
[Federal Register Volume 84, Number 32 (Friday, February 15, 2019)]
[Notices]
[Pages 4584-4589]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02394]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85099; File No. SR-CboeBZX-2019-001]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Under Rule 
14.11(c)(3) Shares of the Global X Russell 2000 Covered Call ETF of 
Global X Funds

February 11, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 28, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange submits this proposal to list and trade under Rule 
14.11(c)(3) shares of the Global X Russell 2000 Covered Call ETF (the 
``Fund'') of Global X Funds (the ``Trust'').
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

    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 aspects 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 the 
Fund under BZX Rule 14.11(c)(3),\3\ which governs the listing and 
trading of index fund shares based on an index composed of U.S. 
Component Stocks.\4\ The Exchange notes that the Commission has 
previously approved a fund that employs a very similar strategy.\5\
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    \3\ The Commission approved BZX Rule 14.11(c) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ Rule 14.11(c)(1)(D) provides that the term ``U.S. Component 
Stock'' shall mean an equity security that is registered under 
Sections 12(b) or 12(g) of the Act.
    \5\ See Securities Exchange Act Release No. 68708 (January 23, 
2013), 78 FR 6161 (January 29, 2013) (SR-NYSEArca-2012-131) (order 
granting approval of proposed rule change relating to listing and 
trading of shares of the Horizons S&P 500 Covered Call ETF).
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    The Shares are offered by Global X Funds, which is organized as a 
Delaware statutory trust and is registered with the Commission as an 
open-end management investment company.\6\ The investment adviser and 
administrator to the Fund is Global X Management Company LLC (the 
``Adviser'' or ``Administrator'').\7\
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    \6\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). On December 20, 2018, the 
Trust filed with the Commission an amendment to its Form N-1A under 
the Securities Act of 1933 (15 U.S.C. 77a), and under the 1940 Act 
relating to the Funds (File Nos. 333-151713 and 811-22209) 
(``Registration Statement''). The description of the operation of 
the Trust and the Fund herein is based, in part, on the Registration 
Statement. In addition, the Commission has issued an order granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No. 29852 (October 28, 2011) (File 
No. 812-13830).
    \7\ The Adviser is not registered as a broker-dealer, but is 
affiliated with broker-dealers and has implemented and will maintain 
a fire wall with respect to its broker-dealer affiliates regarding 
access to information concerning the portfolio holdings of the Fund. 
In the event (a) the Adviser becomes newly affiliated with a broker-
dealer, or (b) any new adviser or sub-adviser becomes affiliated 
with a broker-dealer, it will implement and maintain a fire wall 
with respect to such broker-dealer regarding access to information 
concerning the portfolio holdings of the Fund, and will be subject 
to procedures designed to prevent the use and dissemination of 
material non-public information regarding said portfolio.
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    SEI Investments Distribution Co. (the ``Distributor'') is the 
principal underwriter and distributor of the Shares. Brown Brothers 
Harriman & Co. (the ``Custodian'' or ``Transfer Agent'') will serve as 
custodian and transfer agent for the Fund.
    As described below, the Fund will seek investment results that, 
before fees and expenses, generally correspond to the performance of 
the Cboe Russell 2000 BuyWrite V2 Index (the ``Underlying Index'') 
provided by FTSE Russell (the ``Index Provider'').\8\ The Underlying 
Index measures the performance of a theoretical portfolio that holds a 
portfolio of the stocks included in the Russell 2000 Index \9\ (the 
``Reference Index''), and ``writes'' (or sells) a succession of one-
month at-the-money covered call options on the Reference Index. The 
written covered call options on the Reference Index are held until 
expiration. The Reference Index is an equity benchmark which measures 
the performance of the small-capitalization sector of the U.S. equity 
market, as defined by FTSE Russell.\10\
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    \8\ The Underlying Index is provided by the Index Provider, 
which is unaffiliated with the Fund or the Adviser. The Index 
Provider maintains, calculates and publishes information regarding 
the Underlying Index. The Index Provider is not a broker-dealer and 
has implemented and will maintain procedures designed to prevent the 
use and dissemination of material, non-public information regarding 
the Underlying Index.
    \9\ The Exchange notes that the Russell 2000 Index has been 
previously approved by the Commission under Section 19(b)(2) of the 
Act in connection with the listing and trading of FLEX Options and 
Quarterly Index Options, as well as other securities. See, e.g., 
Securities Exchange Act Release Nos. 32694 (July 29, 1993), 58 FR 
41814 (July 5, 1993) (approving the listing and trading of FLEX 
Options based on the Russell 2000 Index); 32693 (July 29, 1993), 58 
FR 41817 (August 5, 1993) (approving the listing and trading of 
Quarterly Index Option based on the Russell 2000 Index). Rule 
14.11(c)(3)(A)(i)(e) provides that all securities in the applicable 
index or portfolio shall be U.S. Component Stocks listed on a 
national securities exchange and shall be NMS Stocks as defined in 
Rule 600 under Regulation NMS of the Act. Each component stock of 
the Russell 2000 Index is a U.S. Component Stock that is listed on a 
national securities exchange and is an NMS Stock. Options are 
excluded from the definition of NMS Stock. The Fund and the Index 
[sic] meet all of the requirements of the listing standards for 
Index Fund Shares in Rule 14.11(c)(3), except the requirements in 
Rule 14.11(c)(3)(A)(i)(a)-(e), as the Index [sic] consists of 
options on U.S. Component Stocks. The Russell 2000 Index consists of 
U.S. Component Stocks and satisfies the requirements of Rule 
14.11(c)(3)(A)(i)(a)-(e).
    \10\ The Underlying Index methodology is available at http://www.cboe.com/products/strategy-benchmark-indexes/buywrite-indexes/cboe-russell-2000-buywrite-index-bxr. The Index Provider may amend 
the methodology from time to time. In such case, the methodology 
would be updated accordingly on the website.
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    The Exchange is submitting this proposed rule change because the 
Underlying Index for the Fund does not meet all of the ``generic'' 
listing requirements of Rule 14.11(c)(3)(A)(i) applicable to the 
listing of Index Fund Shares based upon an index of U.S. Component 
Stocks. Specifically, Rule 14.11(c)(3)(A)(i) sets forth the 
requirements to be met by components of an index or portfolio of U.S.

