
[Federal Register Volume 81, Number 66 (Wednesday, April 6, 2016)]
[Notices]
[Pages 20016-20021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07832]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77487; File No. SR-BATS-2015-105]


Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment 
Nos. 1, 2, and 3 Thereto, To List and Trade Shares of the Elkhorn S&P 
GSCI Dynamic Roll Commodity ETF of Elkhorn ETF Trust

March 31, 2016.

I. Introduction

    On December 18, 2015, BATS Exchange, Inc. (``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Elkhorn S&P GSCI Dynamic Roll Commodity ETF (``Fund'') of Elkhorn ETF 
Trust (``Trust'') under BATS Rule 14.11(i). The proposed rule change 
was published for comment in the Federal Register on January 4, 
2016.\3\ On February 17, 2016, pursuant to Section 19(b)(2) of the 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On February 18, 2016, the Exchange filed 
Amendment No. 1 to the proposed rule change.\6\ On February 24, 2016, 
the Exchange filed Amendment No. 2 to the proposed rule change.\7\ On 
March 22, 2016, the Exchange filed Amendment No. 3 to the proposed rule 
change.\8\ The Commission received no comments on the proposal. This 
order grants approval of the proposed rule change, as modified by 
Amendment Nos. 1, 2, and 3 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76776 (Dec. 28, 
2015), 81 FR 120 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 77159, 81 FR 9041 
(Feb. 23, 2016). The Commission designated April 1, 2016 as the date 
by which the Commission shall either approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change. See id.
    \6\ In Amendment No. 1, which amended and replaced the proposed 
rule change in its entirety, the Exchange clarified the scope of the 
non-exchange-traded investment companies, futures, and exchange-
traded options on futures to be held by the Fund and the Subsidiary. 
Because Amendment No. 1 to the proposed rule change does not 
materially alter the substance of the proposed rule change or raise 
unique or novel regulatory issues, Amendment No. 1 is not subject to 
notice and comment (Amendment No. 1 to the proposed rule change is 
available at: https://www.sec.gov/comments/sr-bats-2015-105/bats2015105-2.pdf).
    \7\ In Amendment No. 2, which amended and replaced the proposed 
rule change, as modified by Amendment No. 1 thereto, in its 
entirety, the Exchange clarified: (a) That the Fund and the 
Subsidiary would not invest in leveraged or inverse leveraged 
securities of investment companies; (b) that the commodity-linked 
instruments in which the Fund invests will be listed and traded in 
the U.S. on registered exchanges; (c) that, for surveillance, the 
Exchange would be able to obtain information regarding trading in 
the underlying commodity-linked instruments; and (d) the scope of 
exchange-traded options on futures contracts to be held by the Fund 
and Subsidiary. Because Amendment No. 2 to the proposed rule change 
does not materially alter the substance of the proposed rule change 
or raise unique or novel regulatory issues, Amendment No. 2 is not 
subject to notice and comment (Amendment No. 2 to the proposed rule 
change is available at: https://www.sec.gov/comments/sr-bats-2015-105/bats2015105-1.pdf).
    \8\ In Amendment No. 3 to the proposed rule change, the Exchange 
clarified that: (a) All statements and representations made in the 
proposal shall constitute continued listing requirements for listing 
the Shares on the Exchange; (b) the issuer will advise the Exchange 
of any failure by the Fund to comply with the continued listing 
requirements; (c) pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will surveil for compliance with the 
continued listing requirements; and (d) if the Fund is not in 
compliance with the applicable listing requirements, the Exchange 
will commence delisting procedures under Exchange Rule 14.12. 
Because Amendment No. 3 does not materially alter the substance of 
the proposed rule change or raise unique or novel regulatory issues, 
Amendment No. 3 is not subject to notice and comment (Amendment No. 
3 to the proposed rule change is available at: https://www.sec.gov/comments/sr-bats-2015-105/bats2015105-3.pdf).

