[Federal Register Volume 83, Number 85 (Wednesday, May 2, 2018)]
[Notices]
[Pages 19387-19393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09259]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83114; File No. SR-CboeBZX-2018-005]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List 
and Trade Shares of the Cboe Vest S&P 500[reg] Premium Income ETF Under 
Rule 14.11(c)(4)

April 26, 2018.

I. Introduction

    On January 10, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to list and trade shares of the Cboe Vest S&P 
500[reg] Premium Income ETF, a series of ETF Series Solutions (the 
``Trust''). The proposed rule change was published for comment in the 
Federal Register on January 26, 2018.\4\ On March 8, 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.\5\ On April 18, 2018, the Exchange filed Amendment No. 1 
to the proposed rule change, which replaced and superseded the proposed 
rule change as originally filed.\6\ The Commission received no comments 
on the proposed rule change. The Commission is publishing this notice 
to solicit comments on Amendment No. 1 from interested persons and is 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 82538 (January 19, 
2018), 83 FR 3807.
    \5\ See Securities Exchange Act Release No. 82832, 82 FR 11269 
(March 14, 2018) (extending the time period to April 26, 2018).
    \6\ Amendment No. 1 to the proposed rule change is available at: 
https://www.sec.gov/comments/sr-cboebzx-2017-005/cboebzx2017005-3458514-162203.pdf.
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 1

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of Cboe 
Vest S&P 500[reg] Premium Income ETF (the ``Fund'') under Rule 
14.11(c)(4), which governs the listing and trading of Index Fund Shares 
based on fixed income

[[Page 19388]]

securities indexes on the Exchange. The Fund will be an index-based 
exchange traded fund (``ETF''). The Fund will track the Cboe S&P 
500[reg] Volatility Risk Premia Index (the ``Index'').\7\
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    \7\ This filing was originally submitted on January 10, 2018 as 
SR-CboeBZX-2018-004. SR-CboeBZX-2018-004 was subsequently withdrawn 
on January 10, 2018 and replaced by this filing.
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    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 Fund on Form N-1A 
(``Registration Statement'') with the Commission.\8\ The Fund's 
adviser, Cboe Vest Financial, LLC (the ``Adviser''), and index 
provider, Cboe Exchange, Inc. (``Cboe Options'' or the ``Index 
Provider''), are affiliates and have implemented and will maintain a 
``fire wall'' with respect to their respective personnel regarding 
access to information concerning the composition and/or changes to the 
underlying index or portfolio, as applicable. The Adviser and 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. 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 Rule 
14.11(c)(4)(C)(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 the Fund's portfolio are subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the 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 and maintain 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. Similarly, in the event that the Index Provider becomes 
registered as a broker-dealer or newly affiliated with another broker-
dealer, it will implement and maintain a fire wall with respect to its 
relevant personnel or such broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition and/or 
changes to the portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio. The Exchange also notes that the Adviser is a 
BZX Affiliate as defined in Rule 14.3(e)(1)(A),\9\ but the Fund is not 
an Affiliate Security, as defined in Rule 14.11(e)(1)(B),\10\ and is 
therefore not subject to the additional requirements applicable to 
Affiliate Securities because such definition explicitly excludes Index 
Fund Shares. The Fund intends to qualify each year as a regulated 
investment company under Subchapter M of the Internal Revenue Code of 
