[Federal Register Volume 84, Number 150 (Monday, August 5, 2019)]
[Notices]
[Pages 38078-38085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16612]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86511; File No. SR-CboeBZX-2019-067]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
Innovator-100 Buffer ETF Series and Innovator Russell 2000 Buffer ETF 
Series, Innovator-100 Power Buffer ETF Series and Innovator Russell 
2000 Power Buffer ETF Series, and Innovator-100 Ultra Buffer ETF Series 
and Innovator Russell 2000 Ultra Buffer ETF Series Under Rule 14.11(i)

July 30, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 18, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
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 proposes a rule change to list and trade shares of the 
Innovator-100 Buffer ETF Series and Innovator Russell 2000 Buffer ETF 
Series; Innovator-100 Power Buffer ETF Series and Innovator Russell 
2000 Power Buffer ETF Series; and Innovator-100 Ultra Buffer ETF Series 
and Innovator Russell 2000 Ultra Buffer ETF Series under the Innovator 
ETFs Trust under Rule 14.11(i) (``Managed Fund Shares'').
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 up 
to twelve monthly Innovator-100 Buffer ETF Series and Innovator Russell 
2000 Buffer ETF Series (collectively, the ``Buffer Funds''); Innovator-
100 Power Buffer ETF Series and Innovator Russell 2000 Power Buffer ETF 
Series (collectively, the ``Power Buffer Funds''); and Innovator-100 
Ultra Buffer ETF Series and Innovator Russell 2000 Ultra Buffer ETF 
Series (collectively, the ``Ultra Buffer Funds'') (each a ``Fund'' and, 
collectively, the ``Funds'') under Rule 14.11(i), which governs the 
listing and trading of Managed Fund Shares on

[[Page 38079]]

