Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To List and Trade Shares of the Innovator S&P 500 Total Buffer ETF Series Under the Innovator ETFs Trust, Under Rule 14.11(i), 46051-46057 [2019-18869]
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Federal Register / Vol. 84, No. 170 / Tuesday, September 3, 2019 / Notices
completed and received by NASA no
later than September 18, 2019 will also
be treated as objections to the grant of
the contemplated partially exclusive
license. Objections submitted in
response to this notice will not be made
available to the public for inspection
and, to the extent permitted by law, will
not be released under the Freedom of
Information Act.
ADDRESSES: Objections relating to the
prospective license may be submitted to
Patent Counsel, Office of Chief Counsel,
NASA Langley Research Center, MS 30,
Hampton, Virginia 23681. Phone (757)
864–3221. Facsimile (757) 864–9190.
FOR FURTHER INFORMATION CONTACT:
Robin W. Edwards, Patent Counsel,
Office of Chief Counsel, NASA Langley
Research Center, MS 30, Hampton,
Virginia 23681. Phone (757) 864–3221.
Facsimile (757) 864–9190.
SUPPLEMENTARY INFORMATION: This
notice of intent to grant a partially
exclusive patent license is issued in
accordance with 35 U.S.C. 209(e) and 37
CFR 404.7(a)(1)(i). The patent rights in
these invention(s) have been partially
assigned to the United States of America
as represented by the Administrator of
the National Aeronautics and Space
Administration. The prospective
partially exclusive license will comply
with the requirements of 35 U.S.C. 209
and 37 CFR 404.7. Information about
other NASA inventions available for
licensing can be found online at https://
technology.nasa.gov.
William T. McMurry,
Deputy General Counsel.
[FR Doc. 2019–18909 Filed 8–30–19; 8:45 am]
BILLING CODE 7510–13–P
NATIONAL CREDIT UNION
ADMINISTRATION
Agency Information Collection
Activities: Proposed Collection;
Comment Request; Records
Preservation
National Credit Union
Administration (NCUA).
ACTION: Notice and request for comment.
AGENCY:
The National Credit Union
Administration (NCUA), as part of a
continuing effort to reduce paperwork
and respondent burden, invites the
general public and other Federal
agencies to comment on the following
extension of a currently approved
collection, as required by the Paperwork
Reduction Act of 1995.
DATES: Written comments should be
received on or before November 4, 2019
to be assured consideration.
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SUMMARY:
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Interested persons are
invited to submit written comments on
the information collection to Mackie
Malaka, National Credit Union
Administration, 1775 Duke Street, Suite
6018, Alexandria, Virginia 22314; Fax
No. 703–519–8579; or email at
PRAComments@NCUA.gov.
FOR FURTHER INFORMATION CONTACT:
Address requests for additional
information to Mackie Malaka at the
address above or telephone 703–548–
2704.
ADDRESSES:
SUPPLEMENTARY INFORMATION:
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collected; and (d) ways to minimize the
burden of the collection of the
information on the respondents,
including the use of automated
collection techniques or other forms of
information technology.
By Gerard Poliquin, Secretary of the
Board, the National Credit Union
Administration, on August 28, 2019.
Dated: August 28, 2019.
Mackie I. Malaka,
NCUA PRA Clearance Officer.
[FR Doc. 2019–18943 Filed 8–30–19; 8:45 am]
BILLING CODE 7535–01–P
OMB Number: 3133–0032.
Title: Records Preservation, 12 CFR
part 749.
Form: None.
Type of Review: Extension of a
currently approved collection.
Abstract: Part 749 requires all
federally insured credit unions (FICUs)
to maintain a records preservation
program. The program must be in
writing and include a schedule for the
storage and destruction of records and
emergency contact information for
employees, officials, regulatory offices,
and vendors used to support vital
records. The collection of information is
authorized by sections 120, 203, and
209 of the Federal Credit Union (FCU)
Act; 12 U.S.C. 1766, 1783, and 1789.
The records preservation program
requirement enables FICUs to
reconstruct their vital records in the
event records are destroyed by a
catastrophe and facilitates restoration of
vital member services.
Affected Public: Private Sector: Notfor-profit institutions.
Estimated No. of Respondents: 6,021.
Estimated No. of Responses per
Respondent: 1.
Estimated Total Annual Responses:
6,021.
Estimated Burden Hours per
Response: 2.
Estimated Total Annual Burden
Hours: 12,074.
Request for Comments: Comments
submitted in response to this notice will
be summarized and included in the
request for Office of Management and
Budget approval. All comments will
become a matter of public record. The
public is invited to submit comments
concerning: (a) Whether the collection
of information is necessary for the
proper execution of the function of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information, including the validity of
the methodology and assumptions used;
(c) ways to enhance the quality, utility,
and clarity of the information to be
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86773; File No. SR–
CboeBZX–2019–077]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To List and
Trade Shares of the Innovator S&P 500
Total Buffer ETF Series Under the
Innovator ETFs Trust, Under Rule
14.11(i)
August 27, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
13, 2019, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) 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 Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes a rule change
to list and trade shares of the Innovator
S&P 500 Total Buffer ETF Series under
the Innovator ETFs Trust (the ‘‘Trust’’),
under Rule 14.11(i) (‘‘Managed Fund
Shares’’).
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
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Federal Register / Vol. 84, No. 170 / Tuesday, September 3, 2019 / Notices
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of up to thirtysix Innovator S&P 500 Total Buffer ETF
Series (each a ‘‘Fund’’ and, collectively,
the ‘‘Funds’’) under Rule 14.11(i), which
governs the listing and trading of
Managed Fund Shares on the
Exchange.5 Each Fund will be an
actively managed exchange traded fund.
The Exchange submits this proposal
in order to allow each Fund to hold
listed derivatives in a manner that does
not comply with Rule
14.11(i)(4)(C)(iv)(b), as further described
below. The Exchange notes that this
proposal and the statements or
representations herein regarding the
description of the portfolio or reference
assets, limitations on portfolio holdings
or reference assets, dissemination and
availability of index, reference asset,
and intraday indicative values, or the
applicability of Exchange listing rules
are substantively identical to those
statements and representations included
in a proposal previously approved by
the Commission.6
5 The Commission originally approved BZX Rule
14.11(i) in Securities Exchange Act Release No.
65225 (August 30, 2011), 76 FR 55148 (September
6, 2011) (SR–BATS–2011–018) and subsequently
approved generic listing standards for Managed
Fund Shares under Rule 14.11(i) in Securities
Exchange Act Release No. 78396 (July 22, 2016), 81
FR 49698 (July 28, 2016) (SR–BATS–2015–100).
6 See Securities Exchange Act Release No. 83679
(July 26, 2018), 83 FR 35505 (July 26, 2018) (SR–
BatsBZX–2017–72) (the ‘‘Original Approval’’). The
only difference between this proposal and the
Original Approval is that the defined outcome
period is three years as opposed to one year in the
Original Approval and the buffer level that the
Funds intend to achieve, neither of which the
Exchange believes to be substantive. The
representations related to the Funds, each Fund’s
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The Shares will be offered by
Innovator ETFs Trust (formerly
Academy Funds Trust) (the ‘‘Trust’’),
which was established as a Delaware
statutory trust on October 17, 2007. The
Trust is registered with the Commission
as an investment company and has
filed, for the first Innovator S&P 500
Total Buffer ETF Series, a registration
statement on Form N–1A (‘‘Registration
Statement’’) with the Commission.7
Each Fund intends to qualify each year
as a regulated investment company (a
‘‘RIC’’) under Subchapter M of the
Internal Revenue Code of 1986, as
amended.8 Innovator Capital
Management, LLC (the ‘‘Adviser’’) is the
investment adviser to the Funds and
Milliman Financial Risk Management
LLC (the ‘‘Sub-Adviser’’) is the subadviser. Rule 14.11(i)(7) provides that, if
the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, such investment adviser shall
erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.9 In addition, Rule
underlying portfolio, the limitations on portfolio
holdings, and the applicability of Exchange rules
are identical to the corresponding funds from the
Original Approval (the ‘‘Corresponding Funds’’).