1986, as amended.
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    \8\ See Registration Statement on Form N-1A for the Trust, dated 
September 28, 2017 (File Nos. 333-179562 and 811-22668). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement. 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, but the Fund will not be 
listed on the Exchange until such an order is issued and any 
conditions contained therein are satisfied.
    \9\ As defined in Rule 14.3(e)(1)(A), the term ``BZX Affiliate'' 
means the Exchange and any entity that directly or indirectly, 
through one or more intermediaries, controls, is controlled by, or 
is under common control with the Exchange, where ``control'' means 
that one entity possesses, directly or indirectly, voting control of 
the other entity either through ownership of capital stock or other 
equity securities or through majority representation on the board of 
directors or other management body of such entity.
    \10\ As defined in Rule 14.3(e)(1)(B), the term ``Affiliate 
Security'' means any security issued by a BZX Affiliate or any 
Exchange-listed option on any such security, with the exception of 
Portfolio Depository Receipts as defined in Rule 14.11(b) and Index 
Fund Shares as defined in Rule 14.11(c).
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    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet the listing requirements of Rule 
14.11(c)(4) applicable to an index that consists of Fixed Income 
Securities,\11\ which requires that the fixed income component 
securities in an index or portfolio meet the criteria set forth in Rule 
14.11(c)(4). As further described below, the Index consists of options 
on an index that consists of ``U.S. Component Stocks'' as defined in 
Rule 14.11(c)(1)(D),\12\ and Fixed Income Securities. The Fixed Income 
Security portion of the Index, which consists of only Treasury bills, 
meets the ``generic'' listing requirements of Rule 14.11(c)(4). 
However, because the Index consists partially of options and Rule 
14.11(c)(4) does not provide generic listing criteria for an index or 
portfolio that includes options, the Index does not meet the criteria 
set forth in Rule 14.11(c)(4).
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    \11\ As defined in Rule 14.11(c)(4), the term ``Fixed Income 
Security'' shall mean debt securities that are notes, bonds, 
debentures or evidence of indebtedness that include, but are not 
limited to, Treasury bills, government-sponsored entity securities 
(``GSE Securities''), municipal securities, trust preferred 
securities, supranational debt and debt of a foreign country or 
subdivision thereof.
    \12\ 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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Cboe S&P 500[reg] Volatility Risk Premia Index
    The Index is a rules-based options index created by the Index 
Provider, an affiliate of the Adviser, and designed to capture the 
``volatility risk premium'' in standardized options on the S&P 500 
Index (``SPX Options''). The ``volatility risk premium'' in SPX Options 
is based on the premise that the expected level of volatility of the 
S&P 500 Index priced into such options (the options' ``implied 
volatility'') is, on average, higher than the volatility actually 
experienced by the S&P 500 Index (the ``realized volatility'').
    On the last trading day of each month, the Index (i) writes (sells) 
\13\ call and put SPX Options (``Sold SPX Options'') with a delta \14\ 
of approximately 0.10 and an expiration date of the last 
trading day of the following month, (ii) buys call and put SPX Options 
(``Bought SPX Options'') with an expiration date of the last trading 
day of the following month and strike prices such that the maximum one-
month loss to the Index is equal to the value of the Index, and (iii) 
buys one- and three-month U.S. Treasury securities equal in value to 
the net premiums earned from writing the Sold SPX Options, less the 
premiums

