[Federal Register Volume 83, Number 16 (Wednesday, January 24, 2018)]
[Notices]
[Pages 3380-3387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01209]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82532; File No. SR-NYSEArca-2018-02]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of the Direxion 
Daily Bitcoin Bear 1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, 
Direxion Daily Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull 
Shares and Direxion Daily Bitcoin 2X Bear Shares Under NYSE Arca Rule 
8.200-E

January 18, 2018.
    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 January 4, 2018, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 to list and trade the shares of the following 
under NYSE Arca Rule 8.200-E, Commentary .02 (``Trust Issued 
Receipts''): Direxion Daily Bitcoin Bear 1X Shares, Direxion Daily 
Bitcoin 1.25X Bull Shares, Direxion Daily Bitcoin 1.5X Bull Shares, 
Direxion Daily Bitcoin 2X Bull Shares and Direxion Daily Bitcoin 2X 
Bear Shares. The proposed change is available on the Exchange's website 
at www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

[[Page 3381]]

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 self-regulatory organization 
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 those 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
following under NYSE Arca Rule 8.200-E, Commentary .02, which governs 
the listing and trading of Trust Issued Receipts: The Direxion Daily 
Bitcoin Bear 1X Shares (the ``1X Bear Fund''), the Direxion Daily 
Bitcoin 1.25X Bull Shares (the ``1.25X Bull Fund''), the Direxion Daily 
Bitcoin 1.5X Bull Shares (the ``1.5X Bull Fund''), the Direxion Daily 
Bitcoin 2X Bull Shares (the ``2X Bull Fund'') and the Direxion Daily 
Bitcoin 2X Bear Shares (the ``2X Bear Shares'') (each a ``Fund'' and, 
collectively, the ``Funds'').\4\
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    \4\ Commentary .02 to NYSE Arca Rule 8.200-E applies to Trust 
Issued Receipts that invest in ``Financial Instruments.'' The term 
``Financial Instruments,'' as defined in Commentary .02(b)(4) to 
NYSE Arca Rule 8.200-E, means any combination of investments, 
including cash; securities; options on securities and indices; 
futures contracts; options on futures contracts; forward contracts; 
equity caps, collars, and floors; and swap agreements.
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    Each Fund is a series of the Direxion Shares ETF Trust II (the 
``Trust''), a Delaware statutory trust.\5\ The Trust and the Funds are 
managed and controlled by Direxion Asset Management, LLC (the 
``Sponsor''). The Sponsor is registered as a commodity pool operator 
(``CPO'') with the Commodity Futures Trading Commission (``CFTC'') and 
is a member of the National Futures Association (``NFA'').
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    \5\ The Trust is registered under the Securities Act of 1933. On 
December 15, 2017, the Trust submitted to the Securities and 
Exchange Commission (``Commission'') its draft registration 
statement on Form S-1 (the ``Registration Statement'') under the 
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act''). The 
Jumpstart Our Business Startups Act, enacted on April 5, 2012, added 
Section 6(e) to the Securities Act. Section 6(e) of the Securities 
Act provides that an ``emerging growth company'' may confidentially 
submit to the Commission a draft registration statement for 
confidential, non-public review by the Commission staff prior to 
public filing, provided that the initial confidential submission and 
all amendments thereto shall be publicly filed not later than 21 
days before the date on which the issuer conducts a road show, as 
such term is defined in Securities Act Rule 433(h)(4). An emerging 
growth company is defined in Section 2(a)(19) of the Securities Act 
as an issuer with less than $1,000,000,000 total annual gross 
revenues during its most recently completed fiscal year. The Trust 
meets the definition of an emerging growth company and consequently 
has submitted its Form S-1 Registration Statement on a confidential 
basis with the Commission. The description of the operation of the 
Trust and the Funds herein is based, in part, on the Registration 
Statement.
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    In its capacity as the Custodian for the Funds, Bank of New York 
Mellon (``BNYM'' or the ``Custodian'') may hold the Funds' investment 
assets and cash and cash equivalents pursuant to a custodian agreement. 
The Custodian is also the transfer agent for the Funds. In addition, in 
its capacity as Administrator for the Funds, U.S. Bancorp Fund 
Services, LLC (the ``Administrator'') prepares and files certain 
regulatory filings on behalf of the Funds.