[[Page 4585]]

Component Stocks. As further described below, the Underlying Index 
consists of the constituent securities of the Russell 2000 Index and 
options on the Russell 2000 Index. The Underlying Index meets all the 
requirements of Rule 14.11(c)(3)(A)(i) except that the Underlying Index 
includes call options, which are not NMS Stocks as defined in Rule 600 
of Regulation NMS. As described below, the Underlying Index is 
comprised solely of Russell 2000 companies and includes an exposure to 
call options on the Reference Index. All securities in the Reference 
Index are listed and traded on a U.S. national securities exchange. The 
options on the Reference Index are traded on Cboe Exchange, Inc. 
(``Cboe Options''). Notwithstanding that the Underlying Index does not 
meet all of the generic listing requirements of Rule 14.11(c)(3)(A)(i), 
the Exchange believes that the Underlying Index is sufficiently broad-
based enough to deter potential manipulation in that the Reference 
Index stocks are among the most actively traded, highly capitalized 
stocks traded in the U.S.
The Underlying Index
    According to the Registration Statement, the Global X Russell 2000 
Covered Call ETF will seek investment results that, before fees and 
expenses, generally correspond to the performance of the Fund's 
Underlying Index, which is the Cboe Russell 2000 BuyWrite V2 Index. The 
Underlying Index measures the performance of a theoretical portfolio 
that holds a portfolio of the stocks included in the Reference Index, 
and ``writes'' (or sells) a succession of one-month at-the-money 
covered call options on the Reference Index. The written covered call 
options on the Reference Index are held until the applicable expiration 
date. The Reference Index is an equity benchmark which measures the 
performance of the small-capitalization sector of the U.S. equity 
market, as defined by FTSE Russell. The Underlying Index is comprised 
of all the equity securities in the Reference Index and a succession of 
short (written) one-month at-the-money covered call options on the 
Reference Index. The written covered call options on the Reference 
Index are held until the expiration date.
The Fund
    According to the Registration Statement, in seeking to track the 
Underlying Index, the Fund follows a ``buy-write'' (also called a 
covered call) investment strategy on the Reference Index in which the 
Fund purchases the component securities of the Reference Index or 
purchases other investments (including other ETFs) \11\ that have 
economic characteristics that are substantially identical to the 
economic characteristics of such component securities, and also writes 
(or sells) call options that correspond to the Reference Index. The 
Fund uses this strategy in an attempt to enhance its portfolio's risk-
adjusted returns, reduce its volatility, and generate monthly income 
from the premiums received from writing the call options. According to 
the Registration Statement, the Fund will invest at least 80% of its 
total assets in securities that comprise its Underlying Index or in 
investments that have economic characteristics that are substantially 
identical to the economic characteristics of such component securities, 
either individually or in the aggregate.
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    \11\ For purposes of this filing, ETFs include index fund shares 
(as described in BZX Rule 14.11(c)); Portfolio Depositary Receipts 
(as described in BZX Rule 14.11(b)); and Managed Fund Shares (as 
described in BZX Rule 14.11(i)). The ETFs all will be listed and 
traded in the U.S. on registered exchanges. The Fund may invest in 
the securities of ETFs registered under the 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. 
While the Fund may invest in inverse ETFs, the Fund will not invest 
in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
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    According to the Registration Statement, the Fund will be an index 
fund that employs a ``passive management'' investment strategy in 
seeking to achieve its objective. According to the Registration 
Statement, the Adviser's strategy will consist of holding an equity 
portfolio (including ETFs) indexed to the Reference Index and writing 
(selling) covered call options on the Reference Index.\12\ The 
Underlying Index provides a benchmark measure of the total return of 
this hypothetical portfolio.
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    \12\ A covered call strategy is generally considered to be an 
investment strategy in which an investor buys a security, and sells 
a call option that corresponds to the security. In return for a 
premium, the Fund will give the purchaser of the option written by 
the Fund either the right to buy the security from the Fund at an 
exercise price or the right to receive a cash payment equal to the 
difference between the value of the security and the exercise (or 
``strike'') price, if the value is above the exercise price on or 
before the expiration date of the option. In addition, the covered 
call options hedge against a decline in the price of the securities 
on which they are written to the extent of the premium the Fund 
receives. A covered call strategy is generally used in a neutral-to-
bullish market environment, where a slow and steady rise in market 
prices is anticipated.
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    According to the Registration Statement, the Fund will generally 
use a representative sampling methodology, meaning it will invest in a 
representative sample of securities that collectively has an investment 
profile similar to the Underlying Index in terms of key risk factors, 
performance attributes and other characteristics.
    According to the Registration Statement, the Fund will concentrate 
its investments (i.e., hold 25% or more of its total assets) in a 
particular industry or group of industries to approximately the same 
extent that the Underlying Index is so concentrated. The Fund will be 
diversified under the 1940 Act.
Investment Guidelines
    According to the Registration Statement, the Fund will write (sell) 
call options on the Reference Index to the same extent as such short 
call options are included in its Underlying Index.
    The Trust, on behalf of the Fund, has filed a notice of eligibility 
for exclusion from the definition of the term ``commodity pool 
operator'' in accordance with Rule 4.5 so that the Fund is not subject 
to registration or regulation as a commodity pool operator under the 
Commodity Exchange Act (``CEA'').
Other Investments
    The Fund may also hold up to 20% of its net assets in cash and Cash 
Equivalents,\13\ shares of non-exchange traded registered open-end 
investment companies, subject to applicable limitations under Section 
12(d)(1) of the 1940 Act (``Mutual Funds''),\14\ futures, listed 
options, and U.S. listed equities that are not included in the 
underyling [sic] index, but which the Adviser believes will help the 
Fund track the Underlying Index.
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    \13\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (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.
    \14\ The Fund will not invest in leveraged (e.g. 2x, -2x, 3x, or 
-3x) Mutual Funds.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of 
investment).\15\ The Fund will monitor

[[Page 4586]]