[[Page 19389]]

incurred of the Bought SPX Options, and sufficient to cover the maximum 
potential one-month loss of the Index.
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    \13\ For purposes of this filing, when describing the Index, the 
terms ``buy,'' ``sell,'' ``write,'' ``hold,'' or any other term 
related to the acquisition, disposition, or issuance of an asset are 
intended to describe a theoretical transaction conducted by the 
Index that will be reflected in the Index constituents, rather than 
to imply that the Index is actually transacting.
    \14\ ``Delta'' is a measure of an option's sensitivity to 
changes in the price of the underlying asset (e.g., a call option 
with a delta of 0.10 is expected to increase $0.10 for each $1.00 
increase in the price of the underlying asset) and reflects the 
volatility expected by the market. The strike price of a call option 
with a delta of 0.10 will be higher when the market expects 
significant volatility and lower when the market expects relatively 
stable prices.
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    If the S&P 500 Index at the end of the following month is within 
the range of the strike prices of the Sold SPX Options, the Sold SPX 
Options expire worthless and the Index's value will have increased for 
the month by the amount of the premiums from writing such options. If 
the S&P 500 Index at the end of the month is outside the range of the 
strike prices of the Sold SPX Options, positively or negatively, the 
Index will incur a loss proportional to the magnitude by which the S&P 
500 Index is outside such range, less the premiums from writing such 
options. In other words, the Index incurs losses when increases or 
decreases in the level of the S&P 500 Index during a month exceed those 
implicitly anticipated by the options market.
    The Index will only include SPX Options and Treasury bills. The 
strike prices for the Sold SPX Options will be ``out-of-the-money'' 
(i.e., the strike price of the sold put options will be less than the 
level of S&P 500 Index and the strike price of the sold call options 
will be more than the level of the S&P 500 Index). The strike prices 
for the Bought SPX Options will be higher and lower, respectively, than 
the strike prices for the Sold SPX Options, which offsets some of the 
Index's risk from the Sold SPX Options. The difference between the 
strike prices of the Sold SPX Options and the Bought SPX Options 
represents the net liability for the Index, and the Index maintains an 
allocation to one- and three-month Treasury bills at least equal to 
such net liability. The Index receives premiums from the sale of the 
Sold SPX Options and pays premiums to buy the Bought SPX Options. The 
Index invests the net premium difference between the Sold SPX Options 
and the Bought SPX Options in one- and three-month Treasury bills. The 
Index holds each option until its expiration.
    If the value of the S&P 500 Index rises above the strike price of 
the put S&P 500 Index Options (the ``SPX Puts'') or falls below the 
strike price of the call S&P 500 Index Options (the ``SPX Calls'') sold 
by the Index, the Sold SPX Options will not be exercised and will 
expire worthless, resulting in a gain to the Index equal to the 
premiums received from the Sold SPX Options. If the value of the S&P 
500 Index falls below the strike price of the SPX Puts or rises above 
the strike price of the SPX Calls sold by the Index, the Sold SPX 
Options will finish ``in-the-money'' and the Index incurs a loss equal 
to the difference between the Sold SPX Options' strike price and the 
value of the S&P 500 Index, less the value of the premiums received 
from the Sold SPX Options.
    If the value of the S&P 500 Index rises above the strike price of 
the SPX Puts or falls below the strike price of the SPX Calls bought by 
the Index, the Bought SPX Options will not be exercised and will expire 
worthless, resulting in a loss to the Index equal to the premiums paid 
for the Bought SPX Options. If the value of the S&P 500 Index falls 
below the strike price of the SPX Puts or rises above the strike price 
of the SPX Calls sold by the Index, the Bought SPX Options will finish 
``in-the-money'' and the Index receives a gain equal to the difference 
between the Bought SPX Options' strike price and the value of the S&P 
500 Index, less the value of the premiums paid for the Bought SPX 
Options.
    The strike prices of the SPX Puts and SPX Calls are calculated such 
that the Index is equity-market-neutral, meaning that it seeks to earn 
a total return in most equity market conditions regardless of general 
market direction as measured by the move in value of the S&P 500 Index. 
The cash and net option premium proceeds will be invested in short-term 
Treasury bills which will be rolled at maturity. This makes the Index 
bond-market-neutral, meaning that as interest rates and the yield for 
Treasury bills go up or down, the short duration of the Treasury bills 
will result in minimal effect on the Index.
Fund Holdings
    Under Normal Market Conditions,\15\ the Fund will invest all, or 
substantially all, of its assets in the SPX Options that make up the 
Index, as well as the Treasury bills included in the Index. Under 
Normal Market Conditions, at least 80% of the Fund's total assets 
(exclusive of any collateral held from securities lending) will be 
invested in the SPX Options or Treasury bills that make up the Index. 
In addition to the SPX Options and Treasury bills that make up the 
Index, the Fund may invest up to 20% of its total assets in U.S. 
exchange-listed options based on one or more ETFs that track the 
performance of the S&P 500 Index (``Comparable ETF Options''). The Fund 
will hold only SPX Options, Comparable ETF Options, Treasury bills 
included in the Index, and other cash and cash equivalents.\16\
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    \15\ 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.
    \16\ 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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Additional Discussion
    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Fund's Shares and SPX 
Options and Comparable ETF Options for the following reasons: (i) The 
diversity, liquidity, and market cap of the securities underlying the 
S&P 500 Index; \17\ (ii) the liquidity of the SPX Options; \18\ and 
(iii) surveillance by the Exchange, Cboe Options and the Financial 
Industry Regulatory Authority (``FINRA'') designed to detect violations 
of the federal securities laws and self-regulatory organization 
(``SRO'') rules.
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    \17\ The Exchange notes that the diversity, liquidity, and 
market cap of the components of the S&P 500 Index are such that the 
S&P 500 Index would meet the generic listing standards applicable to 
an index composed of U.S. Component Stocks in Rule 
14.11(c)(3)(A)(i).
    \18\ The market for SPX Options traded on Cboe Options is among 
the most liquid markets in the world. In 2017, approximately 1.2 
million options contracts on the S&P 500 Index were traded per day 
on Cboe Options, which is more than $300 billion in notional volume 
traded on a daily basis.
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    Trading in the Shares and the underlying investments will be 
subject to the federal securities laws and Exchange, Cboe Options, 
FINRA, and, with respect to the Comparable ETF Options, other U.S. 
options exchanges' rules and surveillance programs.\19\
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    \19\ The Exchange notes that Cboe Options 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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    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