7 See Post-Effective Amendment No. 237 to
Registration Statement on Form N–1A for the Trust,
which was filed with the Commission on July 12,
2018 (File Nos. 333–146827 and 811–22135). The
description of the Funds and the Shares contained
herein are based on information in the Registration
Statement. There are no permissible holdings for
the Funds that are not described in this proposal.
The Commission has issued an order granting
certain exemptive relief to the Trust under the
Investment Company Act of 1940 (15 U.S.C. 80a–
1) (‘‘1940 Act’’) (the ‘‘Exemptive Order’’). See
Investment Company Act Release No. 32854
(October 6, 2017) (File No. 812–14781).
8 26 U.S.C. 851.
9 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
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14.11(i)(7) further requires that
personnel who make decisions on the
investment company’s portfolio
composition must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable investment company
portfolio. Neither the Adviser nor the
Sub-Adviser is a registered brokerdealer, and neither the Adviser nor the
Sub-Adviser are affiliated with brokerdealers. In addition, Adviser and SubAdviser personnel who make decisions
regarding a Fund’s portfolio are subject
to procedures designed to prevent the
use and dissemination of material
nonpublic information regarding the
Fund’s portfolio. In the event that (a) the
Adviser or Sub-Adviser becomes
registered as a broker-dealer or newly
affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a
registered broker-dealer or becomes
affiliated with a broker-dealer, it will
implement and maintain a fire wall with
respect to its relevant personnel or such
broker-dealer affiliate, as applicable,
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio. Similarly, to
the extent that a Fund is based on a
benchmark index, in the event that the
index provider of the benchmark index
(the ‘‘Index Provider’’) becomes
registered as a broker-dealer or newly
affiliated with a broker-dealer, it will
implement and maintain a fire wall with
respect to its relevant personnel or such
broker-dealer affiliate, as applicable,
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
The investment objective of the Funds
is to provide investors with returns that
match those of the S&P 500 Price Return
Index (the ‘‘S&P 500 Index’’) up to an
upside cap over a period of
approximately three years, while
providing a buffer from S&P 500 Index
losses.
The Funds are each actively managed
funds that employ a ‘‘defined outcome
strategy’’ that seeks to provide
investment returns that match the gains
of the S&P 500 Index, up to a
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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Federal Register / Vol. 84, No. 170 / Tuesday, September 3, 2019 / Notices
maximized return (the ‘‘Cap Level’’),
while guarding against a decline in the
S&P 500 Index, before fees and expenses
(the ‘‘Total Buffer Strategy’’). Pursuant
to this strategy, each Fund will invest
primarily in exchange-traded options
contracts that reference either the S&P
500 Index or ETFs that track the S&P
500 Index. Defined outcome strategies
are designed to participate in market
gains and losses within pre-determined
ranges over a specified period (i.e. point
to point). These outcomes are
predicated on the assumption that an
investment vehicle employing the
strategy is held for the designated
outcome periods. The designated
outcome period for the Funds is three
years. As such, the Exchange is
proposing to list up to thirty-six
monthly series of the Funds.
The Exchange submits this proposal
in order to allow each Fund to hold
listed derivatives, in particular FLexible
EXchange Options (‘‘FLEX Options’’) on
the S&P 500 Index, in a manner that
does not comply with Rule
14.11(i)(4)(C)(iv)(b).10 Otherwise, the
Funds will comply with all other listing
requirements of the Generic Listing
Standards 11 for Managed Fund Shares
on an initial and continued listing basis
under Rule 14.11(i).
Innovator S&P 500 Total Buffer ETFs
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Under Normal Market Conditions,12
each Fund will attempt to achieve its
investment objective by employing a
Total Buffer Strategy that will seek to
10 Rule 14.11(i)(4)(C)(iv)(b) provides that ‘‘the
aggregate gross notional value of listed derivatives
based on any five or fewer underlying reference
assets shall not exceed 65% of the weight of the
portfolio (including gross notional exposures), and
the aggregate gross notional value of listed
derivatives based on any single underlying
reference asset shall not exceed 30% of the weight
of the portfolio (including gross notional
exposures).’’ The Funds do not meet the generic
listing standards because they fail to meet the
requirement of Rule 14.11(i)(4)(C)(iv)(b) that
prevents the aggregate gross notional value of listed
derivatives based on any single underlying
reference asset from exceeding 30% of the weight
of the portfolio (including gross notional exposures)
and the requirement that the aggregate gross
notional value of listed derivatives based on any
five or fewer underlying reference assets shall not
exceed 65% of the weight of the portfolio
(including gross notional exposures).
11 For purposes of this proposal, the term
‘‘Generic Listing Standards’’ shall mean the generic
listing rules for Managed Fund Shares under Rule
14.11(i)(4)(C).
12 As defined in Rule 14.11(i)(3)(E), the term
‘‘Normal Market Conditions’’ includes, but is not
limited to, the absence of trading halts in the
applicable financial markets generally; operational
issues causing dissemination of inaccurate market
information or system failures; or force majeure
type events such as natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or
labor disruption, or any similar intervening
circumstance.
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provide investment returns during the
outcome period that match the gains of
the S&P 500 Index, up to the Cap Level,
while shielding investors from S&P 500
Index losses, before fees and expenses.
Pursuant to the Total Buffer Strategy,
each Fund will invest primarily in FLEX
Options or standardized options
contracts listed on a U.S. exchange that
reference either the S&P 500 Index or
exchange traded funds (‘‘ETFs’’) that
track the S&P 500 Index.
The portfolio managers will invest in
a portfolio of FLEX Options linked to an
underlying asset, the S&P 500 Index,
that, when held for the specified period,
seeks to produce returns that, over the
outcome period, match the positive
returns of the S&P 500 Index up to the
Cap Level. Pursuant to the Total Buffer
Strategy, each Fund’s portfolio
managers will seek to produce the
following outcomes during the outcome
period:
• If the S&P 500 Index appreciates
over the outcome period: The Fund will
seek to provide shareholders with a
return that increases by the percentage
increase of the S&P 500 Index over the
outcome period, up to the Cap Level
before fees and expenses; and
• If the S&P 500 Index decreases by
any amount over the outcome period:
The Fund will seek to provide a total
return of zero before fees and expenses.
The Funds will produce these
outcomes by layering purchased and
written FLEX Options. The
customizable nature of FLEX Options
allows for the creation of a strategy that
sets desired target outcome parameters.
The FLEX Options comprising a Fund’s
portfolio have terms that, when layered
upon each other, are designed to buffer
against losses or match the gains of the
S&P 500 Index. However, another effect
of the layering of FLEX Options with
these terms is a cap on the level of
possible gains.
Any FLEX Options that are written by
a Fund that create an obligation to sell
or buy an asset will be offset with a
position in FLEX Options purchased by
the Fund to create the right to buy or
sell the same asset such that the Fund
will always be in a net long position.
That is, any obligations of a Fund
created by its writing of FLEX Options
will be covered by offsetting positions
in other purchased FLEX Options. As
the FLEX Options mature at the end of
each outcome period, they are replaced.
By replacing FLEX Options at the end
of an outcome period, each Fund seeks
to ensure that investments made at the
commencement of any given outcome
period will buffer against negative
returns of the S&P 500 Index, before fees
and expenses.
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46053
The FLEX Options owned by each of
the Funds will have the same terms (i.e.
same strike price and expiration) for all
investors of a Fund within an outcome
period. The Cap Level will be
determined with respect to each Fund
on the inception date of the Fund and
at the beginning of each outcome period
and is determined based on the price of
the FLEX Options acquired by the Fund
at that time.
