570 Federal Register / Vol. 83, No. 3 / Thursday, January 4, 2018 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4The 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). 

5See Registration Statement on Form N–1A for 

the Trust, dated December 8, 2017 (File Nos. 333– 

180871 and 811–22700). The descriptions of the 

Funds and the Shares contained herein are based, 

in part, on information in the Registration 

Statement. 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. 30445, April 

2, 2013 (File No. 812–13969). 

6An investment adviser to an open-end fund is 

required to be registered under the Investment 

Advisers Act of 1940, as amended (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. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82417; File No. SR– 

CboeBZX–2017–013] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To List and 

Trade Shares of the REX Bitcoin 

Strategy ETF and the REX Short 

Bitcoin Strategy ETF, Each a Series of 

the Exchange Listed Funds Trust, 

Under Rule 14.11(i), Managed Fund 

Shares 

December 28, 2017. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on December 

15, 2017, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange filed a proposed rule 

change to list and trade shares of the 

REX Bitcoin Strategy ETF and the REX 

Short Bitcoin Strategy ETF (each a 

‘‘Fund’’ and, collectively, the ‘‘Funds’’), 

each a series of the Exchange Listed 

Funds Trust (the ‘‘Trust’’), under Rule 

14.11(i) (‘‘Managed Fund Shares’’). The 

shares of the Funds are referred to 

herein as the ‘‘Shares.’’ 

The text of the proposed rule change 

is available at the Exchange’s website at 

www.markets.cboe.com, at the principal 

office of the Exchange, 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 parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade shares of the REX Bitcoin Strategy 

ETF (the ‘‘Long Fund’’) and the REX 

Short Bitcoin Strategy ETF (the ‘‘Short 

Fund’’) under Rule 14.11(i), which 

governs the listing and trading of 

Managed Fund Shares on the 

Exchange.4

The Shares will be offered by the 

Trust, which was established as a 

Delaware statutory trust on April 4, 

2012. The Trust is registered with the 

Commission as an open-end investment 

company and has filed a registration 

statement on behalf of the Funds on 

Form N–1A (‘‘Registration Statement’’) 

with the Commission.5 Exchange 

Traded Concepts, LLC is the investment 

adviser (the ‘‘Adviser’’) to the Funds 

and commodity pool operator (‘‘CPO’’). 

Vident Investment Advisory, LLC is the 

sub-adviser (the ‘‘Sub-Adviser’’) to the 

Funds and is registered as a Commodity 

Trading Advisor (‘‘CTA’’). The Funds 

will be operated in accordance with 

applicable CFTC rules, as well as the 

regulatory scheme applicable to 

registered investment companies. 

Registration as a CPO and CTA imposes 

additional compliance obligations on 

the Adviser, the Sub-Adviser and the 

Funds related to additional laws, 

regulations, and enforcement policies. 

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.6 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. Rule 14.11(i)(7) is similar to 

Rule 14.11(b)(5)(A)(i), however, Rule 

14.11(i)(7) in connection with the 

establishment of a ‘‘fire wall’’ between 

the investment adviser and the brokerdealer reflects the applicable open-end 

fund’s portfolio, not an underlying 

benchmark index, as is the case with 

index-based funds. Neither the Adviser 

nor the Sub-Adviser is registered as a 

broker-dealer, nor are they currently 

affiliated with a broker-dealer. The 

Adviser personnel who make decisions 

regarding each Fund’s portfolio are 

subject to procedures designed to 

prevent the use and dissemination of 

material nonpublic information 

regarding each Fund’s portfolio. In the 

event that (a) the Adviser or SubAdviser becomes a broker-dealer or 

newly affiliated with a broker-dealer, or 

(b) any new adviser or sub-adviser is a 

broker-dealer or becomes affiliated with 

a broker-dealer, the Adviser or SubAdviser will implement a fire wall with 

respect to its relevant personnel or such 

broker-dealer affiliate, as applicable, 

regarding access to information 

concerning the composition and/or 

changes to the portfolio, and will be 

subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. 


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Federal Register / Vol. 83, No. 3 / Thursday, January 4, 2018 / Notices 571 

7Section 1a(9) of the CEA defines commodity to 

include, among other things, ‘‘all services, rights, 

and interests in which contracts for future delivery 

are presently or in the future dealt in.’’ The 

definition of commodity is broad. 7 U.S.C. 1a(9). 

8Bitcoin is a digital asset based on the 

decentralized, open source protocol of the 

peertopeer bitcoin computer network (the ‘‘Bitcoin 

Network’’). No single entity owns or operates the 

Bitcoin Network; the infrastructure is collectively 

maintained by a decentralized user base. The 

Bitcoin Network is accessed through software, and 

software governs bitcoin’s creation, movement, and 

ownership. The value of bitcoin is determined by 

the supply of and demand for bitcoin on websites 

that facilitate the transfer of bitcoin in exchange for 

government-issued currencies, and in private enduser-to-end-user transactions. 

9Bitcoin is a commodity as defined in Section 

1a(9) of the CEA. 7 U.S.C. 1a(9). See In re Coinflip, 

Inc., No. 15–29 (CFTC Sept. 17, 2015), available at: 

http://www.cftc.gov/ucm/groups/public/@

lrenforcementactions/documents/legalpleading/ 

enfcoinfliprorder09172015.pdf. 

10The XBT Futures are cash-settled futures 

contracts based on the auction price of bitcoin in 

U.S. dollars on the Gemini Exchange that will 

expire on a weekly, monthly and quarterly basis. 

XBT Futures are designed to reflect economic 

exposure related to the price of bitcoin. XBT 

Futures began trading on December 11, 2017. 

11The CME Futures are also cash-settled futures 

contracts based on the CME CF Bitcoin Reference 

Rate, which is based on an aggregation of trade flow 

from several bitcoin spot exchanges, that will expire 

on a monthly and quarterly basis. CME Futures are 

scheduled to begin trading on December 18, 2017. 

