[Federal Register Volume 83, Number 50 (Wednesday, March 14, 2018)]
[Notices]
[Pages 11273-11275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05159]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82842; File No. SR-CboeBZX-2017-005]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To List and Trade Shares of a Series of the Cboe 
Vest S&P 500 Buffer Protect Strategy ETF Under the ETF Series Solutions 
Trust Under Rule 14.11(c)(3), Index Fund Shares

March 9, 2018

I. Introduction

    On November 21, 2017, Cboe 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, under BZX Rule 14.11(c)(3), 
shares (``Shares'') of a series of the Cboe Vest S&P 500[supreg] Buffer 
Protect Strategy ETF (individually, ``Fund,'' and, collectively, 
``Funds'') under the ETF Series Solutions Trust (``Trust''). The 
proposed rule change was published for comment in the Federal Register 
on December 11, 2017.\3\ On January 22, 2018, the Commission extended 
the time period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to approve or disapprove the proposed rule change to 
March 11, 2018.\4\ The Commission has received no comment letters on 
the proposed rule change. This order institutes proceedings under 
Section 19(b)(2)(B) of the Act \5\ to determine whether to disapprove 
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. 82217 (December 5, 
2017), 82 FR 58243 (``Notice'').
    \4\ See Securities Exchange Act Release No. 82558, 83 FR 3820 
(January 26, 2018).
    \5\ 15 U.S.C. 78s(b)(2)(B).
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II. Exchange's Description of the Proposed Rule Change \6\
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    \6\ A more detailed description of the Trust, the Funds, and the 
Shares, as well as the availability of price information and other 
information regarding the Indexes (as defined herein) and the Funds' 
portfolio holdings, are included in the Notice and Registration 
Statement (as defined herein). See Notice, supra note 3; 
Registration Statement, infra note 7 and accompanying text.
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    The Exchange proposes to list and trade the Shares of the Funds 
under BZX Rule 14.11(c)(3), which governs the listing and trading of 
Index Fund Shares. In total, the Exchange is proposing to list and 
trade Shares of twelve monthly series of the Cboe Vest S&P 500[supreg] 
Buffer Protect Strategy ETF. Each Fund will be an index-based exchange 
traded fund (``ETF''). The Funds will include the following: Cboe Vest 
S&P 500[supreg] Buffer Protect Strategy (January) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (February) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (March) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (April) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (May) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (June) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (July) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (August) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (September) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (October) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (November) ETF; and Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (December) ETF. Each Fund will be 
based on the Cboe S&P 500 Buffer Protect Index (Month) Series, where 
``Month'' is the corresponding month associated with the roll date of 
the applicable Fund (individually, ``Index,'' and, collectively, 
``Indexes'').
    The Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on February 9, 2012. The Trust is registered 
with the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Funds on Form N-1A 
(``Registration Statement'') with the Commission.\7\ The Funds' adviser 
will be Cboe Vest Financial, LLC (``Adviser''), and the index provider 
will be Cboe Exchange, Inc. (``Cboe Options'' or ``Index Provider'').
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    \7\ See Registration Statement on Form N-1A for the Trust, dated 
October 24, 2017 (File Nos. 333-179562 and 811-22668). 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 applicable to the activities of the Funds, but the Funds will 
not be listed on the Exchange until such an order is issued and any 
conditions contained therein are satisfied.
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    Each Fund's investment objective is to track, before fees and 
expenses, the performance of its respective Index. The value of each 
Index is calculated daily by Cboe Options utilizing an option valuation 
model. The Exchange is submitting this proposed rule change because the 
Indexes for the Funds do not meet the listing requirements of BZX Rule 
14.11(c)(3) applicable to an index that consists of equity securities. 
Specifically, the Indexes for the Funds do not meet the listing 
requirements of BZX Rule 14.11(c)(3) because the Indexes consist of 
options based on an index of U.S. Component Stocks.\8\
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    \8\ As defined in Rule 14.11(c)(1)(D), the term ``U.S. Component 
Stock'' means 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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Cboe Vest S&P 500[supreg] Buffer Protect Indexes

    Each Index is a rules-based options index that consists exclusively 
of FLexible EXchange Options on the S&P 500 Index (``FLEX Options'') 
listed on Cboe Options.\9\ The Indexes are designed to provide exposure 
to the large capitalization U.S. equity market with lower volatility 
and downside risks than traditional equity indices, except in 
environments of rapid appreciation in the U.S. equity market over the 
course of one year. On a specified day of the applicable month for each 
Index (``Roll Date''),\10\ the applicable Index

[[Page 11274]]