Investment Methodology for the Funds
Under Normal Market Conditions,
each Fund will invest primarily in U.S.
exchange-listed FLEX Options on the
S&P 500 Index. Each of the Funds may
invest its net assets (in the aggregate) in
other investments which the Adviser or
Sub-Adviser believes will help each
Fund to meet its investment objective
and that will be disclosed at the end of
each trading day (‘‘Other Assets’’). Other
Assets include only the following: Cash
or cash equivalents, as defined in Rule
14.11(i)(4)(C)(iii) 13 and standardized
options contracts listed on a U.S.
securities exchange that reference either
the S&P 500 Index or that reference
ETFs that track the S&P 500 Index
(‘‘Reference ETFs’’).
S&P 500 Index FLEX Options
The market for options contracts on
the S&P 500 Index traded on Cboe
Exchange, Inc. (‘‘Cboe Options’’) is
among the most liquid markets in the
world. In 2018, more than 1.48 million
options contracts on the S&P 500 Index
were traded per day on Cboe Options,
which is more than $350 billion in
notional volume traded on a daily basis.
While FLEX Options are traded
differently than standardized options
contracts, the Exchange believes that
this liquidity bolsters the market for
FLEX Options, as described below.
Every FLEX Option order submitted to
an exchange is exposed to a competitive
auction process for price discovery. The
process begins with a request for quote
(‘‘RFQ’’) in which the interested party
establishes the terms of the FLEX
13 As defined in Rule 14.11(i)(4)(C)(iii), cash
equivalents include short-term instruments with
maturities of less than three months, including: (i)
U.S. Government securities, including bills, notes,
and bonds differing as to maturity and rates of
interest, which are either issued or guaranteed by
the U.S. Treasury or by U.S. Government agencies
or instrumentalities; (ii) certificates of deposit
issued against funds deposited in a bank or savings
and loan association; (iii) bankers acceptances,
which are short-term credit instruments used to
finance commercial transactions; (iv) repurchase
agreements and reverse repurchase agreements; (v)
bank time deposits, which are monies kept on
deposit with banks or savings and loan associations
for a stated period of time at a fixed rate of interest;
(vi) commercial paper, which are short-term
unsecured promissory notes; and (vii) money
market funds.
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Federal Register / Vol. 84, No. 170 / Tuesday, September 3, 2019 / Notices
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Options contract. The RFQ solicits
interested market participants,
including on-floor market makers,
remote market makers trading
electronically, and member firm traders,
to respond to the RFQ with bids or
offers through a competitive process.
This solicitation contains all of the
contract specifications-underlying, size,
type of option, expiration date, strike
price, exercise style and settlement
basis. During a specified amount of
time, responses to the RFQ are received
and at the end of that time period, the
initiator can decide whether to accept
the best bid or offer. The process occurs
under the rules of the applicable listing
exchange which means that customer
transactions are effected according to
the principles of a fair and orderly
market following trading procedures
and policies developed by the
applicable self-regulatory organization.
The Exchange believes that sufficient
protections are in place to protect
against market manipulation of the
Funds’ Shares and S&P 500 FLEX
Options for several reasons: (i) The
diversity, liquidity, and market cap of
the securities underlying the S&P 500
Index; (ii) the competitive quoting
process for FLEX Options; (iii) the
significant liquidity in the market for
options on the S&P 500 Index results in
a well-established price discovery
process that provides meaningful
guideposts for FLEX Option pricing; and
(iv) surveillance by the Exchange, Cboe
Options, other U.S. options exchanges,
and the Financial Industry Regulatory
Authority (‘‘FINRA’’) designed to detect
violations of the federal securities laws
and self-regulatory organization
(‘‘SRO’’) rules. The Exchange has in
place a surveillance program for
transactions in ETFs to ensure the
availability of information necessary to
detect and deter potential
manipulations and other trading abuses,
thereby making the Shares less readily
susceptible to manipulation. Further,
the Exchange believes that because the
assets in each Fund’s portfolio, which
are comprised primarily of S&P 500
FLEX Options, will be acquired in
extremely liquid and highly regulated
markets,14 the Shares are less readily
susceptible to manipulation.
14 All exchange-listed securities that the Funds
may hold will trade on a market that is a member
of the Intermarket Surveillance Group (‘‘ISG’’) and
the Funds will not hold any non-exchange-listed
equities or options, however, not all of the
components of the portfolio for the Funds may
trade on exchanges that are members of the ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement. For
a list of the current members of ISG, see
www.isgportal.org.
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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 Managed
Fund Shares. All statements and
representations made in this filing
regarding (a) the description of the
portfolio, reference assets, and index, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules shall constitute
continued listing requirements for
listing the Shares on the Exchange. The
issuer has represented to the Exchange
that it will advise the Exchange of any
failure by a Fund or the related Shares
to comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will surveil for
compliance with the continued listing
requirements. If a Fund or the related
Shares are not in compliance with the
applicable listing requirements, then,
with respect to such Fund or Shares, the
Exchange will commence delisting
procedures under Exchange Rule 14.12.
FINRA conducts certain cross-market
surveillances on behalf of the Exchange
pursuant to a regulatory services
agreement. The Exchange is responsible
for FINRA’s performance under this
regulatory services agreement. If a Fund
is not in compliance with the applicable
listing requirements, the Exchange will
commence delisting procedures with
respect to such Fund under Exchange
Rule 14.12.
The Exchange or FINRA, on behalf of
the Exchange, will communicate as
needed regarding trading in the Shares
and exchange-traded options contracts
with other markets and other entities
that are members of the ISG and may
obtain trading information regarding
trading in the Shares and exchangetraded options contracts from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares and
exchange-traded options contracts from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. In
addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
As noted above, options on the S&P
500 Index are among the most liquid
options in the world and derive their
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Sfmt 4703
value from the actively traded S&P 500
Index components. The contracts are
cash-settled with no delivery of stocks
or ETFs, and trade in competitive
auction markets with price and quote
transparency. The Exchange believes the
highly regulated options markets and
the broad base and scope of the S&P 500
Index make securities that derive their
value from that index less susceptible to
market manipulation in view of market
capitalization and liquidity of the S&P
500 Index components, price and quote
transparency, and arbitrage
opportunities.
The Exchange believes that the
liquidity of the markets for S&P 500
Index securities, options on the S&P 500
Index, and other related derivatives is
sufficiently great to deter fraudulent or
manipulative acts associated with the
Funds’ Shares price. The Exchange also
believes that such liquidity is sufficient
to support the creation and redemption
mechanism. Coupled with the extensive
surveillance programs of the SROs
described above, the Exchange does not
believe that trading in the Funds’ Shares
would present manipulation concerns.
The Exchange represents that, except
for the limitations on listed derivatives
in BZX Rule 14.11(i)(4)(C)(iv)(b), the
Funds’ proposed investments will
satisfy, on an initial and continued
listing basis, all of the generic listing
standards under BZX Rule 14.11(i)(4)(C)
and all other applicable requirements
for Managed Fund Shares under Rule
14.11(i). The Trust is required to comply
with Rule 10A–3 under the Act for the
initial and continued listing of the
Shares of the Funds. A minimum of
100,000 Shares will be outstanding at
the commencement of trading on the
Exchange. In addition, the Exchange
represents that the Shares of the Funds
will comply with all other requirements
applicable to Managed Fund Shares,
which includes the dissemination of key
information such as the Disclosed
Portfolio,15 Net Asset Value,16 and the
Intraday Indicative Value,17 suspension
of trading or removal,18 trading halts,19
surveillance,20 minimum price variation
for quoting and order entry,21 and the
information circular,22 as set forth in
Exchange rules applicable to Managed
Fund Shares. Further, all statements or
representations regarding the
description of the portfolio or reference
15 See
Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
Rule 14.11(i)(4)(A)(ii).