12Bitcoin Futures Contracts are measures of the 

market’s expectation of the price of bitcoin at 

certain points in the future, and as such will behave 

differently than current or spot bitcoin prices. The 

Funds are not linked to bitcoin and in many cases 

the Funds could significantly underperform or 

outperform the price of bitcoin. 

13Rule 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 Exchange is proposing that the 

Funds be exempt from 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). 

14The term ‘‘Non-U.S. Component Stock’’ means 

an equity security that (a) is not registered under 

Sections 12(b) or 12(g) of the Act, (b) is issued by 

an entity that is not organized, domiciled or 

incorporated in the United States, and (c) is issued 

by an entity that is an operating company 

(including Real Estate Investment Trusts (REITs) 

and income trusts, but excluding investment trusts, 

unit trusts, mutual funds, and derivatives). 

15Rule 14.11(i)(4)(C)(i)(b)(3) provides that ‘‘the 

most heavily weighted Non-U.S. Component stock 

shall not exceed 25% of the equity weight of the 

portfolio, and, to the extent applicable, the five 

most heavily weighted Non-U.S. Component Stocks 

shall not exceed 60% of the equity weight of the 

portfolio.’’ As proposed, the Fund may hold as few 

as one Non-U.S. Component Stock, meaning that 

the Non-U.S. Component Stock could constitute 

100% of the equity weight of the portfolio. As noted 

below, however, neither Fund will hold more than 

25% of the weight of the portfolio in Non-U.S. 

Component Stocks. 

16Rule 14.11(i)(4)(C)(i)(b)(4) provides that ‘‘where 

the equity portion of the portfolio includes NonU.S. Component Stocks, the equity portion of the 

portfolio shall include a minimum of 20 total 

component stocks; provided, however, that there 

shall be no minimum number of component stocks 

if (a) one or more series of Derivative Securities 

Products or Linked Securities constitute, at least in 

part, components underlying a series of Managed 

Fund Shares, or (b) one or more series of Derivative 

Securities Products or Linked Securities account for 

100% of the equity weight of the portfolio of a 

series of Managed Fund Shares.’’ While the Funds, 

as proposed, would be permitted to hold Derivative 

Securities Products or Linked Securities (both of 

which are ETPs, as defined below), they won’t 

necessarily hold such instruments and may hold 

fewer than 20 Non-U.S. Component Stocks, which 

would not comply with this Rule. 

17For 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). 

18The 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 manmade disaster, act of God, armed conflict, act of 

terrorism, riot or labor disruption, or any similar 

intervening circumstance. 

19The term ‘‘Bitcoin Derivatives’’ includes 

Bitcoin Futures Contracts and other listed 

derivatives (as provided in Rule 14.11(i)(4)(C)(iv)) 

including options contracts, swap contracts, and 

other derivative instruments linked to bitcoin, the 

price of bitcoin, or an index thereof. 20As defined in Rule 14.11(i)(4)(C)(iii), Cash 

Equivalents are short-term instruments with 

maturities of less than three months, including: (i) 

U.S. Government securities, including bills, notes, 

and bonds differing as to maturity and rates of 

interest, which are either issued or guaranteed by 

the U.S. Treasury or by U.S. Government agencies 

or instrumentalities; (ii) certificates of deposit 

issued against funds deposited in a bank or savings 

and loan association; (iii) bankers acceptances, 

which are short-term credit instruments used to 

finance commercial transactions; (iv) repurchase 

agreements and reverse repurchase agreements; (v) 

bank time deposits, which are monies kept on 

deposit with banks or savings and loan associations 

for a stated period of time at a fixed rate of interest; 

(vi) commercial paper, which are short-term 

unsecured promissory notes; and (vii) money 

market funds 

Bitcoin Futures Contracts 

Prior to listing a new commodity 

futures contract, a designated contract 

market must either submit a selfcertification to the CFTC that the 

contract complies with the CEA and 

CFTC regulations or voluntarily submit 

the contract for CFTC approval. This 

process applies to all futures contracts 

and all commodities underlying the 

futures contracts, whether the new 

futures contracts are related to oil, gold, 

or any other commodity.7 On December 

1, 2017, it was announced that both 

Cboe Futures Exchange, Inc. (‘‘CFE’’) 

and Chicago Mercantile Exchange, Inc. 

(‘‘CME’’) had self-certified with the 

CFTC new contracts for bitcoin 8 futures 

products.9 While the CFE bitcoin 

futures contracts (‘‘XBT Futures’’) 10 and 

the CME bitcoin futures contracts 

(‘‘CME Futures’’ and, collectively with 

the XBT Futures, the ‘‘Bitcoin Futures 

Contracts’’) 11 will differ in certain of 

their implementation details, both 

contracts will generally trade and settle 

like any other cash-settled commodity 

futures contracts.12

The Exchange proposes to list the 

Funds pursuant to Rule 14.11(i), 

however there are two ways in which 

the Funds will not necessarily meet the 

listing standards included in that Rule. 

As such, the Exchange submits this 

proposal in order to allow each Fund to 

hold: (i) Listed derivatives in a manner 

that does not comply with Rule 

14.11(i)(4)(C)(iv)(b); 13 and (ii) Non-U.S. 

Component Stocks 14 in a manner that 

may not comply with Rule 

14.11(i)(4)(C)(i)(b)(3) 15 and (4).16

Otherwise, the Funds will comply with 

all other listing requirements of the 

Generic Listing Standards 17 for 

Managed Fund Shares on an initial and 

continued listing basis under Rule 

14.11(i). 

