
[Federal Register Volume 82, Number 202 (Friday, October 20, 2017)]
[Notices]
[Pages 48861-48865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22752]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81876; File No. SR-BatsBZX-2017-53]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order 
Granting Approval of a Proposed Rule Change To List and Trade Shares of 
the WisdomTree CBOE Russell 2000 PutWrite Strategy Fund, a Series of 
the WisdomTree Trust, Under Rule 14.11(c)(3) (Index Fund Shares)

October 16, 2017.

I. Introduction

    On August 18, 2017, Bats BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (``Fund''). The 
proposed rule change was published for comment in the Federal Register 
on September 7, 2017.\3\ The Commission has received no comments on the 
proposal. This order approves the proposed rule change.
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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. 81510 (Aug. 31, 
2017), 82 FR 42399 (``Notice'').
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II. Exchange's Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund under 
Rule 14.11(c), which governs the listing and trading of Index Fund 
Shares on the Exchange. The Fund will be an index-based exchange-traded 
fund (``ETF''). The Shares will be offered by the WisdomTree Trust 
(``Trust''), which is registered with the Commission as an investment 
company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission on behalf of the 
Fund.\4\
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    \4\ See Post-Effective Amendment No. 595 to Registration 
Statement on Form N-1A for the Trust, dated July 27, 2017 (File Nos. 
333-132380 and 811-21864).
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    The Fund will seek investment results that track the price and 
yield performance, before fees and expenses, of the CBOE Russell 2000 
PutWrite Index (``Index''), which was developed and is maintained by 
the Chicago Board Options Exchange, Inc. (``CBOE'' or ``Index 
Provider'').\5\ The Index consists

[[Page 48862]]

of only two components: RUT Puts and one-month Treasury bills. The 
Index tracks the value of a passive investment strategy, which consists 
of selling (writing) Russell 2000 Index put options (``RUT Puts'') and 
investing the sale proceeds in one-month Treasury bills. All RUT Puts 
are standardized options traded on CBOE.\6\
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    \5\ According to the Exchange, none of the Trust, WisdomTree 
Asset Management, Inc. (``Adviser''), Mellon Capital Management 
(``Sub-Adviser''), State Street Bank and Trust Company 
(administrator, custodian, and transfer agent for the Fund), or 
Foreside Fund Services, LLC (distributor for the Fund) is affiliated 
with the Index Provider.
    \6\ The Exchange notes that CBOE is a member of the Intermarket 
Surveillance Group (``ISG'').
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    The Exchange submitted the proposed rule change because the Index 
underlying the Fund does not meet all of the ``generic'' listing 
requirements of Rule 14.11(c), and more specifically, the requirements 
of Rule 14.11(c)(5) applicable to Index Fund Shares based on an Index 
of component securities representing a combination of the equity and 
the fixed income markets. Rule 14.11(c)(5) requires that the equity and 
fixed income component securities separately meet the criteria set 
forth in Rules 14.11(c)(3) and 14.11(c)(4), respectively. With respect 
to the Fund, the Index does not meet all of the generic requirements of 
Rule 14.11(c)(3) because the Index consists primarily of RUT Puts.\7\ 
The Exchange represents that the Shares will conform to the initial and 
continued listing criteria under Rule 14.11(c), except that the Index 
will not meet the requirements of Rule 14.11(c)(3) in that the Index 
will consist of options based on equity securities (i.e., RUT Puts).\8\
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    \7\ According to the Exchange, the fixed income security 
component of the Index, which consists of only one-month Treasury 
bills, meets the ``generic'' listing requirements of Rule 
14.11(c)(4).
    \8\ As defined in Rule 14.11(c)(1)(D), the term ``U.S. Component 
Stock'' shall mean an equity security that is registered under 
Sections 12(b) or 12(g) of the Act, or an American Depositary 
Receipt, the underlying equity security of which is registered under 
Sections 12(b) or 12(g) of the Act.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategies, including other 
assets and investment restrictions.\9\
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    \9\ Additional information regarding the Trust, the Fund, and 
the Shares, including information relating to the underlying Index, 
investment strategies, risks, net asset value (``NAV'') calculation, 
creation and redemption procedures, fees, portfolio holdings 
disclosure policies, distributions, and taxes, among other 
information, is included in the Notice and the Registration 
Statement, as applicable. See Notice, supra note 3 and Registration 
Statement, supra note 4.
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A. Description of the Index Methodology

