[Federal Register Volume 83, Number 10 (Tuesday, January 16, 2018)]
[Notices]
[Pages 2234-2237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00533]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82476; File No. SR-BATSBZX-2017-58]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 2, To 
List and Trade Shares of the Cboe Vest S&P 500[supreg] Dividend 
Aristocrats[supreg] Target Income Index ETF Under the ETF Series 
Solutions Trust Under Rule 14.11(c)(3)

January 9, 2018.

I. Introduction

    On September 19, 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'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the Cboe Vest S&P 500[supreg] Dividend 
Aristocrats[supreg] Target Income Index ETF (``Fund'') under the ETF 
Series Solutions Trust (``Trust''). The proposed

[[Page 2235]]

rule change was published for comment in the Federal Register on 
October 11, 2017.\3\ On November 17,2017, 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 December 29, 2017, the Exchange filed 
Amendment No. 1 to the proposed rule change. On January 2, 2018, the 
Exchange filed Amendment No. 2 to the proposed rule change, which 
replaced the original filing, as amended by Amendment No. 1, in its 
entirety.\6\ The Commission received no comments on the proposed rule 
change. This order approves the proposed rule change, as modified by 
Amendment No. 2.
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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. 81815 (October 4, 
2017), 82 FR 47265.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 82115, 82 FR 55891 
(November 24, 2017). The Commission designated January 9, 2018, as 
the date by which the Commission shall either approve or disapprove, 
or institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ In Amendment No. 2, the Exchange: (1) Updated information 
regarding the Fund's registration statement; (2) made 
representations regarding the fire walls to be implemented by the 
Fund's adviser and the provider of the underlying index; (3) 
disclosed the investment objective of the Fund; (4) provided 
additional information regarding the underlying index; (5) 
supplemented its description of the Fund's permitted investments; 
(6) described the availability of price information for the Shares 
and the Fund's permitted investments; (7) made certain 
representations regarding surveillance; (8) represented that the 
Fund's portfolio holdings will be disclosed daily on the issuer's 
website; (9) stated that the Exchange deems the Shares to be equity 
securities; (10) disclosed the minimum number of Shares that will be 
outstanding at the commencement of trading; (11) identified 
circumstances in which trading in the Shares may and will be halted; 
and (12) made other technical amendments. Amendment No. 2 is 
available at https://www.sec.gov/comments/sr-batsbzx-2017-58/batsbzx201758-2869571-161745.pdf. Because Amendment No. 2 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.
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II. Description of the Proposal \7\
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    \7\ Additional information regarding the Trust, the Fund, the 
underlying index, and the Shares, including investment strategies, 
risks, creation and redemption procedures, fees, portfolio holdings, 
disclosure policies, calculation of the NAV, distributions, and 
taxes, among other things, can be found in Amendment No. 2, supra 
note 6, and the Registration Statement, infra note 8.
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    The Exchange proposes to list and trade the Shares pursuant to its 
Rule 14.11(c)(3), which governs the listing and trading of Index Fund 
Shares on the Exchange.\8\ The Shares do not qualify for generic 
listing because the index underlying the Shares includes derivatives, 
rather than consisting exclusively of ``U.S. Component Stocks'' (as 
defined in BZX Rule 14.11(c)(1)(D)) or ``U.S. Component Stocks and 
cash,'' as required by BZX Rule 14.11(c)(3)(A)(i).
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    \8\ According to the Exchange, the Trust filed with the 
Commission a registration statement on Form N-1A under the 
Securities Act of 1993 relating to the Fund (File Nos. 333-179562 
and 811-22668) (``Registration Statement''). According to the 
Exchange, the Commission has not yet issued an order granting 
exemptive relief to the Trust under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) applicable to the activities of the Fund. The 
Exchange represents that the Fund will not be listed on the Exchange 
until such an order is issued and any conditions contained therein 
are satisfied.
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    The Funds' adviser, Cboe Vest Financial, LLC (the ``Adviser''), and 
index provider, Chicago Board Options Exchange (``Cboe Options'' or the 
``Index Provider''), are not registered as broker-dealers, but are 
affiliated with a broker-dealer. The Index Provider has implemented and 
will maintain a ``fire wall'' with respect to such broker-dealer and 
its personnel regarding access to information concerning the 
composition and/or changes to the Index (as defined below). In 
addition, Index Provider personnel who make decisions regarding the 
Index composition or methodology are subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the Index, pursuant to BZX Rule 14.11(c)(3)(B)(iii). The 
Adviser has also implemented and will maintain a ``fire wall'' with 
respect to such broker-dealer and its personnel regarding access to 
information concerning the composition and/or changes to the portfolio. 
In addition, Adviser personnel who make decisions regarding a Fund's 
portfolio are subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding a Fund's 
portfolio. 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.

