Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade Under BZX Rule 14.11(c)(3) Shares of the Global X Russell 2000 Covered Call ETF of Global X Funds, 15248-15257 [2019-07377]

Download as PDF 15248 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices wide circuit breaker mechanism under Rule 80B should continue on a pilot basis while the Commission considers whether to permanently approve Rule 80B. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change implicates any competitive issues because the proposal would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Commission considers whether to permanently approve the market-wide circuit breaker mechanism under Rule 80B. Further, the Exchange understands that FINRA and other national securities exchanges will file proposals to extend their rules regarding the market-wide circuit breaker pilot so that the market-wide circuit breaker mechanism may continue uninterrupted while the Commission considers whether to approve its operation on a permanent basis. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. amozie on DSK9F9SC42PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and Rule 19b– 4(f)(6) thereunder.10 A proposed rule change filed under Rule 19b–4(f)(6) 11 normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii),12 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative upon filing. Extending the pilot for an additional six months will allow the U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 11 Id. 12 17 CFR 240.19b–4(f)(g)(iii). 10 17 17:16 Apr 12, 2019 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 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–NYSE–2019–19, and should be submitted on or before May 6, 2019. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Jill M. Peterson, Assistant Secretary. 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– NYSE–2019–19 on the subject line. SECURITIES AND EXCHANGE COMMISSION 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–NYSE–2019–19. 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 13 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 9 15 VerDate Sep<11>2014 uninterrupted operation of the existing pilot to halt trading across the U.S. markets while the Commission considers whether to approve the pilot on a permanent basis. The extension simply maintains the status quo. Therefore, the Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission hereby designates the proposed rule change to be operative upon filing.13 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. Jkt 247001 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 [FR Doc. 2019–07376 Filed 4–12–19; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–85557; File No. SR– CboeBZX–2019–001] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade Under BZX Rule 14.11(c)(3) Shares of the Global X Russell 2000 Covered Call ETF of Global X Funds April 9, 2019. I. Introduction On January 28, 2019, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’ or the ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade under BZX Rule 14.11(c)(3) shares of the Global X Russell 2000 Covered Call ETF (‘‘Fund’’) of Global X Funds. The proposed rule 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\15APN1.SGM 15APN1 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices amozie on DSK9F9SC42PROD with NOTICES change was published for comment in the Federal Register on February 15, 2019.3 On March 14, 2019, the Exchange filed Amendment No. 1 to the proposed rule change, which replaced and superseded the proposed rule change as originally filed.4 On March 21, 2019, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.5 On April 5, 2019, the Exchange filed Amendment No. 2 to the proposed rule change, which replaced and superseded the proposed rule change as originally filed.6 The Commission received no comments on the proposed rule change. The Commission is publishing this notice to solicit comments on Amendment No. 2 from interested persons and is approving the proposed 3 See Securities Exchange Act Release No. 85099 (February 11, 2019), 84 FR 4584. 4 Amendment No. 1 to the proposed rule change is available at: https://www.sec.gov/comments/srcboebzx-2019-001/srcboebzx2019001-5145199183369.pdf. 5 See Securities Exchange Act Release No. 85388, 84 FR 11597 (March 27, 2019). The Commission designated May 16, 2019, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. 6 In Amendment No. 2, the Exchange: (1) Clarified that the Fund and the Underlying Index (as defined below) meet all requirements of the listing standards applicable to index fund shares in BZX Rule 14.11(c)(3), except for Rule 14.11(c)(3)(A)(i)(e); (2) modified the name of the Underlying Index (as defined below); (3) specified that the Fund will invest at least 80% of its total assets in equity components of the Reference Index (as defined below), U.S. exchange-listed ETFs designed to track the Reference Index, U.S. listed options on equities that are components of the Reference Index, U.S. listed options on ETFs designed to track the Reference Index, as well as certain instruments that are either included in the Underlying Index or have economic characteristics that are substantially identical to the economic characteristics of such component securities, either individually or in the aggregate, including only the following: U.S. listed equity index futures, U.S. listed equity index options, and U.S. listed options on U.S. listed equity index futures; (4) clarified that the Fund may hold cash and Cash Equivalents (as defined below); (5) clarified that the Fund’s investments will not be used to enhance leverage, although certain derivatives and other investments may result in leverage; (6) added representations regarding the Fund’s risk disclosure in its offering documents, including leveraging risk; (7) clarified the types of instruments in which the Fund may invest up to 20% of its net assets; (8) added a representation that all of the Fund’s holdings in equities, ETFs, futures, and options will be listed on members of the Intermarket Surveillance Group or on markets with which the Exchange has in place a comprehensive surveillance sharing agreement; (9) added a representation that the Fund’s use of derivatives instruments will be collateralized; and (10) made technical and conforming changes. Amendment No. 2 to the proposed rule change is available at: https://www.sec.gov/comments/sr-cboebzx-2019001/srcboebzx2019001-5321696-183907.pdf. VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 rule change, as modified by Amendment No. 2, on an accelerated basis. II. The Exchange’s Description of the Proposed Rule Change, as Modified by Amendment No. 2 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 shares (‘‘Shares’’) of the Fund under BZX Rule 14.11(c)(3),7 which governs the listing and trading of index fund shares based on an index composed of U.S. Component Stocks.8 The Exchange notes that the Commission has previously approved a fund that employs a very similar strategy.9 The Shares are offered by Global X Funds, which is organized as a Delaware statutory trust and is registered with the Commission as an open-end management investment company.10 The investment adviser and administrator to the Fund is Global X Management Company LLC (the ‘‘Adviser’’ or ‘‘Administrator’’).11 7 The Commission approved BZX Rule 14.11(c) in Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 (September 6, 2011) (SR– BATS–2011–018). 8 Rule 14.11(c)(1)(D) provides that the term ‘‘U.S. Component Stock’’ shall mean an equity security that is registered under Sections 12(b) or 12(g) of the Act. 9 See Securities Exchange Act Release No. 68708 (January 23, 2013), 78 FR 6161 (January 29, 2013) (SR–NYSEArca–2012–131) (order granting approval of proposed rule change relating to listing and trading of shares of the Horizons S&P 500 Covered Call ETF). 10 The Trust is registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’). On December 20, 2018, the Trust filed with the Commission an amendment to its Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a), and under the 1940 Act relating to the Funds (File Nos. 333–151713 and 811–22209) (‘‘Registration Statement’’). The description of the operation of the Trust and the Fund herein is based, in part, on the Registration Statement. In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. See Investment Company Act Release No. 29852 (October 28, 2011) (File No. 812–13830). 11 The Adviser is not registered as a broker-dealer, but is affiliated with broker-dealers and has PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 15249 SEI Investments Distribution Co. (the ‘‘Distributor’’) is the principal underwriter and distributor of the Shares. Brown Brothers Harriman & Co. (the ‘‘Custodian’’ or ‘‘Transfer Agent’’) will serve as custodian and transfer agent for the Fund. The Exchange submits this proposal because the Underlying Index, as defined below, includes options on the Russell 2000 Index. Rule 14.11(c)(3)(A)(i)(e) provides that all securities in the applicable index or portfolio shall be U.S. Component Stocks listed on a national securities exchange and shall be NMS Stocks as defined in Rule 600 under Regulation NMS of the Act. Options are excluded from the definition of U.S. Component Stocks. As such, because the Underlying Index, as defined below, includes options, it does not meet the generic listing standards applicable to Index Fund Shares under Rules 14.11(c)(3)(A)(i)(a)-(e). The Fund and the Underlying Index do, however, meet all other requirements of the listing standards for Index Fund Shares in Rule 14.11(c)(3). The Exchange also notes that each component stock of the Russell 2000 Index is a U.S. Component Stock that is listed on a national securities exchange and is an NMS Stock and that such component stocks of the Russell 2000 Index satisfy the requirements of Rule 14.11(c)(3)(A)(i)(a)-(e). As described below, the Fund will seek investment results that, before fees and expenses, generally correspond to the performance of the Cboe Russell 2000 BuyWrite Index (the ‘‘Underlying Index’’) provided by FTSE Russell (the ‘‘Index Provider’’).12 The Underlying Index measures the performance of a theoretical portfolio that holds a portfolio of the stocks included in the Russell 2000 Index 13 (the ‘‘Reference implemented and will maintain a fire wall with respect to its broker-dealer affiliates regarding access to information concerning the portfolio holdings of the Fund. In the event (a) the Adviser becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser becomes affiliated with a broker-dealer, it will implement and maintain a fire wall with respect to such brokerdealer regarding access to information concerning the portfolio holdings of the Fund, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding said portfolio. 12 The Underlying Index is provided by the Index Provider, which is unaffiliated with the Fund or the Adviser. The Index Provider maintains, calculates and publishes information regarding the Underlying Index. The Index Provider is not a broker-dealer and has implemented and will maintain procedures designed to prevent the use and dissemination of material, non-public information regarding the Underlying Index. 13 The Exchange notes that the Russell 2000 Index has been previously approved by the Commission E:\FR\FM\15APN1.SGM Continued 15APN1 15250 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices Index’’), and ‘‘writes’’ (or sells) a succession of one-month at-the-money covered call options on the Reference Index. The written covered call options on the Reference Index are held until expiration. The Reference Index is an equity benchmark which measures the performance of the small-capitalization sector of the U.S. equity market, as defined by FTSE Russell.14 The Exchange is submitting this proposed rule change because the Underlying Index for the Fund does not meet all of the ‘‘generic’’ listing requirements of Rule 14.11(c)(3)(A)(i) applicable to the listing of Index Fund Shares based upon an index of U.S. Component Stocks. Specifically, Rule 14.11(c)(3)(A)(i) sets forth the requirements to be met by components of an index or portfolio of U.S. Component Stocks. As further described below, the Underlying Index consists of the constituent securities of the Russell 2000 Index and options on the Russell 2000 Index. The Underlying Index meets all the requirements of Rule 14.11(c)(3)(A)(i) except that the Underlying Index includes call options, which are not NMS Stocks as defined in Rule 600 of Regulation NMS. As described below, the Underlying Index is comprised solely of Russell 2000 companies and includes an exposure to call options on the Reference Index. All securities in the Reference Index are listed and traded on a U.S. national securities exchange. The options on the Reference Index are traded on Cboe Exchange, Inc. (‘‘Cboe Options’’). Notwithstanding that the Underlying Index does not meet all of the generic listing requirements of Rule 14.11(c)(3)(A)(i), the Exchange believes that the Underlying Index is sufficiently broad-based enough to deter potential manipulation in that the Reference Index stocks are among the most actively traded, highly capitalized stocks traded in the U.S. amozie on DSK9F9SC42PROD with NOTICES The Underlying Index According to the Registration Statement, the Global X Russell 2000 under Section 19(b)(2) of the Act in connection with the listing and trading of FLEX Options and Quarterly Index Options, as well as other securities. See, e.g., Securities Exchange Act Release Nos. 32694 (July 29, 1993), 58 FR 41814 (July 5, 1993) (approving the listing and trading of FLEX Options based on the Russell 2000 Index); 32693 (July 29, 1993), 58 FR 41817 (August 5, 1993) (approving the listing and trading of Quarterly Index Option based on the Russell 2000 Index). 