(d)
with the exception of Rule 14.11(d)(2)(K)(i)(a)(2), because the Indexes
consist exclusively of SPX Options, rather than equity securities. Rule
14.11(d)(2)(K)(i)(a)(2) is intended to ensure that a series of Equity
Index-Linked Securities is not subject to manipulation by requiring
that the underlying reference index is composed of equity securities
that are sufficiently large, liquid, and diverse to mitigate
manipulation concerns. The Exchange believes that these manipulation
concerns are otherwise mitigated.
Specifically, the Exchange believes that sufficient protections are
in place to protect against market manipulation of the Units and SPX
Options for several reasons: (i) The diversity, liquidity, and market
cap of the securities underlying the S&P 500[supreg] Index; (ii) the
significant liquidity in the market for options on the S&P 500[supreg]
Index; (iii) the competitive quoting process for FLEX Options combined
with the significant liquidity in the market for options on the S&P
500[supreg] Index results in a well-established price discovery process
that provides meaningful guideposts for FLEX Option pricing; and (iv)
surveillance by the Exchange, Cboe Options and FINRA designed to detect
violations of the federal securities laws and SRO rules. The Exchange
has in place a surveillance program for transactions in Linked
Securities to ensure the availability of information necessary to
detect and deter potential manipulations and other trading abuses,
thereby making the Notes less readily susceptible to manipulation.
Further, the Exchange believes that because the assets in each Index,
which are comprised entirely of SPX Options on the S&P 500[supreg]
Index, are priced in extremely liquid and highly regulated markets, the
Notes are less readily susceptible to manipulation.
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Notes 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 Notes
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Linked Securities. All
statements and representations made in this filing regarding (a) the
description of the portfolio, reference assets, and index, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability
[[Page 10868]]
of Exchange rules shall constitute continued listing requirements for
listing the Notes on the Exchange. The Issuer has represented to the
Exchange that it will advise the Exchange of any failure by a Series of
Notes 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
Series of Notes is not in compliance with the applicable listing
requirements, then, with respect to such Notes, the Exchange will
commence delisting procedures under Exchange Rule 14.12. FINRA conducts
certain cross-market surveillances on behalf of the Exchange pursuant
to a regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement. If a
Series of Notes is not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures with
respect to such Series of Notes under Exchange Rule 14.12.
The Exchange or FINRA, on behalf of the Exchange, will communicate
as needed regarding trading in the Notes and exchange-traded options
contracts with other markets and other entities that are members of the
ISG and may obtain trading information regarding trading in the Notes
and exchange-traded options contracts from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Notes and exchange-traded options contracts from markets
and other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. In
addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees. As
noted above, options on the S&P 500[supreg] Index are among the most
liquid options in the world and derive their value from the actively
traded S&P 500[supreg] Index components. The contracts are cash-settled
with no delivery of stocks or ETFs, and trade in competitive auction
markets with price and quote transparency. The Exchange believes the
highly regulated options markets and the broad base and scope of the
S&P 500[supreg] Index make securities that derive their value from that
index less susceptible to market manipulation in view of the market
capitalization and liquidity of the S&P 500[supreg] Index components,
price and quote transparency, and arbitrage opportunities.
The Exchange believes that the liquidity of the markets for S&P
500[supreg] Index securities, options on the S&P 500[supreg] Index, and
other related derivatives is sufficiently great to deter fraudulent or
manipulative acts associated with the price of the Notes. Coupled with
the extensive surveillance programs of the SROs described above, the
Exchange does not believe that trading in the Units would present
manipulation concerns.
The Exchange represents that, except as described above, the Notes
will meet and be subject to all other requirements of the listing
standards and other applicable continued listing requirements for
Equity Index-Linked Securities, including index dissemination,\33\
suspension of trading or removal,\34\ trading halts,\35\
surveillance,\36\ minimum price variation for quoting and order
entry,\37\ and the information circular.\38\ The Issuer is required to
comply with Rule 10A-3 under the Act for the initial and continued
listing of each Series of Notes. Moreover, all of the options contracts
included in the Indexes 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.
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\33\ See Rule 14.11(d)(2)(G).
\34\ See Rule 14.11(d)(2)(K)(i)(b).
\35\ See Rule 14.11(d)(2)(H).
\36\ See Rule 14.11(d)(2)(I).
\37\ See Rule 11.11(a).
\38\ See Rule 14.11(h)(1)(F).
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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 will facilitate the listing and trading of several
additional types of exchange-traded products 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 proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CboeBZX-2019-015 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-2019-015. 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 the filing also will be available for
[[Page 10869]]
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-2019-015, and should
be submitted on or before April 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05459 Filed 3-21-19; 8:45 am]
BILLING CODE 8011-01-P