17 See Rule 14.11(i)(4)(B)(i).
18 See Rule 14.11(i)(4)(B)(iii).
19 See Rule 14.11(i)(4)(B)(iv).
20 See Rule 14.11(i)(2)(C).
21 See Rule 14.11(i)(2)(B).
22 See Rule 14.11(i)(6).
16 See
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assets, limitations on portfolio holdings
or reference assets, dissemination and
availability of index, reference asset,
and intraday indicative values, or the
applicability of Exchange listing rules
shall constitute continued listing
requirements for the Funds. Moreover,
all of the options contracts held by the
Funds will trade on markets that are a
member of ISG or affiliated with a
member of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
Quotation and last sale information for
U.S. exchange-listed options contracts
cleared by The Options Clearing
Corporation will be available via the
Options Price Reporting Authority. RFQ
information for FLEX Options will be
available directly from the applicable
options exchange. The intra-day, closing
and settlement prices of exchangetraded options will be readily available
from the options exchanges, automated
quotation systems, published or other
public sources, or online information
services such as Bloomberg or Reuters.
Price information on cash equivalents is
available from major broker-dealer firms
or market data vendors, as well as from
automated quotation systems, published
or other public sources, or online
information services.
Lastly, the issuer represents that it
will provide and maintain a publicly
available web tool for each of the Funds
on its website that provides existing and
prospective shareholders with
important information to help inform
investment decisions. The information
provided includes the start and end
dates of the current outcome period, the
time remaining in the outcome period,
the Fund’s current net asset value, the
Fund’s cap for the outcome period and
the maximum investment gain available
up to the cap for a shareholder
purchasing Shares at the current net
asset value. For each of the Funds, the
web tool also provides information
regarding each Fund’s buffer. This
information includes the remaining
buffer available for a shareholder
purchasing Shares at the current net
asset value or the amount of losses that
a shareholder purchasing Shares at the
current net asset value would incur
before benefitting from the protection of
the buffer. The cover of each Fund’s
prospectus, as well as the disclosure
contained in ‘‘Principal Investment
Strategies,’’ provides the specific web
address for each Fund’s web tool.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
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16:24 Aug 30, 2019
Jkt 247001
of the Act 23 in general and Section
6(b)(5) of the Act 24 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, because, as noted above,
the Shares will meet each of the initial
and continued listing criteria in BZX
Rule 14.11(i) with the exception of Rule
14.11(i)(4)(C)(iv)(b), which requires that
the aggregate gross notional value of
listed derivatives based on any five or
fewer underlying reference assets shall
not exceed 65% of the weight of the
portfolio (including gross notional
exposures), and the aggregate gross
notional value of listed derivatives
based on any single underlying
reference asset shall not exceed 30% of
the weight of the portfolio (including
gross notional exposures).25 Rule
14.11(i)(4)(C)(iv)(b) is intended to
ensure that a fund is not subject to
manipulation by virtue of significant
exposure to a manipulable underlying
reference asset by establishing
concentration limits among the
underlying reference assets for listed
derivatives held by a particular fund.
The Exchange believes that sufficient
protections are in place to protect
against market manipulation of the
Funds’ Shares and S&P 500 FLEX
Options for several reasons: (i) The
diversity, liquidity, and market cap of
the securities underlying the S&P 500
Index; (ii) the competitive quoting
process for FLEX Options; (iii) the
significant liquidity in the market for
options on the S&P 500 Index results in
a well-established price discovery
process that provides meaningful
guideposts for FLEX Option pricing; and
(iv) surveillance by the Exchange, Cboe
Options, other U.S. options exchanges,
and FINRA designed to detect violations
of the federal securities laws and SRO
rules. The Exchange has in place a
surveillance program for transactions in
23 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
25 As noted above, the Exchange is submitting this
proposal because the Funds would not meet the
requirements of Rule 14.11(i)(4)(C)(iv)(b) which
prevents the aggregate gross notional value of listed
derivatives based on any single underlying
reference asset from exceeding 30% of the weight
of the portfolio (including gross notional exposures)
and the aggregate gross notional value of listed
derivatives based on any five or fewer underlying
reference assets from exceeding 65% of the weight
of the portfolio (including gross notional
exposures).
24 15
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46055
ETFs to ensure the availability of
information necessary to detect and
deter potential manipulations and other
trading abuses, thereby making the
Shares less readily susceptible to
manipulation. Further, the Exchange
believes that because the assets in each
Fund’s portfolio, which are comprised
primarily of S&P 500 FLEX Options,
will be acquired in extremely liquid and
highly regulated markets, the Shares are
less readily susceptible to manipulation.
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 Managed
Fund Shares. All statements and
representations made in this filing
regarding (a) the description of the
portfolio, reference assets, and index, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules shall constitute
continued listing requirements for
listing the Shares on the Exchange. The
issuer has represented to the Exchange
that it will advise the Exchange of any
failure by a Fund or the related Shares
to comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will surveil for
compliance with the continued listing
requirements. If a Fund or the related
Shares are not in compliance with the
applicable listing requirements, then,
with respect to such Fund or Shares, the
Exchange will commence delisting
procedures under Exchange Rule 14.12.
FINRA conducts certain cross-market
surveillances on behalf of the Exchange
pursuant to a regulatory services
agreement. The Exchange is responsible
for FINRA’s performance under this
regulatory services agreement. If a Fund
is not in compliance with the applicable
listing requirements, the Exchange will
commence delisting procedures with
respect to such Fund under Exchange
Rule 14.12.
The Exchange or FINRA, on behalf of
the Exchange, will communicate as
needed regarding trading in the Shares
and exchange-traded options contracts
with other markets and other entities
that are members of the ISG and may
obtain trading information regarding
trading in the Shares and exchangetraded options contracts from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares and
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46056
Federal Register / Vol. 84, No. 170 / Tuesday, September 3, 2019 / Notices
exchange-traded options contracts from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. In
addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees. As noted
above, options on the S&P 500 Index are
among the most liquid options in the
world and derive their value from the
actively traded S&P 500 Index
components. The contracts are cashsettled with no delivery of stocks or
ETFs, and trade in competitive auction
markets with price and quote
transparency. The Exchange believes the
highly regulated options markets and
the broad base and scope of the S&P 500
Index make securities that derive their
value from that index less susceptible to
market manipulation in view of market
capitalization and liquidity of the S&P
500 Index components, price and quote
transparency, and arbitrage
opportunities.
The Exchange believes that the
liquidity of the markets for S&P 500
Index securities, options on the S&P 500
Index, and other related derivatives is
sufficiently great to deter fraudulent or
manipulative acts associated with the
Funds’ Shares price. The Exchange also
believes that such liquidity is sufficient
to support the creation and redemption
mechanism. Coupled with the extensive
surveillance programs of the SROs
described above, the Exchange does not
believe that trading in the Funds’ Shares
would present manipulation concerns.
The Exchange represents that, except
as described above, the Funds will meet
and be subject to all other requirements
of the Generic Listing Standards and
other applicable continued listing
requirements for Managed Fund Shares
under Rule 14.11(i), including those
requirements regarding the Disclosed
Portfolio,26 Intraday Indicative Value,27
suspension of trading or removal,28
trading halts,29 disclosure,30 and
firewalls.31 The Trust is required to
comply with Rule 10A–3 under the Act
for the initial and continued listing of
the Shares of each Fund. Moreover, all
of the options contracts held by the
Funds will trade on markets that are a
member of ISG or affiliated with a
member of ISG or with which the
26 See
Rule 14.11(i)(4)(B)(ii).
Rule 14.11(i)(4)(B)(i).
28 See Rule 14.11(i)(4)(B)(iii).
29 See Rule 14.11(i)(4)(B)(iv).
30 See Rule 14.11(i)(6).
31 See Rule 14.11(i)(7).
27 See
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16:24 Aug 30, 2019
Jkt 247001
Exchange has in place a comprehensive
surveillance sharing agreement.