14 The Underlying Index methodology is available at https://www.cboe.com/products/strategybenchmark-indexes/buywrite-indexes/cboe-russell2000-buywrite-index-bxr. The Index Provider may amend the methodology from time to time. In such case, the methodology would be updated accordingly on the website. VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 Covered Call ETF will seek investment results that, before fees and expenses, generally correspond to the performance of the Fund’s Underlying Index, which is the Cboe Russell 2000 BuyWrite Index. The Underlying Index measures the performance of a theoretical portfolio that holds a portfolio of the stocks included in the Reference Index, and ‘‘writes’’ (or sells) a succession of one-month at-the-money covered call options on the Reference Index. The written covered call options on the Reference Index are held until the applicable expiration date. The Reference Index is an equity benchmark which measures the performance of the small-capitalization sector of the U.S. equity market, as defined by FTSE Russell. The Underlying Index is comprised of all the equity securities in the Reference Index and a succession of short (written) one-month at-the-money covered call options on the Reference Index. The written covered call options on the Reference Index are held until the expiration date. The Fund According to the Registration Statement, the Fund will invest at least 80% of its total assets in securities that comprise its Underlying Index or in investments that have economic characteristics that are substantially identical to the economic characteristics of such component securities, either individually or in the aggregate (the ‘‘80% Instruments’’).15 The Fund may also hold cash and Cash Equivalents.16 In seeking to track the Underlying Index, the Fund follows a ‘‘buy-write’’ (also called a covered call) investment strategy on the Reference Index in which the Fund purchases the component securities of the Reference Index or purchases other investments (including other ETFs) 17 that have economic characteristics that are substantially identical to the economic characteristics of such component securities, and also writes (or sells) call options that correspond to the Reference Index. According to the Registration Statement, the Fund will be an index fund that employs a ‘‘passive management’’ investment strategy in seeking to achieve its objective. According to the Registration Statement, the Adviser’s strategy will consist of holding a portfolio indexed to the Reference Index and writing (selling) covered call options on the Reference Index.18 The Underlying Index provides a benchmark measure of the total return of this hypothetical portfolio. According to the Registration Statement, the Fund will generally use a representative sampling methodology, meaning it will invest in a representative sample of securities that collectively has an investment profile similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. The Fund’s investments, including derivatives, will be consistent with the 1940 Act and the Fund’s investment objective and policies and will not be 15 The term 80% Instruments includes only the following: Equity components of the Reference Index, U.S. exchange-listed ETFs designed to track the Reference Index, U.S. listed options on equities that are components of the Reference Index, U.S. listed options on ETFs designed to track the Reference Index, as well as certain instruments that are either included in the Underlying Index or have economic characteristics that are substantially identical to the economic characteristics of such component securities, either individually or in the aggregate, including only the following: U.S. listed equity index futures, U.S. listed equity index options, U.S. listed equity index futures [sic], U.S. listed equity index options [sic], and U.S. listed options on U.S. listed equity index futures. 16 As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash Equivalents are shortterm instruments with maturities of less than three months, which includes only the following: (i) U.S. Government securities, including bills, notes, and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities; (ii) certificates of deposit issued against funds deposited in a bank or savings and loan association; (iii) bankers acceptances, which are short-term credit instruments used to finance commercial transactions; (iv) repurchase agreements and reverse repurchase agreements; (v) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; (vi) commercial paper, which are short-term unsecured promissory notes; and (vii) money market funds. 17 For purposes of this filing, ETFs include index fund shares (as described in BZX Rule 14.11(c)); Portfolio Depositary Receipts (as described in BZX Rule 14.11(b)); and Managed Fund Shares (as described in BZX Rule 14.11(i)). The ETFs all will be listed and traded in the U.S. on registered exchanges. The Fund may invest in the securities of ETFs registered under the 1940 Act consistent with the requirements of Section 12(d)(1) of the 1940 Act, or any rule, regulation or order of the Commission or interpretation thereof. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, ¥2X, 3X or ¥3X) ETFs. 18 A covered call strategy is generally considered to be an investment strategy in which an investor buys a security, and sells a call option that corresponds to the security. In return for a premium, the Fund will give the purchaser of the option written by the Fund either the right to buy the security from the Fund at an exercise price or the right to receive a cash payment equal to the difference between the value of the security and the exercise (or ‘‘strike’’) price, if the value is above the exercise price on or before the expiration date of the option. In addition, the covered call options hedge against a decline in the price of the securities on which they are written to the extent of the premium the Fund receives. A covered call strategy is generally used in a neutral-to-bullish market environment, where a slow and steady rise in market prices is anticipated. PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 E:\FR\FM\15APN1.SGM 15APN1 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices used to enhance leverage (although certain derivatives and other investments may result in leverage).19 That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund’s primary broad-based securities benchmark index (as defined in Form N–1A). The Fund will only use those derivatives described above. The Fund’s use of derivative instruments will be collateralized. According to the Registration Statement, the Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the Underlying Index is so concentrated. The Fund will be diversified under the 1940 Act. Investment Guidelines According to the Registration Statement, the Fund will write (sell) call options on the Reference Index to the same extent as such short call options are included in its Underlying Index. The Trust, on behalf of the Fund, has filed a notice of eligibility for exclusion from the definition of the term ‘‘commodity pool operator’’ in accordance with Rule 4.5 so that the Fund is not subject to registration or regulation as a commodity pool operator under the Commodity Exchange Act (‘‘CEA’’). Other Investments The Fund may also hold up to 20% of its net assets in shares of nonexchange traded registered open-end investment companies, subject to applicable limitations under Section 12(d)(1) of the 1940 Act (‘‘Mutual Funds’’),20 U.S. listed options on equities that are not components of the amozie on DSK9F9SC42PROD with NOTICES 19 The Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of a fund, including a fund’s use of derivatives, may give rise to leverage, causing a fund to be more volatile than if it had not been leveraged. To mitigate leveraging risk, the Fund will segregate or earmark liquid assets determined to be liquid by the Adviser in accordance with procedures established by the Trust’s Board and in accordance with the 1940 Act (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under derivative instruments. These procedures have been adopted consistent with Section 18 of the 1940 Act and related Commission guidance. See 15 U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18, 1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset Management, L.P., Commission No-Action Letter (July 2, 1996). 20 The Fund will not invest in leveraged (e.g., 2x, ¥2x, 3x, or ¥3x) Mutual Funds. VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 Reference Index, U.S. listed options on ETFs that are not designed to track the Reference Index, and U.S. exchangelisted listed equities that are not components of the Reference Index, including ETFs that are not designed to track the Reference Index, which the Adviser believes will help the Fund track the Underlying Index, as well as in certain instruments that would be included in the definition of the 80% Instruments except that such instruments are not included in the Underlying Index or do not have economic characteristics that are substantially identical to the economic characteristics of such component securities, either individually or in the aggregate, including only the following: U.S. listed equity index futures, U.S. listed equity index options, and U.S. listed options on U.S. listed equity index futures. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment).21 The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in the light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund’s net assets are held in illiquid securities and other illiquid assets. The Fund will seek to qualify for treatment as a regulated investment company (‘‘RIC’’) under the Code.22 Availability of Information The Fund’s website, which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The website will 21 The Commission has stated that long-standing Commission guidelines have required open-end funds to hold no more than 15% of their net assets in illiquid securities and other illiquid assets. See Investment Company Act Release No. 8901 (March 11, 2008), 73 FR 14618 (March 18, 2008), footnote 34. See also, Investment Company Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement Regarding ‘‘Restricted Securities’’); Investment Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions of Guidelines to Form N–1A). A fund’s portfolio security is illiquid if it cannot be disposed of in the ordinary course of business within seven days at approximately the value ascribed to it by the exchange traded fund (‘‘ETF’’). See Investment Company Act Release No. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a–7 under the 1940 Act); Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the Securities Act of 1933). 22 26 U.S.C. 851. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 15251 include additional quantitative information updated on a daily basis, including, for the Fund: (1) The prior business day’s reported NAV and a calculation of the premium and discount of the Bid/Ask Price against the NAV; and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. Daily trading volume information for the Shares will also be available in the financial section of newspapers, through subscription services such as Bloomberg, Thomson Reuters, and International Data Corporation, which can be accessed by authorized participants and other investors, as well as through other electronic services, including major public websites. On each business day, the Fund will disclose on its website the identities and quantities of the portfolio of securities and other assets in the daily disclosed portfolio held by the Fund that formed the basis for the Fund’s calculation of NAV at the end of the previous business day. The daily disclosed portfolio will include, as applicable: The ticker symbol; CUSIP number or other identifier, if any; a description of the holding (including the type of holding); the identity of the security, index or other asset or instrument underlying the holding, if any; for options, the option strike price; quantity held (as measured by, for example, par value, notional value or number of shares, contracts, or units); maturity date, if any; coupon rate, if any; effective date, if any; market value of the holding; and the percentage weighting of the holding in the Fund’s portfolio. The website and information will be publicly available at no charge. The value, components, and percentage weightings of the Underlying Index will be calculated and disseminated at least once daily and will be available from major market data vendors. Rules governing the Underlying Index are available on the Exchange’s website and in the Fund’s prospectus. In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A) as the ‘‘Intraday Indicative Value,’’ (the ‘‘IIV’’) that reflects an estimated intraday value of the Fund’s portfolio, will be disseminated. Moreover, the IIV will be based upon the current value for the components of the daily disclosed portfolio and will be updated and widely disseminated by one or more major market data vendors at least every E:\FR\FM\15APN1.SGM 15APN1 15252 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices amozie on DSK9F9SC42PROD with NOTICES 15 seconds during the Exchange’s Regular Trading Hours.23 The dissemination of the IIV, together with the daily disclosed portfolio, will allow investors to determine the value of the underlying portfolio of the Fund on a daily basis and provide a close estimate of that value throughout the trading day. Quotation and last sale information for the Shares will be available via the CTA high speed line and, for the securities held by the Fund, will be available from the exchange on which they are listed. Quotation and last sale information for options contracts held by the Fund will be available via the Options Price Reporting Authority. The intra-day, closing, and settlement prices of the portfolio instruments, including equities, ETFs, futures, and options, will also be readily available from the exchanges trading such instruments, automated quotation systems, published or other public sources, or online information services such as Bloomberg or Reuters. Price information for Cash Equivalents will be available from major market data vendors. Mutual Funds are typically priced once each business day and their prices will be available through the applicable fund’s website or from major market data vendors. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares. Trading also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the shares the Fund inadvisable. If the IIV and index value are not being disseminated for the Fund as required, the Exchange may halt trading during the day in which the interruption to the dissemination of the IIV or index value occurs. If the interruption to the dissemination of an IIV or index value persists past the trading day in which it occurred, the Exchange will halt trading. The Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares. The Exchange will halt trading in the Shares under the conditions specified in BZX Rule 11.18. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or 23 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available IIVs published via the Consolidated Tape Association (‘‘CTA’’) or other data feeds. VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 the financial instruments composing the daily disclosed portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares also will be subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances under which Shares of a Fund may be halted. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. The Exchange will allow trading in the Shares from 8:00 a.m. until 8:00 p.m. Eastern Time and has the appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in Rule 11.11(a), the minimum price variation for quoting and entry of orders in securities traded on the Exchange is $0.01, with the exception of securities that are priced less than $1.00, for which the minimum price variation for order entry is $0.0001. Surveillance The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchange’s surveillance procedures for derivative products, including Index Fund Shares. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. 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 the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12. The Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, underlying equities (including ETFs), futures, and options contracts with other markets and other entities that are members of the Intermarket PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 Surveillance Group (‘‘ISG’’) 24 and may obtain trading information regarding trading in the Shares, underlying equities (including ETFs), futures, and options contracts from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying equities (including ETFs), futures, and the 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 is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA’s Trade Reporting and Compliance Engine (‘‘TRACE’’). In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 25 under the Exchange Act, as provided by generic listing standards under Rule 14.11(c)(4) and the continued listing standards under Rule 14.11(c). A minimum of 100,000 Shares for the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange represents that, except for the exceptions to BZX Rule 14.11(c) described above, the Fund and Shares will satisfy all applicable requirements for Index Fund Shares under Rule 14.11(c), including the requirements related to the net asset value (‘‘NAV’’) per Share being calculated daily and made available to all market participants at the same time, intraday indicative value, suspension of trading or removal, trading halts, disclosure, and firewalls. Information Circular Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) BZX Rule 3.7, which imposes suitability obligations on Exchange members with respect to recommending transactions in the 24 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all of the components of the portfolio for the Fund may trade on exchanges that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. 25 17 CFR 240.10A–3. E:\FR\FM\15APN1.SGM 15APN1 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices amozie on DSK9F9SC42PROD with NOTICES Shares to customers; (3) how information regarding the Intraday Indicative Value and the portfolio holdings is disseminated; (4) the risks involved in trading the Shares during the Pre-Opening 26 and After Hours Trading Sessions 27 when an updated Intraday Indicative Value will not be calculated or publicly disseminated; (5) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (6) trading information. In addition, the Information Circular will advise members, prior to the commencement of trading, of the prospectus delivery requirements applicable to the Fund. Members purchasing Shares from the Fund for resale to investors will deliver a prospectus to such investors. The Information Circular will also discuss any exemptive, no-action and interpretive relief granted by the Commission from any rules under the Act. In addition, the Information Circular will reference that the Fund is subject to various fees and expenses described in the Registration Statement. The Information Circular will also disclose the trading hours of the Shares of the Fund and the applicable NAV calculation time for the Shares. The Information Circular will disclose that information about the Shares of the Fund will be publicly available on the Fund’s website. 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act 28 in general and Section 6(b)(5) of the Act 29 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria for Index Fund Shares 26 The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. Eastern Time. 27 The After Hours Trading Session is from 4:00 p.m. to 5:00 p.m. Eastern Time. 28 15 U.S.C. 78f. 29 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 based on an index composed of U.S. Component Stocks in Rule 14.11(c)(3). The Exchange represents that trading in the Shares will be subject to the existing trading surveillances administered by the Exchange as well as cross-market surveillances administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. The Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, underlying equities (including ETFs), futures, and options contracts with other markets and other entities that are members of the ISG and may obtain trading information regarding trading in the Shares, underlying equities (including ETFs), futures, and options contracts from such markets and other entities.30 In addition, the Exchange may obtain information regarding trading in the Shares, underlying equities (including ETFs), futures, and the 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. All securities in the Reference Index are listed and traded on a U.S. national securities exchange. The options on the Reference Index are traded on Cboe Options, a U.S. national options exchange and member of ISG. In addition, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to TRACE. The Fund’s investments, including derivatives, will be consistent with the 1940 Act and the Fund’s investment objective and policies and will not be used to enhance leverage (although certain derivatives and other investments may result in leverage). That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund’s primary broad-based securities benchmark index (as defined in Form N–1A). The Fund 30 The Exchange notes that all of the Funds [sic] holdings in equities, ETFs, futures, and options will be listed on members of ISG or on markets with which the Exchange has in place a comprehensive surveillance sharing agreement. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 15253 will only use those derivatives described above. The Fund’s use of derivative instruments will be collateralized. The Adviser is affiliated with brokerdealers and has implemented and will maintain a fire wall with respect to its broker-dealer affiliates regarding access to information concerning the portfolio holdings of the Fund. In the event (a) the Adviser becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser becomes affiliated with a broker-dealer, it will implement and maintain a fire wall with respect to such broker-dealer regarding access to information concerning the portfolio holdings of the Fund, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolios. The Index Provider is not a broker-dealer and has implemented and will maintain procedures designed to prevent the use and dissemination of material, nonpublic information regarding the Underlying Index. The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV will be made available to all market participants at the same time. In addition, a large amount of information is publicly available regarding the Fund and the Shares, thereby promoting market transparency. Moreover, the IIV and the Underlying Index value will be widely disseminated by one or more major market data vendors at least every 15 seconds during Regular Trading Hours. If the IIV or the Underlying Index value of a Fund is not being disseminated as required, the Exchange may halt trading during the day in which the interruption to the dissemination of the applicable IIV or Underlying Index value occurs. If the interruption to the dissemination of the applicable IIV or Underlying Index value persists past the trading day in which it occurred, the Exchange will halt trading. In addition, if the Exchange becomes aware that the NAV of a Fund is not being disseminated to all market participants at the same time, it will halt trading in the relevant Shares on the Exchange until such time as the NAV is available to all market participants. On each business day, before commencement of trading in Shares during Regular Trading Hours on the Exchange, the Fund will disclose on its website the securities and other financial instruments in the Fund’s E:\FR\FM\15APN1.SGM 15APN1 amozie on DSK9F9SC42PROD with NOTICES 15254 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices portfolio that will form the basis for the Fund’s calculation of NAV at the end of the business day. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information will be available via the CTA high-speed line. The website for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its Members in an Information Circular of the special characteristics and risks associated with trading the Shares. The Exchange will halt trading in the Shares under the conditions specified in Rule 11.18. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments composing the daily disclosed portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. In addition, the equity securities (including ETFs), futures, and options in which the Fund will invest will trade in markets that are ISG members. Additional information regarding the Underlying and Reference Indices’ components and their percentage weights will be available from the Index Provider and major market data vendors. In addition, quotation and last sale information for the components of the Underlying and Reference Indices will be available from the exchanges on which they trade. The intra-day, closing and settlement prices of the portfolio instruments will also be readily available from the exchanges trading such instruments, automated quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the IIV, the Underlying Index’s value, and quotation and last sale information for the Shares. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of additional types of Index Fund Shares that will enhance competition among market participants, to the VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares, the underlying equities (including ETFs), futures, and options contracts and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the IIV, relevant Underlying Index value, and quotation and last sale information for the Shares. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of an additional series of Index Fund Shares on the Exchange 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. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment 2, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange.31 In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 2, is consistent with Section 6(b)(5) of the Act,32 which requires, among other things, that the Exchange’s rules be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission also finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 31 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 32 15 U.S.C. 78f(b)(5). PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 Act,33 which sets forth Congress’ finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers and investors of information with respect to quotations for and transactions in securities. Quotation and last-sale information for the Shares will be available via the CTA high speed line and, for the securities held by the Fund, will be available from the exchange on which they are listed.34 Quotation and last sale information for options contracts held by the Fund will be available via the Options Price Reporting Authority.35 The intra-day, closing, and settlement prices of the portfolio instruments, including equities, ETFs, futures, and options, will also be readily available from the exchanges trading such instruments, automated quotation systems, published or other public sources, or online information services such as Bloomberg or Reuters.36 Price information for Cash Equivalents will be available from major market data vendors.37 Mutual Fund prices will be available through the applicable fund’s website or from major market data vendors.38 On each business day, before commencement of trading in Shares during Regular Trading Hours on the Exchange, the Fund will disclose on its website the identities and quantities of the portfolio of securities and other assets in the daily disclosed portfolio held by the Fund that formed the basis for the Fund’s calculation of NAV at the end of the previous business day.39 The daily disclosed portfolio will include, as applicable: The ticker symbol; CUSIP number or other identifier, if any; a description of the holding (including the type of holding); the identity of the security, index or other asset or instrument underlying the holding, if any; for options, the option strike price; quantity held (as measured by, for example, par value, notional value or number of shares, contracts, or units); maturity date, if any; coupon rate, if any; effective date, if any; market value of the holding; and the percentage weighting of the holding in the Fund’s portfolio.40 The website and 33 15 U.S.C. 78k–1(a)(1)(C)(iii). Amendment No. 2, supra note 6, at 14. 35 See id. 36 See id. 37 See id. at 14–15. 38 See id. at 15. 39 See id. at 13. 40 See Amendment No. 2, supra note 6, at 13. 34 See E:\FR\FM\15APN1.SGM 15APN1 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices information will be publicly available at no charge.41 Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information will be available via the CTA high-speed line.42 Daily trading volume information for the Shares will also be available in the financial section of newspapers, through subscription services such as Bloomberg, Thomson Reuters, and International Data Corporation, which can be accessed by authorized participants and other investors, as well as through other electronic services, including major public websites.43 The website for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information.44 The value, components, and percentage weightings of the Underlying Index will be calculated and disseminated at least once daily and will be available from major market data vendors.45 Additional information regarding the Underlying and Reference Indices’ components and their percentage weights will be available from the Index Provider and major market data vendors.46 Moreover, the Underlying Index value and the IIV, as defined in BZX Rule 14.11(c)(6)(A), will be widely disseminated by one or more major market data vendors at least every 15 seconds during Regular Trading Hours.47 The Commission also believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV will be made available to all market participants at the same time.48 Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable.49 id. id. at 22. 