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[[Page 20017]]

II. Exchange's Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares of the Fund 
pursuant to BATS Rule 14.11(i), which governs the listing and trading 
of Managed Fund Shares on the Exchange. The Shares will be offered by 
the Trust, which was established as a Massachusetts business trust on 
December 12, 2013.\9\ Elkhorn Investments, LLC will be the investment 
adviser (``Adviser'') to the Fund. It is currently anticipated that 
day-to-day portfolio management for the Fund will be provided by the 
Adviser. However, the Fund and the Adviser may contract with an 
investment sub-adviser (``Sub-Adviser'') to provide day-to-day 
portfolio management for the Fund. ALPS Distributors, Inc. will be the 
principal underwriter and distributor of the Fund's Shares. The Fund 
will contract with unaffiliated third parties to provide 
administrative, custodial and transfer agency services to the Fund. The 
Exchange represents the Adviser is not a broker-dealer, but is 
affiliated with a broker-dealer, and it has implemented a fire wall 
with respect to its broker-dealer affiliate regarding access to 
information concerning the composition of, or changes to, the Fund's 
portfolio.\10\
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    \9\ The Exchange represents that the Trust is registered under 
the Investment Company Act of 1940 (``1940 Act''). See Registration 
Statement on Form N-1A for the Trust, dated November 10, 2015 (File 
Nos. 333-201473 and 811-22926) (``Registration Statement''). The 
Exchange further states that the Trust has obtained certain 
exemptive relief under the 1940 Act.
    \10\ See BATS Rule 14.11(i)(7). The Exchange further represents 
that, in the event that (a) the Adviser or a Sub-Adviser becomes, or 
becomes newly affiliated with, a broker-dealer or registers as 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 a fire wall with respect to its relevant personnel or such 
broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition of, 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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A. Exchange's Description of the Fund's Investments \11\
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    \11\ The Commission notes that additional information regarding 
the Fund, the Trust, the Subsidiary (as defined herein), and the 
Shares, including investment strategies, risks, creation and 
redemption procedures, fees, portfolio holdings disclosure policies, 
calculation of net asset value (``NAV''), distributions, and taxes, 
among other things, can be found in the Notice and the Registration 
Statement, as applicable. See Notice and Registration Statement, 
supra notes 3 and 9, respectively.
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    According to the Exchange, the Fund's investment objective will be 
to provide total return which exceeds that of the S&P GSCI Dynamic Roll 
Index (``Benchmark'') \12\ consistent with prudent investment 
management.\13\ The Fund will seek excess return above the Benchmark 
through the active management of a short duration portfolio of highly 
liquid, high quality bonds.
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    \12\ The Benchmark is developed, maintained, and sponsored by 
S&P Dow Jones Indices LLC (``S&P Indices'').
    \13\ According to the Exchange, the Benchmark currently contains 
24 commodity futures on physical commodities across five sectors: 
energy, agriculture; livestock; industrial metals; and precious 
metals. See Notice, supra note 3 (providing additional information 
regarding the Benchmark and its components, including a table 
describing each of the commodities underlying the futures contracts 
included in the Benchmark as of October 31, 2015, and each 
instrument's trading hours, exchange, and ticker symbol).
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    The Fund will be an actively managed fund that seeks to achieve its 
investment objective by investing, under normal market conditions,\14\ 
in exchange-traded commodity futures contracts, centrally cleared and 
non-centrally cleared swaps,\15\ exchange-traded options on futures 
contracts, and exchange-traded commodity-linked instruments \16\ 
(collectively, ``Commodities'') through a wholly-owned subsidiary 
controlled by the Fund and organized under the laws of the Cayman 
Islands (``Subsidiary''), thereby obtaining exposure to the commodities 
markets.
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    \14\ 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 man-made disaster, act of God, armed 
conflict, act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
    \15\ Investments in non-centrally cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net 
assets. When investing in non-centrally cleared swaps, the 
Subsidiary will seek, where possible, to use counterparties, as 
applicable, whose financial status is such that the risk of default 
is reduced; however, the risk of losses resulting from default is 
still possible. The Adviser and/or a Sub-Adviser will evaluate the 
creditworthiness of counterparties on an ongoing basis. In addition 
to information provided by credit agencies, the Adviser's and/or a 
Sub-Adviser's analysis will evaluate each approved counterparty 
using various methods of analysis and may consider such factors as 
the counterparty's liquidity, its reputation, the Adviser's and/or a 
Sub-Adviser's past experience with the counterparty, its known 
disciplinary history and its share of market participation.
    \16\ Exchange-traded commodity-linked instruments include only 
the following: (1) Funds that provide exposure to commodities as 
would be listed under Exchange Rules 14.11(b), (c), and (i); and (2) 
pooled investment vehicles that invest primarily in commodities and 
commodity-linked instruments as would be listed under Exchange Rules 
14.11(d) and 14.11(e)(2), (4), (6), (7), (8), (9), and (10).
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    The Fund's Commodities investments, in part, will be comprised of 
exchange-traded futures contracts on commodities that comprise the 
Benchmark. Although the Fund, through the Subsidiary, will generally 
hold many of the futures contracts included in the Benchmark, the Fund 
and the Subsidiary will be actively managed and will not be obligated 
to invest in all of (or to limit investments solely to) such futures 
contracts. In addition, with respect to investments in exchange-traded 
futures contracts, the Fund and the Subsidiary will not be obligated to 
invest in the same amount or proportion as the Benchmark, or be 
obligated to track the performance of the Benchmark. In addition to 
exchange-traded futures contracts, the Fund's Commodities investments 
will also be comprised of the following: centrally cleared and non-
centrally cleared swaps on commodities; exchange-traded options on 
futures contracts that provide exposure to the investment returns of 
the commodities markets; and exchange-traded commodity-linked 
instruments, without investing directly in physical commodities.
    The Fund will invest in Commodities through investments in the 
Subsidiary and will not invest directly in physical commodities. The 
Fund's investment in the Subsidiary may not exceed 25% of the Fund's 
total assets. In addition to Commodities, the Fund's assets will be 
invested in: (1) short-term, investment grade fixed income securities, 
including only the following instruments: U.S. government and agency 
securities,\17\ corporate debt obligations,\18\ and repurchase 
agreements;\19\ (2) money market instruments; \20\ (3) investment

