
[Federal Register Volume 80, Number 220 (Monday, November 16, 2015)]
[Notices]
[Pages 70857-70860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28863]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76394; File No. SR-BATS-2015-56]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of Amendments Nos. 1 and 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change to List and Trade Shares of the 
ProShares Managed Futures Strategy ETF of the ProShares Trust Under 
BATS Rule 14.11 on BATS Exchange, Inc.

November 9, 2015.

I. Introduction

    On July 30, 2015, BATS Exchange, Inc. (``Exchange'' or ``BATS'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to list and trade shares (``Shares'') of the 
ProShares Managed Futures Strategy ETF (``Fund'') of the ProShares 
Trust (``Trust'') under BATS Rule 14.11(i). The proposed rule change 
was published for comment in the Federal Register on August 17, 
2015.\4\ On August 19, 2015, the Exchange filed Amendment No. 1 to the 
proposed rule change, which replaced the proposed rule change in its 
entirety.\5\ On September 4, 2015, the Exchange filed Amendment No. 2 
to the proposed rule change, which replaced the proposed rule change in 
its entirety.\6\ The Commission received no comments on the proposed 
rule change. The Commission is publishing this notice to solicit 
comments on Amendments Nos. 1 and 2 from interested persons, and is 
approving the proposed rule change, as modified by Amendments Nos. 1 
and 2, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 75664 (August 11, 
2015), 80 FR 49288.
    \5\ In Amendment No. 1, the Exchange supplemented the 
information that will be included in the Fund's Disclosed Portfolio, 
clarified the investments that the Fund may hold, clarified how 
certain of the Fund's assets will be valued in calculating the 
Fund's net asset value (``NAV''), and provided additional 
information regarding the availability of price information for the 
assets that the Fund may hold. All amendments to the proposed rule 
change are available at: http://www.sec.gov/comments/sr-bats-2015-56/bats201556-1.pdf.
    \6\ In Amendment No. 2, the Exchange modified the description of 
the swaps that the Fund may hold and the availability of intraday 
price information for assets that the Fund may hold.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under BATS Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange. The Exchange deems the Shares to be equity securities, 
thus rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities.
    The Shares will be offered by the Trust, which is established as a 
Delaware statutory trust. The Trust is registered with the Commission 
as an open-end investment company and has filed a registration 
statement on behalf of the Fund on Form N-1A (``Registration 
Statement'') with the Commission.\7\ ProShare Advisors LLC is the 
investment adviser (``Adviser'') to the Fund. JPMorgan Chase Bank, 
National Association is the

[[Page 70858]]

administrator, custodian, fund account agent, index receipt agent and 
transfer agent for the Trust. SEI Investments Distribution Co. serves 
as the distributor for the Trust. The Exchange represents that the 
Adviser is not a registered broker-dealer but is affiliated with a 
broker-dealer, and in the future may affiliate with other broker-
dealers, and has implemented a fire wall with respect to such broker-
dealer regarding access to information concerning the composition and/
or changes to the Fund's portfolio.\8\ The Exchange further represents 
that Adviser personnel who make decisions regarding the Fund's 
portfolio are subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the Fund's 
portfolio.\9\
---------------------------------------------------------------------------

    \7\ See Registration Statement on Form N-1A for the Trust, dated 
May 31, 2013 (File Nos. 333-98922 and 811-21114). See also 
Investment Company Act Release No. 30562 (June 18, 2013) (File No. 
812-14041).
    \8\ See Amendment No. 2, supra note 6, at 29.
    \9\ See id. at 6; see also BATS Rule 14.11(i)(7). The Exchange 
also represents that in the event that (a) the Adviser becomes 
registered as a broker-dealer or newly affiliated with another 
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 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 Exchange's Description of the Fund \10\
---------------------------------------------------------------------------

    \10\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, investment strategies, risks, 
NAV calculation, creation and redemption procedures, fees and 
expenses, portfolio holdings disclosure policies, distributions, and 
taxes, among other information, is included in the Amendment No. 2 
and Registration Statement. See supra notes 6 and 8, respectively.
---------------------------------------------------------------------------

    The Fund will generally seek exposure to the commodity and 
financial markets included in the S&P[supreg] Strategic Futures Index 
(``Index''),\11\ but the Fund is not an index tracking ETF and will 
generally seek to enhance its performance by actively selecting 
investments for the Fund with varying maturities from the underlying 
components of the Index.
---------------------------------------------------------------------------

    \11\ The Index seeks to reflect trends (in either direction) in 
the commodity, foreign currency and fixed income markets by taking 
long or short positions in the related futures contracts.
---------------------------------------------------------------------------