43 See id. at 13. 44 See id. at 22. 45 See id. at 13–14. 46 See Amendment No. 2, supra note 6, at 23. 47 See id. at 22. 48 See id. at 21. 49 See id. at 23. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments composing the daily disclosed portfolio of the Fund; or (2) whether Trading in the Shares also will be subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances under which Shares of a Fund may be halted.50 The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees.51 In addition, the Exchange states that the Index Provider is not a broker-dealer and has implemented and will maintain procedures designed to prevent the use and dissemination of material, non-public information regarding the Underlying Index.52 The Exchange also represents that the Adviser is not registered as a brokerdealer, but is affiliated with brokerdealers, and has implemented and will maintain a fire wall with respect to its broker-dealer affiliates regarding access to information concerning the portfolio holdings of the Fund.53 The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, which are designed to detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange.54 The Exchange further represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange.55 Moreover, prior to the commencement of trading, the Exchange will inform its Members in an Information Circular of the special characteristics and risks associated with trading the Shares.56 The Commission notes that the Fund and the Shares must comply with the initial and continued listing criteria in Rule 14.11(c) for the Shares to the listed and traded on the Exchange. Except for the Underlying Index’s exposure to call options, the Fund and Shares will satisfy all applicable requirements for Index Fund Shares under Rule 14.11(c), including the requirements related to the NAV per Share being calculated daily and made available to all market participants at the same time, intraday indicative value, suspension of trading or removal, trading halts, disclosure, and firewalls.57 Additionally, all of the Fund’s holdings in equities, ETFs, 41 See amozie on DSK9F9SC42PROD with NOTICES 42 See VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. 50 See id. at 15. 51 See id. at 17. 52 See Amendment No. 2, supra note 6, at 6, n.8. 53 See id. at 4, n.7. 54 See id. at 19–20. 55 See id. at 20. 56 See id. at 18. 57 See id. at 17–18. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 15255 futures and options will be listed on members of ISG or on markets with which the Exchange has in place a comprehensive surveillance sharing agreement.58 The Exchange represents that it deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities.59 In support of this proposal, the Exchange has also made the following representations: (1) The Fund and the Shares will satisfy all of the generic listing standards under BZX Rule 14.11(c) except BZX Rule 14.11(c)(3)(A)(i)(e).60 (2) The Exchange has the appropriate rules to facilitate transactions in the Shares during all trading sessions.61 (3) The Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, underlying equities, futures, and options contracts with other markets and other entities that are members of the ISG and may obtain trading information regarding trading in the Shares, underlying equities (including ETFs), futures, and options contracts from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying equities (including ETFs), futures, and the 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. The Exchange is also able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA’s TRACE.62 (4) Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (b) BZX Rule 3.7, which imposes suitability obligations on Exchange members with respect to recommending transactions in the Shares to customers; (c) how information regarding the Intraday Indicative Value and the portfolio holdings is disseminated; (d) the risks involved in trading the Shares during 58 See Amendment No. 2, supra note 6, at 20, n.26. 59 See id. at 16. 60 See id. at 5, 18. 61 See id. at 16. 62 See id. at 17. E:\FR\FM\15APN1.SGM 15APN1 15256 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices the Pre-Opening and After Hours Trading Sessions when an updated Intraday Indicative Value will not be calculated or publicly disseminated; (e) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information.63 (5) For initial and continued listing, the Fund will be in compliance with Rule 10A–3 under the Act.64 (6) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange.65 (7) All of the Fund’s holdings in equities, ETFs, futures, and options will be listed on members of ISG or on markets with which the Exchange has in place a comprehensive surveillance sharing agreement.66 (8) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment).67 (9) The Fund’s investments, including derivatives, will be consistent with the 1940 Act and the Fund’s investment objective and policies and will not be used to enhance leverage (although certain derivatives and other investments may result in leverage). The Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund’s primary broad-based securities benchmark index (as defined in Form N–1A).68 (10) All securities in the Reference Index are listed and traded on a U.S. national securities exchange. The options on the Reference Index are traded on Cboe Options.69 (11) The Fund’s use of derivative instruments will be collateralized.70 (12) The Fund will not invest in leveraged (e.g., 2x, ¥2x, 3x, or ¥3x) Mutual Funds.71 (13) Trading of the Shares through the Exchange will be subject to the Exchange’s surveillance procedures for derivative products, including Index Fund Shares,72 as well as cross-market surveillances administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and federal securities amozie on DSK9F9SC42PROD with NOTICES 63 See id. at 18. 64 17 CFR 240.10A–3; see Amendment No. 2, supra note 6, at 17. 65 See id. at 17. 66 See id. at 20, n.26. 67 See id. at 12. 68 See id. at 10. 69 See id. at 7. 70 See Amendment No. 2, supra note 6, at 10. 71 See id. at 11, n.16. 72 See id. at 16. VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 laws applicable to trading on the Exchange.73 (14) The issuer will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements.74 (15) If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12.75 This approval order is based on all of the Exchange’s statements and representations, including those set forth above and in Amendment No. 2. For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 2 thereto, is consistent with Section 6(b)(5) of the Act 76 and the rules and regulations thereunder applicable to a national securities exchange. IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule Change Interested persons are invited to submit written views, data, and arguments concerning whether Amendment No. 2 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–2019–001 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–2019–001. 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 73 See id. at 20. id. at 16. 75 See id. 76 15 U.S.C. 78f(b)(5). 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 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–2019–001 and should be submitted on or before May 6, 2019. V. Accelerated Approval of the Proposed Rule Change, as Modified by Amendment No. 2 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 2, prior to the thirtieth day after the date of publication of notice of the filing of Amendment No. 2 in the Federal Register. Amendment No. 2 supplements the proposal by, among other things: (1) Providing additional information regarding the Fund’s permissible holdings; and (2) making additional representations regarding the Fund’s use of leveraging. The changes and additional information in Amendment No. 2 assists the Commission in evaluating the Exchange’s proposal and in determining that the listing and trading of the Shares is consistent with the Act. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,77 to approve the proposed rule change, as modified by Amendment No. 2, on an accelerated basis. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,78 that the proposed rule change (SR–CboeBZX– 2019–001), as modified by Amendment No. 2 thereto, be, and it hereby is, approved on an accelerated basis. 74 See PO 00000 Frm 00083 Fmt 4703 77 15 U.S.C. 78s(b)(2). 78 Id. Sfmt 4703 E:\FR\FM\15APN1.SGM 15APN1 Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.79 Jill M. Peterson, Assistant Secretary. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2019–07377 Filed 4–12–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85572; File No. SR– NYSENAT–2019–08] Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend the Pilot Related to Rule 7.12, Trading Halts Due to Extraordinary Market Volatility April 9, 2019. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on April 5, 2019, NYSE National, Inc. (‘‘NYSE National’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to extend the pilot related to Rule 7.12, Trading Halts Due to Extraordinary Market Volatility, to the close of business on October 18, 2019. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. amozie on DSK9F9SC42PROD with NOTICES II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. 79 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:16 Apr 12, 2019 Jkt 247001 The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. 1. Purpose Rule 7.12 provides a methodology for determining when to halt trading in all stocks due to extraordinary market volatility, i.e., market-wide circuit breakers. The market-wide circuit breaker mechanism under Rule 7.12 was approved by the Commission to operate on a pilot basis, the term of which was to coincide with the pilot period for the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS (the ‘‘LULD Plan’’),4 including any extensions to the pilot period for the LULD Plan.5 The Commission published an amendment to the LULD Plan for it to operate on a permanent, rather than pilot, basis.6 The Exchange proposes to amend Rule 7.12 to untie the pilot’s effectiveness from that of the LULD Plan and to extend the pilot’s effectiveness to the close of business on October 18, 2019. The Exchange does not propose any additional changes to Rule 7.12. Market-wide circuit breakers under Rule 7.12 provide an important, automatic mechanism that is invoked to promote stability and investor confidence during a period of significant stress when securities markets experience extreme broad-based declines. All U.S. equity exchanges have rules relating to market-wide circuit breakers, which are designed to slow the effects of extreme price movement through coordinated trading halts across securities markets when severe price declines reach levels that may exhaust market liquidity. Market-wide circuit breakers provide for trading halts in all equities and options markets during a severe market decline as measured by a single-day decline in the S&P 500 Index. Pursuant to Rule 7.12, a market-wide trading halt will be triggered if the S&P 500 Index declines in price by specified percentages from the prior day’s closing 4 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (the ‘‘Limit Up-Limit Down Release’’). 5 See Securities Exchange Act Release Nos. 67090 (May 31, 2012), 77 FR 33531 (June 6, 2012) (SR– NSX–2011–11) (Approval Order); and 68779 (January 31, 2013), 78 FR 8638 (February 6, 2013) (SR–NSX–2013–04) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Delaying the Operative Date of Rule 7.12 to April 8, 2013). 6 See Securities Exchange Act Release Nos. 84843 (December 18, 2018), 83 FR 66464 (December 26, 2018) (Amendment No. 18 Proposing Release). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 15257 price of that index. Currently, the triggers are set at three circuit breaker thresholds: 7% (Level 1), 13% (Level 2) and 20% (Level 3). A market decline that triggers a Level 1 or Level 2 circuit breaker after 9:30 a.m. ET and before 3:25 p.m. ET would halt market-wide trading for 15 minutes, while a similar market decline at or after 3:25 p.m. ET would not halt market-wide trading. A market decline that triggers a Level 3 circuit breaker, at any time during the trading day, would halt market-wide trading for the remainder of the trading day. The Exchange intends to file a separate proposed rule change with the Commission to operate Rule 7.12 on a permanent, rather than pilot, basis. Extending the effectiveness of Rule 7.12 to the close of business on October 18, 2019 should provide the Commission adequate time to consider whether to approve the Exchange’s separate proposal to operate the market-wide circuit breaker mechanism under Rule 7.12 on a permanent basis. 2. Statutory Basis The Exchange believes that its proposal is consistent with the requirements of Sections 6(b) 7 and 6(b)(5) of the Act,8 in particular, because it would promote just and equitable principles of trade, remove impediments to, and perfect the mechanism of, a free and open market and a national market system. The Exchange also believes that the proposed rule change promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning when and how to halt trading in all stocks as a result of extraordinary market volatility. Extending the market-wide circuit breaker pilot under Rule 7.12 an additional six months would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Commission considers whether to approve the pilot on a permanent basis. The proposed rule change would thus promote fair and orderly markets and the protection of investors and the public interest. Based on the foregoing, the Exchange believes the benefits to market participants from the marketwide circuit breaker mechanism under Rule 7.12 should continue on a pilot basis while the Commission considers whether to permanently approve Rule 7.12. 7 15 8 15 E:\FR\FM\15APN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 15APN1