its portfolio liquidity on an ongoing basis to determine whether, in 
the light of current circumstances, an adequate level of liquidity is 
being maintained, and will consider taking appropriate steps in order 
to maintain adequate liquidity if, through a change in values, net 
assets, or other circumstances, more than 15% of the Fund's net assets 
are held in illiquid securities and other illiquid assets.
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    \15\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 8901 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the exchange traded fund (``ETF''). See Investment 
Company Act Release No. 14983 (March 12, 1986), 51 FR 9773 (March 
21, 1986) (adopting amendments to Rule 2a-7 under the 1940 Act); 
Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 
17933 (April 30, 1990) (adopting Rule 144A under the Securities Act 
of 1933).
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    The Fund will seek to qualify for treatment as a regulated 
investment company (``RIC'') under the Code.\16\
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    \16\ 26 U.S.C. 851.
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Availability of Information
    The Fund's website, 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. The website will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's reported NAV and a calculation of 
the premium and discount of the Bid/Ask Price against the NAV; and (2) 
data in chart format displaying the frequency distribution of discounts 
and premiums of the daily Bid/Ask Price against the NAV, within 
appropriate ranges, for each of the four previous calendar quarters. 
Daily trading volume information for the Shares will also be available 
in the financial section of newspapers, through subscription services 
such as Bloomberg, Thomson Reuters, and International Data Corporation, 
which can be accessed by authorized participants and other investors, 
as well as through other electronic services, including major public 
websites. On each business day, the Fund will disclose on its website 
the identities and quantities of the portfolio of securities and other 
assets in the daily disclosed portfolio held by the Fund that formed 
the basis for the Fund's calculation of NAV at the end of the previous 
business day. The daily disclosed portfolio will include, as 
applicable: The 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; coupon rate, if any; effective date, if any; 
market value of the holding; and the percentage weighting of the 
holding in the Fund's portfolio. The website and information will be 
publicly available at no charge. The value, components, and percentage 
weightings of the Underlying Index will be calculated and disseminated 
at least once daily and will be available from major market data 
vendors. Rules governing the Underlying Index are available on the 
Exchange's website and in the Fund's prospectus.
    In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A) 
as the ``Intraday Indicative Value'' (the ``IIV''), that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the IIV will be based upon the current value for the 
components of the daily disclosed portfolio and will be updated and 
widely disseminated by one or more major market data vendors at least 
every 15 seconds during the Exchange's Regular Trading Hours.\17\
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    \17\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIVs 
published via the Consolidated Tape Association (``CTA'') or other 
data feeds.
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    The dissemination of the IIV, together with the daily disclosed 
portfolio, will allow investors to determine the value of the 
underlying portfolio of the Fund on a daily basis and provide a close 
estimate of that value throughout the trading day.
    Quotation and last sale information for the Shares will be 
available via the CTA high speed line and, for the securities held by 
the Fund, will be available from the exchange on which they are listed. 
Quotation and last sale information for options contracts held by the 
Fund will be available via the Options Price Reporting Authority. The 
intra-day, closing, and settlement prices of the portfolio instruments, 
including equities, ETFs, futures, and options, will also be readily 
available from the securities exchanges trading such securities, 
automated quotation systems, published or other public sources, or 
online information services such as Bloomberg or Reuters. Price 
information for Cash Equivalents will be available from major market 
data vendors. Mutual Funds are typically priced once each business day 
and their prices will be available through the applicable fund's 
website or from major market data vendors.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the shares the Fund inadvisable. If the IIV and index value 
are not being disseminated for the Fund as required, the Exchange may 