    Foreside Fund Services, LLC serves as the distributor of the Shares 
(the ``Distributor'').
Investment Objectives of the Funds
    According to the Registration Statement, the Funds will offer 
investors the opportunity to obtain daily short, leveraged long or 
leveraged short exposure to the lead month bitcoin futures contract 
traded on the Chicago Mercantile Exchange (``CME'') or on Cboe Global 
Markets, Inc. (``CBOE'') or on any other U.S. exchange that 
subsequently trades bitcoin futures contracts (the ``Bitcoin Futures 
Contract''), the target benchmark before fees and expenses.\6\ The 
target benchmark's value will be calculated as the last sale price 
published by the CME or the CBOE,\7\ or any other U.S. exchange that 
subsequently trades bitcoin futures contracts on or before 11:00 a.m. 
E.T. (the ``Daily Last Sale Value'') for the Bitcoin Futures Contract 
and may reflect trades occurring and published by the CME and/or CBOE 
or another U.S. exchange that subsequently trades bitcoin futures 
contracts outside the normal trading session for the Bitcoin Futures 
Contract.\8\
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    \6\ A futures contract is a standardized contract traded on, and 
subject to the rules of, an exchange that calls for the future 
delivery of a specified quantity and type of a commodity at a 
specified time and place. Bitcoin Futures Contracts will be cash-
settled. The ``lead month'' contract is the monthly contract with 
the earliest expiration date.
    \7\ The CME and CBOE are registered with the CFTC and seek to 
provide a neutral, regulated marketplace for the trading of 
derivatives contracts for commodities, such as futures, options and 
certain swaps. Both the CME and CBOE are members of the Intermarket 
Surveillance Group (``ISG''). See ftnt. 19, infra. The CME announced 
that its bitcoin futures contracts were scheduled to begin trading 
on December 18, 2017, and began trading on that date. See ``CME 
Group Self-Certifies Bitcoin Futures to Launch Dec. 18,'' December 
1, 2017, available at http://www.cmegroup.com/media-room/press-releases/2017/12/01/cme_group_self-certifiesbitcoinfuturestolaunchdec18.html. CBOE announced that the 
bitcoin futures contracts on its subsidiary Cboe Futures Exchange 
are scheduled to begin trading on December 10, 2017, and began 
trading on that date. See ``Cboe Plans December 10 Launch of Bitcoin 
Futures Trading,'' December 4, 2017, available at http://ir.cboe.com/press-releases/2017/12-04-2017. See also ``CFTC 
Statement on Self-Certification of Bitcoin Products by CME, CFE and 
Cantor Exchange,'' dated December 1, 2017 (``CFTC Release''), 
available at http://www.cftc.gov/PressRoom/PressReleases/pr7654-17.
    \8\ Though this time may vary due to differences in when 
daylight savings time is effective between London and New York, 
11:00 a.m. E.T. will govern.
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    Each Fund will seek daily correlation to the target benchmark and 
should not be expected to track the performance of the target benchmark 
for any period longer than one business day. Additionally, while each 
Fund will seek daily correlation to the target benchmark, it should not 
be expected to track dollar for dollar the spot price of bitcoin 
because the Fund will invest in Bitcoin Futures Contracts rather than 
directly in bitcoin, and the spot price movements of bitcoin may not 
correspond directly to price movements of the Bitcoin Futures 
Contracts. In this regard, the Funds expect the notional value of the 
Bitcoin Futures Contracts held by a Fund to equal the target exposure 
for such Fund (i.e., 125%, 150%, etc.).
    Each Fund will seek to engage in daily rebalancing to position its 
portfolio so that its exposure to the target benchmark is consistent 
with its daily investment objective. The impact of the target 
benchmark's movements during the day will affect whether a Fund's 
portfolio needs to be repositioned.\9\
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    \9\ Daily rebalancing and the compounding of each day's return 
over time means that the return of each Fund for a period longer 
than a single trading day will be the result of each day's returns 
compounded over the period, which will very likely differ from 
either the multiple, inverse multiple or inverse, as applicable, of 
the return of the target benchmark for the Funds for the same 
period.
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    As described below, under normal market conditions, each Fund 
intends to obtain exposure to its target benchmark by investing in the 
Bitcoin Futures Contract traded in the U.S., swaps on the Bitcoin 
Futures Contract or listed options on bitcoin or Bitcoin Futures 
Contracts (together,''Bitcoin Financial Instruments'').\10\ The Funds'