Agencies

[Federal Register Volume 84, Number 72 (Monday, April 15, 2019)]
[Notices]
[Pages 15248-15257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07377]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85557; File No. SR-CboeBZX-2019-001]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade 
Under BZX Rule 14.11(c)(3) Shares of the Global X Russell 2000 Covered 
Call ETF of Global X Funds

April 9, 2019.

I. Introduction

    On January 28, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'' or the ``Exchange Act'') \1\ and Rule 
19b-4 thereunder,\2\ a proposed rule change to list and trade under BZX 
Rule 14.11(c)(3) shares of the Global X Russell 2000 Covered Call ETF 
(``Fund'') of Global X Funds. The proposed rule

[[Page 15249]]

change was published for comment in the Federal Register on February 
15, 2019.\3\ On March 14, 2019, the Exchange filed Amendment No. 1 to 
the proposed rule change, which replaced and superseded the proposed 
rule change as originally filed.\4\ On March 21, 2019, the Commission 
extended the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule 
change.\5\ On April 5, 2019, the Exchange filed Amendment No. 2 to the 
proposed rule change, which replaced and superseded the proposed rule 
change as originally filed.\6\ The Commission received no comments on 
the proposed rule change. The Commission is publishing this notice to 
solicit comments on Amendment No. 2 from interested persons and is 
approving the proposed rule change, as modified by Amendment No. 2, on 
an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85099 (February 11, 
2019), 84 FR 4584.
    \4\ Amendment No. 1 to the proposed rule change is available at: 
https://www.sec.gov/comments/sr-cboebzx-2019-001/srcboebzx2019001-5145199-183369.pdf.
    \5\ See Securities Exchange Act Release No. 85388, 84 FR 11597 
(March 27, 2019). The Commission designated May 16, 2019, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ In Amendment No. 2, the Exchange: (1) Clarified that the 
Fund and the Underlying Index (as defined below) meet all 
requirements of the listing standards applicable to index fund 
shares in BZX Rule 14.11(c)(3), except for Rule 
14.11(c)(3)(A)(i)(e); (2) modified the name of the Underlying Index 
(as defined below); (3) specified that the Fund will invest at least 
80% of its total assets in equity components of the Reference Index 
(as defined below), U.S. exchange-listed ETFs designed to track the 
Reference Index, U.S. listed options on equities that are components 
of the Reference Index, U.S. listed options on ETFs designed to 
track the Reference Index, as well as certain instruments that are 
either included in the Underlying Index or have economic 
characteristics that are substantially identical to the economic 
characteristics of such component securities, either individually or 
in the aggregate, including only the following: U.S. listed equity 
index futures, U.S. listed equity index options, and U.S. listed 
options on U.S. listed equity index futures; (4) clarified that the 
Fund may hold cash and Cash Equivalents (as defined below); (5) 
clarified that the Fund's investments will not be used to enhance 
leverage, although certain derivatives and other investments may 
result in leverage; (6) added representations regarding the Fund's 
risk disclosure in its offering documents, including leveraging 
risk; (7) clarified the types of instruments in which the Fund may 
invest up to 20% of its net assets; (8) added a representation that 
all of the Fund's holdings in equities, ETFs, futures, and options 
will be listed on members of the Intermarket Surveillance Group or 
on markets with which the Exchange has in place a comprehensive 
surveillance sharing agreement; (9) added a representation that the 
Fund's use of derivatives instruments will be collateralized; and 
(10) made technical and conforming changes. Amendment No. 2 to the 
proposed rule change is available at: https://www.sec.gov/comments/sr-cboebzx-2019-001/srcboebzx2019001-5321696-183907.pdf.
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 2

    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 shares (``Shares'') of the 
Fund under BZX Rule 14.11(c)(3),\7\ which governs the listing and 
trading of index fund shares based on an index composed of U.S. 
Component Stocks.\8\ The Exchange notes that the Commission has 
previously approved a fund that employs a very similar strategy.\9\
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    \7\ The Commission approved BZX Rule 14.11(c) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \8\ Rule 14.11(c)(1)(D) provides that the term ``U.S. Component 
Stock'' shall mean an equity security that is registered under 
Sections 12(b) or 12(g) of the Act.
    \9\ See Securities Exchange Act Release No. 68708 (January 23, 
2013), 78 FR 6161 (January 29, 2013) (SR-NYSEArca-2012-131) (order 
granting approval of proposed rule change relating to listing and 
trading of shares of the Horizons S&P 500 Covered Call ETF).
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    The Shares are offered by Global X Funds, which is organized as a 
Delaware statutory trust and is registered with the Commission as an 
open-end management investment company.\10\ The investment adviser and 
administrator to the Fund is Global X Management Company LLC (the 
``Adviser'' or ``Administrator'').\11\
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    \10\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). On December 20, 2018, the 
Trust filed with the Commission an amendment to its Form N-1A under 
the Securities Act of 1933 (15 U.S.C. 77a), and under the 1940 Act 
relating to the Funds (File Nos. 333-151713 and 811-22209) 
(``Registration Statement''). The description of the operation of 
the Trust and the Fund herein is based, in part, on the Registration 
Statement. In addition, the Commission has issued an order granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No. 29852 (October 28, 2011) (File 
No. 812-13830).
    \11\ The Adviser is not registered as a broker-dealer, but is 
affiliated with broker-dealers and has implemented and will maintain 
a fire wall with respect to its broker-dealer affiliates regarding 
access to information concerning the portfolio holdings of the Fund. 
In the event (a) the Adviser becomes newly affiliated with a broker-
dealer, or (b) any new adviser or sub-adviser becomes affiliated 
with a broker-dealer, it will implement and maintain a fire wall 
with respect to such broker-dealer regarding access to information 
concerning the portfolio holdings of the Fund, and will be subject 
to procedures designed to prevent the use and dissemination of 
material non-public information regarding said portfolio.
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    SEI Investments Distribution Co. (the ``Distributor'') is the 
principal underwriter and distributor of the Shares. Brown Brothers 
Harriman & Co. (the ``Custodian'' or ``Transfer Agent'') will serve as 
custodian and transfer agent for the Fund.
    The Exchange submits this proposal because the Underlying Index, as 
defined below, includes options on the Russell 2000 Index. Rule 
14.11(c)(3)(A)(i)(e) provides that all securities in the applicable 
index or portfolio shall be U.S. Component Stocks listed on a national 
securities exchange and shall be NMS Stocks as defined in Rule 600 
under Regulation NMS of the Act. Options are excluded from the 
definition of U.S. Component Stocks. As such, because the Underlying 
Index, as defined below, includes options, it does not meet the generic 
listing standards applicable to Index Fund Shares under Rules 
14.11(c)(3)(A)(i)(a)-(e). The Fund and the Underlying Index do, 
however, meet all other requirements of the listing standards for Index 
Fund Shares in Rule 14.11(c)(3). The Exchange also notes that each 
component stock of the Russell 2000 Index is a U.S. Component Stock 
that is listed on a national securities exchange and is an NMS Stock 
and that such component stocks of the Russell 2000 Index satisfy the 
requirements of Rule 14.11(c)(3)(A)(i)(a)-(e).
    As described below, the Fund will seek investment results that, 
before fees and expenses, generally correspond to the performance of 
the Cboe Russell 2000 BuyWrite Index (the ``Underlying Index'') 
provided by FTSE Russell (the ``Index Provider'').\12\ The Underlying 
Index measures the performance of a theoretical portfolio that holds a 
portfolio of the stocks included in the Russell 2000 Index \13\ (the 
``Reference

[[Page 15250]]