halt trading during the day in which the interruption to the 
dissemination of the IIV or index value occurs. If the interruption to 
the dissemination of an IIV or index value persists past the trading 
day in which it occurred, the Exchange will halt trading. The Exchange 
may consider all relevant factors in exercising its discretion to halt 
or suspend trading in the Shares. The Exchange will halt trading in the 
Shares under the conditions specified in BZX Rule 11.18. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/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. 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.
Trading Rules
    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. The Exchange will 
allow trading in the Shares from 8:00 a.m. until 8:00 p.m. Eastern Time 
and has the appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in Rule 11.11(a), the minimum 
price variation for quoting and entry of orders in securities traded on 
the Exchange is $0.01, with the exception of securities that are priced 
less than $1.00, for which the minimum price variation for order entry 
is $0.0001.

[[Page 4587]]

Surveillance
    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. 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 Exchange Act, the Exchange will surveil for compliance with the 
continued listing requirements. 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 under Exchange Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares, underlying equities 
(including ETFs), futures, and options contracts with other markets and 
other entities that are members of the Intermarket Surveillance Group 
(``ISG'') \18\ and may obtain trading information regarding trading in 
the Shares, underlying equities (including ETFs), futures, and options 
contracts from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares, 
underyling [sic] equities (including ETFs), futures, and the 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 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 
(``TRACE'').
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    \18\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that 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.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    The Exchange represents that, for initial and/or continued listing, 
the Fund will be in compliance with Rule 10A-3 \19\ under the Exchange 
Act, as provided by generic listing standards under Rule 14.11(c)(4) 
and the continued listing standards under Rule 14.11(c). A minimum of 
100,000 Shares for the Fund will be outstanding at the commencement of 
trading on the Exchange. The Exchange represents that, except for the 
exceptions to BZX Rule 14.11(c) described above, the Fund and Shares 
will satisfy all applicable requirements for Index Fund Shares under 
Rule 14.11(c), including the requirements related to the net asset 
value (``NAV'') per Share being calculated daily and made available to 
all market participants at the same time, intraday indicative value, 
suspension of trading or removal, trading halts, disclosure, and 
firewalls.
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    \19\ 17 CFR 240.10A-3.
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Information Circular
    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: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the portfolio holdings is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Opening \20\ and After Hours Trading Sessions \21\ when an updated 
Intraday Indicative Value will not be calculated or publicly 
disseminated; (5) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (6) trading information.
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    \20\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \21\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
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    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV calculation time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
website.
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 in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria for Index Fund Shares based on 
an index composed of U.S. Component Stocks in Rule 14.11(c)(3). The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances administered by the Exchange as well as 
cross-market surveillances administered by FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
federal securities laws applicable to trading on the Exchange. The 
Exchange represents that these procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and federal securities 
laws applicable to trading on the Exchange. Exchange or FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
the Shares, underlying equities (including ETFs), futures, and options 
contracts with other markets and other entities that are members of the 
ISG and may obtain trading information regarding trading in the Shares, 
underlying equities