REX Bitcoin Strategy ETF 

According to the Registration 

Statement, the Long Fund is an actively 

managed fund that seeks to provide 

investors with long exposure to the 

price movements of bitcoin. Under 

Normal Market Conditions,18 the Long 

Fund seeks to achieve its investment 

objective by obtaining investment 

exposure to an actively managed 

portfolio of financial instruments 

providing long exposure to movements 

in the value of bitcoin, together with an 

actively managed portfolio of fixed 

income instruments. The Long Fund 

expects to obtain exposure to Bitcoin 

Derivatives 19 primarily by investing up 

to 25% of its total assets, as measured 

at the end of every quarter of the Fund’s 

taxable year, in a wholly-owned and 

controlled Cayman Islands subsidiary 

(the ‘‘Long Subsidiary’’). The Subsidiary 

is advised by the Adviser. Unlike the 

Long Fund, the Subsidiary is not an 

investment company registered under 

the 1940 Act. The Long Subsidiary has 

the same investment objective as the 

Long Fund. References below to the 

holdings of the Long Fund are inclusive 

of the holdings of the direct holdings of 

the Long Fund as well as the indirect 

holdings of the Long Fund through the 

Long Subsidiary. Such positions are 

generally collateralized by the Fund’s 

positions in cash and Cash 

Equivalents.20

In order to achieve its investment 

objective, under Normal Market 


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21For purposes of this filing, the term ‘‘ETP’’ 

means Portfolio Depository Receipts, Index Fund 

Shares, Linked Securities, Trust Issued Receipts, 

and Managed Fund Shares, as defined in Rule 

14.11(b), 14.11(c), 14.11(d), 14.11(f), and 14.11(i), 

respectively, and the analogous products and listing 

rules on other national securities exchanges. 

22The Long Fund will not hold more than 25% 

of the weight of the portfolio in Non-U.S. 

Component Stocks. 

23 26 U.S.C. 851. 

24As defined in Rule 14.11(i)(4)(C)(iii), Cash 

Equivalents are short-term instruments with 

maturities of less than three months, including: (i) 

U.S. Government securities, including bills, notes, 

and bonds differing as to maturity and rates of 

interest, which are either issued or guaranteed by 

the U.S. Treasury or by U.S. Government agencies 

or instrumentalities; (ii) certificates of deposit 

issued against funds deposited in a bank or savings 

and loan association; (iii) bankers acceptances, 

which are short-term credit instruments used to 

finance commercial transactions; (iv) repurchase 

agreements and reverse repurchase agreements; (v) 

bank time deposits, which are monies kept on 

deposit with banks or savings and loan associations 

for a stated period of time at a fixed rate of interest; 

(vi) commercial paper, which are short-term 

unsecured promissory notes; and (vii) money 

market funds. 

25The Long Fund will not hold more than 25% 

of the weight of the portfolio in Non-U.S. 

Component Stocks. 

26 26 U.S.C. 851. 

27 In reaching liquidity decisions, the Adviser 

may consider the following factors: The frequency 

of trades and quotes for the security; the number of 

dealers wishing to purchase or sell the security and 

the number of other potential purchasers; dealer 

undertakings to make a market in the security; and 

the nature of the security and the nature of the 

marketplace trades (e.g., the time needed to dispose 

of the security, the method of soliciting offers, and 

the mechanics of transfer). 

28The 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. 28193 (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 fund. 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). 

29Each Fund will include appropriate risk 

disclosure in its offering documents, including 

leveraging risk. Leveraging risk is the risk that 

certain transactions of a fund, including a fund’s 

use of derivatives, may give rise to leverage, causing 

a fund to be more volatile than if it had not been 

leveraged. To mitigate leveraging risk, the Adviser 

will segregate or earmark liquid assets or otherwise 

cover the transactions that give rise to such risk. See 

15 U.S.C. 80a–18; Investment Company Act Release 

No. 10666 (April 18, 1979), 44 FR 25128 (April 27, 

1979); Dreyfus Strategic Investing, Commission NoAction Letter (June 22, 1987); Merrill Lynch Asset 

Management, L.P., Commission No-Action Letter 

(July 2, 1996). 

Conditions the Long Fund expects to 

hold the majority of its assets in Bitcoin 

Derivatives and cash and Cash 

Equivalents (which are used to 

collateralize Bitcoin Futures Contracts 

or other Bitcoin Derivatives), but may 

also invest in the following instruments: 

other Bitcoin Derivatives; U.S. 

exchange-listed ETPs; 21 and Non-U.S. 

Component Stocks.22 The Long Fund 

will use the cash and Cash Equivalents 

to meet asset coverage tests resulting 

from the Long Subsidiary’s derivative 

exposure on a day-to-day basis. As a 

whole, the Fund’s investments are 

meant to achieve its investment 

objective within the limitations of the 

federal tax requirements applicable to 

regulated investment companies. 

The Long 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.23 The Long Fund will invest 

its assets (including via the Long 

Subsidiary), and otherwise conduct its 

operations, in a manner that is intended 

to satisfy the qualifying income, 

diversification and distribution 

requirements necessary to establish and 

maintain RIC qualification under 

Subchapter M. 

REX Short Bitcoin Strategy ETF 

According to the Registration 

Statement, the Short Fund seeks to 

provide investors with short exposure to 

the price movements of bitcoin. Under 

Normal Market Conditions, the Short 

Fund seeks to achieve its investment 

objective by obtaining investment 

exposure to an actively managed 

portfolio of financial instruments 

providing short exposure to movements 

in the value of bitcoin, together with an 

actively managed portfolio of fixed 

income instruments. The Short Fund 

expects to obtain exposure to Bitcoin 

Derivatives primarily by investing up to 

25% of its total assets, as measured at 

the end of every quarter of the Fund’s 

taxable year, in a wholly-owned and 

controlled Cayman Islands subsidiary 

(the ‘‘Short Subsidiary’’). The Short 

Subsidiary is advised by the Adviser. 

Unlike the Short Fund, the Short 

Subsidiary is not an investment 

company registered under the 1940 Act. 

The Short Subsidiary has the same 

investment objective as the Short Fund. 

References below to the holdings of the 

Short Fund are inclusive of the holdings 

of the direct holdings of the Short Fund 

as well as the indirect holdings of the 

Short Fund through the Subsidiary. 