Finally, this proposal and the
statements or representations herein
regarding the limitations on portfolio
holdings or reference assets,
dissemination and availability of index,
reference asset, and intraday indicative
values, and the applicability of
Exchange listing rules are substantively
identical to those statements and
representations included in the Original
Approval and the descriptions of the
portfolio or reference assets are
substantially similar to those included
in the Original Approval. The only
difference between this proposal and
the Original Approval is that the
defined outcome period is three years as
opposed to one year in the Original
Approval and the buffer level that the
Funds intend to achieve, neither of
which the Exchange believes to be
substantive because they relate only to
the investment objective of the Funds.
As such, the Exchange believes the
proposed rule change will not
significantly affect the protection of
investors or the public interest because
the proposal contains no new issues that
the Commission has not previously
contemplated.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
additional type of Managed Fund Shares
that will enhance competition among
market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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
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as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 32 and Rule 19b–
4(f)(6) thereunder.33
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 34 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 35
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
operative upon filing. The Exchange
represents that the statements or
representations made in the proposed
rule change regarding the limitations on
portfolio holdings or reference assets,
dissemination and availability of index,
reference asset, and intraday indicative
values, and the applicability of
Exchange listing rules are substantively
identical to the statements and
representations included in the Original
Approval, and the descriptions of the
portfolio or reference assets are
substantially similar to those included
in the Original Approval. Further,
waiver of the operative delay would
allow the Exchange to facilitate the
Adviser’s ability to list the product on
the Exchange as soon as possible, which
may enhance competition among market
participants, to the benefit of investors
and the marketplace. The Commission
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, the Commission
hereby waives the operative delay and
designates the proposed rule change
operative upon filing.36
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
32 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
34 17 CFR 240.19b–4(f)(6).
35 17 CFR 240.19b–4(f)(6)(iii).
36 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
33 17
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Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2019–077 on the subject line.
Paper Comments
khammond on DSKBBV9HB2PROD with NOTICES
• 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–2019–077. 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–2019–077, and
VerDate Sep<11>2014
16:24 Aug 30, 2019
Jkt 247001
should be submitted on or before
September 24, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–18869 Filed 8–30–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86776; File No. SR–
CboeEDGX–2019–053]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend
Rules 21.20 and 21.22 in Connection
With Stock-Options Orders
August 27, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
22, 2019, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGX’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 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
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
amend Rules 21.20 and 21.22 in
connection with stock-options orders.
The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
37 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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46057
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On April 26, 2019, the Exchange filed
a rule filing, SR–CboeEDGX–2019–028,
which was approved by the Securities
and Exchange Commission (the
‘‘Commission’’) on July 26, 2019, which
permits use of it Automated
Improvement Process (‘‘AIM’’) for
complex orders.5 Specifically, the filing
describes how complex orders may be
submitted to and will be processed in an
AIM Auction (‘‘C–AIM’’ or ‘‘C–AIM
Auction’’). Also, on June 27, 2019, the
Exchange filed SR–CboeEDGX–2019–
039, which adopts stock-option order
functionality on the Exchange.6 The
Exchange notes that it implemented the
proposed changes under SR–
CboeEDGX–2019–039 on August 16,
2019 as part of Feature Pack 9 7 in with
the migration of Cboe Exchange, Inc.
(‘‘Cboe Options’’) technology to the
same trading platform used by the
5 See Securities Exchange Act Release No. 85831
(May 10, 2019), 84 FR 22178 (May 16, 2019) (Notice
of Filing of a Proposed Rule Change To Adopt Rule
21.22 (Complex Automated Improvement
Mechanism)) (SR–CboeEDGX–2019–028); Securities
Exchange Act Release No. 86493 (July 26, 2019)
(Notice of Filing of Amendment No. 1 and Order
Granting Accelerated Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, to
Adopt Rule 21.22 (Complex Automated
Improvement Mechanism)).
6 See Securities Exchange Act Release No. 86353
(July 11, 2019), 84 FR 34230 (July 17, 2019) (Notice
of Filing and Immediate Effectiveness of a Proposed
Rule Change To Add Stock-Option Order
Functionality and Complex Qualified Contingent
Cross (‘‘QCC’’) Order With Stock Functionality, and
To Make Other Changes to its Rules) (SR–
CboeEDGX–2019–039).
7 The Exchange notes that implementation of
these changes as a part of Feature Pack 9 was
recently postponed via Exchange notice from a rollout of August 5, 2019 to August 16, 2019. See
Exchange Notice No. C2019080200 (Updated
August 02, 2019). The changes under SR–
CboeEDGX–2019–028 have been postponed and are
planned to be implemented soon after August 16,
2019.
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]]>Agencies
[Federal Register Volume 84, Number 170 (Tuesday, September 3, 2019)]
[Notices]
[Pages 46051-46057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18869]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86773; File No. SR-CboeBZX-2019-077]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To List
and Trade Shares of the Innovator S&P 500 Total Buffer ETF Series Under
the Innovator ETFs Trust, Under Rule 14.11(i)
August 27, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 13, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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 Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes a rule change to list and trade shares of the
Innovator S&P 500 Total Buffer ETF Series under the Innovator ETFs
Trust (the ``Trust''), under Rule 14.11(i) (``Managed Fund Shares'').
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at
[[Page 46052]]
the Exchange's Office of the Secretary, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of up
to thirty-six Innovator S&P 500 Total Buffer ETF Series (each a
``Fund'' and, collectively, the ``Funds'') under Rule 14.11(i), which
governs the listing and trading of Managed Fund Shares on the
Exchange.\5\ Each Fund will be an actively managed exchange traded
fund.
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\5\ The Commission originally approved BZX Rule 14.11(i) in
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR
55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently
approved generic listing standards for Managed Fund Shares under
Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22,
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100).
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The Exchange submits this proposal in order to allow each Fund to
hold listed derivatives in a manner that does not comply with Rule
14.11(i)(4)(C)(iv)(b), as further described below. The Exchange notes
that this proposal and the statements or representations herein
regarding the description of the portfolio or reference assets,
limitations on portfolio holdings or reference assets, dissemination
and availability of index, reference asset, and intraday indicative
values, or the applicability of Exchange listing rules are
substantively identical to those statements and representations
included in a proposal previously approved by the Commission.\6\
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\6\ See Securities Exchange Act Release No. 83679 (July 26,
2018), 83 FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72) (the
``Original Approval''). The only difference between this proposal
and the Original Approval is that the defined outcome period is
three years as opposed to one year in the Original Approval and the
buffer level that the Funds intend to achieve, neither of which the
Exchange believes to be substantive. The representations related to
the Funds, each Fund's underlying portfolio, the limitations on
portfolio holdings, and the applicability of Exchange rules are
identical to the corresponding funds from the Original Approval (the
``Corresponding Funds'').
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The Shares will be offered by Innovator ETFs Trust (formerly
Academy Funds Trust) (the ``Trust''), which was established as a
Delaware statutory trust on October 17, 2007. The Trust is registered
with the Commission as an investment company and has filed, for the
first Innovator S&P 500 Total Buffer ETF Series, a registration
statement on Form N-1A (``Registration Statement'') with the
Commission.\7\ Each Fund intends to qualify each year as a regulated
investment company (a ``RIC'') under Subchapter M of the Internal
Revenue Code of 1986, as amended.\8\ Innovator Capital Management, LLC
(the ``Adviser'') is the investment adviser to the Funds and Milliman
Financial Risk Management LLC (the ``Sub-Adviser'') is the sub-adviser.