[[Page 20018]]

companies (other than those that are commodity-linked instruments),\21\ 
including both exchange traded and non-exchange-traded investment 
companies, that provide exposure to commodities, equity securities, and 
fixed income securities to the extent permitted under the 1940 Act and 
any applicable exemptive relief; \22\ (4) certain bank instruments; 
\23\ and (5) cash and other cash equivalents (collectively, ``Other 
Investments''). The Fund will use the Other Investments as investments, 
to provide liquidity, and to collateralize the Subsidiary's commodity 
exposure on a day-to-day basis.
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    \17\ Such securities are securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which have been 
established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
    \18\ At least 75% of corporate debt obligations will have a 
minimum principal amount outstanding of $100 million or more.
    \19\ The Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Adviser and/
or a Sub-Adviser to present minimal credit risks in accordance with 
criteria approved by the Trust's Board of Trustees (``Board''). The 
Adviser and/or a Sub-Adviser will review and monitor the 
creditworthiness of such institutions. The Adviser and/or a Sub-
Adviser will monitor the value of the collateral at the time the 
transaction is entered into and at all times during the term of the 
repurchase agreement.
    \20\ For the Fund's purposes, money market instruments will 
include only the following instruments: short-term, high-quality 
securities issued or guaranteed by non-U.S. governments, agencies 
and instrumentalities; non-convertible corporate debt securities 
with remaining maturities of not more than 397 days that satisfy 
ratings requirements under Rule 2a-7 under the 1940 Act; money 
market mutual funds; and deposits and other obligations of U.S. and 
non-U.S. banks and financial institutions. In addition, the Fund may 
invest in commercial paper (short-term unsecured promissory notes), 
but only if the commercial paper has received the highest rating 
from at least one nationally recognized statistical rating 
organization or, if unrated, has been judged by the Adviser and/or a 
Sub-Adviser to be of comparable quality.
    \21\ According to the Exchange, the Fund may invest in the 
securities of certain other investment companies in excess of the 
limits imposed under the 1940 Act pursuant to an exemptive order 
obtained by the Trust and the Adviser from the Commission. The 
exchange-traded investment companies in which the Fund may invest 
include Index Fund Shares (as described in Rule 14.11(c)), Portfolio 
Depository Receipts (as described in Rule 14.11(b)), and Managed 
Fund Shares (as described in Rule 14.11(i)). The non-exchange-traded 
investment companies in which the Fund may invest include all non-
exchange-traded investment companies that are not money market 
mutual funds, as described above. While the Fund and the Subsidiary 
may invest in inverse commodity-linked instruments and securities of 
investment companies, the Fund and the Subsidiary will not invest in 
leveraged or inverse leveraged (e.g., 2X or -3X) commodity-linked 
instruments or securities of investment companies.
    \22\ The exchange-traded investment companies and commodity-
linked instruments in which the Fund invests will be listed and 
traded in the U.S. on registered exchanges.
    \23\ The term ``certain bank instruments'' includes only the 
following instruments: certificates of deposit issued against funds 
deposited in a bank or savings and loan association; bankers' 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; and 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.
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    The Fund's investment in the Subsidiary will be designed to help 
the Fund achieve exposure to commodity returns in a manner consistent 
with the federal tax requirements applicable to the Fund and other 
regulated investment companies. The Fund intends to qualify for, and to 
elect to be treated as, a separate regulated investment company under 
Subchapter M of the Internal Revenue Code.