A. The Index

    The Fund will track the Cboe S&P 500[supreg] Dividend 
Aristocrats[supreg] Target Income Index (``Index''). The Index is 
composed of two parts: (1) An equal-weighted portfolio of the stocks 
contained in the S&P 500 Dividend Aristocrats Index \9\ (``Aristocrat 
Stocks'') that have options that trade on a national securities 
exchange; and (2) a rolling series of short weekly or monthly call 
options on each of the Aristocrat Stocks (``Covered Calls'').\10\ The 
equity component of the Index is rebalanced (i.e., weights are reset to 
equal-weighted) quarterly effective after the close of the last 
business day of each January, April, July, and October and 
reconstituted (i.e., Aristocrat Stocks are added and deleted according 
to the Index rules) annually effective after the close of the last 
business day of each January.
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    \9\ According to the Exchange, there are currently 51 stocks in 
the Index and at each annual reconstitution the minimum number of 
constituent stocks is 40.
    \10\ All of the options contracts held by the Fund will trade on 
markets that are a member of Intermarket Surveillance Group 
(``ISG'') or affiliated with a member of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.
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B. The Fund's Principal Investments

    The Fund would invest all, or substantially all, of its assets in 
the component securities that make up the Index. Under Normal Market 
Conditions,\11\ at least 80% of the Fund's total assets (exclusive of 
any collateral held from securities lending) will be invested in the 
component securities of the Index. The Fund will hold only: U.S. 
exchange-listed equity securities; FLEX options listed on a U.S. 
national securities exchange overlying other exchange-listed equity 
securities or U.S equity indexes; standardized options listed on a U.S. 
national securities exchange overlying exchange-listed equity 
securities or U.S. equity indexes; cash; and cash equivalents.
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    \11\ ``Normal Market Conditions'' is defined in BZX Rule 
14.11(i)(3)(E).
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C. The Fund's Non-Principal Investments

    The Fund would hold up to 20% of its assets in instruments that are 
not included in the Index, including only the following: U.S. exchange-
listed ETFs that provide broad-based exposure to U.S. large cap stocks, 
U.S. exchange-listed FLEX and/or U.S. exchange-listed standardized 
options on such ETFs, U.S. exchange-listed FLEX and/or U.S. exchange-
listed standardized options on the S&P 500 Index, and cash and cash 
equivalents.\12\
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    \12\ For purposes of this proposal, cash equivalents include 
short-term instruments with maturities of less than three months, 
including: (i) U.S. Government securities, including bills, notes, 
and bonds differing as to maturity and rates of interest, which are 
either issued or guaranteed by the U.S. Treasury or by U.S. 
Government agencies or instrumentalities; (ii) certificates of 
deposit issued against funds deposited in a bank or savings and loan 
association; (iii) bankers acceptances, which are short-term credit 
instruments used to finance commercial transactions; (iv) repurchase 
agreements and reverse repurchase agreements; (v) bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; (vi) commercial paper, which are short-term unsecured 
promissory notes; and (vii) money market funds.

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[[Page 2236]]