    Under normal market conditions,\12\ the Fund will invest at least 
80% of its assets directly, or indirectly through ProShares Cayman 
Trust I (``Subsidiary''),\13\ a wholly-owned subsidiary of the Fund, in 
the exchange-listed futures contracts included in the Index, which 
include commodity futures, currency futures, and U.S. Treasury futures 
(collectively, ``Futures Contracts''). The Fund may also invest in 
swaps \14\ if the market for a specific Futures Contract experiences 
emergencies (e.g., natural disaster, terrorist attack, or an act of 
God) or disruptions (e.g., a trading halt or a flash crash) that would 
prevent the Fund from obtaining the appropriate amount of investment 
exposure to the affected Futures Contracts or other futures contracts 
directly.
---------------------------------------------------------------------------

    \12\ The term ``under normal market conditions'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the fixed income markets, futures markets or the financial 
markets generally; operational issues causing dissemination of 
inaccurate market information; or force majeure type events such as 
systems failure, natural or manmade disaster, act of God, armed 
conflict, act of terrorism, riot or labor disruption or any similar 
intervening circumstance.
    \13\ The Subsidiary will be advised by the Adviser and will have 
the same investment objective as the Fund. The Fund's investment in 
the Subsidiary is intended to provide the Fund with exposure to 
markets (in general, the commodity markets) within the limits of 
current federal income tax laws applicable to investment companies 
such as the Fund, which limit the ability of investment companies to 
invest directly in certain Futures Contracts. Generally, references 
to the Fund's investments may also be deemed to include the Fund's 
indirect investments through the Subsidiary. The Fund will invest up 
to 25% of its total assets in the Subsidiary.
    \14\ The Fund may invest in swap agreements whose value is 
derived from the level of the Benchmark, one or more Futures 
Contracts or from the reference assets underlying one or more of 
such Futures Contracts.
---------------------------------------------------------------------------

    The Fund may also invest up to 100% of its assets in cash or cash 
equivalents such as U.S. Treasury securities or other high credit 
quality short-term fixed-income or similar securities (including shares 
of money market funds, bank deposits, bank money market accounts, 
certain variable rate-demand notes, and repurchase agreements 
collateralized by government securities) for direct investment or as 
collateral for the Futures Contracts or swap agreements. The Fund will 
use the fixed-income securities as investments and to meet asset 
coverage tests resulting from the Subsidiary's derivative exposure on a 
day-to-day basis.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\15\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\16\ which requires, among other things, that the Exchange's rules 
be designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission also finds that the proposal to list and trade the 
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of 
the Exchange Act,\17\ which sets forth Congress' finding that it is in 
the public interest and appropriate for the protection of investors and 
the maintenance of fair and orderly markets to assure the availability 
to brokers, dealers and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available on the facilities of the 
Consolidated Tape Association (``CTA''). Information regarding market 
price and volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services. The previous day's closing price and trading 
volume information for the Shares will be generally published daily in 
the print and online financial press. The Web site for the Fund will 
include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    Intraday price quotations on repurchase agreements and U.S. 
Government securities of the type held by the Fund are available from 
major broker-dealer firms and from third-parties, which may provide 
prices free with a time delay, or ``live'' with a paid fee. Major 
broker-dealer firms will also provide intraday quotes on swaps of the 
type held by the Fund.\18\ Pricing information related to money market 
fund shares will be available through issuer Web sites and publicly 
available quotation services.\19\ For Futures Contracts, such intraday 
information is available directly from the applicable listing exchange. 
Intraday price information is also available through subscription 
services, such as Bloomberg and Thomson Reuters, which can be accessed 
by authorized participants and other investors.\20\
---------------------------------------------------------------------------

    \18\ See Amendment No. 2, supra note 6, at 25.
    \19\ See id.
    \20\ See id. at 31.
---------------------------------------------------------------------------

    On each business day, before commencement of trading in Shares 
during Regular Trading Hours on the Exchange, the Fund will disclose on 
its

[[Page 70859]]

Web site the identities and quantities of the portfolio Futures 
Contracts and other assets (``Disclosed Portfolio'') held by the Fund 
that will form the basis for the Fund's calculation of NAV at the end 
of the business day.\21\ In addition, for the Fund, an estimated value, 
defined in BATS Rule 14.11(i)(3)(C) as the ``Intraday Indicative 
Value,'' that reflects an estimated intraday value of the Fund's 
portfolio, will be disseminated. The Intraday Indicative Value will be 
based upon the current value for the components of the Disclosed 
Portfolio and will be updated and widely disseminated by one or more 
major market data vendors at least every 15 seconds during the 
Exchange's Regular Trading Hours.\22\
---------------------------------------------------------------------------