B. Exchange's Description of the Subsidiary's Investments

    The Subsidiary will generally seek to make investments in 
Commodities, and its portfolio will be managed by the Adviser or a Sub-
Adviser.\24\ The Adviser or a Sub-Adviser will use its discretion to 
determine the percentage of the Fund's assets allocated to the 
Commodities held by the Subsidiary that will be invested in exchange-
traded commodity futures contracts, centrally cleared and non-centrally 
cleared swaps, exchange-traded options on futures contracts, and 
exchange-traded commodity-linked instruments. In this regard, under 
normal market conditions, the Subsidiary is expected, as a general 
matter, to invest in futures contracts in proportional weights and 
allocations that are similar to the Benchmark, as well as in the other 
Commodities. Additionally, the Subsidiary, like the Fund, may invest in 
Other Investments (e.g., as investments, to serve as margin or 
collateral, or to otherwise support the Subsidiary's positions in 
Commodities).
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    \24\ The Exchange states that the Subsidiary will not be 
registered under the 1940 Act and will not be directly subject to 
its investor protections, except as noted in the Registration 
Statement. However, the Subsidiary will be wholly-owned and 
controlled by the Fund. Therefore, the Fund's ownership and control 
of the Subsidiary will prevent the Subsidiary from taking action 
contrary to the interests of the Fund or its shareholders. The Board 
will have oversight responsibility for the investment activities of 
the Fund, including its expected investment in the Subsidiary, and 
the Fund's role as the sole shareholder of the Subsidiary. The 
Subsidiary will also enter into separate contracts for the provision 
of custody, transfer agency, and accounting agent services with the 
same or with affiliates of the same service providers that provide 
those services to the Fund.
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    The Fund's investment in the Subsidiary is intended to provide the 
Fund with exposure to 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 the derivative instruments. The Subsidiary will have the 
same investment objective as the Fund, but unlike the Fund, it may 
invest without limitation in Commodities. The Subsidiary's investments 
will provide the Fund with exposure to domestic and international 
markets.

C. Exchange's Description of Commodities Regulation

    The Commodity Futures Trading Commission (``CFTC'') has adopted 
substantial amendments to CFTC Rule 4.5 relating to the permissible 
exemptions and conditions for reliance on exemptions from registration 
as a commodity pool operator. As a result of the instruments that will 
be indirectly held by the Fund, the Adviser will register as a 
commodity pool operator and will also become a member of the National 
Futures Association (``NFA''). Any Sub-Adviser will register as a 
commodity pool operator or commodity trading adviser, as required by 
CFTC regulations. The Fund and the Subsidiary will be subject to 
regulation by the CFTC and NFA and additional disclosure, reporting, 
and recordkeeping rules imposed upon commodity pools.

D. Exchange's Description of the Fund's Investment Restrictions

    While the Fund will be permitted to borrow as permitted under the 
1940 Act, the Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (i.e., 2X and -3X) of the 
Benchmark. In addition, the Fund may not invest more than 25% of the 
value of its total assets in securities of issuers in any one industry 
or group of industries. This restriction will not apply to obligations 
issued or guaranteed by the U.S. government, its agencies or 
instrumentalities, or securities of other investment companies.
    The Subsidiary's shares will be offered only to the Fund, and the 
Fund will not sell shares of the Subsidiary to other investors. The 
Fund and the Subsidiary will not invest in any non-U.S. equity 
securities (other than shares of the Subsidiary). The Fund will not 
purchase securities of open-end or closed-end investment companies, 
except in compliance with the 1940 Act or any applicable exemptive 
relief. In addition, the Exchange represents that, with respect to the 
futures contracts and exchange-traded options on futures contracts in 
which the Subsidiary invests, not more than 10% of the weight (to be 
calculated as the value of the contract divided by the total absolute 
notional value of the Subsidiary's futures and options contracts) of 
the futures and options contracts held by the Subsidiary, in the 
aggregate, shall consist of instruments whose principal trading market 
is a market from which the Exchange may not obtain information 
regarding trading in the futures contracts and exchange-traded options 
on futures contracts by virtue of: (a) Its membership in the 
Intermarket Surveillance Group (``ISG''); or (b) a comprehensive 
surveillance sharing agreement.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including securities deemed illiquid by the Adviser.\25\ The