Such positions are generally 

collateralized by the Fund’s positions in 

cash and Cash Equivalents.24

In order to achieve its investment 

objective, under Normal Market 

Conditions the Short Fund expects to 

hold the majority of its assets in Bitcoin 

Derivatives and cash and Cash 

Equivalents (which are used to 

collateralize Bitcoin Futures Contracts 

or other Bitcoin Derivatives), but may 

also invest in the following instruments: 

other Bitcoin Derivatives; U.S. 

exchange-listed ETPs; and Non-U.S. 

Component Stocks.25 The Short Fund 

will use the cash and Cash Equivalents 

to meet asset coverage tests resulting 

from the Subsidiary’s derivative 

exposure on a day-to-day basis. As a 

whole, the Short Fund’s investments are 

meant to achieve its investment 

objective within the limitations of the 

federal tax requirements applicable to 

regulated investment companies. 

The Short 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.26 The Short Fund will invest 

its assets (including via the Subsidiary), 

and otherwise conduct its operations, in 

a manner that is intended to satisfy the 

qualifying income, diversification and 

distribution requirements necessary to 

establish and maintain RIC qualification 

under Subchapter M. 

Investment Restrictions 

While the Funds do not currently 

anticipate holding illiquid assets, each 

may hold up to an aggregate amount of 

15% of its net assets in illiquid assets 

(calculated at the time of investment) 

deemed illiquid by the Adviser 27 under 

the 1940 Act.28 Each Fund will monitor 

its portfolio liquidity on an ongoing 

basis to determine whether, in 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 a Fund’s net assets are held 

in illiquid assets. Illiquid assets include 

assets subject to contractual or other 

restrictions on resale and other 

instruments that lack readily available 

markets as determined in accordance 

with Commission staff guidance. 

Each Fund’s investments will be 

consistent with the Fund’s investment 

objective and will not be used to 

enhance leverage (although certain 

derivatives and other investments may 

result in leverage).29 Each Fund’s 

investments will not be used to seek 

leveraged or inverse leveraged returns 

(i.e. two times or three times the Fund’s 

benchmark). Each Fund’s use of 

derivative instruments will be 

collateralized. 


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30Rule 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 Exchange is proposing that the 

Funds be exempt from 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). 

31Rule 14.11(i)(4)(C)(i)(b)(3) provides that ‘‘the 

most heavily weighted Non-U.S. Component stock 

shall not exceed 25% of the equity weight of the 

portfolio, and, to the extent applicable, the five 

most heavily weighted Non-U.S. Component Stocks 

shall not exceed 60% of the equity weight of the 

portfolio.’’ 

32Rule 14.11(i)(4)(C)(i)(b)(4) provides that ‘‘where 

the equity portion of the portfolio includes NonU.S. Component Stocks, the equity portion of the 

portfolio shall include a minimum of 20 total 

component stocks; provided, however, that there 

shall be no minimum number of component stocks 

if (a) one or more series of Derivative Securities 

Products or Linked Securities constitute, at least in 

part, components underlying a series of Managed 

Fund Shares, or (b) one or more series of Derivative 

Securities Products or Linked Securities account for 

100% of the equity weight of the portfolio of a 

series of Managed Fund Shares.’’ While the Funds, 

as proposed, would be permitted to hold Derivative 

Securities Products or Linked Securities (both of 

which are ETPs, as defined below), they won’t 

necessarily hold such instruments and may hold 

fewer than 20 Non-U.S. Component Stocks, which 

would not comply with this Rule. 

33Rule 14.11(i)(4)(C)(i)(b)(3) provides that ‘‘the 

most heavily weighted Non-U.S. Component stock 

shall not exceed 25% of the equity weight of the 

portfolio, and, to the extent applicable, the five 

most heavily weighted Non-U.S. Component Stocks 

shall not exceed 60% of the equity weight of the 

portfolio.’’ 

Additional Information 

As noted above, the Exchange submits 

this proposal in order to allow each 

Fund to hold: (i) Listed derivatives in a 

manner that does not comply with Rule 

14.11(i)(4)(C)(iv)(b); 30 and (ii) Non-U.S. 

Component Stocks in a manner that may 

not comply with Rule 

14.11(i)(4)(C)(i)(b)(3) 31 and (4).32 The 

Exchange, however, believes that the 

policy concerns that these rules are 

intended to address are mitigated as it 

relates to the Funds and their holdings 

for a number of reasons. 

First, the policy concerns underlying 

all three rules are mitigated by the fact 

that the Exchange believes that the 

underlying reference asset is not 

susceptible to manipulation because the 

nature of the bitcoin ecosystem makes 

manipulation of bitcoin difficult. The 

geographically diverse and continuous 

nature of bitcoin trading makes it 

difficult and prohibitively costly to 

manipulate the price of bitcoin and, in 

many instances, that the bitcoin market 

is generally less susceptible to 

manipulation than the equity, fixed 

income, and commodity futures 

markets. There are a number of reasons 

this is the case, including that there is 

not inside information about revenue, 

earnings, corporate activities, or sources 

of supply; it is generally not possible to 

disseminate false or misleading 

information about bitcoin in order to 

manipulate; manipulation of the price 

on any single venue would require 

manipulation of the global bitcoin price 

in order to be effective; a substantial 

over-the-counter market provides 

liquidity and shock-absorbing capacity; 

bitcoin’s 24/7/365 nature provides 

constant arbitrage opportunities across 

all trading venues; and it is unlikely that 

any one actor could obtain a dominant 

market share. 