    The Index is based on a passive investment strategy that consists 
of overlapping hypothetical investments in a single series of exchange-
listed RUT Puts over a money market account hypothetically invested in 
one-month Treasury bills. Specifically, the Index hypothetically writes 
at-the-money RUT Puts on a monthly basis, usually on the third Friday 
of the month (``Roll Date''), which matches the expiration date of the 
hypothetical RUT Puts. At each Roll Date, any settlement loss in the 
Index based on the expiring RUT Puts is financed by the Treasury bill 
account and a new batch of hypothetical at-the-money RUT Puts is sold. 
Revenue from the sale of RUT Puts is added to the Index's hypothetical 
Treasury bill account. On each Roll Date, the revenue from the 
hypothetical sale of RUT Puts is hypothetically invested separately at 
the one-month Treasury bill rate, and where applicable, any one-month 
Treasury bills purchased in the prior month are deemed to mature and 
hypothetically invested in new one-month Treasury bills at the one-
month Treasury bill rate. As stated above, all investments used to 
determine Index value are hypothetical.

B. Principal Investments of the Fund

    The Fund seeks to track the performance of an underlying index, the 
Index. Under Normal Market Conditions,\10\ the Fund will invest not 
less than 80% of its assets in RUT Puts and one month or three-month 
U.S. Treasury bills. The Fund may invest up to 20% of its net assets 
(in the aggregate) in other investments, that are not included in the 
Index, but which the Adviser or the Sub-Adviser believes will help the 
Fund to track the Index and that will be disclosed daily (as discussed 
below, ``Other Assets''). The Fund's investment strategy will be 
designed to write a sequence of one-month, at-the-money, RUT Puts and 
invest cash and Other Assets targeted to achieve one-month Treasury 
bill rates. The number of RUT Puts written will vary from month to 
month, but will be limited to permit the amount held in the Fund's 
investment in Treasury bills to finance the maximum possible loss from 
final settlement of the RUT Puts. According to the Exchange, the Fund 
will generally use a sampling strategy in seeking to track the Index.
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    \10\ 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. In response to adverse market, economic, 
political, or other conditions, the Fund reserves the right to 
invest in U.S. government securities, other money market instruments 
(as defined below), and cash, without limitation, as determined by 
the Adviser or Sub-Adviser. In the event the Fund engages in these 
temporary defensive strategies that are inconsistent with its 
investment strategies, the Fund's ability to achieve its investment 
objectives may be limited.
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    The new RUT Puts will be struck and sold on a monthly basis on the 
Roll Date, (i.e., the same Roll Date at that used by the Index), which 
matches the expiration date of the current RUT Puts. The strike price 
of the new RUT Puts will be based on the strike price of Russell 2000 
Index put options listed on CBOE, with the closest strike price below 
the last value of the Russell 2000 Index reported before 11:00 a.m. ET. 
For example, if the last Russell 2000 Index value reported before 11:00 
a.m. ET is 1,137.02 and the closest listed Russell 2000 Index put 
option with a strike price below 1,137.02 is 1,130, then the 1,130 
strike RUT put option will be sold by the Fund. RUT Puts are cash-
settled and trade in competitive auction markets with price and quote 
transparency. According to the Exchange, Russell 2000 index options are 
among the most liquid options in the U.S. and derive their value from 
the actively traded Russell 2000 Index components.\11\
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    \11\ The Exchange states that Russell 2000 Index options traded 
on CBOE are highly liquid, with average daily trading volume in 2016 
of 71,365 contracts, with a notional size per contract of $117,169.
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    The Exchange represents that trading in the Shares and the 
underlying Fund investments will be subject to the federal securities 
laws and Exchange, CBOE, and Financial Industry Regulatory Authority 
(``FINRA'') rules and surveillance programs.\12\ In addition, 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.
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    \12\ The Exchange also notes that CBOE is a member of the Option 
Price Regulatory Surveillance Authority, which was established in 
2006, to provide efficiencies in looking for insider trading and 
serves as a central organization to facilitate collaboration in 
insider trading and investigations for the U.S. options exchanges. 
For more information, see http://www.cboe.com/aboutcboe/legal/departments/orsareg.aspx.
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C. Other Investments of the Fund

    The Fund may invest up to 20% of its net assets (in the aggregate) 
in Other Assets. Other Assets includes only the following: Short-term, 
high quality securities issued or guaranteed by the U.S. government and 
non-U.S. governments,\13\ and each of their