the Exchange.\3\ Each Fund will be an actively managed ETF.\4\ The 
Exchange submits this proposal in order to allow each Fund to hold 
listed derivatives in a manner that does not comply with Rule 
14.11(i)(4)(C)(iv)(b), as further described below. The Exchange notes 
that: (i) Each of the Buffer Funds, the Power Buffer Funds, and the 
Ultra Buffer Funds in this proposal have an investment objective and 
strategy substantially identical to those in the Original Approval; and 
(ii) the statements or representations herein regarding the description 
of the portfolio, reference assets, and indexes, limitations on 
portfolio holdings or reference assets, and the applicability of 
Exchange rules are substantively identical to those statements and 
representations included in the Original Approval, except that the 
funds in the Original Approval were based on the S&P 500 Index while 
the Funds herein are based on the Reference Indexes, as defined 
below.\5\
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    \3\ The Commission originally approved BZX Rule 14.11(i) in 
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 
55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently 
approved generic listing standards for Managed Fund Shares under 
Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22, 
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100).
    \4\ For purposes of this filing, the term ``ETF'' means 
Portfolio Depository Receipts as defined in Rule 14.11(b), Index 
Fund Shares as defined under Rule 14.11(c), Managed Fund Shares as 
defined under Rule 14.11(i), or their respective equivalents on 
other U.S. national securities exchanges.
    \5\ See Securities Exchange Act Release No. 83679 (July 20, 
2018), 83 FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72) (the 
``Original Approval'').
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    The Shares will be offered by Innovator ETFs Trust (formerly 
Academy Funds Trust) (the ``Trust''), which was established as a 
Delaware statutory trust on October 17, 2007. The Trust is registered 
with the Commission as an investment company and has filed, for each 
Fund, a registration statement on Form N-1A (``Registration 
Statement'') with the Commission on behalf of the Funds.\6\ Each Fund 
intends to qualify each year as a regulated investment company (a 
``RIC'') under Subchapter M of the Internal Revenue Code of 1986, as 
amended.\7\ Innovator Capital Management, LLC (the ``Adviser'') is the 
investment adviser to the Funds and Milliman Financial Risk Management 
LLC (the ``Sub-Adviser'') is the sub-adviser. Rule 14.11(i)(7) provides 
that, if the investment adviser to the investment company issuing 
Managed Fund Shares is affiliated with a broker-dealer, such investment 
adviser shall erect a ``fire wall'' between the investment adviser and 
the broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio.\8\ In 
addition, Rule 14.11(i)(7) further requires that personnel who make 
decisions on the investment company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable investment 
company portfolio. Neither the Adviser nor the Sub-Adviser is a 
registered broker-dealer, and neither the Adviser nor the Sub-Adviser 
are affiliated with broker-dealers. In addition, Adviser and Sub-
Adviser personnel who make decisions regarding a Fund's portfolio are 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the Fund's portfolio. In the 
event that (a) the Adviser or Sub-Adviser becomes registered as a 
broker-dealer or newly affiliated with a 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, to the 
extent that a Fund is based on a benchmark index, in the event that the 
index provider of the benchmark index (the ``Index Provider'') becomes 
registered as a broker-dealer or newly 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.
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    \6\ See Post-Effective Amendment Nos. 191, 192, 193, and 194 to 
Registration Statement on Form N-1A for the Trust, which were filed 
with the Commission on February 6, 2019 (File Nos. 333-146827 and 
811-22135). The descriptions of the Funds and the Shares contained 
herein are based on information in the Registration Statement. There 
are no permissible holdings for the Funds that are not described in 
this proposal. The Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act'') (the ``Exemptive Order''). See 
Investment Company Act Release No. 32854 (October 6, 2017) (File No. 
812-14781).
    \7\ 26 U.S.C. 851.
    \8\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The investment objective of the Funds is to provide investors with 
returns that match those of the Nasdaq-100 Index (the ``Nasdaq-100 
Price Index'') or the Russell 2000 Price Index (the ``Russell 2000 
Price Index'') (collectively, the ``Reference Indexes'') over a period 
of approximately one year, while providing a level of protection from 
losses in the applicable Reference Index.
    The Funds are each actively managed funds that employ a ``defined 
outcome strategy'' that:
    (1) For the Buffer Funds, seeks to provide investment returns that 
match the gains of the applicable Reference Index, up to a maximized 
annual return (the ``Buffer Cap Level''), while guarding against a 
decline in the Reference Index of the first 10% (the ``Buffer 
Strategy'');
    (2) for the Power Buffer Funds, seeks to provide investment returns 
that match the gains of the applicable Reference Index, up to a 
maximized annual return (the ``Power Buffer Cap Level''), while 
guarding against a decline in the Reference Index of the first 15% (the 
``Power Buffer Strategy''); and
    (3) for the Ultra Buffer Funds, seeks to provide investment returns 
that match the gains of the applicable Reference Index, up to a 
maximized annual return (the ``Ultra Buffer Cap Level''), while 
guarding against a decline in the Reference Index of between 5% and 35% 
(the ``Ultra Buffer Strategy'').
    Pursuant to the Strategies, each Fund will invest primarily in 
exchange-traded options contracts that reference either the Reference 
Index or ETFs that track the Reference Index. Defined outcome 
strategies are designed to participate in market gains and losses 
within pre-determined ranges over a specified period (i.e. point to 
point). These

[[Page 38080]]