Further, bitcoin is arguably less 

susceptible to manipulation than other 

commodities that underlie ETPs; there 

may be inside information relating to 

the supply of the physical commodity 

such as the discovery of new sources of 

supply or significant disruptions at 

mining facilities that supply the 

commodity that simply are inapplicable 

as it relates to bitcoin. Further, the 

Exchange believes that the 

fragmentation across bitcoin exchanges, 

the relatively slow speed of 

transactions, and the capital necessary 

to maintain a significant presence on 

each exchange make manipulation of 

bitcoin prices through continuous 

trading activity unlikely. Moreover, the 

linkage between the bitcoin markets and 

the presence of arbitrageurs in those 

markets means that the manipulation of 

the price of bitcoin price on any single 

venue would require manipulation of 

the global bitcoin price in order to be 

effective. Arbitrageurs must have funds 

distributed across multiple bitcoin 

exchanges in order to take advantage of 

temporary price dislocations, thereby 

making it unlikely that there will be 

strong concentration of funds on any 

particular bitcoin exchange. As a result, 

the potential for manipulation on a 

particular bitcoin exchange would 

require overcoming the liquidity supply 

of such arbitrageurs who are effectively 

eliminating any cross-market pricing 

differences. For all of these reasons, 

bitcoin is not particularly susceptible to 

manipulation, especially as compared to 

other approved ETP reference assets. 

Second, the Exchange believes that 

the concerns on which Rule 

14.11(i)(4)(C)(iv)(b) are based related to 

ensuring that no single listed derivative 

and underlying reference asset that is 

susceptible to manipulation constitutes 

greater than 35% of the weight of the 

portfolio are further mitigated by the 

liquidity that the Exchange expects to 

exist in the market for Bitcoin 

Derivatives. This belief is based on 

numerous conversations with market 

participants, issuers, and discussions 

with personnel of CFE. This expected 

liquidity in the market for Bitcoin 

Futures Contracts combined with the 

CFE, CME, and Exchange surveillance 

procedures related to the Bitcoin 

Futures, the Shares, and CFTC 

oversight, along with the difficulty in 

manipulating the bitcoin market 

described above will mitigate the 

concerns that Rule 14.11(i)(4)(C)(iv)(b) 

was designed to protect against and 

further prevent trading in the Shares 

from being susceptible to manipulation. 

Third, the Exchange believes that the 

market cap and liquidity of the NonU.S. Component Stocks held by the 

Funds along with a cap at 25% of each 

Fund’s total assets that can be allocated 

to Non-U.S. Component Stocks would 

mitigate the concerns which Rules 

14.11(i)(4)(C)(i)(b)(3) and (4) are 

intended to address. Any Non-U.S. 

Component Stock held by the Funds 

will have at least $250 million in market 

cap and will have at least an average of 

$100 million in monthly trading volume 

averaged over the past six months. This 

combination of large market cap with 

significant trading volume reduces the 

likelihood of manipulation of any 

particular security and the cap of 25% 

of the Fund’s total assets assures that, 

while the Non-U.S. Component Stock 

holdings may not meet the 

concentration and diversity 

requirements of Rules 

14.11(i)(4)(C)(i)(b)(3) and (4), 

respectively, such diversity and 

concentration requirements will not be 

met only for a limited portion of the 

portfolio. 

The Exchange represents that, except 

for the diversification requirements for 

listed derivatives in Rule 

14.11(i)(4)(C)(iv)(b) and the 

concentration and diversification 

requirements for Non-U.S. Component 

Stocks in a manner that may not co [sic] 

Rule 14.11(i)(4)(C)(i)(b)(3) 33 and (4), 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 


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574 Federal Register / Vol. 83, No. 3 / Thursday, January 4, 2018 / Notices 

34See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii). 

35See Rule 14.11(i)(4)(A)(ii). 

36See Rule 14.11(i)(4)(B)(i). 

37See Rule 14.11(i)(4)(B)(iii). 

38See Rule 14.11(i)(4)(B)(iv). 

39See Rule 14.11(i)(2)(C). 

40See Rule 14.11(i)(2)(B). 

41See Rule 14.11(i)(6). 

42The CFTC issued a press release on December 

1, 2017, noting the self-certifications from CFE and 

CME and highlighting the rigorous process that the 

CFTC had undertaken in its engagement with CFE 

and CME prior to the self-certification for the 

Bitcoin Futures Contracts. The press release focused 

on the ongoing surveillances that will occur on each 

listing exchange, including surveillance based on 

information sharing with the underlying cash 

bitcoin exchanges as well as the actions that the 

CFTC will undertake after the contracts are 

launched, including monitoring and analyzing the 

size and development of the market, positions and 

changes in positions over time, open interest, initial 

margin requirements, and variation margin 

payments, stress testing positions, conduct reviews 

of designated contract markets, derivatives clearing 

organizations, clearing firms, and individual traders 

involved in trading and clearing bitcoin futures. For 

more information, see http://www.cftc.gov/ 

PressRoom/PressReleases/pr7654-17. 

43For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. The 

Exchange notes that not all components of the 

Disclosed Portfolio for each Fund may trade on 

markets that are members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. At least 90% of the 

weight of the Bitcoin Derivatives held by each Fund 

will trade on markets that are a member of ISG or 

affiliated with a member of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. 

44See supra note 42. 

45 15 U.S.C. 78f. 

46 15 U.S.C. 78f(b)(5). 

47Rule 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 Exchange is proposing that the 

Funds be exempt from 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). 

48The term ‘‘Non-U.S. Component Stock’’ means 

an equity security that (a) is not registered under 

Sections 12(b) or 12(g) of the Act, (b) is issued by 

an entity that is not organized, domiciled or 

incorporated in the United States, and (c) is issued 

by an entity that is an operating company 

(including Real Estate Investment Trusts (REITs) 

and income trusts, but excluding investment trusts, 

unit trusts, mutual funds, and derivatives). 

49Rule 14.11(i)(4)(C)(i)(b)(3) provides that ‘‘the 

most heavily weighted Non-U.S. Component stock 

shall not exceed 25% of the equity weight of the 

portfolio, and, to the extent applicable, the five 

most heavily weighted Non-U.S. Component Stocks 

shall not exceed 60% of the equity weight of the 

portfolio.’’ 50Rule 14.11(i)(4)(C)(i)(b)(4) provides that ‘‘where 

the equity portion of the portfolio includes NonU.S. Component Stocks, the equity portion of the 

portfolio shall include a minimum of 20 total 

component stocks; provided, however, that there 

shall be no minimum number of component stocks 

if (a) one or more series of Derivative Securities 

Products or Linked Securities constitute, at least in 

part, components underlying a series of Managed 

Fund Shares, or (b) one or more series of Derivative 

Securities Products or Linked Securities account for 

100% of the equity weight of the portfolio of a 

series of Managed Fund Shares.’’ While the Funds, 

as proposed, would be permitted to hold Derivative 

Securities Products or Linked Securities (both of 

which are ETPs, as defined below), they won’t 

necessarily hold such instruments and may hold 

Non-U.S. Component Stocks, which would not 

comply with this Rule. 