[[Page 20019]]

Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets, as determined in 
accordance with Commission staff guidance.
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    \25\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \26\ and the rules and regulations thereunder applicable to a 
national securities exchange.\27\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\28\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \26\ 15 U.S.C. 78f.
    \27\ 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).
    \28\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\29\ which sets forth the finding 
of Congress 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''). An estimated value, defined in BATS Rule 14.11(i)(3)(C) as 
the Intraday Indicative Value (``IIV''), that reflects an estimated 
intraday value of the Fund's portfolio (including the Subsidiary's 
portfolio), will be disseminated. The IIV will be based upon the 
current value for the components of the Disclosed Portfolio (as defined 
below) and will be updated and widely disseminated by one or more major 
market data vendors and broadly displayed at least every 15 seconds 
during the Exchange's Regular Trading Hours.\30\ On each business day, 
before commencement of trading in Shares during Regular Trading 
Hours,\31\ the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities, Commodities, and other 
assets (``Disclosed Portfolio'' as defined in Rule 14.11(i)(3)(B)) held 
by the Fund and the Subsidiary that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\32\ The NAV of the 
Fund's Shares generally will be calculated once daily Monday through 
Friday as of the close of regular trading on the New York Stock 
Exchange, generally 4:00 p.m. Eastern Time.\33\ Additionally, 
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 
also be published daily in the financial section of newspapers. Intra-
day executable price quotations on the securities and other assets held 
by the Fund and the Subsidiary will be available from major broker-
dealer firms or on the exchange on which they are traded, as 
applicable. Intra-day price information on the securities and other 
assets held by the Fund and the Subsidiary will also be available 
through subscription services,

[[Page 20020]]