outcomes are predicated on the assumption that an investment vehicle 
employing the strategy is held for the designated outcome periods. As 
such, the Exchange is proposing to list a total of up to 72 Funds: Up 
to twelve monthly series for each Reference Index for each of the 
Buffer Strategy, Power Buffer Strategy and Ultra Buffer Strategy.
    The Exchange submits this proposal in order to allow each Fund to 
hold listed derivatives, in particular FLexible EXchange Options 
(``FLEX Options'') on the applicable Reference Index, in a manner that 
does not comply with Rule 14.11(i)(4)(C)(iv)(b).\9\ Otherwise, the 
Funds will comply with all other listing requirements of the Generic 
Listing Standards \10\ for Managed Fund Shares on an initial and 
continued listing basis under Rule 14.11(i).
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    \9\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate 
gross notional value of listed derivatives based on any five or 
fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight 
of the portfolio (including gross notional exposures).'' The Funds 
do not meet the generic listing standards because they fail to meet 
the requirement of Rule 14.11(i)(4)(C)(iv)(b) that prevents the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset from exceeding 30% of the weight 
of the portfolio (including gross notional exposures) and the 
requirement that the aggregate gross notional value of listed 
derivatives based on any five or fewer underlying reference assets 
shall not exceed 65% of the weight of the portfolio (including gross 
notional exposures).
    \10\ For purposes of this proposal, the term ``Generic Listing 
Standards'' shall mean the generic listing rules for Managed Fund 
Shares under Rule 14.11(i)(4)(C).
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Buffer Funds
    Under Normal Market Conditions,\11\ each Buffer Fund (which include 
the Innovator-100 Buffer ETF Series and Innovator Russell 2000 Buffer 
ETF Series) will attempt to achieve its investment objective by 
employing a ``defined outcome strategy'' that will seek to provide 
investment returns during the outcome period that match the gains of 
the applicable Reference Index (either the Nasdaq-100 Price Index or 
the Russell 2000 Price Index, respectively), up to the applicable 
Buffer Cap Level, while shielding investors from Reference Index losses 
of up to 10%. Pursuant to the Buffer Strategy, each Buffer Fund will 
invest primarily in FLEX Options or standardized options contracts 
listed on a U.S. exchange that reference either the applicable 
Reference Index or ETFs that track that Reference Index.
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    \11\ As defined in Rule 14.11(i)(3)(E), 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.
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    The portfolio managers will invest in a portfolio of FLEX Options 
linked to an underlying asset that, the Reference Index, when held for 
the specified period, seeks to produce returns that, over the outcome 
period, match the positive returns of the applicable Reference Index up 
to the applicable Buffer Cap Level. Pursuant to the Buffer Strategy, 
each Buffer Fund's portfolio managers will seek to produce the 
following outcomes during the outcome period:
     If the Reference Index appreciates over the outcome 
period: the Buffer Fund will seek to provide shareholders with a total 
return that matches that of the applicable Reference Index, up to and 
including the applicable Buffer Cap Level;
     If the Reference Index depreciates over the outcome period 
by 10% or less: The Buffer Fund will seek to provide a total return of 
zero;
     If the Reference Index decreases over the outcome period 
by more than 10%: The Buffer Fund will seek to provide a total return 
loss that is 10% less than the percentage loss on the Reference Index 
with a maximum loss of approximately 90%.
    The Buffer Funds will produce these outcomes by layering purchased 
and written FLEX Options. The customizable nature of FLEX Options 
allows for the creation of a strategy that sets desired defined outcome 
parameters. The FLEX Options comprising a Buffer Fund's portfolio have 
terms that, when layered upon each other, are designed to buffer 
against losses or match the gains of the applicable Reference Index. 
However, another effect of the layering of FLEX Options with these 
terms is a cap on the level of possible gains.
    Any FLEX Options that are written by a Buffer Fund that create an 
obligation to sell or buy an asset will be offset with a position in 
FLEX Options purchased by the Buffer Fund to create the right to buy or 
sell the same asset such that the Buffer Fund will always be in a net 
long position. That is, any obligations of a Buffer Fund created by its 
writing of FLEX Options will be covered by offsetting positions in 
other purchased FLEX Options. As the FLEX Options mature at the end of 
each outcome period, they are replaced. By replacing FLEX Options 
annually, each Buffer Fund seeks to ensure that investments made in a 
given month during the current year buffer against negative returns of 
the applicable Reference Index up to pre-determined levels in that same 
month of the following year. The Buffer Funds do not offer any 
protection against declines in the Reference Index exceeding 10% on an 
annualized basis. Shareholders will bear all Reference Index losses 
exceeding 10% on a one-to-one basis.
    The FLEX Options owned by each of the Buffer Funds will have the 
same terms (i.e. same strike price and expiration) for all investors of 
a Buffer Fund within an outcome period. The Buffer Cap Level will be 
determined with respect to each Buffer Fund on the inception date of 
the Buffer Fund and at the beginning of each outcome period and is 
determined based on the price of the FLEX Options acquired by the 
Buffer Fund at that time.
Power Buffer Funds
    Under Normal Market Conditions, each Power Buffer Fund (which 
include the Innovator-100 Power Buffer ETF Series and Innovator Russell 
2000 Power Buffer ETF Series) will attempt to achieve its investment 
objective by employing a ``defined outcome strategy'' that will seek to 
provide investment returns during the outcome period that match the 
gains of the applicable Reference Index (either the Nasdaq-100 Price 
Index or the Russell 2000 Price Index, respectively), up to the 
applicable Power Buffer Cap Level, while shielding investors from 
Reference Index losses of up to 15%. Pursuant to the Power Buffer 
Strategy, each Power Buffer Fund will invest primarily in FLEX Options 
or standardized options contracts listed on a U.S. exchange that 
reference either the applicable Reference Index or ETFs that track that 
Reference Index.
    The portfolio managers will invest in a portfolio of FLEX Options 
linked to an underlying asset, the Reference Index, that, when held for 
the specified period, seeks to produce returns that, over the outcome 
period, match the positive returns of the applicable Reference Index up 
to the applicable Power Buffer Cap Level. Pursuant to the Power Buffer 
Strategy, each Power Buffer Fund's portfolio managers will seek to 
produce the following outcomes during the outcome period:
     If the Reference Index appreciates over the outcome 
period: The Power Buffer Fund will seek to provide shareholders with a 
total return that matches that of the applicable Reference Index, up to 
and including the applicable Power Buffer Cap Level;