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,34 Net Asset Value,35 and the 

Intraday Indicative Value,36 suspension 

of trading or removal,37 trading halts,38

surveillance,39 minimum price variation 

for quoting and order entry,40 and the 

information circular,41 as set forth in 

Exchange rules applicable to Managed 

Fund Shares. Moreover, at least 90% of 

the weight of the Bitcoin Derivatives 

held by each Fund will trade on markets 

that are a member of ISG or affiliated 

with a member of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. 

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. Quotation, intraday, closing and settlement prices of 

Bitcoin Derivatives will be readily 

available from their respective exchange 

or SEF, as applicable, as well as through 

automated quotation systems, published 

or other public sources, or online 

information services such as Bloomberg 

or Reuters. Quotation, intra-day, closing 

and settlement prices of U.S. exchangelisted ETPs will be readily available 

from the listing exchange, automated 

quotation systems, published or other 

public sources, or online information 

services such as Bloomberg or Reuters. 

Quotation, intra-day, closing and 

settlement prices of Non-U.S. 

Component Stocks will be readily 

available from 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. 

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. 

Additionally, the Bitcoin Derivatives 

will be subject to the rules and 

surveillance programs of their 

respective listing venue and the CFTC.42

Trading of the Shares through the 

Exchange will be subject to the 

Exchange’s surveillance procedures for 

derivative products, including Managed 

Fund Shares. The Exchange or FINRA, 

on behalf of the Exchange, will 

communicate as needed regarding 

trading in the Shares and the underlying 

Bitcoin Derivatives via the Intermarket 

Surveillance Group (‘‘ISG’’) from other 

exchanges who are members or affiliates 

of the ISG or with which the Exchange 

has entered into a comprehensive 

surveillance sharing agreement.43 The 

Exchange may also obtain information 

regarding trading in the spot bitcoin 

market via exchanges with which the 

Exchange has entered into a 

comprehensive surveillance sharing 

agreement.44 In addition, the Exchange 

is able to access, as needed, trade 

information for certain fixed income 

instruments reported to FINRA’s Trade 

Reporting and Compliance Engine 

(‘‘TRACE’’). The Exchange prohibits the 

distribution of material non-public 

information by its employees. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with Section 6(b) 

of the Act 45 in general and Section 

6(b)(5) of the Act 46 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. 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

meet each of the initial and continued 

listing criteria in BZX Rule 14.11(i) 

except that it each Fund may hold: (i) 

Listed derivatives in a manner that does 

not comply with Rule 

14.11(i)(4)(C)(iv)(b); 47 and (ii) Non-U.S. 

Component Stocks 48 in a manner that 

may not comply with Rule 

14.11(i)(4)(C)(i)(b)(3) 49 and (4).50 The 


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Federal Register / Vol. 83, No. 3 / Thursday, January 4, 2018 / Notices 575 

Exchange, however, believes that the 

policy concerns that these rules are 

intended to address are mitigated as it 

relates to the Funds and their holdings 

for a number of reasons. 

First, the policy concerns underlying 

all three rules are mitigated by the fact 

that the Exchange believes that the 

underlying reference asset is not 

susceptible to manipulation because the 

nature of the bitcoin ecosystem makes 

manipulation of bitcoin difficult. The 

geographically diverse and continuous 

nature of bitcoin trading makes it 

difficult and prohibitively costly to 

manipulate the price of bitcoin and, in 

many instances, that the bitcoin market 

is generally less susceptible to 

manipulation than the equity, fixed 

income, and commodity futures 

markets. There are a number of reasons 

this is the case, including that there is 

not inside information about revenue, 

earnings, corporate activities, or sources 

of supply; it is generally not possible to 

disseminate false or misleading 

information about bitcoin in order to 

manipulate; manipulation of the price 

on any single venue would require 

manipulation of the global bitcoin price 

in order to be effective; a substantial 

over-the-counter market provides 

liquidity and shock-absorbing capacity; 

bitcoin’s 24/7/365 nature provides 

constant arbitrage opportunities across 

all trading venues; and it is unlikely that 

any one actor could obtain a dominant 

market share. 

Further, bitcoin is arguably less 

susceptible to manipulation than other 

commodities that underlie ETPs; there 

may be inside information relating to 

the supply of the physical commodity 

such as the discovery of new sources of 

supply or significant disruptions at 

mining facilities that supply the 

commodity that simply are inapplicable 

as it relates to bitcoin. Further, the 

Exchange believes that the 

fragmentation across bitcoin exchanges, 

the relatively slow speed of 

transactions, and the capital necessary 

to maintain a significant presence on 

each exchange make manipulation of 

bitcoin prices through continuous 

trading activity unlikely. Moreover, the 

linkage between the bitcoin markets and 

the presence of arbitrageurs in those 

markets means that the manipulation of 

the price of bitcoin price on any single 

venue would require manipulation of 

the global bitcoin price in order to be 

effective. Arbitrageurs must have funds 

distributed across multiple bitcoin 

exchanges in order to take advantage of 

temporary price dislocations, thereby 

making it unlikely that there will be 

strong concentration of funds on any 

particular bitcoin exchange. As a result, 

the potential for manipulation on a 

particular bitcoin exchange would 

require overcoming the liquidity supply 

of such arbitrageurs who are effectively 

eliminating any cross-market pricing 

differences. For all of these reasons, 

bitcoin is not particularly susceptible to 

manipulation, especially as compared to 

other approved ETP reference assets. 