[[Page 4588]]

(including ETFs), futures, and options contracts from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares, underyling [sic] equities (including 
ETFs), futures, and the 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, 
FINRA, on behalf of the Exchange, is able to access, as needed, trade 
information for certain fixed income securities held by the Fund 
reported to TRACE.
    The Adviser is affiliated with broker-dealers and has implemented 
and will maintain a fire wall with respect to its broker-dealer 
affiliates regarding access to information concerning the portfolio 
holdings of the Fund. In the event (a) the Adviser becomes newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-adviser 
becomes affiliated with a broker-dealer, it will implement and maintain 
a fire wall with respect to such broker-dealer regarding access to 
information concerning the portfolio holdings of the Fund, and will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolios. The Index 
Provider is not a broker-dealer and has implemented and will maintain 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the Underlying Index. All securities 
in the Reference Index are listed and traded on a U.S. national 
securities exchange. The options on the Reference Index are traded on 
Cboe Options, a U.S. national options exchange and member of ISG.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
will be made available to all market participants at the same time. In 
addition, a large amount of information is publicly available regarding 
the Fund and the Shares, thereby promoting market transparency. 
Moreover, the IIV and the Underlying Index value will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during Regular Trading Hours. If the IIV or the Underlying 
Index value of a Fund is not being disseminated as required, the 
Exchange may halt trading during the day in which the interruption to 
the dissemination of the applicable IIV or Underlying Index value 
occurs. If the interruption to the dissemination of the applicable IIV 
or Underlying Index value persists past the trading day in which it 
occurred, the Exchange will halt trading. In addition, if the Exchange 
becomes aware that the NAV of a Fund is not being disseminated to all 
market participants at the same time, it will halt trading in the 
relevant Shares on the Exchange until such time as the NAV is available 
to all market participants. On each business day, before commencement 
of trading in Shares during Regular Trading Hours on the Exchange, the 
Fund will disclose on itswebsite [sic] the securities and other 
financial instruments in the Fund's portfolio that will form the basis 
for the Fund's calculation of NAV at the end of the business day. 
Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services, and 
quotation and last sale information will be available via the CTA high-
speed line. The website for the Fund will include a form of the 
prospectus for the Fund and additional data relating to NAV and other 
applicable quantitative information. 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 Exchange will halt trading in 
the Shares under the conditions specified in Rule 11.18. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/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. In addition, the equity securities 
(including ETFs), futures, and options in which the Fund will invest 
will trade in markets that are ISG members. Additional information 
regarding the Underlying and Reference Indices' components and their 
percentage weights will be available from the Index Provider and major 
market data vendors. In addition, quotation and last sale information 
for the components of the Underlying and Reference Indices will be 
available from the exchanges on which they trade. The intra-day, 
closing and settlement prices of the portfolio instruments will also be 
readily available from the exchanges trading such instruments, 
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. In addition, as 
noted above, investors will have ready access to information regarding 
the Fund's holdings, the IIV, the Underlying Index's value, and 
quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of Index Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares, the underlying equities 
(including ETFs), futures, and options contracts and may obtain 
information via ISG from other exchanges that are members of ISG or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement. In addition, as noted above, investors will have 
ready access to information regarding the Fund's holdings, the IIV, 
relevant Underlying Index value, and quotation and last sale 
information for the Shares.

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 of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional series of Index Fund Shares on the Exchange 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:

[[Page 4589]]

    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-001 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-2019-001. 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-2019-001, and should be 
submitted on or before March 8, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02394 Filed 2-14-19; 8:45 am]
 BILLING CODE 8011-01-P