[[Page 48863]]

agencies and instrumentalities, and U.S. government-sponsored 
enterprises; repurchase agreements backed by U.S. government and non-
U.S. government securities; money market mutual funds; deposit and 
other obligations of U.S. and non-U.S. banks and financial institutions 
(``money market instruments''); \14\ Russell 2000 ETF put options; \15\ 
Russell 2000 Index futures and options on Russell 2000 Index futures; 
\16\ total return swaps; \17\ other exchange traded products 
(``ETPs''); \18\ non-exchange-traded registered open-end investment 
companies (i.e., mutual funds); and variable or floating interest rate 
securities.\19\ The foregoing investments include buying the derivative 
instrument or selling the derivative instrument (i.e., writing the 
applicable put option) and investing the proceeds.
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    \13\ The Treasury securities in which the Fund may invest will 
include variable-rate Treasury securities, whose rates are adjusted 
daily (or at such other increment as may later be determined by the 
Department of the Treasury) to generally correspond with the rate 
paid on one-month Treasury securities.
    \14\ All money market instruments acquired by the Fund will be 
rated investment grade, except that a Fund may invest in unrated 
money market instruments that are deemed by the Adviser or Sub-
Adviser to be of comparable quality to money market securities rated 
investment grade. The term ``investment grade,'' for purposes of 
money market instruments only, is intended to mean securities rated 
A1 or A2 by one or more nationally recognized statistical rating 
organizations.
    \15\ The Fund may invest up to 10% of its assets in over-the-
counter Russell 2000 put options.
    \16\ The Fund will limit its direct investments in futures and 
options on futures to the extent necessary for the Adviser to claim 
the exclusion from regulation as a ``commodity pool operator'' with 
respect to the Fund under the rules promulgated by the Commodity 
Futures Trading Commission, as such rules may be amended from time 
to time. According to the Exchange, the exchange-listed futures 
contracts in which the Fund may invest will be listed on exchanges 
in the U.S. Each of the exchange-listed futures contracts in which 
the Fund may invest will be listed on exchanges that are members of 
ISG.
    \17\ The Fund may use total return swaps to create positions 
equivalent to investments in RUT Puts and the component securities 
underlying the Russell 2000 Index. The Fund's investments in total 
return swap agreements will be backed by investments in U.S. 
government securities in an amount equal to the exposure of such 
contracts.
    \18\ The Fund may invest in shares of both taxable and tax-
exempted money market funds. When used herein, ETPs may include, 
without limitation, Index Fund Shares (as described in Rule 
14.11(c)); Linked Securities (as described in Rule 14.11(d)); 
Portfolio Depositary Receipts (as described in Rule 14.11(b)); 
Trust-Issued Receipts (as described in Rule 14.11(f)); Commodity-
Based Trust Shares (as described in Rule 14.11(e)(4)); Currency 
Trust Shares (as described in Rule 14.11(e)(5)); Commodity Index 
Trust Shares (as described in Rule 14.11(e)(6)); Trust Units (as 
described in Rule 14.11(e)(9)); Managed Fund Shares (as described in 
Rule 14.11(i)); and closed-end funds. All of the ETPs in which the 
Fund may invest will be listed and traded on U.S. exchanges. The 
Fund may invest in the securities of ETPs registered under the 
Investment Company Act of 1940 (``1940 Act'') consistent with the 
requirements of Section 12(d)(1) of the 1940 Act or any rule, 
regulation, or order of the Commission or interpretation thereof. 
The Fund will only make such investments in conformity with the 
requirements of Section 817 of the Internal Revenue Code of 1986. 
The ETPs in which the Fund may invest will primarily be index-based 
ETFs that hold substantially all of their assets in securities 
representing a specific index. The Fund will not invest in leveraged 
(e.g., 2X, -2X, 3X, or -3X) ETPs.
    \19\ The Fund may invest in securities (in addition to U.S. 
Treasury securities, described above) that have variable or floating 
interest rates which are readjusted on set dates (such as the last 
day of the month) in the case of variable rates or whenever a 
specified interest rate change occurs in the case of a floating rate 
instrument. Variable or floating interest rates generally reduce 
changes in the market price of securities from their original 
purchase price because, upon readjustment, such rates approximate 
market rates. Accordingly, as interest rates decrease or increase, 
the potential for capital appreciation or depreciation is less for 
variable or floating rate securities than for fixed rate 
obligations.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \20\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\21\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\22\ which 
requires, among other things, that the Exchange's rules be designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Commission also finds that the proposal to list and trade 
the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) 
of the Act,\23\ 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.
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    \20\ 15 U.S.C. 78f.
    \21\ 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).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Quotation and last-sale information for the Shares and any ETPs in 
which it invests will be available via the Consolidated Tape 
Association (``CTA'') high-speed line. 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. The intra-day, closing, and settlement prices of 
exchange-traded portfolio assets, including ETPs, futures, and options 
will be readily available from the securities exchanges and futures 
exchanges trading such securities and futures, as the case may be, 
automated quotation systems, published or other public sources, or 
online information services such as Bloomberg or Reuters. Price 
information on fixed income portfolio securities, including money 
market instruments, and other Fund assets traded in the over-the-
counter markets, 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. In addition, the 
value of the Index will be published by one or more major market data 
vendors every 15 seconds during Regular Trading Hours \24\ on the 
Exchange. Information about the Index constituents, the weighting of 
the constituents, the Index's methodology, and the Index's rules will 
be available at no charge on the Index Provider's Web site. In 
addition, the Intraday Indicative Value (``IIV''), as defined in Rule 
14.11(c)(3)(C), will be widely disseminated at least every 15 seconds 
during Regular Trading Hours by one or more major market vendors.\25\ 
All Fund holdings will be included in calculating the IIV.
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    \24\ As defined in Rule 1.5(w), the term ``Regular Trading 
Hours'' means the time between 9:30 a.m. and 4:00 p.m. ET.
    \25\ According to the Exchange, several major market data 
vendors display and/or make widely available IIV's taken from the 
CTA or other data feeds.
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    On each business day, before commencement of trading in Shares 
during Regular Trading Hours on the Exchange, the Trust will disclose 
on its Web site 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, index, or other asset or instrument underlying the 
holding, if any; for options, the option strike price; quantity held 
(as measured by, for example, par value, notional value, or number of 
shares, contracts, or units); maturity date, if any; effective date, if 
any; coupon rate, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. The Web 
site information will be publicly available at no charge. Information 
regarding market price and trading volume for the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading

[[Page 48864]]

volume information for the Shares will be published daily in the 
financial section of newspapers. The Trust's Web site, which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for the Fund that may be downloaded and 
additional quantitative information updated on a daily basis relating 
to the Fund.
    In addition, a portfolio composition file, which will include the 
security names and quantities of securities and other assets required 
to be delivered in exchange for the Fund's Shares, together with 
estimates and actual cash components, will be publicly disseminated 
prior to the opening of the Exchange via the National Securities 
Clearing Corporation. The portfolio will represent one Creation Unit of 
the Fund. Authorized Participants may refer to the portfolio 
composition file for information regarding RUT Puts, short-term U.S. 
Treasury Securities, money market instruments, and any other instrument 
that may constitute the Fund's portfolio on a given day. The NAV of the 
Fund's Shares 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. ET.
    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 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 will be made available to all market participants at the same 
time. Trading may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable.\26\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. In addition, the Exchange states that the Index Provider is 
not registered as an investment adviser or broker-dealer and is not 
affiliated with any broker-dealers. The Exchange also represents that 
the Adviser is not registered as, or affiliated with, any broker-
dealer. The Exchange represents that the Sub-Adviser is affiliated with 
multiple broker-dealers and has implemented a ``fire wall'' with 
respect to those broker-dealers and their personnel regarding access to 
information concerning the composition of, and changes to, the Index. 
In addition, Sub-Adviser personnel who make decisions regarding the 
Fund's portfolio are subject to procedures designed to prevent the use 
and dissemination of material, non-public information regarding the 
Fund's portfolio. According to the Exchange, the Adviser and the Index 
Provider represent that a fire wall exists around the respective 
personnel who have access to information concerning changes and 
adjustments to the Index.
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    \26\ These may include: (1) The extent to which trading is not 
occurring in the securities or the financial instruments composing 
the daily disclosed portfolio of the Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance 
of a fair and orderly market are present. 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. 
Trading in the Shares also will be subject to Rule 
14.11(c)(1)(B)(iv), which sets forth circumstances under which 
Shares of a Fund may be halted.
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    The Exchange represents that the Shares will be subject to the 
existing trading surveillances, which are designed to detect violations 
of Exchange rules and federal securities laws applicable to trading on 
the Exchange. The Exchange further represents 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. Moreover, 
prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares.
    The Commission notes that the Shares and the Fund must comply with 
the initial and continued listing criteria in Rule 14.11(c) for the 
Shares to be listed and traded on the Exchange. In addition, the 
Commission notes it has previously approved a proposal to list and 
trade shares of an ETF that employs a very similar strategy.\27\
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    \27\ See, e.g., Securities Exchange Act Release Nos. 74675 (Apr. 
8, 2015), 80 FR 20038 (Apr. 14, 2015) (SR-NYSEArca-2015-05) (order 
approving proposed rule change to list shares of the WisdomTree Put 
Write Strategy Fund); and 77045 (Feb. 3, 2016), 81 FR 6916 (Feb. 9, 
2016) (SR-NYSEArca-2015-113) (order approving a proposed rule change 
relating to the index underlying the WisdomTree Put Write Strategy 
Fund).
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    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. In support of this 
proposal, the Exchange has also made the following representations:
    (1) The Shares will conform to the initial and continued listing 
criteria under Rule 14.11(c), except that the Index will not meet the 
requirements of Rule 14.11(c)(3) because the Index will consist of 
options.
    (2) The Exchange has the appropriate rules to facilitate 
transactions in the Shares during all trading sessions.
    (3) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares, ETPs, futures contracts, and exchange-
traded options contracts with other market and other entities that are 
members of ISG and may obtain trading information in the Shares, 
futures contracts, exchange-traded options contracts, and ETPs from 
such markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, futures contracts, 
exchange-traded options contracts, and ETPs from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. In addition, the 
Exchange is able to access, as needed, trade information for certain 
fixed income securities held by the Fund reported to FINRA's Trade 
Reporting and Compliance Engine.
    (4) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) BZX Rule 3.7, which imposes 
suitability obligations on Exchange members with respect to 
recommending transactions in the Shares to customers; (c) how 
information regarding the IIV and Index value is disseminated; (d) the 
risks involved in trading the Shares during the Pre-Opening \28\ and 
After Hours Trading Sessions \29\ 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.
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    \28\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. ET.
    \29\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. ET.
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    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act,\30\ as provided by Rule 
14.10.
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    \30\ See 17 CFR 240.10A-3.
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    (6) The Fund may hold up to an aggregate amount of 15% of its net