Rule 14.11(i)(7) provides that, if the investment adviser to the
investment company issuing Managed Fund Shares is affiliated with a
broker-dealer, such investment adviser shall erect a ``fire wall''
between the investment adviser and the broker-dealer with respect to
access to information concerning the composition and/or changes to such
investment company portfolio.\9\ In addition, Rule 14.11(i)(7) further
requires that personnel who make decisions on the investment company's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the applicable investment company portfolio. Neither the Adviser nor
the Sub-Adviser is a registered broker-dealer, and neither the Adviser
nor the Sub-Adviser are affiliated with broker-dealers. In addition,
Adviser and Sub-Adviser personnel who make decisions regarding a Fund's
portfolio are subject to procedures designed to prevent the use and
dissemination of material nonpublic information regarding the Fund's
portfolio. In the event that (a) the Adviser or Sub-Adviser becomes
registered as a broker-dealer or newly affiliated with a broker-dealer,
or (b) any new adviser or sub-adviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, it will implement and maintain
a fire wall with respect to its relevant personnel or such broker-
dealer affiliate, as applicable, regarding access to information
concerning the composition and/or changes to the portfolio, and will be
subject to procedures designed to prevent the use and dissemination of
material non-public information regarding such portfolio. Similarly, to
the extent that a Fund is based on a benchmark index, in the event that
the index provider of the benchmark index (the ``Index Provider'')
becomes registered as a broker-dealer or newly affiliated with a
broker-dealer, it will implement and maintain a fire wall with respect
to its relevant personnel or such broker-dealer affiliate, as
applicable, regarding access to information concerning the composition
and/or changes to the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
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\7\ See Post-Effective Amendment No. 237 to Registration
Statement on Form N-1A for the Trust, which was filed with the
Commission on July 12, 2018 (File Nos. 333-146827 and 811-22135).
The description of the Funds and the Shares contained herein are
based on information in the Registration Statement. There are no
permissible holdings for the Funds that are not described in this
proposal. The Commission has issued an order granting certain
exemptive relief to the Trust under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (``1940 Act'') (the ``Exemptive Order''). See
Investment Company Act Release No. 32854 (October 6, 2017) (File No.
812-14781).
\8\ 26 U.S.C. 851.
\9\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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The investment objective of the Funds is to provide investors with
returns that match those of the S&P 500 Price Return Index (the ``S&P
500 Index'') up to an upside cap over a period of approximately three
years, while providing a buffer from S&P 500 Index losses.
The Funds are each actively managed funds that employ a ``defined
outcome strategy'' that seeks to provide investment returns that match
the gains of the S&P 500 Index, up to a
[[Page 46053]]
maximized return (the ``Cap Level''), while guarding against a decline
in the S&P 500 Index, before fees and expenses (the ``Total Buffer
Strategy''). Pursuant to this strategy, each Fund will invest primarily
in exchange-traded options contracts that reference either the S&P 500
Index or ETFs that track the S&P 500 Index. Defined outcome strategies
are designed to participate in market gains and losses within pre-
determined ranges over a specified period (i.e. point to point). These
outcomes are predicated on the assumption that an investment vehicle
employing the strategy is held for the designated outcome periods. The
designated outcome period for the Funds is three years. As such, the
Exchange is proposing to list up to thirty-six monthly series of the
Funds.
The Exchange submits this proposal in order to allow each Fund to
hold listed derivatives, in particular FLexible EXchange Options
(``FLEX Options'') on the S&P 500 Index, in a manner that does not
comply with Rule 14.11(i)(4)(C)(iv)(b).\10\ Otherwise, the Funds will
comply with all other listing requirements of the Generic Listing
Standards \11\ for Managed Fund Shares on an initial and continued
listing basis under Rule 14.11(i).
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\10\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate
gross notional value of listed derivatives based on any five or
fewer underlying reference assets shall not exceed 65% of the weight
of the portfolio (including gross notional exposures), and the
aggregate gross notional value of listed derivatives based on any
single underlying reference asset shall not exceed 30% of the weight
of the portfolio (including gross notional exposures).'' The Funds
do not meet the generic listing standards because they fail to meet
the requirement of Rule 14.11(i)(4)(C)(iv)(b) that prevents the
aggregate gross notional value of listed derivatives based on any
single underlying reference asset from exceeding 30% of the weight
of the portfolio (including gross notional exposures) and the
requirement that the aggregate gross notional value of listed
derivatives based on any five or fewer underlying reference assets
shall not exceed 65% of the weight of the portfolio (including gross
notional exposures).
\11\ For purposes of this proposal, the term ``Generic Listing
Standards'' shall mean the generic listing rules for Managed Fund
Shares under Rule 14.11(i)(4)(C).
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Innovator S&P 500 Total Buffer ETFs
Under Normal Market Conditions,\12\ each Fund will attempt to
achieve its investment objective by employing a Total Buffer Strategy
that will seek to provide investment returns during the outcome period
that match the gains of the S&P 500 Index, up to the Cap Level, while
shielding investors from S&P 500 Index losses, before fees and
expenses. Pursuant to the Total Buffer Strategy, each Fund will invest
primarily in FLEX Options or standardized options contracts listed on a
U.S. exchange that reference either the S&P 500 Index or exchange
traded funds (``ETFs'') that track the S&P 500 Index.
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\12\ As defined in Rule 14.11(i)(3)(E), the term ``Normal Market
Conditions'' includes, but is not limited to, the absence of trading
halts in the applicable financial markets generally; operational
issues causing dissemination of inaccurate market information or
system failures; or force majeure type events such as natural or
man-made disaster, act of God, armed conflict, act of terrorism,
riot or labor disruption, or any similar intervening circumstance.
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The portfolio managers will invest in a portfolio of FLEX Options
linked to an underlying asset, the S&P 500 Index, that, when held for
the specified period, seeks to produce returns that, over the outcome
period, match the positive returns of the S&P 500 Index up to the Cap
Level. Pursuant to the Total Buffer Strategy, each Fund's portfolio
managers will seek to produce the following outcomes during the outcome
period:
If the S&P 500 Index appreciates over the outcome period:
The Fund will seek to provide shareholders with a return that increases
by the percentage increase of the S&P 500 Index over the outcome
period, up to the Cap Level before fees and expenses; and
If the S&P 500 Index decreases by any amount over the
outcome period: The Fund will seek to provide a total return of zero
before fees and expenses.
The Funds will produce these outcomes by layering purchased and
written FLEX Options. The customizable nature of FLEX Options allows
for the creation of a strategy that sets desired target outcome
parameters. The FLEX Options comprising a Fund's portfolio have terms
that, when layered upon each other, are designed to buffer against
losses or match the gains of the S&P 500 Index. However, another effect
of the layering of FLEX Options with these terms is a cap on the level
of possible gains.
Any FLEX Options that are written by a Fund that create an
obligation to sell or buy an asset will be offset with a position in
FLEX Options purchased by the Fund to create the right to buy or sell
the same asset such that the Fund will always be in a net long
position. That is, any obligations of a Fund created by its writing of
FLEX Options will be covered by offsetting positions in other purchased
FLEX Options. As the FLEX Options mature at the end of each outcome
period, they are replaced. By replacing FLEX Options at the end of an
outcome period, each Fund seeks to ensure that investments made at the
commencement of any given outcome period will buffer against negative
returns of the S&P 500 Index, before fees and expenses.
The FLEX Options owned by each of the Funds will have the same
terms (i.e. same strike price and expiration) for all investors of a
Fund within an outcome period. The Cap Level will be determined with
respect to each Fund on the inception date of the Fund and at the
beginning of each outcome period and is determined based on the price
of the FLEX Options acquired by the Fund at that time.
Investment Methodology for the Funds
Under Normal Market Conditions, each Fund will invest primarily in
U.S. exchange-listed FLEX Options on the S&P 500 Index. Each of the
Funds may invest its net assets (in the aggregate) in other investments
which the Adviser or Sub-Adviser believes will help each Fund to meet
its investment objective and that will be disclosed at the end of each
trading day (``Other Assets''). Other Assets include only the
following: Cash or cash equivalents, as defined in Rule
14.11(i)(4)(C)(iii) \13\ and standardized options contracts listed on a
U.S. securities exchange that reference either the S&P 500 Index or
that reference ETFs that track the S&P 500 Index (``Reference ETFs'').