Index''), and ``writes'' (or sells) a succession of one-month at-the-
money covered call options on the Reference Index. The written covered 
call options on the Reference Index are held until expiration. The 
Reference Index is an equity benchmark which measures the performance 
of the small-capitalization sector of the U.S. equity market, as 
defined by FTSE Russell.\14\
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    \12\ The Underlying Index is provided by the Index Provider, 
which is unaffiliated with the Fund or the Adviser. The Index 
Provider maintains, calculates and publishes information regarding 
the Underlying Index. The Index Provider is not a broker-dealer and 
has implemented and will maintain procedures designed to prevent the 
use and dissemination of material, non-public information regarding 
the Underlying Index.
    \13\ The Exchange notes that the Russell 2000 Index has been 
previously approved by the Commission under Section 19(b)(2) of the 
Act in connection with the listing and trading of FLEX Options and 
Quarterly Index Options, as well as other securities. See, e.g., 
Securities Exchange Act Release Nos. 32694 (July 29, 1993), 58 FR 
41814 (July 5, 1993) (approving the listing and trading of FLEX 
Options based on the Russell 2000 Index); 32693 (July 29, 1993), 58 
FR 41817 (August 5, 1993) (approving the listing and trading of 
Quarterly Index Option based on the Russell 2000 Index).
    \14\ The Underlying Index methodology is available at https://www.cboe.com/products/strategy-benchmark-indexes/buywrite-indexes/cboe-russell-2000-buywrite-index-bxr. The Index Provider may amend 
the methodology from time to time. In such case, the methodology 
would be updated accordingly on the website.
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    The Exchange is submitting this proposed rule change because the 
Underlying Index for the Fund does not meet all of the ``generic'' 
listing requirements of Rule 14.11(c)(3)(A)(i) applicable to the 
listing of Index Fund Shares based upon an index of U.S. Component 
Stocks. Specifically, Rule 14.11(c)(3)(A)(i) sets forth the 
requirements to be met by components of an index or portfolio of U.S. 
Component Stocks. As further described below, the Underlying Index 
consists of the constituent securities of the Russell 2000 Index and 
options on the Russell 2000 Index. The Underlying Index meets all the 
requirements of Rule 14.11(c)(3)(A)(i) except that the Underlying Index 
includes call options, which are not NMS Stocks as defined in Rule 600 
of Regulation NMS. As described below, the Underlying Index is 
comprised solely of Russell 2000 companies and includes an exposure to 
call options on the Reference Index. All securities in the Reference 
Index are listed and traded on a U.S. national securities exchange. The 
options on the Reference Index are traded on Cboe Exchange, Inc. 
(``Cboe Options''). Notwithstanding that the Underlying Index does not 
meet all of the generic listing requirements of Rule 14.11(c)(3)(A)(i), 
the Exchange believes that the Underlying Index is sufficiently broad-
based enough to deter potential manipulation in that the Reference 
Index stocks are among the most actively traded, highly capitalized 
stocks traded in the U.S.
The Underlying Index
    According to the Registration Statement, the Global X Russell 2000 
Covered Call ETF will seek investment results that, before fees and 
expenses, generally correspond to the performance of the Fund's 
Underlying Index, which is the Cboe Russell 2000 BuyWrite Index. The 
Underlying Index measures the performance of a theoretical portfolio 
that holds a portfolio of the stocks included in the Reference Index, 
and ``writes'' (or sells) a succession of one-month at-the-money 
covered call options on the Reference Index. The written covered call 
options on the Reference Index are held until the applicable expiration 
date. The Reference Index is an equity benchmark which measures the 
performance of the small-capitalization sector of the U.S. equity 
market, as defined by FTSE Russell. The Underlying Index is comprised 
of all the equity securities in the Reference Index and a succession of 
short (written) one-month at-the-money covered call options on the 
Reference Index. The written covered call options on the Reference 
Index are held until the expiration date.
The Fund
    According to the Registration Statement, the Fund will invest at 
least 80% of its total assets in securities that comprise its 
Underlying Index or in investments that have economic characteristics 
that are substantially identical to the economic characteristics of 
such component securities, either individually or in the aggregate (the 
``80% Instruments'').\15\ The Fund may also hold cash and Cash 
Equivalents.\16\ In seeking to track the Underlying Index, the Fund 
follows a ``buy-write'' (also called a covered call) investment 
strategy on the Reference Index in which the Fund purchases the 
component securities of the Reference Index or purchases other 
investments (including other ETFs) \17\ that have economic 
characteristics that are substantially identical to the economic 
characteristics of such component securities, and also writes (or 
sells) call options that correspond to the Reference Index.
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    \15\ The term 80% Instruments includes only the following: 
Equity components of the Reference Index, U.S. exchange-listed ETFs 
designed to track the Reference Index, U.S. listed options on 
equities that are components of the Reference Index, U.S. listed 
options on ETFs designed to track the Reference Index, as well as 
certain instruments that are either included in the Underlying Index 
or have economic characteristics that are substantially identical to 
the economic characteristics of such component securities, either 
individually or in the aggregate, including only the following: U.S. 
listed equity index futures, U.S. listed equity index options, U.S. 
listed equity index futures [sic], U.S. listed equity index options 
[sic], and U.S. listed options on U.S. listed equity index futures.
    \16\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (i) U.S. Government 
securities, including bills, notes, and bonds differing as to 
maturity and rates of interest, which are either issued or 
guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities; (ii) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (iii) bankers 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (iv) repurchase agreements and reverse 
repurchase agreements; (v) bank time deposits, which are monies kept 
on deposit with banks or savings and loan associations for a stated 
period of time at a fixed rate of interest; (vi) commercial paper, 
which are short-term unsecured promissory notes; and (vii) money 
market funds.
    \17\ For purposes of this filing, ETFs include index fund shares 
(as described in BZX Rule 14.11(c)); Portfolio Depositary Receipts 
(as described in BZX Rule 14.11(b)); and Managed Fund Shares (as 
described in BZX Rule 14.11(i)). The ETFs all will be listed and 
traded in the U.S. on registered exchanges. The Fund may invest in 
the securities of ETFs registered under the 1940 Act consistent with 
the requirements of Section 12(d)(1) of the 1940 Act, or any rule, 
regulation or order of the Commission or interpretation thereof. 
While the Fund may invest in inverse ETFs, the Fund will not invest 
in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund will be an index 
fund that employs a ``passive management'' investment strategy in 
seeking to achieve its objective. According to the Registration 
Statement, the Adviser's strategy will consist of holding a portfolio 
indexed to the Reference Index and writing (selling) covered call 
options on the Reference Index.\18\ The Underlying Index provides a 
benchmark measure of the total return of this hypothetical portfolio.
---------------------------------------------------------------------------

    \18\ A covered call strategy is generally considered to be an 
investment strategy in which an investor buys a security, and sells 
a call option that corresponds to the security. In return for a 
premium, the Fund will give the purchaser of the option written by 
the Fund either the right to buy the security from the Fund at an 
exercise price or the right to receive a cash payment equal to the 
difference between the value of the security and the exercise (or 
``strike'') price, if the value is above the exercise price on or 
before the expiration date of the option. In addition, the covered 
call options hedge against a decline in the price of the securities 
on which they are written to the extent of the premium the Fund 
receives. A covered call strategy is generally used in a neutral-to-
bullish market environment, where a slow and steady rise in market 
prices is anticipated.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund will generally 
use a representative sampling methodology, meaning it will invest in a 
representative sample of securities that collectively has an investment 
profile similar to the Underlying Index in terms of key risk factors, 
performance attributes and other characteristics.
    The Fund's investments, including derivatives, will be consistent 
with the 1940 Act and the Fund's investment objective and policies and 
will not be

[[Page 15251]]

used to enhance leverage (although certain derivatives and other 
investments may result in leverage).\19\ That is, while the Fund will 
be permitted to borrow as permitted under the 1940 Act, the Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A). The Fund 
will only use those derivatives described above. The Fund's use of 
derivative instruments will be collateralized.
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    \19\ The Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of a fund, including a fund's use 
of derivatives, may give rise to leverage, causing a fund to be more 
volatile than if it had not been leveraged. To mitigate leveraging 
risk, the Fund will segregate or earmark liquid assets determined to 
be liquid by the Adviser in accordance with procedures established 
by the Trust's Board and in accordance with the 1940 Act (or, as 
permitted by applicable regulations, enter into certain offsetting 
positions) to cover its obligations under derivative instruments. 
These procedures have been adopted consistent with Section 18 of the 
1940 Act and related Commission guidance. See 15 U.S.C. 80a-18; 
Investment Company Act Release No. 10666 (April 18, 1979), 44 FR 
25128 (April 27, 1979); Dreyfus Strategic Investing, Commission No-
Action Letter (June 22, 1987); Merrill Lynch Asset Management, L.P., 
Commission No-Action Letter (July 2, 1996).
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund will concentrate 
its investments (i.e., hold 25% or more of its total assets) in a 
particular industry or group of industries to approximately the same 
extent that the Underlying Index is so concentrated. The Fund will be 
diversified under the 1940 Act.
Investment Guidelines
    According to the Registration Statement, the Fund will write (sell) 
call options on the Reference Index to the same extent as such short 
call options are included in its Underlying Index.
    The Trust, on behalf of the Fund, has filed a notice of eligibility 
for exclusion from the definition of the term ``commodity pool 
operator'' in accordance with Rule 4.5 so that the Fund is not subject 
to registration or regulation as a commodity pool operator under the 
Commodity Exchange Act (``CEA'').
Other Investments
    The Fund may also hold up to 20% of its net assets in shares of 
non-exchange traded registered open-end investment companies, subject 
to applicable limitations under Section 12(d)(1) of the 1940 Act 
(``Mutual Funds''),\20\ U.S. listed options on equities that are not 
components of the Reference Index, U.S. listed options on ETFs that are 
not designed to track the Reference Index, and U.S. exchange-listed 
listed equities that are not components of the Reference Index, 
including ETFs that are not designed to track the Reference Index, 
which the Adviser believes will help the Fund track the Underlying 
Index, as well as in certain instruments that would be included in the 
definition of the 80% Instruments except that such instruments are not 
included in the Underlying Index or do not have economic 
characteristics that are substantially identical to the economic 
characteristics of such component securities, either individually or in 
the aggregate, including only the following: U.S. listed equity index 
futures, U.S. listed equity index options, and U.S. listed options on 
U.S. listed equity index futures.
---------------------------------------------------------------------------

    \20\ The Fund will not invest in leveraged (e.g., 2x, -2x, 3x, 
or -3x) Mutual Funds.
---------------------------------------------------------------------------

    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of 
investment).\21\ The Fund will monitor its portfolio liquidity on an 
ongoing basis to determine whether, in the light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid securities and other illiquid assets.
---------------------------------------------------------------------------

    \21\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 8901 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the exchange traded fund (``ETF''). See Investment 
Company Act Release No. 14983 (March 12, 1986), 51 FR 9773 (March 
21, 1986) (adopting amendments to Rule 2a-7 under the 1940 Act); 
Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 
17933 (April 30, 1990) (adopting Rule 144A under the Securities Act 
of 1933).
---------------------------------------------------------------------------

    The Fund will seek to qualify for treatment as a regulated 
investment company (``RIC'') under the Code.\22\
---------------------------------------------------------------------------

    \22\ 26 U.S.C. 851.
---------------------------------------------------------------------------

Availability of Information
    The Fund's website, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. The website will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's reported NAV and a calculation of 
the premium and discount of the Bid/Ask Price against the NAV; and (2) 
data in chart format displaying the frequency distribution of discounts 
and premiums of the daily Bid/Ask Price against the NAV, within 
appropriate ranges, for each of the four previous calendar quarters. 
Daily trading volume information for the Shares will also be available 
in the financial section of newspapers, through subscription services 
such as Bloomberg, Thomson Reuters, and International Data Corporation, 
which can be accessed by authorized participants and other investors, 
as well as through other electronic services, including major public 
websites. On each business day, the Fund will disclose on its website 
the identities and quantities of the portfolio of securities and other 
assets in the daily disclosed portfolio held by the Fund that formed 
the basis for the Fund's calculation of NAV at the end of the previous 
business day. The daily disclosed portfolio will include, as 
applicable: The ticker symbol; CUSIP number or other identifier, if 
any; a description of the holding (including the type of holding); the 
identity of the security, index or other asset or instrument underlying 
the holding, if any; for options, the option strike price; quantity 
held (as measured by, for example, par value, notional value or number 
of shares, contracts, or units); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. The 
website and information will be publicly available at no charge. The 
value, components, and percentage weightings of the Underlying Index 
will be calculated and disseminated at least once daily and will be 
available from major market data vendors. Rules governing the 
Underlying Index are available on the Exchange's website and in the 
Fund's prospectus.
    In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A) 
as the ``Intraday Indicative Value,'' (the ``IIV'') that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the IIV will be based upon the current value for the 
components of the daily disclosed portfolio and will be updated and 
widely disseminated by one or more major market data vendors at least 
every

[[Page 15252]]