[[Page 48865]]

assets in illiquid assets (calculated at the time of investment).
    (7) A minimum of 100,000 Shares for the Fund will be outstanding at 
the commencement of trading on the Exchange.
    (8) All futures contracts (and options on futures), listed options, 
and ETPs held by the Fund will be traded on U.S. exchanges, all of 
which are members of ISG or are exchanges with which the Exchange has 
in place a comprehensive surveillance sharing agreement.
    (9) The Fund will not invest in any non-U.S. equity securities.
    (10) The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.\31\ The 
Fund will not invest in leveraged (e.g., 2X, -2X, 3X, or -3X) ETPs.
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    \31\ The Exchange represents that the Fund will include 
appropriate risk disclosure in its offering documents, including 
leveraging risk. Leveraging risk is the risk that certain 
transactions of a fund, including a fund's use of derivatives, may 
give rise to leverage, causing a fund to be more volatile than if it 
had not been leveraged. To mitigate leveraging risk, the Adviser 
will segregate or earmark liquid assets or otherwise cover the 
transactions that give rise to such risk.
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    (11) The Fund's investments in total return swap agreements will be 
backed by investments in U.S. government securities in an amount equal 
to the exposure of those contracts.
    (12) The Fund may invest up to 10% of its assets in over-the-
counter Russell 2000 put options.
    (13) All money market instruments acquired by the Fund will be 
rated investment grade, except that a Fund may invest in unrated money 
market instruments that are deemed by the Adviser or Sub-Adviser to be 
of comparable quality to money market securities rated investment 
grade.
    (14) The Russell 2000 Index options traded on CBOE are highly 
liquid, with average daily trading volume in 2016 of 71,365 contracts 
and a notional size per contract of $117,169. CBOE is a member of the 
Option Price Regulatory Surveillance Authority, which was established 
to provide efficiencies in looking for insider trading and serves as a 
central organization to facilitate collaboration in insider trading and 
investigations for the U.S. options exchanges.
    The Exchange further represents that all statements and 
representations made in the filing regarding the index composition, 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, and the 
applicability of Exchange rules specified in the filing constitute 
continued listing requirements for the Fund. 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 
monitor for compliance with the continued listing requirements. The 
Exchange further represents that FINRA conducts certain cross-market 
surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement, and the Exchange is responsible for FINRA's 
performance under this regulatory services agreement. If the Fund is 
not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under Rule 14.12.
    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 is consistent with Section 6(b)(5) of the Act \32\ and the rules 
and regulations thereunder applicable to a national securities 
exchange.
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    \32\ 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,\33\ that the proposed rule change (SR-BatsBZX-2017-53) be, and it 
hereby is, approved.
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    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22752 Filed 10-19-17; 8:45 am]
BILLING CODE 8011-01-P