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\13\ As defined in Rule 14.11(i)(4)(C)(iii), cash equivalents
include short-term instruments with maturities of less than three
months, including: (i) U.S. Government securities, including bills,
notes, and bonds differing as to maturity and rates of interest,
which are either issued or guaranteed by the U.S. Treasury or by
U.S. Government agencies or instrumentalities; (ii) certificates of
deposit issued against funds deposited in a bank or savings and loan
association; (iii) bankers acceptances, which are short-term credit
instruments used to finance commercial transactions; (iv) repurchase
agreements and reverse repurchase agreements; (v) bank time
deposits, which are monies kept on deposit with banks or savings and
loan associations for a stated period of time at a fixed rate of
interest; (vi) commercial paper, which are short-term unsecured
promissory notes; and (vii) money market funds.
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S&P 500 Index FLEX Options
The market for options contracts on the S&P 500 Index traded on
Cboe Exchange, Inc. (``Cboe Options'') is among the most liquid markets
in the world. In 2018, more than 1.48 million options contracts on the
S&P 500 Index were traded per day on Cboe Options, which is more than
$350 billion in notional volume traded on a daily basis. While FLEX
Options are traded differently than standardized options contracts, the
Exchange believes that this liquidity bolsters the market for FLEX
Options, as described below. Every FLEX Option order submitted to an
exchange is exposed to a competitive auction process for price
discovery. The process begins with a request for quote (``RFQ'') in
which the interested party establishes the terms of the FLEX
[[Page 46054]]
Options contract. The RFQ solicits interested market participants,
including on-floor market makers, remote market makers trading
electronically, and member firm traders, to respond to the RFQ with
bids or offers through a competitive process. This solicitation
contains all of the contract specifications-underlying, size, type of
option, expiration date, strike price, exercise style and settlement
basis. During a specified amount of time, responses to the RFQ are
received and at the end of that time period, the initiator can decide
whether to accept the best bid or offer. The process occurs under the
rules of the applicable listing exchange which means that customer
transactions are effected according to the principles of a fair and
orderly market following trading procedures and policies developed by
the applicable self-regulatory organization.
The Exchange believes that sufficient protections are in place to
protect against market manipulation of the Funds' Shares and S&P 500
FLEX Options for several reasons: (i) The diversity, liquidity, and
market cap of the securities underlying the S&P 500 Index; (ii) the
competitive quoting process for FLEX Options; (iii) the significant
liquidity in the market for options on the S&P 500 Index results in a
well-established price discovery process that provides meaningful
guideposts for FLEX Option pricing; and (iv) surveillance by the
Exchange, Cboe Options, other U.S. options exchanges, and the Financial
Industry Regulatory Authority (``FINRA'') designed to detect violations
of the federal securities laws and self-regulatory organization
(``SRO'') rules. The Exchange has in place a surveillance program for
transactions in ETFs to ensure the availability of information
necessary to detect and deter potential manipulations and other trading
abuses, thereby making the Shares less readily susceptible to
manipulation. Further, the Exchange believes that because the assets in
each Fund's portfolio, which are comprised primarily of S&P 500 FLEX
Options, will be acquired in extremely liquid and highly regulated
markets,\14\ the Shares are less readily susceptible to manipulation.
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\14\ All exchange-listed securities that the Funds may hold will
trade on a market that is a member of the Intermarket Surveillance
Group (``ISG'') and the Funds will not hold any non-exchange-listed
equities or options, however, not all of the components of the
portfolio for the Funds may trade on exchanges that are members of
the ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. For a list of the current members of
ISG, see www.isgportal.org.
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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 Managed Fund Shares. All
statements and representations made in this filing regarding (a) the
description of the portfolio, reference assets, and index, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules shall constitute continued listing
requirements for listing the Shares on the Exchange. The issuer has
represented to the Exchange that it will advise the Exchange of any
failure by a Fund or the related Shares to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will surveil for compliance with the
continued listing requirements. If a Fund or the related Shares are not
in compliance with the applicable listing requirements, then, with
respect to such Fund or Shares, the Exchange will commence delisting
procedures under Exchange Rule 14.12. FINRA conducts certain cross-
market surveillances on behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for FINRA's performance
under this regulatory services agreement. If a Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures with respect to such Fund under Exchange
Rule 14.12.
The Exchange or FINRA, on behalf of the Exchange, will communicate
as needed regarding trading in the Shares and exchange-traded options
contracts with other markets and other entities that are members of the
ISG and may obtain trading information regarding trading in the Shares
and exchange-traded options contracts from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and exchange-traded options contracts from
markets and other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
As noted above, options on the S&P 500 Index are among the most
liquid options in the world and derive their value from the actively
traded S&P 500 Index components. The contracts are cash-settled with no
delivery of stocks or ETFs, and trade in competitive auction markets
with price and quote transparency. The Exchange believes the highly
regulated options markets and the broad base and scope of the S&P 500
Index make securities that derive their value from that index less
susceptible to market manipulation in view of market capitalization and
liquidity of the S&P 500 Index components, price and quote
transparency, and arbitrage opportunities.
The Exchange believes that the liquidity of the markets for S&P 500
Index securities, options on the S&P 500 Index, and other related
derivatives is sufficiently great to deter fraudulent or manipulative
acts associated with the Funds' Shares price. The Exchange also
believes that such liquidity is sufficient to support the creation and
redemption mechanism. Coupled with the extensive surveillance programs
of the SROs described above, the Exchange does not believe that trading
in the Funds' Shares would present manipulation concerns.
The Exchange represents that, except for the limitations on listed
derivatives in BZX Rule 14.11(i)(4)(C)(iv)(b), the Funds' proposed
investments will satisfy, on an initial and continued listing basis,
all of the generic listing standards under BZX Rule 14.11(i)(4)(C) and
all other applicable requirements for Managed Fund Shares under Rule
14.11(i). The Trust is required to comply with Rule 10A-3 under the Act
for the initial and continued listing of the Shares of the Funds. A
minimum of 100,000 Shares will be outstanding at the commencement of
trading on the Exchange. In addition, the Exchange represents that the
Shares of the Funds will comply with all other requirements applicable
to Managed Fund Shares, which includes the dissemination of key
information such as the Disclosed Portfolio,\15\ Net Asset Value,\16\
and the Intraday Indicative Value,\17\ suspension of trading or
removal,\18\ trading halts,\19\ surveillance,\20\ minimum price
variation for quoting and order entry,\21\ and the information
circular,\22\ as set forth in Exchange rules applicable to Managed Fund
Shares. Further, all statements or representations regarding the
description of the portfolio or reference
[[Page 46055]]
assets, limitations on portfolio holdings or reference assets,
dissemination and availability of index, reference asset, and intraday
indicative values, or the applicability of Exchange listing rules shall
constitute continued listing requirements for the Funds. Moreover, all
of the options contracts held by the Funds will trade on markets that
are a member of ISG or affiliated with a member of ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement. Quotation and last sale information for U.S. exchange-listed
options contracts cleared by The Options Clearing Corporation will be
available via the Options Price Reporting Authority. RFQ information
for FLEX Options will be available directly from the applicable options
exchange. The intra-day, closing and settlement prices of exchange-
traded options will be readily available from the options exchanges,
automated quotation systems, published or other public sources, or
online information services such as Bloomberg or Reuters. Price
information on cash equivalents is available from major broker-dealer
firms or market data vendors, as well as from automated quotation
systems, published or other public sources, or online information
services.
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\15\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
\16\ See Rule 14.11(i)(4)(A)(ii).
\17\ See Rule 14.11(i)(4)(B)(i).
\18\ See Rule 14.11(i)(4)(B)(iii).
\19\ See Rule 14.11(i)(4)(B)(iv).
\20\ See Rule 14.11(i)(2)(C).
\21\ See Rule 14.11(i)(2)(B).
\22\ See Rule 14.11(i)(6).