15 seconds during the Exchange's Regular Trading Hours.\23\
---------------------------------------------------------------------------

    \23\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIVs 
published via the Consolidated Tape Association (``CTA'') or other 
data feeds.
---------------------------------------------------------------------------

    The dissemination of the IIV, together with the daily disclosed 
portfolio, will allow investors to determine the value of the 
underlying portfolio of the Fund on a daily basis and provide a close 
estimate of that value throughout the trading day.
    Quotation and last sale information for the Shares will be 
available via the CTA high speed line and, for the securities held by 
the Fund, will be available from the exchange on which they are listed. 
Quotation and last sale information for options contracts held by the 
Fund will be available via the Options Price Reporting Authority. The 
intra-day, closing, and settlement prices of the portfolio instruments, 
including equities, ETFs, futures, and options, will also be readily 
available from the exchanges trading such instruments, automated 
quotation systems, published or other public sources, or online 
information services such as Bloomberg or Reuters. Price information 
for Cash Equivalents will be available from major market data vendors. 
Mutual Funds are typically priced once each business day and their 
prices will be available through the applicable fund's website or from 
major market data vendors.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the shares the Fund inadvisable. If the IIV and index value 
are not being disseminated for the Fund as required, the Exchange may 
halt trading during the day in which the interruption to the 
dissemination of the IIV or index value occurs. If the interruption to 
the dissemination of an IIV or index value persists past the trading 
day in which it occurred, the Exchange will halt trading. The Exchange 
may consider all relevant factors in exercising its discretion to halt 
or suspend trading in the Shares. The Exchange will halt trading in the 
Shares under the conditions specified in BZX Rule 11.18. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the daily 
disclosed portfolio of the Fund; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. Trading in the Shares also will be 
subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances 
under which Shares of a Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Exchange will 
allow trading in the Shares from 8:00 a.m. until 8:00 p.m. Eastern Time 
and has the appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in Rule 11.11(a), the minimum 
price variation for quoting and entry of orders in securities traded on 
the Exchange is $0.01, with the exception of securities that are priced 
less than $1.00, for which the minimum price variation for order entry 
is $0.0001.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Index Fund Shares. The 
issuer has represented to the Exchange that it will advise the Exchange 
of any failure by the Fund to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Exchange Act, the Exchange will surveil for compliance with the 
continued listing requirements. 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 the Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under Exchange Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares, underlying equities 
(including ETFs), futures, and 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 Shares, underlying equities (including ETFs), futures, and options 
contracts from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares, 
underlying equities (including ETFs), futures, and the 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 is able to access, as 
needed, trade information for certain fixed income securities held by 
the Fund reported to FINRA's Trade Reporting and Compliance Engine 
(``TRACE'').
---------------------------------------------------------------------------

    \24\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all of the components 
of the portfolio for the Fund may trade on exchanges that are 
members of the 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.
    The Exchange represents that, for initial and/or continued listing, 
the Fund will be in compliance with Rule 10A-3 \25\ under the Exchange 
Act, as provided by generic listing standards under Rule 14.11(c)(4) 
and the continued listing standards under Rule 14.11(c). A minimum of 
100,000 Shares for the Fund will be outstanding at the commencement of 
trading on the Exchange. The Exchange represents that, except for the 
exceptions to BZX Rule 14.11(c) described above, the Fund and Shares 
will satisfy all applicable requirements for Index Fund Shares under 
Rule 14.11(c), including the requirements related to the net asset 
value (``NAV'') per Share being calculated daily and made available to 
all market participants at the same time, intraday indicative value, 
suspension of trading or removal, trading halts, disclosure, and 
firewalls.
---------------------------------------------------------------------------

    \25\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the

[[Page 15253]]

Shares to customers; (3) how information regarding the Intraday 
Indicative Value and the portfolio holdings is disseminated; (4) the 
risks involved in trading the Shares during the Pre-Opening \26\ and 
After Hours Trading Sessions \27\ when an updated Intraday Indicative 
Value will not be calculated or publicly disseminated; (5) the 
requirement that members deliver a prospectus to investors purchasing 
newly issued Shares prior to or concurrently with the confirmation of a 
transaction; and (6) trading information.
---------------------------------------------------------------------------

    \26\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \27\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV calculation time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
website.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \28\ in general and Section 6(b)(5) of the Act \29\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f.
    \29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria for Index Fund Shares based on 
an index composed of U.S. Component Stocks in Rule 14.11(c)(3). The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances administered by the Exchange as well as 
cross-market surveillances administered by FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
federal securities laws applicable to trading on the Exchange. The 
Exchange represents that these procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and federal securities 
laws applicable to trading on the Exchange. The Exchange or FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
the Shares, underlying equities (including ETFs), futures, and options 
contracts with other markets and other entities that are members of the 
ISG and may obtain trading information regarding trading in the Shares, 
underlying equities (including ETFs), futures, and options contracts 
from such markets and other entities.\30\ In addition, the Exchange may 
obtain information regarding trading in the Shares, underlying equities 
(including ETFs), futures, and the 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. All securities 
in the Reference Index are listed and traded on a U.S. national 
securities exchange. The options on the Reference Index are traded on 
Cboe Options, a U.S. national options exchange and member of ISG. In 
addition, FINRA, on behalf of the Exchange, is able to access, as 
needed, trade information for certain fixed income securities held by 
the Fund reported to TRACE.
---------------------------------------------------------------------------

    \30\ The Exchange notes that all of the Funds [sic] holdings in 
equities, ETFs, futures, and options will be listed on members of 
ISG or on markets with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    The Fund's investments, including derivatives, will be consistent 
with the 1940 Act and the Fund's investment objective and policies and 
will not be used to enhance leverage (although certain derivatives and 
other investments may result in leverage). That is, while the Fund will 
be permitted to borrow as permitted under the 1940 Act, the Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A). The Fund 
will only use those derivatives described above. The Fund's use of 
derivative instruments will be collateralized.
    The Adviser is affiliated with broker-dealers and has implemented 
and will maintain a fire wall with respect to its broker-dealer 
affiliates regarding access to information concerning the portfolio 
holdings of the Fund. In the event (a) the Adviser becomes newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-adviser 
becomes affiliated with a broker-dealer, it will implement and maintain 
a fire wall with respect to such broker-dealer regarding access to 
information concerning the portfolio holdings of the Fund, and will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolios. The Index 
Provider is not a broker-dealer and has implemented and will maintain 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the Underlying Index.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
will be made available to all market participants at the same time. In 
addition, a large amount of information is publicly available regarding 
the Fund and the Shares, thereby promoting market transparency. 
Moreover, the IIV and the Underlying Index value will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during Regular Trading Hours. If the IIV or the Underlying 
Index value of a Fund is not being disseminated as required, the 
Exchange may halt trading during the day in which the interruption to 
the dissemination of the applicable IIV or Underlying Index value 
occurs. If the interruption to the dissemination of the applicable IIV 
or Underlying Index value persists past the trading day in which it 
occurred, the Exchange will halt trading. In addition, if the Exchange 
becomes aware that the NAV of a Fund is not being disseminated to all 
market participants at the same time, it will halt trading in the 
relevant Shares on the Exchange until such time as the NAV is available 
to all market participants. On each business day, before commencement 
of trading in Shares during Regular Trading Hours on the Exchange, the 
Fund will disclose on its website the securities and other financial 
instruments in the Fund's

[[Page 15254]]

portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. Information regarding market price and 
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services, and quotation and last sale information will be 
available via the CTA high-speed line. The website for the Fund will 
include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. 
Moreover, prior to the commencement of trading, the Exchange will 
inform its Members in an Information Circular of the special 
characteristics and risks associated with trading the Shares. The 
Exchange will halt trading in the Shares under the conditions specified 
in Rule 11.18. Trading may be halted because of market conditions or 
for reasons that, in the view of the Exchange, make trading in the 
Shares inadvisable. These may include: (1) The extent to which trading 
is not occurring in the securities and/or the financial instruments 
composing the daily disclosed portfolio of the Fund; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, the 
equity securities (including ETFs), futures, and options in which the 
Fund will invest will trade in markets that are ISG members. Additional 
information regarding the Underlying and Reference Indices' components 
and their percentage weights will be available from the Index Provider 
and major market data vendors. In addition, quotation and last sale 
information for the components of the Underlying and Reference Indices 
will be available from the exchanges on which they trade. The intra-
day, closing and settlement prices of the portfolio instruments will 
also be readily available from the exchanges trading such instruments, 
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. In addition, as 
noted above, investors will have ready access to information regarding 
the Fund's holdings, the IIV, the Underlying Index's value, and 
quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of Index Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares, the underlying equities 
(including ETFs), futures, and options contracts and may obtain 
information via ISG from other exchanges that are members of ISG or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement. In addition, as noted above, investors will have 
ready access to information regarding the Fund's holdings, the IIV, 
relevant Underlying Index value, and quotation and last sale 
information for the Shares.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional series of Index Fund Shares on the Exchange 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. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment 2, is consistent with the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\31\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act,\32\ which requires, among other things, that the 
Exchange's rules be designed to promote just and equitable principles 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission also finds 
that the proposal to list and trade the Shares on the Exchange is 
consistent with Section 11A(a)(1)(C)(iii) of the Act,\33\ which sets 
forth Congress' finding that it is in the public interest and 
appropriate for the protection of investors and the maintenance of fair 
and orderly markets to assure the availability to brokers, dealers and 
investors of information with respect to quotations for and 
transactions in securities.
---------------------------------------------------------------------------

    \31\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \32\ 15 U.S.C. 78f(b)(5).
    \33\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    Quotation and last-sale information for the Shares will be 
available via the CTA high speed line and, for the securities held by 
the Fund, will be available from the exchange on which they are 
listed.\34\ Quotation and last sale information for options contracts 
held by the Fund will be available via the Options Price Reporting 
Authority.\35\ The intra-day, closing, and settlement prices of the 
portfolio instruments, including equities, ETFs, futures, and options, 
will also be readily available from the exchanges trading such 
instruments, automated quotation systems, published or other public 
sources, or online information services such as Bloomberg or 
Reuters.\36\ Price information for Cash Equivalents will be available 
from major market data vendors.\37\ Mutual Fund prices will be 
available through the applicable fund's website or from major market 
data vendors.\38\
---------------------------------------------------------------------------

    \34\ See Amendment No. 2, supra note 6, at 14.
    \35\ See id.
    \36\ See id.
    \37\ See id. at 14-15.
    \38\ See id. at 15.
---------------------------------------------------------------------------