[[Page 38081]]

     If the Reference Index depreciates over the outcome period 
by 15% or less: The Power Buffer Fund will seek to provide a total 
return of zero; and
     If the Reference Index decreases over the outcome period 
by more than 15%: The Power Buffer Fund will seek to provide a total 
return loss that is 15% less than the percentage loss on the Reference 
Index with a maximum loss of approximately 85%.
    The Power Buffer Funds will produce these outcomes by layering 
purchased and written FLEX Options. The customizable nature of FLEX 
Options allows for the creation of a strategy that sets desired defined 
outcome parameters. The FLEX Options comprising a Power Buffer Fund's 
portfolio have terms that, when layered upon each other, are designed 
to buffer against losses or match the gains of the applicable Reference 
Index. However, another effect of the layering of FLEX Options with 
these terms is a cap on the level of possible gains.
    Any FLEX Options that are written by a Power Buffer Fund that 
create an obligation to sell or buy an asset will be offset with a 
position in FLEX Options purchased by the Power Buffer Fund to create 
the right to buy or sell the same asset such that the Power Buffer Fund 
will always be in a net long position. That is, any obligations of a 
Power Buffer Fund created by its writing of FLEX Options will be 
covered by offsetting positions in other purchased FLEX Options. As the 
FLEX Options mature at the end of each outcome period, they are 
replaced. By replacing FLEX Options annually, each Power Buffer Fund 
seeks to ensure that investments made in a given month during the 
current year buffer against negative returns of the applicable 
Reference Index up to pre-determined levels in that same month of the 
following year. The Power Buffer Funds do not offer any protection 
against declines in the Reference Index exceeding 15% on an annualized 
basis. Shareholders will bear all Reference Index losses exceeding 15% 
on a one-to-one basis.
    The FLEX Options owned by each of the Power Buffer Funds will have 
the same terms (i.e. same strike price and expiration) for all 
investors of a Power Buffer Fund within an outcome period. The Power 
Buffer Cap Level will be determined with respect to each Power Buffer 
Fund on the inception date of the Power Buffer Fund and at the 
beginning of each outcome period and is determined based on the price 
of the FLEX Options acquired by the Power Buffer Fund at that time.
Ultra Buffer Funds
    Under Normal Market Conditions, each Ultra Buffer Fund (which 
include the Innovator-100 Ultra Buffer ETF Series and Innovator Russell 
2000 Ultra Buffer ETF Series) will attempt to achieve its investment 
objective by employing a ``defined outcome strategy'' that will seek to 
provide investment returns during the outcome period that match the 
gains of the applicable Reference Index (either the Nasdaq-100 Price 
Index or the Russell 2000 Price Index, respectively), up to the 
applicable Ultra Buffer Cap Level, while shielding investors from 
Reference Index losses of between 5% and 35%. Pursuant to the Ultra 
Buffer Strategy, each Ultra Buffer Fund will invest primarily in FLEX 
Options or standardized options contracts listed on a U.S. exchange 
that reference either the applicable Reference Index or ETFs that track 
that Reference Index.
    The portfolio managers will invest in a portfolio of FLEX Options 
linked to an underlying asset, the Reference Index, that, when held for 
the specified period, seeks to produce returns that, over the outcome 
period, match the positive returns of the applicable Reference Index up 