Second, the Exchange believes that 

the concerns on which Rule 

14.11(i)(4)(C)(iv)(b) are based related to 

ensuring that no single listed derivative 

and underlying reference asset that is 

susceptible to manipulation constitutes 

greater than 35% of the weight of the 

portfolio are further mitigated by the 

liquidity that the Exchange expects to 

exist in the market for Bitcoin Futures 

Contracts. This belief is based on 

numerous conversations with market 

participants, issuers, and discussions 

with personnel of CFE. This expected 

liquidity in the market for Bitcoin 

Futures Contracts combined with the 

CFE, CME, and Exchange surveillance 

procedures related to the Bitcoin 

Futures, the Shares, and CFTC 

oversight, along with the difficulty in 

manipulating the bitcoin market 

described above will mitigate the 

concerns that Rule 14.11(i)(4)(C)(iv)(b) 

was designed to protect against and 

further prevent trading in the Shares 

from being susceptible to manipulation. 

Third, the Exchange believes that the 

market cap and liquidity of the NonU.S. Component Stocks held by the 

Funds along with a cap at 25% of each 

Fund’s total assets that can be allocated 

to Non-U.S. Component Stocks would 

mitigate the concerns which Rules 

14.11(i)(4)(C)(i)(b)(3) and (4) are 

intended to address. Any Non-U.S. 

Component Stock held by the Funds 

will have at least $250 million in market 

cap and will have at least an average of 

$100 million in monthly trading volume 

averaged over the past six months. This 

combination of large market cap with 

significant trading volume reduces the 

likelihood of manipulation of any 

particular security and the cap of 25% 

of the Fund’s total assets assures that, 

while the Non-U.S. Component Stock 

holdings may not meet the 

concentration and diversity 

requirements of Rules 

14.11(i)(4)(C)(i)(b)(3) and (4), 

respectively, such diversity and 

concentration requirements will not be 

met only for a limited portion of the 

portfolio. 

Further, 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. 

Additionally, the Bitcoin Futures 

Contracts will be subject to the rules 

and surveillance programs of CFE, CME, 

and the CFTC. Trading of the Shares 

through the Exchange will be subject to 

the Exchange’s surveillance procedures 

for derivative products, including 

Managed Fund Shares. The Exchange or 

FINRA, on behalf of the Exchange, will 

communicate as needed regarding 

trading in the Shares and the underlying 

Bitcoin Futures Contracts via the ISG 

from other exchanges who are members 

or affiliates of the ISG or with which the 

Exchange has entered into a 

comprehensive surveillance sharing 

agreement. The Exchange may also 

obtain information regarding trading in 

the spot bitcoin market from other 

exchanges with which the Exchange has 

entered into a comprehensive 

surveillance sharing agreement. In 

addition, the Exchange is able to access, 

as needed, trade information for certain 

fixed income instruments reported to 

TRACE. The Exchange prohibits the 

distribution of material non-public 

information by its employees. 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. 

If the investment adviser to the 

investment company issuing Managed 

Fund Shares is affiliated with a brokerdealer, such investment adviser to the 

investment company 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. Neither 

the Adviser nor the Sub-Adviser is 

registered as a broker-dealer, nor are 

they currently affiliated with a brokerdealer. The Adviser personnel who 

make decisions regarding each Fund’s 

portfolio are subject to procedures 

designed to prevent the use and 

dissemination of material nonpublic 

information regarding each Fund’s 

portfolio. In the event that (a) the 

Adviser or Sub-Adviser becomes a 

broker-dealer or newly affiliated with a 

broker-dealer, or (b) any new adviser or 

sub-adviser is a broker-dealer or 

becomes affiliated with a broker-dealer, 

the Adviser or Sub-Adviser will 

implement a fire wall with respect to its 

relevant personnel or such broker-dealer 

affiliate, as applicable, regarding access 

to information concerning the 

composition and/or changes to the 

portfolio, and will be subject to 


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576 Federal Register / Vol. 83, No. 3 / Thursday, January 4, 2018 / Notices 

procedures designed to prevent the use 

and dissemination of material nonpublic information regarding such 

portfolio. At least 90% of the weight of 

the Bitcoin Derivatives held by each 

Fund will trade on markets that are a 

member of ISG or affiliated with a 

member of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. The 

Exchange may obtain information 

regarding trading in the Shares and the 

underlying futures contracts held by the 

Funds via the ISG from other exchanges 

who are members or affiliates of the ISG 

or with which the Exchange has entered 

into a comprehensive surveillance 

sharing agreement. In addition, the 

Exchange is able to access, as needed, 

trade information for certain fixed 

income instruments reported to FINRA’s 

TRACE. 

The Exchange further believes that the 

proposal is designed to prevent 

fraudulent and manipulative acts and 

practices in that the Exchange expects 

that the market for Bitcoin Futures 

Contracts will be sufficiently liquid to 

support numerous ETPs shortly after 

launch. This belief is based on 

numerous conversations with market 

participants, issuers, and discussions 

with personnel of CFE. As such, the 

Exchange believes that the expected 

liquidity in the market for Bitcoin 

Derivatives combined with the 

Exchange surveillance procedures 

related to the Shares and the broader 

regulatory structure will prevent trading 

in the Shares from being susceptible to 

manipulation. 

Because of its innovative features as a 

cryptoasset, bitcoin has gained wide 

acceptance as a secure means of 

exchange in the commercial 

marketplace and has generated 

significant interest among investors. In 

less than a decade since its creation in 

2008, bitcoin has achieved significant 

market penetration, with payments giant 

PayPal and thousands of merchants and 

businesses accepting it as a form of 

commercial payment, as well as 

receiving official recognition from 

several governments, including Japan 

and Australia. Accordingly, investor 

interest in gaining exposure to bitcoin is 

increasing exponentially as well. As 

expected, the total volume of bitcoin 

transactions in the market continues to 

grow exponentially. 