[[Page 19390]]

Exchange's surveillance procedures for derivative products, including 
Index Fund Shares. FINRA conducts certain cross-market surveillances on 
behalf of the Exchange pursuant to a regulatory services agreement. The 
Exchange is responsible for FINRA's performance under this regulatory 
services agreement.
    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 (as applicable), or the applicability of Exchange 
listing rules shall constitute continued listing requirements for 
listing the Shares on the Exchange. The Trust has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund or 
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 Shares are not in compliance with the applicable listing 
requirements, then, with respect to such Fund or Shares, the Exchange 
will commence delisting procedures under Exchange Rule 14.12.
    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 
Intermarket Surveillance Group (``ISG'') \20\ 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, including treasuries, reported to FINRA's Trade Reporting 
and Compliance Engine (``TRACE''). In addition, 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.
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    \20\ All exchange-listed securities that the Fund may hold will 
trade on a market that is a member of the ISG and the Fund will not 
hold any non-exchange-listed options, however, not all of the 
components of the portfolio for the Fund may trade on exchanges that 
are members of the ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. For a list of the 
current members of ISG, see www.isgportal.org.
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    As noted above, SPX Options are among the most liquid options in 
the world and derive their value from the actively traded S&P 500 Index 
components. The contracts are cash-settled with no delivery of stocks 
or ETFs, and trade in competitive auction markets with price and quote 
transparency. The Exchange believes the highly regulated options 
markets and the broad base and scope of the S&P 500 Index make 
securities that derive their value from that index less susceptible to 
market manipulation in view of market capitalization and liquidity of 
the S&P 500 Index components, price and quote transparency, and 
arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 500 
Index securities, SPX Options, and other related derivatives is 
sufficiently great to deter fraudulent or manipulative acts associated 
with the price of the Shares. The Exchange also believes that such 
liquidity are sufficient to support the creation and redemption 
mechanism. Coupled with the surveillance programs of the SROs described 
above, the Exchange does not believe that trading in the Fund's Shares 
would present manipulation concerns. The Fund's investments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage (although certain derivatives and other investments 
may result in leverage).\21\ The Fund's investments will not be used to 
seek performance that is the multiple or inverse multiple (i.e., 2 x or 
-2 x) of the Index. The Fund's use of derivative instruments will be 
collateralized.
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    \21\ 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. See 15 
U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18, 
1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, 
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset 
Management, L.P., Commission No-Action Letter (July 2, 1996).
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    The Exchange represents that, except as described above, the Fund 
will meet each of the initial and continued listing criteria in BZX 
Rule 14.11(c)(4) except as it relates to the portion of the Index that 
consists of SPX Options because Rule 14.11(c)(4) does not provide 
generic listing criteria for an index or portfolio that includes 
options. Further to this point, the three-month Treasury bills that 
compose the entirety of the fixed income portion of the Index will 
satisfy all requirements of Rule 14.11(c)(4). The Trust is required to 
comply with Rule 10A-3 under the Act for the initial and continued 
listing of the Shares of the Fund. A minimum of 100,000 Shares will be 
outstanding at the commencement of trading on the Exchange. In 
addition, the Exchange represents that the Shares of the Fund will 
comply with all other requirements applicable to Index Fund Shares, 
which includes requirements relating to the dissemination of key 
information such as the Net Asset Value, Index value, and the Intraday 
Indicative Value, rules governing the trading of equity securities, 
trading hours, trading halts, firewalls for the Index Provider and 
Adviser, surveillance, and the information circular, as set forth in 
Exchange rules applicable to Index Fund Shares and the orders approving 
such rules.
    Quotation and last sale information for SPX Options and Comparable 
ETF Options will be available via the Options Price Reporting 
Authority. The intra-day, closing and settlement prices of exchange-
traded 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.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \22\ in general and Section 6(b)(5) of the Act \23\ in 
particular in that it is 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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    \22\ 15 U.S.C. 78f.
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is 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

[[Page 19391]]