to the applicable Ultra Buffer Cap Level. Pursuant to the Ultra Buffer 
Strategy, each Ultra Buffer Fund's portfolio managers will seek to 
produce the following outcomes during the outcome period:
     If the Reference Index appreciates over the outcome 
period: The Ultra Buffer Fund will seek to provide a total return that 
matches the percentage increase of the applicable Reference Index, up 
to the applicable Ultra Buffer Cap Level;
     If the Reference Index decreases over the outcome period 
by 5% or less: The Ultra Buffer Fund will seek to provide a total 
return loss that is equal to the percentage loss on the Reference 
Index;
     If the Reference Index decreases over the outcome period 
by 5%-35%: The Ultra Buffer Fund will seek to provide a total return 
loss of 5%; and
     If the Reference Index depreciates over the outcome period 
by greater than 35%: The Ultra Buffer Fund will seek to provide a total 
return loss that is 30% less than the percentage loss on the Reference 
Index with a maximum loss of approximately 70%.
    The Ultra Buffer Funds will produce these outcomes by layering 
purchased and written FLEX Options. The customizable nature of FLEX 
Options allows for the creation of a strategy that sets desired defined 
outcome parameters. The FLEX Options comprising an Ultra Buffer Fund's 
portfolio have terms that, when layered upon each other, are designed 
to buffer against losses or match the gains of the applicable Reference 
Index. However, another effect of the layering of FLEX Options with 
these terms is a cap on the level of possible gains.
    Any FLEX Options that are written by an Ultra Buffer Fund that 
create an obligation to sell or buy an asset will be offset with a 
position in FLEX Options purchased by the Ultra Buffer Fund to create 
the right to buy or sell the same asset such that the Ultra Buffer Fund 
will always be in a net long position. That is, any obligations of an 
Ultra Buffer Fund created by its writing of FLEX Options will be 
covered by offsetting positions in other purchased FLEX Options. As the 
FLEX Options mature at the end of each outcome period, they are 
replaced. By replacing FLEX Options annually, each Ultra Buffer Fund 
seeks to ensure that investments made in a given month during the 
current year buffer against negative returns of the applicable 
Reference Index up to pre-determined levels in that same month of the 
following year. The Ultra Buffer Funds do not offer any protection 
against declines in the Reference Index exceeding 35% on an annualized 
basis. Shareholders will bear all Reference Index losses exceeding 35% 
on a one-to-one basis.
    The FLEX Options owned by each of the Ultra Buffer Funds will have 
the same terms (i.e. same strike price and expiration) for all 
investors of an Ultra Buffer Fund within an outcome period. The Ultra 
Buffer Cap Level will be determined with respect to each Ultra Buffer 
Fund on the inception date of the Ultra Buffer Fund and at the 
beginning of each outcome period and is determined based on the price 
of the FLEX Options acquired by the Ultra Buffer Fund at that time.
Investment Methodology for the Funds
    Under Normal Market Conditions, each Fund will invest primarily in 
U.S. exchange-listed FLEX Options on the Reference Index. Each of the 
Funds may invest its net assets (in the aggregate) in other investments 
which the Adviser or Sub-Adviser believes will help each Fund to meet 
its investment objective and that will be disclosed at the end of each 
trading day (``Other Assets''). Other Assets include only the 
following: Cash or cash equivalents, as defined in Rule 
14.11(i)(4)(C)(iii) \12\ and standardized