    On each business day, before commencement of trading in Shares 
during Regular Trading Hours on the Exchange, the Fund will disclose on 
its website the identities and quantities of the portfolio of 
securities and other assets in the daily disclosed portfolio held by 
the Fund that formed the basis for the Fund's calculation of NAV at the 
end of the previous business day.\39\ The daily disclosed portfolio 
will include, as applicable: The ticker symbol; CUSIP number or other 
identifier, if any; a description of the holding (including the type of 
holding); the identity of the security, index or other asset or 
instrument underlying the holding, if any; for options, the option 
strike price; quantity held (as measured by, for example, par value, 
notional value or number of shares, contracts, or units); maturity 
date, if any; coupon rate, if any; effective date, if any; market value 
of the holding; and the percentage weighting of the holding in the 
Fund's portfolio.\40\ The website and

[[Page 15255]]

information will be publicly available at no charge.\41\
---------------------------------------------------------------------------

    \39\ See id. at 13.
    \40\ See Amendment No. 2, supra note 6, at 13.
    \41\ See id.
---------------------------------------------------------------------------

    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services, and 
quotation and last sale information will be available via the CTA high-
speed line.\42\ Daily trading volume information for the Shares will 
also be available in the financial section of newspapers, through 
subscription services such as Bloomberg, Thomson Reuters, and 
International Data Corporation, which can be accessed by authorized 
participants and other investors, as well as through other electronic 
services, including major public websites.\43\ The website for the Fund 
will include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information.\44\ The 
value, components, and percentage weightings of the Underlying Index 
will be calculated and disseminated at least once daily and will be 
available from major market data vendors.\45\ Additional information 
regarding the Underlying and Reference Indices' components and their 
percentage weights will be available from the Index Provider and major 
market data vendors.\46\ Moreover, the Underlying Index value and the 
IIV, as defined in BZX Rule 14.11(c)(6)(A), will be widely disseminated 
by one or more major market data vendors at least every 15 seconds 
during Regular Trading Hours.\47\
---------------------------------------------------------------------------

    \42\ See id. at 22.
    \43\ See id. at 13.
    \44\ See id. at 22.
    \45\ See id. at 13-14.
    \46\ See Amendment No. 2, supra note 6, at 23.
    \47\ See id. at 22.
---------------------------------------------------------------------------

    The Commission also believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Exchange will obtain a representation from the issuer of 
the Shares that the NAV per Share will be calculated daily and that the 
NAV will be made available to all market participants at the same 
time.\48\ Trading may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable.\49\ Trading in the Shares also will be subject to Rule 
14.11(c)(1)(B)(iv), which sets forth circumstances under which Shares 
of a Fund may be halted.\50\ The Exchange states that it has a general 
policy prohibiting the distribution of material, non-public information 
by its employees.\51\ In addition, the Exchange states that the Index 
Provider is not a broker-dealer and has implemented and will maintain 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the Underlying Index.\52\ The Exchange 
also represents that the Adviser is not registered as a broker-dealer, 
but is affiliated with broker-dealers, and has implemented and will 
maintain a fire wall with respect to its broker-dealer affiliates 
regarding access to information concerning the portfolio holdings of 
the Fund.\53\
---------------------------------------------------------------------------

    \48\ See id. at 21.
    \49\ See id. at 23. These may include: (1) The extent to which 
trading is not occurring in the securities and/or the financial 
instruments composing the daily disclosed portfolio of the Fund; or 
(2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present.
    \50\ See id. at 15.
    \51\ See id. at 17.
    \52\ See Amendment No. 2, supra note 6, at 6, n.8.
    \53\ See id. at 4, n.7.
---------------------------------------------------------------------------

    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, which are designed to detect 
violations of Exchange rules and federal securities laws applicable to 
trading on the Exchange.\54\ The Exchange further represents that these 
procedures are adequate to properly monitor Exchange trading of the 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and federal securities laws applicable to trading on the 
Exchange.\55\ Moreover, prior to the commencement of trading, the 
Exchange will inform its Members in an Information Circular of the 
special characteristics and risks associated with trading the 
Shares.\56\
---------------------------------------------------------------------------

    \54\ See id. at 19-20.
    \55\ See id. at 20.
    \56\ See id. at 18.
---------------------------------------------------------------------------

    The Commission notes that the Fund and the Shares must comply with 
the initial and continued listing criteria in Rule 14.11(c) for the 
Shares to the listed and traded on the Exchange. Except for the 
Underlying Index's exposure to call options, the Fund and Shares will 
satisfy all applicable requirements for Index Fund Shares under Rule 
14.11(c), including the requirements related to the NAV per Share being 
calculated daily and made available to all market participants at the 
same time, intraday indicative value, suspension of trading or removal, 
trading halts, disclosure, and firewalls.\57\ Additionally, all of the 
Fund's holdings in equities, ETFs, futures and options will be listed 
on members of ISG or on markets with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\58\
---------------------------------------------------------------------------

    \57\ See id. at 17-18.
    \58\ See Amendment No. 2, supra note 6, at 20, n.26.
---------------------------------------------------------------------------

    The Exchange represents that it deems the Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity 
securities.\59\ In support of this proposal, the Exchange has also made 
the following representations:
---------------------------------------------------------------------------

    \59\ See id. at 16.
---------------------------------------------------------------------------

    (1) The Fund and the Shares will satisfy all of the generic listing 
standards under BZX Rule 14.11(c) except BZX Rule 
14.11(c)(3)(A)(i)(e).\60\
---------------------------------------------------------------------------

    \60\ See id. at 5, 18.
---------------------------------------------------------------------------

    (2) The Exchange has the appropriate rules to facilitate 
transactions in the Shares during all trading sessions.\61\
---------------------------------------------------------------------------

    \61\ See id. at 16.
---------------------------------------------------------------------------

    (3) The Exchange or FINRA, on behalf of the Exchange, will 
communicate as needed regarding trading in the Shares, underlying 
equities, futures, and options contracts with other markets and other 
entities that are members of the ISG and may obtain trading information 
regarding trading in the Shares, underlying equities (including ETFs), 
futures, and options contracts from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares, underlying equities (including ETFs), futures, and the 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. The Exchange is also able to access, as needed, 
trade information for certain fixed income securities held by the Fund 
reported to FINRA's TRACE.\62\
---------------------------------------------------------------------------

    \62\ See id. at 17.
---------------------------------------------------------------------------

    (4) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) BZX Rule 3.7, which imposes 
suitability obligations on Exchange members with respect to 
recommending transactions in the Shares to customers; (c) how 
information regarding the Intraday Indicative Value and the portfolio 
holdings is disseminated; (d) the risks involved in trading the Shares 
during

[[Page 15256]]

the Pre-Opening and After Hours Trading Sessions when an updated 
Intraday Indicative Value will not be calculated or publicly 
disseminated; (e) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (f) trading information.\63\
---------------------------------------------------------------------------

    \63\ See id. at 18.
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    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act.\64\
---------------------------------------------------------------------------

    \64\ 17 CFR 240.10A-3; see Amendment No. 2, supra note 6, at 17.
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    (6) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.\65\
---------------------------------------------------------------------------

    \65\ See id. at 17.
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    (7) All of the Fund's holdings in equities, ETFs, futures, and 
options will be listed on members of ISG or on markets with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.\66\
---------------------------------------------------------------------------

    \66\ See id. at 20, n.26.
---------------------------------------------------------------------------

    (8) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of 
investment).\67\
---------------------------------------------------------------------------

    \67\ See id. at 12.
---------------------------------------------------------------------------

    (9) The Fund's investments, including derivatives, will be 
consistent with the 1940 Act and the Fund's investment objective and 
policies and will not be used to enhance leverage (although certain 
derivatives and other investments may result in leverage). The Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A).\68\
---------------------------------------------------------------------------

    \68\ See id. at 10.
---------------------------------------------------------------------------

    (10) All securities in the Reference Index are listed and traded on 
a U.S. national securities exchange. The options on the Reference Index 
are traded on Cboe Options.\69\
---------------------------------------------------------------------------

    \69\ See id. at 7.
---------------------------------------------------------------------------

    (11) The Fund's use of derivative instruments will be 
collateralized.\70\
---------------------------------------------------------------------------

    \70\ See Amendment No. 2, supra note 6, at 10.
---------------------------------------------------------------------------

    (12) The Fund will not invest in leveraged (e.g., 2x, -2x, 3x, or -
3x) Mutual Funds.\71\
---------------------------------------------------------------------------

    \71\ See id. at 11, n.16.
---------------------------------------------------------------------------

    (13) Trading of the Shares through the Exchange will be subject to 
the Exchange's surveillance procedures for derivative products, 
including Index Fund Shares,\72\ as well as cross-market surveillances 
administered by FINRA on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and federal securities laws 
applicable to trading on the Exchange.\73\
---------------------------------------------------------------------------

    \72\ See id. at 16.
    \73\ See id. at 20.
---------------------------------------------------------------------------

    (14) The issuer will advise the Exchange of any failure by the Fund 
to comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Exchange Act, the Exchange 
will surveil for compliance with the continued listing 
requirements.\74\
---------------------------------------------------------------------------

    \74\ See id. at 16.
---------------------------------------------------------------------------

    (15) If the Fund is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 14.12.\75\
---------------------------------------------------------------------------

    \75\ See id.
---------------------------------------------------------------------------

    This approval order is based on all of the Exchange's statements 
and representations, including those set forth above and in Amendment 
No. 2.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2 thereto, is consistent with 
Section 6(b)(5) of the Act \76\ and the rules and regulations 
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written views, data, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2019-001 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-2019-001. 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 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-2019-001 and should be submitted 
on or before May 6, 2019.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. Amendment No. 2 supplements the proposal by, 
among other things: (1) Providing additional information regarding the 
Fund's permissible holdings; and (2) making additional representations 
regarding the Fund's use of leveraging. The changes and additional 
information in Amendment No. 2 assists the Commission in evaluating the 
Exchange's proposal and in determining that the listing and trading of 
the Shares is consistent with the Act. Accordingly, the Commission 
finds good cause, pursuant to Section 19(b)(2) of the Act,\77\ to 
approve the proposed rule change, as modified by Amendment No. 2, on an 
accelerated basis.
---------------------------------------------------------------------------

    \77\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\78\ that the proposed rule change (SR-CboeBZX-2019-001), as 
modified by Amendment No. 2 thereto, be, and it hereby is, approved on 
an accelerated basis.
---------------------------------------------------------------------------

    \78\ Id.


[[Page 15257]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\79\
---------------------------------------------------------------------------

    \79\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07377 Filed 4-12-19; 8:45 am]
 BILLING CODE 8011-01-P
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