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 in that the 
Shares of the Fund will meet each of the initial and continued listing 
criteria required by BZX Rule 14.11(c)(4), which includes the listing 
requirements for an index of Fixed Income Securities, except as it 
relates to the portion of the Index that consists of SPX Options 
because Rule 14.11(c)(4) does not provide generic listing criteria for 
an index or portfolio that includes options. Specifically, because the 
Index consists partially of options and Rule 14.11(c)(4) does not 
provide generic listing criteria for an index or portfolio that 
includes options, the Index does not meet the criteria set forth in 
Rule 14.11(c)(4). Nevertheless, the Exchange believes that the concerns 
that sufficient protections are in place to protect against market 
manipulation of the Fund's Shares and S&P 500 Index Options and 
Comparable ETF Options for the following reasons: (i) The diversity, 
liquidity, and market cap of the securities underlying the S&P 500 
Index; \24\ (ii) the liquidity of the S&P 500 Index Options; \25\ and 
(iii) surveillance by the Exchange, Cboe Options and FINRA designed to 
detect violations of the federal securities laws and self-regulatory 
organization (``SRO'') rules.
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    \24\ The Exchange notes that the diversity, liquidity, and 
market cap of the components of the S&P 500 Index are such that the 
S&P 500 Index would meet the generic listing standards applicable to 
an index composed of U.S. Component Stocks in Rule 
14.11(c)(3)(A)(i).
    \25\ The market for SPX Options traded on Cboe Options is among 
the most liquid markets in the world. In 2017, approximately 1.2 
million options contracts on the S&P 500 Index were traded per day 
on Cboe Options, which is more than $300 billion in notional volume 
traded on a daily basis. See supra note 18.
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    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, thereby 
making the Shares less readily susceptible to manipulation. Further, 
the Exchange believes that because the assets in the Fund's portfolio, 
which are comprised primarily of S&P 500 Index Options, will be 
acquired in extremely liquid and highly regulated markets, the Shares 
are less readily susceptible to manipulation.
    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 Index Fund Shares. 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 (as applicable), or the applicability of Exchange listing rules 
shall constitute continued listing requirements for listing the Shares 
on the Exchange. The Trust has represented to the Exchange that it will 
advise the Exchange of any failure by the Fund or 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 
Shares are not in compliance with the applicable listing requirements, 
then, with respect to such Fund or Shares, the Exchange will commence 
delisting procedures under Exchange Rule 14.12. FINRA conducts certain 
cross-market surveillances on behalf of the Exchange pursuant to a 
regulatory services agreement. 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 with respect to such Fund 
under Exchange Rule 14.12.
    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 TRACE. In 
addition, 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.
    As noted above, SPX Options are among the most liquid options in 
the world and derive their value from the actively traded S&P 500 Index 
components. The contracts are cash-settled with no delivery of stocks 
or ETFs, and trade in competitive auction markets with price and quote 
transparency. The Exchange believes the highly regulated options 
markets and the broad base and scope of the S&P 500 Index make 
securities that derive their value from that index less susceptible to 
market manipulation in view of market capitalization and liquidity of 
the S&P 500 Index components, price and quote transparency, and 
arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 500 
Index securities, SPX Options, and other related derivatives is 
sufficiently great to deter fraudulent or manipulative acts associated 
with the price of the Shares. The Exchange also believes that such 
efficiency and liquidity are sufficient to support the creation and 
redemption mechanism. Coupled with the extensive surveillance programs 
of the SROs described above, the Exchange does not believe that trading 
in the Fund's Shares would present manipulation concerns.
    The Exchange represents that, except as it relates to the options 
portion of the Index described above, the Fund will meet and be subject 
to all other requirements of Rule 14.11(c)(4) related to generic 
listing standards of the Index and other applicable requirements for 
such a series of Index Fund Shares under Rule 14.11(c) on an initial 
and continued listing basis, including those requirements regarding the 
dissemination of key information such as the Net Asset Value, the 
Index, and the Intraday Indicative Value, rules governing the trading 
of equity securities, trading hours, trading halts, surveillance, and 
the information circular, as set forth in Exchange rules applicable to 
Index Fund Shares and the orders approving such rules. The Trust is 
required to comply with Rule 10A-3 under the Act for the initial and 
continued listing of the Shares of the Fund. Moreover, all of the 
options contracts held by the Fund will trade on markets that are a 
member of ISG or affiliated with a member of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance

[[Page 19392]]

of the purpose of the Act. The Exchange notes that the proposed rule 
change will facilitate the listing and trading of an additional type of 
Index Fund Shares that will enhance competition among market 
participants, to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\26\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Act,\27\ 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,\28\ 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.
---------------------------------------------------------------------------