[[Page 38082]]

options contracts listed on a U.S. securities exchange that reference 
either the Reference Index or that reference ETFs that track the 
Reference Index (``Reference ETFs'').
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    \12\ As defined in Rule 14.11(i)(4)(C)(iii), cash equivalents 
include short-term instruments with maturities of less than three 
months, including: (i) U.S. Government securities, including bills, 
notes, and bonds differing as to maturity and rates of interest, 
which are either issued or guaranteed by the U.S. Treasury or by 
U.S. Government agencies or instrumentalities; (ii) certificates of 
deposit issued against funds deposited in a bank or savings and loan 
association; (iii) bankers acceptances, which are short-term credit 
instruments used to finance commercial transactions; (iv) repurchase 
agreements and reverse repurchase agreements; (v) bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; (vi) commercial paper, which are short-term unsecured 
promissory notes; and (vii) money market funds.
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Reference Index Options Discussion
    The Exchange notes that each of the applicable Reference Indexes 
meet the generic listing standards applicable to indexes underlying 
series of Index Fund Shares listed on the Exchange under Rule 
14.11(c)(3)(A)(i) and (ii), which include diversity, liquidity, and 
market cap requirements that are designed to ensure that an underlying 
index is not susceptible to manipulation. Further, the Exchange notes 
that the market for each of the options contracts based on the 
Reference Indexes is deep and liquid, representing multiple billions of 
dollars in notional volume traded on a daily basis, as laid out below.
    Nasdaq-100 Price Index--In 2018, more than 15,000 options contracts 
on the Nasdaq-100 Price Index were traded per day, which is more than 
$10 billion in notional volume traded on a daily basis.
    Russell 2000 Price Index--In 2018, more than 60,000 options 
contracts on the Russell 2000 Price Index were traded per day, which is 
more than $9 billion in notional volume traded on a daily basis.
    While FLEX Options are traded differently than standardized options 
contracts, the Exchange believes that the liquidity in the standardized 
options contracts for each Reference Index, as laid out above, bolsters 
the market for FLEX Options. Every FLEX Option order submitted to the 
applicable listing exchange is exposed to a competitive auction process 
for price discovery. The process begins with a request for quote 
(``RFQ'') in which the interested party establishes the terms of the 
FLEX Options contract. The RFQ solicits interested market participants 
to respond to the RFQ with bids or offers through a competitive 
process. This solicitation contains all of the contract specifications-
underlying, size, type of option, expiration date, strike price, 
exercise style and settlement basis. During a specified amount of time, 
responses to the RFQ are received and at the end of that time period, 
the initiator can decide whether to accept the best bid or offer. The 
process occurs under the rules of the applicable exchange which means 
that customer transactions are effected according to the principles of 
a fair and orderly market following trading procedures and policies 
developed by a national securities exchange.
    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and FLEX 
Options on each of the applicable Reference Indexes for several 
reasons: (i) The diversity, liquidity, and market cap of the securities 
underlying each Reference Index; \13\ (ii) the competitive quoting 
process for FLEX Options; (iii) the significant liquidity in the market 
for options on each of the applicable Reference Indexes, as described 
above, results in a well-established price discovery process that 
provides meaningful guideposts for FLEX Option pricing; and (iv) 
surveillance by the Exchange, other national securities exchanges on 
which the options contracts on the Reference Indexes are listed, and 
the Financial Industry Regulatory Authority (``FINRA'') designed to 
detect violations of the federal securities laws and self-regulatory 
organization (``SRO'') rules. 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 each Fund's portfolio, which are comprised 
primarily of FLEX Options on the applicable Reference Index, will be 
acquired in extremely liquid and highly regulated markets,\14\ the 
Shares are less readily susceptible to manipulation.
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    \13\ Each of the applicable Reference Indexes meet the generic 
listing standards applicable to indexes underlying series of Index 
Fund Shares listed on the Exchange, which include diversity, 
liquidity, and market cap requirements that are designed to ensure 
that an underlying index is not susceptible to manipulation. See 
Exchange Rule 14.11(c)(3)(A)(i) and (ii).
    \14\ All exchange-listed securities that the Funds may hold will 
trade on a market that is a member of the Intermarket Surveillance 
Group (``ISG'') and the Funds will not hold any non-exchange-listed 
equities or options, however, not all of the components of the 
portfolio for the Funds 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, options on the Reference Indexes are extremely 
liquid and derive their value from the actively traded components of 
the applicable Reference Indexes. 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 each 
Reference Index make securities that derive their value from that index 
less susceptible to market manipulation in view of market 
capitalization and liquidity of the components of each Reference Index, 
price and quote transparency, and arbitrage opportunities.
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 Managed Fund Shares. All 
statements and representations made in this filing regarding (a) the 
description of the portfolio, reference assets, and index, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules shall constitute continued listing 
requirements for listing the Shares on the Exchange. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related 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 a Fund or the related 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 a 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.