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Lastly, the issuer represents that it will provide and maintain a
publicly available web tool for each of the Funds on its website that
provides existing and prospective shareholders with important
information to help inform investment decisions. The information
provided includes the start and end dates of the current outcome
period, the time remaining in the outcome period, the Fund's current
net asset value, the Fund's cap for the outcome period and the maximum
investment gain available up to the cap for a shareholder purchasing
Shares at the current net asset value. For each of the Funds, the web
tool also provides information regarding each Fund's buffer. This
information includes the remaining buffer available for a shareholder
purchasing Shares at the current net asset value or the amount of
losses that a shareholder purchasing Shares at the current net asset
value would incur before benefitting from the protection of the buffer.
The cover of each Fund's prospectus, as well as the disclosure
contained in ``Principal Investment Strategies,'' provides the specific
web address for each Fund's web tool.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ 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, because, as noted above, the Shares will meet each of
the initial and continued listing criteria in BZX Rule 14.11(i) with
the exception of Rule 14.11(i)(4)(C)(iv)(b), which requires that the
aggregate gross notional value of listed derivatives based on any five
or fewer underlying reference assets shall not exceed 65% of the weight
of the portfolio (including gross notional exposures), and the
aggregate gross notional value of listed derivatives based on any
single underlying reference asset shall not exceed 30% of the weight of
the portfolio (including gross notional exposures).\25\ Rule
14.11(i)(4)(C)(iv)(b) is intended to ensure that a fund is not subject
to manipulation by virtue of significant exposure to a manipulable
underlying reference asset by establishing concentration limits among
the underlying reference assets for listed derivatives held by a
particular fund.
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\23\ 15 U.S.C. 78f.
\24\ 15 U.S.C. 78f(b)(5).
\25\ As noted above, the Exchange is submitting this proposal
because the Funds would not meet the requirements of Rule
14.11(i)(4)(C)(iv)(b) which prevents the aggregate gross notional
value of listed derivatives based on any single underlying reference
asset from exceeding 30% of the weight of the portfolio (including
gross notional exposures) and the aggregate gross notional value of
listed derivatives based on any five or fewer underlying reference
assets from exceeding 65% of the weight of the portfolio (including
gross notional exposures).
---------------------------------------------------------------------------
The Exchange believes that sufficient protections are in place to
protect against market manipulation of the Funds' Shares and S&P 500
FLEX Options for several reasons: (i) The diversity, liquidity, and
market cap of the securities underlying the S&P 500 Index; (ii) the
competitive quoting process for FLEX Options; (iii) the significant
liquidity in the market for options on the S&P 500 Index results in a
well-established price discovery process that provides meaningful
guideposts for FLEX Option pricing; and (iv) surveillance by the
Exchange, Cboe Options, other U.S. options exchanges, and FINRA
designed to detect violations of the federal securities laws and SRO
rules. The Exchange has in place a surveillance program for
transactions in ETFs to ensure the availability of information
necessary to detect and deter potential manipulations and other trading
abuses, thereby making the Shares less readily susceptible to
manipulation. Further, the Exchange believes that because the assets in
each Fund's portfolio, which are comprised primarily of S&P 500 FLEX
Options, will be acquired in extremely liquid and highly regulated
markets, the Shares are less readily susceptible to manipulation.
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 Managed Fund Shares. All
statements and representations made in this filing regarding (a) the
description of the portfolio, reference assets, and index, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules shall constitute continued listing
requirements for listing the Shares on the Exchange. The issuer has
represented to the Exchange that it will advise the Exchange of any
failure by a Fund or the related Shares to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will surveil for compliance with the
continued listing requirements. If a Fund or the related Shares are not
in compliance with the applicable listing requirements, then, with
respect to such Fund or Shares, the Exchange will commence delisting
procedures under Exchange Rule 14.12. FINRA conducts certain cross-
market surveillances on behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for FINRA's performance
under this regulatory services agreement. If a Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures with respect to such Fund under Exchange
Rule 14.12.
The Exchange or FINRA, on behalf of the Exchange, will communicate
as needed regarding trading in the Shares and exchange-traded options
contracts with other markets and other entities that are members of the
ISG and may obtain trading information regarding trading in the Shares
and exchange-traded options contracts from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and
[[Page 46056]]
exchange-traded options contracts from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. In addition, the Exchange
also has a general policy prohibiting the distribution of material,
non-public information by its employees. As noted above, options on the
S&P 500 Index are among the most liquid options in the world and derive
their value from the actively traded S&P 500 Index components. The
contracts are cash-settled with no delivery of stocks or ETFs, and
trade in competitive auction markets with price and quote transparency.
The Exchange believes the highly regulated options markets and the
broad base and scope of the S&P 500 Index make securities that derive
their value from that index less susceptible to market manipulation in
view of market capitalization and liquidity of the S&P 500 Index
components, price and quote transparency, and arbitrage opportunities.
The Exchange believes that the liquidity of the markets for S&P 500
Index securities, options on the S&P 500 Index, and other related
derivatives is sufficiently great to deter fraudulent or manipulative
acts associated with the Funds' Shares price. The Exchange also
believes that such liquidity is sufficient to support the creation and
redemption mechanism. Coupled with the extensive surveillance programs
of the SROs described above, the Exchange does not believe that trading
in the Funds' Shares would present manipulation concerns.
The Exchange represents that, except as described above, the Funds
will meet and be subject to all other requirements of the Generic
Listing Standards and other applicable continued listing requirements
for Managed Fund Shares under Rule 14.11(i), including those
requirements regarding the Disclosed Portfolio,\26\ Intraday Indicative
Value,\27\ suspension of trading or removal,\28\ trading halts,\29\
disclosure,\30\ and firewalls.\31\ The Trust is required to comply with
Rule 10A-3 under the Act for the initial and continued listing of the
Shares of each Fund. Moreover, all of the options contracts held by the
Funds will trade on markets that are a member of ISG or affiliated with
a member of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
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\26\ See Rule 14.11(i)(4)(B)(ii).
\27\ See Rule 14.11(i)(4)(B)(i).
\28\ See Rule 14.11(i)(4)(B)(iii).
\29\ See Rule 14.11(i)(4)(B)(iv).
\30\ See Rule 14.11(i)(6).
\31\ See Rule 14.11(i)(7).
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Finally, this proposal and the statements or representations herein
regarding the limitations on portfolio holdings or reference assets,
dissemination and availability of index, reference asset, and intraday
indicative values, and the applicability of Exchange listing rules are
substantively identical to those statements and representations
included in the Original Approval and the descriptions of the portfolio
or reference assets are substantially similar to those included in the
Original Approval. The only difference between this proposal and the
Original Approval is that the defined outcome period is three years as
opposed to one year in the Original Approval and the buffer level that
the Funds intend to achieve, neither of which the Exchange believes to
be substantive because they relate only to the investment objective of
the Funds. As such, the Exchange believes the proposed rule change will
not significantly affect the protection of investors or the public
interest because the proposal contains no new issues that the
Commission has not previously contemplated.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of Managed Fund Shares that will enhance competition
among market participants, to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \32\ and Rule 19b-
4(f)(6) thereunder.\33\
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \34\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \35\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative upon filing. The
Exchange represents that the statements or representations made in the
proposed rule change regarding the limitations on portfolio holdings or
reference assets, dissemination and availability of index, reference
asset, and intraday indicative values, and the applicability of
Exchange listing rules are substantively identical to the statements
and representations included in the Original Approval, and the
descriptions of the portfolio or reference assets are substantially
similar to those included in the Original Approval. Further, waiver of
the operative delay would allow the Exchange to facilitate the
Adviser's ability to list the product on the Exchange as soon as
possible, which may enhance competition among market participants, to
the benefit of investors and the marketplace. The Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest. Accordingly, the
Commission hereby waives the operative delay and designates the
proposed rule change operative upon filing.\36\
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\34\ 17 CFR 240.19b-4(f)(6).
\35\ 17 CFR 240.19b-4(f)(6)(iii).
\36\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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
[[Page 46057]]
Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule change should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2019-077 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-2019-077. 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-2019-077, and should be
submitted on or before September 24, 2019.
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\37\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18869 Filed 8-30-19; 8:45 am]
BILLING CODE 8011-01-P