    \26\ 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).
    \27\ 15 U.S.C. 78f(b)(5).
    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    According to the Exchange, quotation and last-sale information for 
SPX Options and Comparable ETF Options will be available via the 
Options Price Reporting Authority.\29\ The intra-day, closing and 
settlement prices of exchange-traded options will be readily available 
from the options exchanges, automated quotation systems, published or 
other public sources, or online information services.\30\ In addition, 
price information on Treasury bills and other cash equivalents will be 
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.\31\
---------------------------------------------------------------------------

    \29\ See Amendment No. 1, supra note 6, at 15.
    \30\ See id.
    \31\ See id.
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    The Commission also believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. Under BZX Rule 14.11(c)(1)(B)(iv), if the Exchange becomes 
aware that the NAV or the Disclosed Portfolio is not disseminated to 
all market participants at the same time, the Exchange is required to 
halt trading in such series of Index Fund Shares. In addition, the 
Exchange represents that if the Fund or the related Shares are not in 
compliance with the applicable listing requirements for Index Fund 
Shares under BZX Rule 14.11(c)(4), the Exchange will commence delisting 
procedures under BZX Rule 14.12 (Failure to Meet Listing 
Standards).\32\ The Exchange also states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.\33\
---------------------------------------------------------------------------

    \32\ See id. at 12. See also BZX Rule 14.11(c)(4).
    \33\ See Amendment No. 1, supra note 6, at 13.
---------------------------------------------------------------------------

    The Shares do not qualify for generic listing because the Index 
includes SPX Options. The Commission has previously approved listing 
rules for issues of Index Fund Shares that tracked indexes that 
included listed options.\34\ The Commission believes that the price of 
the Shares will not be susceptible to manipulation. Options on the S&P 
500 Index are among the most liquid options in the world,\35\ and 
derive their value from the actively traded index components. 
Additionally, all of the options held by the Fund will trade on markets 
that are a member of 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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    \34\ See, e.g., Securities Exchange Act Release No. 79402 
(November 25, 2016), 81 FR 86760 (December 1, 2016) (SR-NYSEArca-
2016-131) (approving the listing and trading of shares of the Virtus 
Enhanced U.S. Equity ETF); No. 74675 (April 8, 2015), 80 FR 20038 
(April 14, 2015) (SR-NYSEArca-2015-05) (approving the listing and 
trading of shares of the WisdomTree Put Write Strategy Fund).
    \35\ See supra note 18.
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    In support of this proposal, the Exchange represents that:
    (1) The Fund will satisfy, on an initial and continued listing 
basis, all of the generic listing standards under BZX Rule 14.11(c), 
except as described above.
    (2) The Shares will comply with all requirements applicable to 
Index Fund Shares under BZX Rule 14.11(c) including, but not limited to 
the requirements relating to the dissemination of key information such 
as the NAV, the Index, and the Intraday Indicative Value, rules 
governing the trading of equities securities, trading hours, trading 
halts, surveillance, and the information circular, as set forth in 
Exchange rules applicable to Index Fund Shares and the orders approving 
such rules.
    (3) Trading in the Shares will be subject to the existing trading 
surveillances administered by the Exchange, as well as cross-market 
surveillances administered by Cboe Options and FINRA, on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws.
    (4) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (5) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.\37\
---------------------------------------------------------------------------

    \37\ See Amendment No. 1, supra note 6, at 15.
---------------------------------------------------------------------------

    This approval order is based on all of the Exchange's statements 
and representations, including those set forth above and in Amendment 
No. 1.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1 thereto, is consistent with 
Section 6(b)(5) of the Act \38\ and the rules and regulations 
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written views, data, and 
arguments concerning whether Amendment No. 1 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-005 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-2018-005. This

[[Page 19393]]

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-2018-005 and should be submitted 
on or before May 23, 2018.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. Amendment No. 1 supplements the proposal by, 
among other things: (1) Providing additional information regarding the 
Index; and (2) making additional representations regarding the Adviser 
and Index Provider implementing and maintaining a fire wall. The 
changes assisted the Commission in evaluating the Exchange's proposal 
and in determining that the listing and trading of the Shares is 
consistent with the Act. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\39\ to approve the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\40\ that the proposed rule change (SR-CboeBZX-2018-005), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved on 
an accelerated basis.
---------------------------------------------------------------------------

    \40\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
---------------------------------------------------------------------------

    \41\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09259 Filed 5-1-18; 8:45 am]
 BILLING CODE 8011-01-P