[[Page 38083]]

    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. 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.
    The Exchange believes that the liquidity of the markets for 
constituent securities of the applicable Reference Indexes, options on 
the Reference Indexes, and other derivatives related to the Reference 
Indexes is sufficiently great to deter fraudulent or manipulative acts 
associated with the Funds' Shares price. The Exchange also believes 
that such liquidity is 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 Funds' Shares would present manipulation concerns.
    The Exchange represents that, except for the limitations on listed 
derivatives in BZX Rule 14.11(i)(4)(C)(iv)(b), the Funds' proposed 
investments will satisfy, on an initial and continued listing basis, 
all of the generic listing standards under BZX Rule 14.11(i)(4)(C) and 
all other applicable requirements for Managed Fund Shares under Rule 
14.11(i). The Trust is required to comply with Rule 10A-3 under the Act 
for the initial and continued listing of the Shares of the Funds. 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 Funds will comply with all other requirements applicable 
to Managed Fund Shares, which includes the dissemination of key 
information such as the Disclosed Portfolio,\15\ Net Asset Value,\16\ 
and the Intraday Indicative Value,\17\ suspension of trading or 
removal,\18\ trading halts,\19\ surveillance,\20\ minimum price 
variation for quoting and order entry,\21\ and the information 
circular,\22\ as set forth in Exchange rules applicable to Managed Fund 
Shares. Moreover, all of the options contracts held by the Funds 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. Quotation and last sale information for 
U.S. exchange-listed options contracts cleared by The Options Clearing 
Corporation will be available via the Options Price Reporting 
Authority. RFQ information for FLEX Options will be available directly 
from the applicable options exchange. 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 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.
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    \15\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \16\ See Rule 14.11(i)(4)(A)(ii).
    \17\ See Rule 14.11(i)(4)(B)(i).
    \18\ See Rule 14.11(i)(4)(B)(iii).
    \19\ See Rule 14.11(i)(4)(B)(iv).
    \20\ See Rule 14.11(i)(2)(C).
    \21\ See Rule 14.11(i)(2)(B).
    \22\ See Rule 14.11(i)(6).
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    Lastly, the issuer represents that it will provide and maintain a 
publicly available web tool for each of the Funds on its website that 
provides existing and prospective shareholders with important 
information to help inform investment decisions. The information 
provided includes the start and end dates of the current outcome 
period, the time remaining in the outcome period, the Fund's current 
net asset value, the Fund's cap for the outcome period and the maximum 
investment gain available up to the cap for a shareholder purchasing 
Shares at the current net asset value. For each of the Funds, the web 
tool also provides information regarding each Fund's buffer. This 
information includes the remaining buffer available for a shareholder 
purchasing Shares at the current net asset value or the amount of 
losses that a shareholder purchasing Shares at the current net asset 
value would incur before benefitting from the protection of the buffer. 
The cover of each Fund's prospectus, as well as the disclosure 
contained in ``Principal Investment Strategies,'' provides the specific 
web address for each Fund's web tool.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 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 will meet 
each of the initial and continued listing criteria in BZX Rule 14.11(i) 
with the exception of Rule 14.11(i)(4)(C)(iv)(b), which requires that 
the aggregate gross notional value of listed derivatives based on any 
five or fewer underlying reference assets shall not exceed 65% of the 
weight of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight of 
the portfolio (including gross notional exposures).\25\ Rule 
14.11(i)(4)(C)(iv)(b) is intended to ensure that a fund is not subject 
to manipulation by virtue of significant exposure to a manipulable 
underlying reference asset by establishing concentration limits among 
the underlying reference assets for listed derivatives held by a 
particular fund.
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    \25\ As noted above, the Exchange is submitting this proposal 
because the Funds would not meet the requirements of Rule 
14.11(i)(4)(C)(iv)(b) which prevents the aggregate gross notional 
value of listed derivatives based on any single underlying reference 
asset from exceeding 30% of the weight of the portfolio (including 
gross notional exposures) and the aggregate gross notional value of 
listed derivatives based on any five or fewer underlying reference 
assets from exceeding 65% of the weight of the portfolio (including 
gross notional exposures).
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    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and FLEX 
Options on the Reference Index for several reasons: (i) The diversity, 
liquidity, and market cap of the securities underlying each