such as Bloomberg and Thomson Reuters, which can be accessed by 
authorized participants and other investors.\34\ Daily trading volume 
information for the Fund will also be available in the financial 
section of newspapers, through subscription services such as Bloomberg, 
Thomson Reuters, and International Data Corporation, which can be 
accessed by authorized participants and other investors, as well as 
through other electronic services, including major public Web sites. 
The Fund's Web site will include a form of the prospectus for the Fund 
and additional data relating to NAV and other applicable quantitative 
information. Information relating to the Benchmark, including its 
constituents, weightings, and changes to its constituents, will be 
available on the Web site of S&P Indices.
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    \29\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \30\ According to the Exchange, several major market data 
vendors display and/or make widely available Intraday Indicative 
Values published via the CTA or other data feeds.
    \31\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \32\ According to the Exchange, the Fund's disclosure of 
derivative positions in the Disclosed Portfolio will include 
information that market participants can use to value these 
positions intraday. On a daily basis, the Disclosed Portfolio 
displayed on the Fund's Web site will include the following 
information regarding each portfolio holding, as applicable to the 
type of holding: Ticker symbol, CUSIP number or other identifier, if 
any; a description of the holding (including the type of holding, 
such as the type of swap), the identity of the security, commodity, 
or other asset or instrument underlying the holding, if any; for 
options, the option strike price; quantity held (as measured by, for 
example, par value, notional value, or number of shares, contracts, 
or units); maturity date, if any; coupon rate, if any; effective 
date, if any; market value of the holding; and percentage weighting 
of the holding in the Fund's portfolio. The Web site and information 
will be publicly available at no charge.
    \33\ In determining the value of the assets held by the Fund and 
the Subsidiary, the Fund's and the Subsidiary's investments will be 
generally valued using market valuations. A market valuation 
generally means a valuation (i) obtained from an exchange, a pricing 
service, or a major market maker (or dealer), (ii) based on a price 
quotation or other equivalent indication of value supplied by an 
exchange, a pricing service, or a major market maker (or dealer), or 
(iii) based on amortized cost. The Fund and the Subsidiary may use 
various pricing services or discontinue the use of any pricing 
service. A price obtained from a pricing service based on such 
pricing service's valuation matrix may be considered a market 
valuation. If available, debt securities and money market 
instruments with maturities of more than 60 days will typically be 
priced based on valuations provided by independent, third party 
pricing agents. Such values will generally reflect the last reported 
sales price if the security is actively traded. The third party 
pricing agents may also value debt securities at an evaluated bid 
price by employing methodologies that utilize actual market 
transactions, broker supplied valuations, or other methodologies 
designed to identify the market value for such securities. Debt 
obligations with remaining maturities of 60 days or less may be 
valued on the basis of amortized cost, which approximates market 
value. If such prices are not available, the security will be valued 
based on values supplied by independent brokers or by fair value 
pricing, as described below. Futures contracts will be valued at the 
settlement price established each day by the board or exchange on 
which they are traded. Exchange-traded options will be valued at the 
closing price in the market where such contracts are principally 
traded. Swaps will be valued based on valuations provided by 
independent, third-party pricing agents. Securities of non-exchange-
traded investment companies will be valued at NAV. Equity securities 
listed on a securities exchange (including exchange-traded commodity 
linked instruments and exchange-traded investment companies), market 
or automated quotation system for which quotations are readily 
available (except for securities traded on The NASDAQ Stock Market 
LLC (``NASDAQ'') and the London Stock Exchange Alternative 
Investment Market (``LSE AIM'')) will be valued at the last reported 
sale price on the primary exchange or market on which they are 
traded on the valuation date (or at approximately 4:00 p.m. Eastern 
Time if a security's primary exchange is normally open at that 
time). For a security that trades on multiple exchanges, the primary 
exchange will generally be considered to be the exchange on which 
the security generally has the highest volume of trading activity. 
If it is not possible to determine the last reported sale price on 
the relevant exchange or market on the valuation date, the value of 
the security will be taken to be the most recent mean between the 
bid and asked prices on such exchange or market on the valuation 
date. Absent both bid and asked prices on such exchange, the bid 
price may be used. For securities traded on NASDAQ or LSE AIM, the 
official closing price will be used. If such prices are not 
available, the security will be valued based on values supplied by 
independent brokers or by fair value pricing, as described below. 
The prices for foreign instruments will be reported in local 
currency and converted to U.S. dollars using currency exchange 
rates. Exchange rates will be provided daily by recognized 
independent pricing agents. In the event that current market 
valuations are not readily available or such valuations do not 
reflect current market values, the affected investments will be 
valued using fair value pricing pursuant to the pricing policy and 
procedures approved by the Board in accordance with the 1940 Act. 
Fair value pricing may require subjective determinations about the 
value of an asset and may result in prices that differ from the 
value that would be realized if the asset was sold.
    \34\ More specifically, the Exchange represents that pricing 
information for exchange-traded commodity futures contracts, 
exchange-traded options on futures contracts, exchange-traded 
commodity-linked instruments, exchange-traded investment companies 
other than exchange-traded commodity-linked instruments will be 
available on the exchanges on which they are traded and through 
subscription services. Pricing information for securities of non-
exchange-traded investment companies will be available through the 
applicable fund's Web site or major market data vendors. Pricing 
information for swaps, fixed income securities, and money market 
instruments will be available through subscription services, broker-
dealer firms, and/or pricing services. Additionally, the Trade 
Reporting and Compliance Engine (``TRACE'') of the Financial 
Industry Regulatory Authority (``FINRA'') will be a source of price 
information for certain fixed income securities held by the Fund.
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    The Commission further 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.\35\ 
Trading in the Shares also will be subject to BATS Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted.\36\ The Exchange may halt trading in the 
Shares if trading is not occurring in the securities, Commodities, or 
other assets constituting the Disclosed Portfolio of the Fund and the 
Subsidiary, or if other unusual conditions or circumstances detrimental 
to the maintenance of a fair and orderly market are present.\37\ 
Further, the Commission notes that the Reporting Authority that 
provides the Disclosed Portfolio 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.\38\ The Exchange states that it prohibits the distribution 
of material, non-public information by its employees. The Exchange also 
represents that the Adviser is affiliated with a broker-dealer, and the 
Adviser has implemented a fire wall with respect to that broker-dealer 
affiliate regarding access to information concerning the composition 
of, or changes to, the Fund's portfolio.\39\ Moreover, the Exchange 
represents that it may obtain information regarding trading in the 
Shares and the underlying shares in exchange-traded investment 
companies, commodity-linked instruments, futures, and options on 
futures via ISG, from other exchanges who are members or affiliates of 
ISG, or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement.
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    \35\ See BATS Rule 14.11(i)(4)(A)(ii).
    \36\ See BATS Rule 14.11(i)(4)(B)(iv).
    \37\ See BATS Rule 14.11(i)(4)(B)(iii) (providing additional 
considerations for the suspension of trading in or removal from 
listing of Managed Fund Shares on the Exchange). With respect to 
trading halts, the Exchange may consider all relevant factors in 
exercising its discretion to halt or suspend trading in the Shares 
of the Fund. The Exchange will halt trading in the Shares under the 
conditions specified in BATS Rule 11.18. Trading also may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable.
    \38\ See BATS Rule 14.11(i)(4)(B)(ii)(B).
    \39\ See supra note 10 and accompanying text. An investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and any Sub-Adviser and their 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 Exchange further represents that the Shares are deemed to be 
equity securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (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) 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.
    (4) The Exchange will communicate as needed regarding trading in 
the Shares and in the exchange-traded Commodities and exchange-traded 
investment companies not included within the definition of Commodities 
(together, ``Exchange Traded Instruments'') held by the Fund and the 
Subsidiary with other markets and other entities that are members of 
ISG and may obtain trading information regarding trading in the Shares 
and in the Exchange Traded Instruments held by the Fund and the 
Subsidiary from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares and in 
the Exchange Traded Instruments held by the Fund and the Subsidiary 
from markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Exchange also 
will be able to access, as needed, trade information for certain fixed 
income securities held by the Fund reported to FINRA's TRACE.
    (5) With respect to the futures contracts and exchange-traded 
options on futures contracts in which the Subsidiary invests, not more 
than 10% of the weight (to be calculated as the value of the contract 
divided by the total absolute notional value of the Subsidiary's 
futures and options contracts) of the futures and options contracts 
held by the Subsidiary, in the aggregate, shall consist of instruments 
whose principal trading market is a market from which the Exchange may 
not obtain information regarding trading in the futures contracts and 
exchange-