    \21\ The Disclosed Portfolio will include, as applicable: ticker 
symbol or other identifier, a description of the holding, identity 
of the asset upon which the derivative is based, the strike price 
for any options, the quantity of each security or other asset held 
as measured by select metrics, maturity date, coupon rate, effective 
date, market value and percentage weight of the holding in the 
portfolio. The Web site and information will be publicly available 
at no charge. Under accounting procedures to be followed by the 
Fund, trades made on the prior business day (``T'') will be booked 
and reflected in NAV on the current business day (``T+1''). 
Accordingly, the Fund will be able to disclose at the beginning of 
the business day the portfolio that will form the basis for the NAV 
calculation at the end of the business day.
    \22\ It is the Exchange's current understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the CTA or other data 
feeds. See id. at 24, n.20.
---------------------------------------------------------------------------

    The Commission also believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.\23\ 
The Exchange will halt trading in the Shares under the conditions 
specified in BATS Rule 11.18. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) The extent to 
which trading is not occurring in the Futures Contracts and other 
assets composing the Disclosed Portfolio of the Fund; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in the 
Shares also will be subject to Rule 14.11(i)(4)(B)(iv), which sets 
forth circumstances under which Shares of the Fund may be halted. The 
Exchange prohibits the distribution of material non-public information 
by its employees. The Exchange represents that the Adviser is not a 
registered broker-dealer, but is affiliated with a broker-dealer, and 
in the future may affiliate with other broker-dealers, and has 
implemented a fire wall with respect to such broker-dealer regarding 
access to information concerning the composition and/or changes to the 
Fund's portfolio.\24\ The Exchange further represents that Adviser 
personnel who make decisions regarding the Fund's portfolio are subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the Fund's portfolio.\25\ In addition, 
the Commission notes that, consistent with BATS Rule 
14.11(i)(4)(B)(ii)(b), the Reporting Authority, as defined in BATS Rule 
14.11(i)(3)(D), must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the actual components of the 
portfolio. The Exchange may obtain information regarding trading in the 
Shares and the underlying shares in exchange traded equity securities 
via the Intermarket Surveillance Group (``ISG''), from other exchanges 
that are members or affiliates of the ISG, or with which the Exchange 
has entered into a comprehensive surveillance sharing agreement.\26\ In 
addition, the Exchange is able to access, as needed, trade information 
for certain fixed income instruments reported to FINRA's Trade 
Reporting and Compliance Engine.
---------------------------------------------------------------------------

    \23\ See id. at 25.
    \24\ See id. at 29.
    \25\ See id. at 6.
    \26\ For a list of the current members of ISG, see 
www.isgportal.org. All of the Futures Contracts held by the Fund 
will trade on markets that are a member of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement. See id. at 27, n.22.
---------------------------------------------------------------------------

    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Shares will be subject to BATS Rule 14.11(i), which sets 
forth the initial and continued listing criteria applicable to Managed 
Fund Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading of the Shares through the Exchange will be subject to 
the Exchange's surveillance procedures for derivative products, 
including Managed Fund Shares, and that these 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.
    (4) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) BATS Rule 3.7, which imposes 
suitability obligations on Exchange members with respect to 
recommending transactions in the Shares to customers; (c) how 
information regarding the Intraday Indicative Value is disseminated; 
(d) the risks involved in trading the Shares during the Pre-Opening 
\27\ and After Hours Trading Sessions \28\ when an updated Intraday 
Indicative Value will not be calculated or publicly disseminated; (e) 
the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (f) trading information.
---------------------------------------------------------------------------

    \27\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \28\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    (5) For initial and/or continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act.\29\
---------------------------------------------------------------------------

    \29\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (6) As it relates to futures contracts, all Futures Contracts in 
the Disclosed Portfolio for the Fund will trade on markets that are a 
member of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    (7) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Notice. For 
the foregoing reasons, the Commission finds that the proposed rule 
change, as modified by Amendments Nos. 1 and 2, is consistent with 
Section 6(b)(5) of the Act \30\ and the rules and regulations 
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendments Nos. 1 and 2

    Interested persons are invited to submit written data, views, and

[[Page 70860]]

arguments concerning whether Amendments Nos. 1 and 2 are consistent 
with the Act. Comments may be submitted by any of the following 
methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2015-56 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-BATS-2015-56. 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 Web site (http://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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BATS-2015-56 and should be 
submitted on or before December 7, 2015.

V. Accelerated Approval of Proposed Rule Change as Modified by 
Amendments Nos. 1 and 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendments Nos. 1 and 2, prior to the thirtieth 
day after the date of publication of notice in the Federal Register. No 
comments were received after publication of the Notice. Amendments Nos. 
1 and 2 only supplement the proposed rule change by clarifying certain 
points and providing additional detail. Therefore, the Commission finds 
good cause, pursuant to Section 19(b)(2) of the Act,\31\ to approve the 
proposed rule change, as modified by Amendments Nos. 1 and 2 on an 
accelerated basis.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\32\ that the proposed rule change (SR-BATS-2015-56), as 
modified by Amendment Nos. 1 and 2, is hereby approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(2).
    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-28863 Filed 11-13-15; 8:45 am]
BILLING CODE 8011-01-P