[[Page 38084]]

Reference Index; \26\ (ii) the competitive quoting process for FLEX 
Options; (iii) the significant liquidity in the market for options on 
each of the applicable Reference Indexes, as described above, results 
in a well-established price discovery process that provides meaningful 
guideposts for FLEX Option pricing; and (iv) surveillance by the 
Exchange, other national securities exchanges on which the options 
contracts on the Reference Indexes are listed, and FINRA designed to 
detect violations of the federal securities laws and SRO rules. 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 each Fund's portfolio, which are 
comprised primarily of FLEX Options on the applicable Reference Index, 
will be acquired in extremely liquid and highly regulated markets, the 
Shares are less readily susceptible to manipulation.
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    \26\ Each of the applicable Reference Indexes meet the generic 
listing standards applicable to indexes underlying series of Index 
Fund Shares listed on the Exchange, which include diversity, 
liquidity, and market cap requirements that are designed to ensure 
that an underlying index is not susceptible to manipulation. See 
Exchange Rule 14.11(c)(3)(A)(i) and (ii).
---------------------------------------------------------------------------

    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 Managed Fund Shares. All 
statements and representations made in this filing regarding (a) the 
description of the portfolio, reference assets, and index, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules shall constitute continued listing 
requirements for listing the Shares on the Exchange. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related 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 a Fund or the related 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 a 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. 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, options on the Reference Index are extremely liquid and 
derive their value from the actively traded Reference 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 each Reference Index make securities that 
derive their value from that index less susceptible to market 
manipulation in view of market capitalization and liquidity of the 
applicable Reference Index components, price and quote transparency, 
and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for 
constituent securities of the applicable Reference Indexes, options on 
the Reference Indexes, and other derivatives related to the Reference 
Indexes is sufficiently great to deter fraudulent or manipulative acts 
associated with the Funds' Shares price. The Exchange also believes 
that such liquidity is 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 Funds' Shares would present manipulation concerns.
    The Exchange represents that, except as described above, the Funds 
will meet and be subject to all other requirements of the Generic 
Listing Standards and other applicable continued listing requirements 
for Managed Fund Shares under Rule 14.11(i), including those 
requirements regarding the Disclosed Portfolio,\27\ Intraday Indicative 
Value,\28\ suspension of trading or removal,\29\ trading halts,\30\ 
disclosure,\31\ and firewalls.\32\ The Trust is required to comply with 
Rule 10A-3 under the Act for the initial and continued listing of the 
Shares of each Fund. Moreover, all of the options contracts held by the 
Funds 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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    \27\ See Rule 14.11(i)(4)(B)(ii).
    \28\ See Rule 14.11(i)(4)(B)(i).
    \29\ See Rule 14.11(i)(4)(B)(iii).
    \30\ See Rule 14.11(i)(4)(B)(iv).
    \31\ See Rule 14.11(i)(6).
    \32\ See Rule 14.11(i)(7).
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    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 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 Managed 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. 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 self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or

[[Page 38085]]

    (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-2019-067 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-2019-067. 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-2019-067, and should be 
submitted on or before August 26, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16612 Filed 8-2-19; 8:45 am]
BILLING CODE 8011-01-P