[[Page 20021]]

traded options on futures contracts by virtue of: (a) Its membership in 
ISG; or (b) a comprehensive surveillance sharing agreement.
    (6) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular (``Circular'') of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the 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 IIV and the Disclosed Portfolio is 
disseminated; (d) the risks involved in trading the Shares during the 
Pre-Opening \40\ and After Hours Trading Sessions \41\ when an updated 
IIV 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.
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    \40\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \41\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
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    (7) For initial and continued listing, the Fund and the Subsidiary 
must be in compliance with Rule 10A-3 under the Act.\42\
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    \42\ See 17 CFR 240.10A-3.
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    (8) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including securities deemed illiquid by the Adviser under the 1940 Act.
    (9) The Fund will invest in Commodities through investments in the 
Subsidiary and will not invest directly in physical commodities. The 
Fund's investment in the Subsidiary may not exceed 25% of the Fund's 
total assets. The Fund and the Subsidiary will not invest in any non-
U.S. equity securities (other than shares of the Subsidiary).
    (10) Investments in non-centrally cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net assets.
    (11) At least 75% of corporate debt obligations will have a minimum 
principal amount outstanding of $100 million or more. In addition, the 
exchange-traded investment companies and commodity-linked instruments 
in which the Fund invests will be listed and traded in the U.S. on 
registered exchanges.
    (12) While the Fund will be permitted to borrow as permitted under 
the 1940 Act, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (i.e., 2X and -3X) 
of the Benchmark.
    (13) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    The Exchange represents that all statements and representations 
made in the filing regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules and surveillance procedures constitute 
continued listing requirements for listing the Shares on the Exchange. 
In addition, the issuer has represented to the Exchange that it will 
advise the Exchange of any failure by the Fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will surveil for compliance 
with the continued listing requirements. If the Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under Exchange Rule 14.12. This approval 
order is based on all of the Exchange's representations and description 
of the Fund, including those set forth above and in the Notice. The 
Commission notes that the Fund and the Shares must comply with the 
requirements of BATS Rule 14.11(i), including those set forth in this 
proposed rule change, to be listed and traded on the Exchange on an 
initial and continuing basis.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment Nos. 1, 2, and 3 thereto, is 
consistent with Section 6(b)(5) of the Act \43\ and the rules and 
regulations thereunder applicable to a national securities exchange.
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    \43\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\44\ that the proposed rule change (SR-BATS-2015-105), as modified 
by Amendment Nos. 1, 2, and 3 thereto, be, and it hereby is, approved.
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    \44\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07832 Filed 4-5-16; 8:45 am]
BILLING CODE 8011-01-P