implements a portfolio of put and call FLEX Options with expirations on 
the next Roll Date that, if held to such Roll Date, seeks to ``buffer 
protect'' against the first 10% decline in the value of the S&P 500 
Index, while providing participation up to a maximum capped gain in the 
value of the S&P 500 Index (``Capped Level''). The Capped Level is 
calculated as of each Roll Date based on the prices of the applicable 
FLEX Options, such that the value of the portfolio of FLEX Options that 
comprises each Index is equivalent to the value of a portfolio 
comprised of the S&P 500 Index constituents. As of the 2017 Roll Date, 
the Capped Level for the January Index was 11%, meaning that the 
January Index is designed to provide participation up to a maximum 11% 
gain in the value of the S&P 500 Index from the 2017 Roll Date to the 
2018 Roll Date, but to not provide any participation for gains in the 
S&P 500 Index in excess of 11%.
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    \9\ Additional information about the Indexes and methodology is 
available on the Index Provider's website at www.cboe.com.
    \10\ Each of the twelve Indexes is designed to provide returns 
over a defined year long period and, thus, there is an Index 
associated with each month. As such, the Roll Date for a specific 
Index is dependent on the monthly series for which the Index is 
associated. For example, the Roll Date for the Cboe[supreg] S&P 
500[supreg] Buffer Protect Index January Series is in January, and 
the Roll date for the Cboe[supreg] S&P 500[supreg] Buffer Protect 
Index February Series is in February, a pattern which continues 
through the rest of the calendar year.
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    Each Index is designed to provide the following outcomes between 
Roll Dates:
     If the S&P 500 declines more than 10%: The Index declines 
10% less than the S&P 500 Index (e.g., if the S&P 500 Index returns -
35%, the Index is designed to return -25%);
     If the S&P 500 declines between 0% and 10%: The Index 
provides a total return of zero (0%);
     If the S&P 500 appreciates between 0% and the Capped 
Level: The Index appreciates the same amount as the S&P 500 Index; and
     If the S&P 500 appreciates more than the Capped Level: The 
Index appreciates by the amount of the Capped Level.

Each Index includes a mix of purchased and written (sold) put and call 
FLEX Options structured to achieve the results described above. Such 
results are only applicable for each full 12-month period from one Roll 
Date to the next Roll Date, and the Index may not return such results 
for shorter or longer periods. The value of each Index is calculated 
daily by Cboe Options utilizing a rules-based options valuation model.

Holdings of the Funds

    Under Normal Market Conditions,\11\ each Fund will seek to track 
the total return performance, before fees and expenses, of its 
respective Index. Under Normal Market Conditions, each Fund will invest 
all, or substantially all, of its assets in the FLEX Options that make 
up each respective underlying Index, standardized U.S. exchange-listed 
options contracts based on the S&P 500 (``S&P 500 Index Options''), 
U.S. exchange-listed options based on one or more ETFs \12\ that track 
the performance of the S&P 500 Index and have the same economic 
characteristics as the FLEX Options that make up each Index 
(``Comparable ETF Options''),\13\ as well as cash and cash 
equivalents.\14\ Under Normal Market Conditions, at least 80% of each 
Fund's total assets (exclusive of any collateral held from securities 
lending) will be invested in the FLEX Options that make up the Index. 
The Funds will hold only FLEX Options, S&P 500 Index Options, 
Comparable ETF Options, and cash and cash equivalents. The FLEX Options 
owned by each Fund will have the same terms (i.e., same strike price 
and expiration) for all investors of that Fund within an outcome 
period. The Capped Level is determined with respect to the applicable 
Index on the inception date of the applicable Fund and at the beginning 
of each outcome period.
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    \11\ 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.
    \12\ For purposes of this proposal, the term ETF means Portfolio 
Depositary Receipts and Index Fund Shares as defined in BZX Rules 
14.11(b) and 14.11(c), respectively, and their equivalents on other 
national securities exchanges.
    \13\ The term ``Comparable ETF Options'' will at any time 
include only the five ETFs based on the S&P 500 Index with the 
greatest options consolidated average daily exchange trading volume 
for the previous quarter.
    \14\ For purposes of this filing, cash equivalents are 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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III. Proceedings To Determine Whether To Disapprove SR-CboeBZX-2017-005 
and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \15\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\16\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposal's consistency with Section 6(b)(5) of the 
Act,\17\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and to protect investors and the public interest.
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    \16\ Id.
    \17\ 15 U.S.C. 78f(b)(5).
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    Under the proposal, each Fund's investment objective is to track, 
before fees and expenses, the performance of its respective Index, each 
of which consists of a hypothetical portfolio of purchased and written 
(sold) put and call FLEX Options structured to participate in market 
gains and losses of the S&P 500 Index within pre-determined ranges that 
are only applicable for a full 12-month period from one Roll Date to 
the next Roll Date. Specifically, on each Roll Date, the applicable 
Index implements a portfolio of put and call FLEX Options with 
expirations on the next Roll Date that, if held to such Roll Date, 
seeks to buffer protect against the first 10% decline in the value of 
the S&P 500 Index, and to provide participation up to a maximum capped 
gain in the value of the S&P 500 Index. Because of these Index 
characteristics, the Index outcomes that each Fund seeks to track are 
best realized if the Shares are bought at the initial Roll Date and 
sold at the expiration of the next Roll Date. The Commission notes, 
however, that market participants may buy or sell Shares of the Funds 
at any time, not only at the initial or expiration of a Roll Date. 
Consequently, with respect to the pricing of the Shares at any time 
other than the commencement or expiration of a Roll Date, the 
Commission seeks commenters' views on the sufficiency of the 
information provided in the proposed rule change to support a 
determination that the listing and trading of the Shares would be

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consistent with Section 6(b)(5) of the Act.

IV. Procedure: Request for Written Comments

    Interested persons are invited to submit written views, data, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with Section 6(b)(5) or any other provision of the 
Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval that would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4 under the Act, any 
request for an opportunity to make an oral presentation.\18\
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    \18\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by April 4, 2018. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by April 18, 
2018.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2017-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2017-005. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2017-005 and should be submitted 
on or before April 4, 2018. Rebuttal comments should be submitted by 
April 18, 2018.
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    \19\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05159 Filed 3-13-18; 8:45 am]
 BILLING CODE 8011-01-P