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares, as modified by Amendment No. 2, 
is consistent with the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange.\13\ In 
particular, the Commission 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,\14\ which sets forth Congress's 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. According 
to the Exchange, quotation and last-sale information for the Shares 
will be available through the Consolidated Tape Association, and 
information regarding the previous day's closing price and trading 
volume for the Shares will be published daily in the financial section 
of newspapers.
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    \13\ 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).
    \14\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission also finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Exchange Act,\15\ 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 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 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.
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    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange deems the Shares to be equity securities,\16\ and 
therefore trading in the Shares will be subject to the Exchange's 
existing rules governing the trading of equity securities. The Exchange 
represents that the Shares and the Index will satisfy, on an initial 
and continued listing basis, all of the generic listing standards other 
than BZX Rule 14.11(c)(3)(A)(i), and will satisfy all other applicable 
requirements for Index Fund Shares under BZX Rule 14.11(c).
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    \16\ See Amendment No. 2, supra note 6, at 11.
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    The Index value will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Regular Trading Hours.\17\ Further, an Intraday Indicative Value for 
the Shares, updated at least every 15 seconds, will be disseminated 
during the Exchange's Regular Trading Hours.\18\ The portfolio of 
instruments held by the Fund will be disclosed daily on the Fund's 
website.\19\
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    \17\ See BZX Rule 14.11(c)(3)(B)(ii)(a). The Exchange's 
``Regular Trading Hours'' are between 9:30 a.m. and 4:00 p.m. 
Eastern Time. See BZX Rule 1.5(w).
    \18\ See BZX Rule 14.11(c)(3)(C).
    \19\ See BZX Rule 14.11(c)(1)(B)(iv).
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    Quotation and last sale information for standardized options will 
be available via the Options Price Reporting Authority. RFQ information 
for FLEX Options will be available directly from the listing exchange. 
Last-sale information for FLEX Options will be available via the 
Options Price Reporting Authority. The intra-day, closing and 
settlement prices of exchange-traded options (both standardized and 
FLEX Options) will be readily available from the options exchanges, 
automated quotation systems, published or other public sources, or 
online information services such as Bloomberg or Reuters. Price 
information on Treasury bills and other cash equivalents is available 
from major broker-dealer firms or market data vendors, as well as from 
automated quotation systems, published or other public sources, or 
online information services.
    The Commission also believes that the proposal is designed to 
prevent trading when a reasonable degree of transparency cannot be 
assured. The Exchange states that trading in the Shares may be halted 
for market conditions or for reasons that, in the view of the Exchange, 
make trading inadvisable. Similarly, trading in the Shares will be 
halted where there is an interruption to the Intraday Indicative Value 
being disseminated at least every 15 seconds during Regular Trading 
Hours and such interruption persists past the trading day in which it 
occurred.\20\ The Exchange will obtain a representation from the issuer 
of the Shares that the NAV per Share will be calculated daily and made 
available to all market participants at the same time.\21\ If the 
Exchange becomes aware that the NAV for the Shares is not being 
disseminated to all market participants at the same time or the daily 
public website disclosure of portfolio holdings does not occur, the 
Exchange shall halt trading in the Shares.\22\
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    \20\ See Amendment No. 2, supra note 6, at 11.
    \21\ See BZX Rule 14.11(c)(9)(A)(ii).
    \22\ See BZX Rule 14.11(c)(1)(b)(iv).
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    To support this proposal, the Exchange has made the following 
representations:
    (1) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.\23\
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    \23\ See Amendment No. 2, supra note 6, at 11.
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    (2) The Exchange or FINRA, on behalf of the Exchange, will 
communicate as needed regarding trading in the Shares and exchange-
traded options contracts with other markets and other entities that are 
members of the ISG and may obtain trading information regarding trading 
in the Shares and exchange-traded options contracts from such markets 
and other entities. The Exchange is also able to access, as needed, 
trade information for certain fixed income instruments reported to 
FINRA's Trade Reporting and Compliance Engine. The Exchange may obtain 
information regarding trading in the Shares and exchange-traded options 
contracts from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. In addition, the Exchange also has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.\24\
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    \24\ See id. at 11-12.
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    (3) All of the instruments held by the Fund, other than cash 
equivalents, will be U.S. exchange-listed and will trade on markets 
that are a member of the ISG or affiliated with a member of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.\25\
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    \25\ See id. at 10, 15.
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    (4) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Exchange Act.\26\
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    \26\ See id. at 11.
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    (5) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.\27\
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    \27\ See id.
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    (6) The Fund will not be listed on the Exchange until the 
Commission has issued an order granting exemptive relief to the Trust 
under the Investment Company Act of 1940 applicable to the activities 
of the Fund and any conditions contained therein are satisfied.\28\
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    \28\ See id. at 4 n.3.

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    All statements and representations made in this 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 
this filing shall 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 or the Shares to comply with 
the continued listing requirements, and, pursuant to its obligations 
under Section 19(g)(1) of the Act, the Exchange will surveil for 
compliance with the continued listing requirements. If the Fund or the 
Shares are not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under BZX Rule 14.12. 
This approval order is based on all of the Exchange's representations, 
including those set forth above and in Amendment No. 2.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Exchange Act \29\ 
and Section 11A(a)(1)(C)(iii) of the Exchange Act \30\ and the rules 
and regulations thereunder applicable to a national securities 
exchange.
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    \29\ 15 U.S.C. 78f(b)(5).
    \30\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\31\ that the proposed rule change (SR-BATSBZX-2017-58), 
as modified by Amendment No. 2, be, and hereby is, approved.
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    \31\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00533 Filed 1-12-18; 8:45 am]
 BILLING CODE 8011-01-P