Despite the growing investor interest 

in bitcoin, the primary means for 

investors to gain access to bitcoin 

exposure remains either through the 

Bitcoin Derivatives or direct investment 

through bitcoin exchanges or over-thecounter trading. For regular investors 

simply wishing to express an 

investment viewpoint in bitcoin, these 

methods of investment are complex and 

require active management and direct 

investment in bitcoin brings with it 

significant inconvenience, complexity, 

expense and risk. The Shares would 

therefore represent a significant 

innovation in the bitcoin market by 

providing an inexpensive and simple 

vehicle for investors to gain long or 

short exposure to bitcoin in a secure and 

easily accessible product that is familiar 

and transparent to investors. Such an 

innovation would help to perfect the 

mechanism of a free and open market 

and, in general, to protect investors and 

the public interest by improving 

investor access to bitcoin exposure 

through efficient and transparent 

exchange-traded derivative products. 

In addition to improved convenience, 

efficiency and transparency, the Funds 

will also help to prevent fraudulent and 

manipulative acts and practices by 

enhancing the security afforded to 

investors as compared to a direct 

investment in bitcoin. Despite the 

extensive security mechanisms built 

into the Bitcoin network, a remaining 

risk to owning bitcoin directly is the 

need for the holder to retain and protect 

the ‘‘private key’’ required to spend or 

sell bitcoin after purchase. If a holder’s 

private key is compromised or simply 

lost, their bitcoin can be rendered 

unavailable—i.e., effectively lost to the 

investor. This risk will be eliminated by 

the Long Fund because the exposure to 

bitcoin is gained through cash-settled 

Bitcoin Derivatives that do not present 

any of the security issues that exist with 

direct investment in bitcoin. 

The Funds expect that they will 

generally seek to remain fully exposed 

to Bitcoin Derivatives even during times 

of adverse market conditions. Under 

Normal Market Conditions, the Funds 

will generally hold only Bitcoin 

Derivatives and cash and Cash 

Equivalents (which are used to 

collateralize the Bitcoin Derivatives). 

Additionally, the Funds may each 

hold up to an aggregate amount of 15% 

of its net assets in illiquid assets 

(calculated at the time of investment). 

Each Fund will monitor its portfolio 

liquidity on an ongoing basis to 

determine whether, in 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 assets. Illiquid assets include 

assets subject to contractual or other 

restrictions on resale and other 

instruments that lack readily available 

markets as determined in accordance 

with Commission staff guidance. 

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 will be 

calculated daily and that the NAV and 

the Disclosed Portfolio will be made 

available to all market participants at 

the same time. In addition, a large 

amount of information is publicly 

available regarding the Funds and the 

Shares, thereby promoting market 

transparency. Moreover, the Intraday 

Indicative Value will be disseminated 

by one or more major market data 

vendors at least every 15 seconds during 

Regular Trading Hours. On each 

business day, before commencement of 

trading in Shares during Regular 

Trading Hours, the Funds will disclose 

on its website the Disclosed Portfolio 

that will form the basis for the Fund’s 

calculation of NAV at the end of the 

business day. Pricing information will 

be available on the Fund’s website 

including: (1) The prior business day’s 

reported NAV, the Bid/Ask Price of the 

Fund, 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. Additionally, information 

regarding market price and trading 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 for the Shares will 

be available on the facilities of the CTA. 

The website for the Funds will include 

a form of the prospectus for the Funds 

and additional data relating to NAV and 

other applicable quantitative 

information. Trading in Shares of the 

Funds will be halted under the 

conditions specified in BZX Rule 11.18. 

Trading may also be halted because of 

market conditions or for reasons that, in 

the view of the Exchange, make trading 

in the Shares inadvisable. Finally, 

trading in the Shares will be subject to 

BZX Rule 14.11(i)(4)(B)(iv), which sets 

forth circumstances under which the 

Shares of each Fund may be halted. In 

addition, as noted above, investors will 

have ready access to information 

regarding the Fund’s holdings, the 

Intraday Indicative Value, the Disclosed 

Portfolio, and quotation and last sale 

information for the Shares. 

Intraday price quotations on Cash 

Equivalents are available from major 


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Federal Register / Vol. 83, No. 3 / Thursday, January 4, 2018 / Notices 577 

51 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

broker-dealer firms and from thirdparties, which may provide prices free 

with a time delay, or ‘‘live’’ with a paid 

fee. Major broker-dealer firms will also 

provide intraday quotes on swaps of the 

type held by the Fund. For Bitcoin 

Futures Contracts, such intraday 

information is available directly from 

the applicable listing exchange. Intraday 

price information is also available 

through subscription services, such as 

Bloomberg and Thomson Reuters, 

which can be accessed by authorized 

participants and other investors. Pricing 

information related to money market 

fund shares will be available through 

issuer websites and publicly available 

quotation services such as Bloomberg, 

Markit and Thomson Reuters. Money 

market fund shares are not generally 

priced or quoted on an intraday basis. 

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 actively-managed 

exchange-traded products 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 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 as well as trade information 

for certain fixed income instruments as 

reported to FINRA’s TRACE. At least 

90% of the weight of the Bitcoin 

Derivatives 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. In addition, as noted above, 

investors will have ready access to 

information regarding the Fund’s 

holdings, the Intraday Indicative Value, 

the Disclosed Portfolio, and quotation 

and last sale information for the Shares. 

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, 

rather will facilitate the listing and 

trading of additional actively-managed 

exchange-traded products that will 

enhance competition among both 

market participants and listing venues, 

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 

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–2017–013 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CboeBZX–2017–013. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–CboeBZX–2017–013 and 

should be submitted on or before 

January 25, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.51

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2017–28439 Filed 1–3–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82414; File No. SR–BOX– 

2017–38] 

Self-Regulatory Organizations; BOX 

Options Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

a Proposed Rule Change To Amend 

Rule 5050 To Extend the Pilot Program 

That Lists RealDay Options (‘‘RealDay 

Pilot Program’’) 

December 28, 2017. 

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 December 

21, 2017, BOX Options Exchange LLC 

(the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the self-regulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 


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