[[Page 3382]]

investments in Bitcoin Financial Instruments are used to produce 
economically ``leveraged'' or ``inverse leveraged'' investment results 
for the Funds. Any remaining assets will be invested in cash or cash 
equivalents.
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    \10\ The term ``normal market conditions'' includes, but is not 
limited to, the absence of trading halts in the applicable financial 
markets generally; operational issues (e.g., systems failure) 
causing dissemination of inaccurate market information; 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.
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Investment Objectives of the Leveraged Bull Funds
    According to the Registration Statement, the 1.25X Bull Fund, 1.5X 
Bull Fund and 2X Bull Fund (each a ``Bull Fund'' and collectively, the 
``Bull Funds'') seeks daily leveraged investment results (before fees 
and expenses) that correlate positively to either 125%, 150% or 200% 
the daily return of the target benchmark. The Bull Funds do not seek to 
achieve their investment objective over a period greater than a single 
trading day.\11\ If a Bull Fund is successful in meeting its objective, 
its value on a given day (before fees and expenses) should gain 
approximately 1.25 times, 1.5 times or 2 times, as applicable, as much 
on a percentage basis as the level of its target benchmark when the 
target benchmark rises. Conversely, its value on a given day (before 
fees and expenses) should lose approximately 1.25 times, 1.5 times or 2 
times, as applicable, as much on a percentage basis as the level of the 
target benchmark when the benchmark declines. Each Bull Fund acquires 
long exposure through any one of, or combinations of, Bitcoin Financial 
Instruments, including Bitcoin Financial Instruments with respect to 
the target benchmark, such that each Bull Fund has exposure intended to 
approximate either 125%, 150% or 200%, as applicable, of the target 
benchmark at the time of its NAV calculation.
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    \11\ A ``single trading day'' is measured from the time a Fund 
calculates its Net Asset Value (``NAV'') to the time of a Fund's 
next NAV calculation. See also, Net Asset Value, infra.
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Investment Objective of the 2X Bear Fund
    The 2X Bear Fund seeks daily leveraged inverse investment results 
(before fees and expenses) that correlate to two times the inverse (-
200%) of the daily return of the target benchmark. The 2X Bear Fund 
does not seek to achieve its investment objective over a period greater 
than a single trading day. If the 2X Bear Fund is successful in meeting 
its investment objective, its value on a given day (before fees and 
expenses) should gain approximately two times as much on a percentage 
basis as the level of the target benchmark when the target benchmark 
declines. Conversely, its value on a given day (before fees and 
expenses) should lose approximately two times as much on a percentage 
basis as the level of the target benchmark when the target benchmark 
rises. The 2X Bear Fund acquires short exposure through any one, or 
combinations of, Bitcoin Financial Instruments, including Bitcoin 
Financial Instruments with respect to the target benchmark, such that 
the 2X Bull Fund has exposure intended to approximate two times the 
inverse (-200%) of its target benchmark at the time of its NAV 
calculation.
Investment Objective of the 1X Bear Fund
    The 1X Bear Fund seeks daily investment results (before fees and 
expenses) that correlate to the inverse (-100%) of the daily return of 
the target benchmark. The 1X Bear Fund does not seek to achieve its 
investment objective over a period greater than a single trading day. 
If the 1X Bear Fund is successful in meeting its investment objective, 
its value on a given day (before fees and expenses) should gain 
approximately as much on a percentage basis as the level of the target 
benchmark when the target benchmark declines. Conversely, its value on 
a given day (before fees and expenses) should lose approximately as 
much on a percentage basis as the level of its target benchmark when 
the target benchmark rises. The 1X Bear Fund acquires short exposure 
through any one of, or combinations of, Bitcoin Financial Instruments, 
including Bitcoin Financial Instruments with respect to the target 
benchmark, such that the 1X Bull Fund has exposure intended to 
approximately equal the inverse (-100%) of its target benchmark at the 
time of its NAV calculation.
Principal Investment Strategies
    According to the Registration Statement, in seeking to achieve each 
Fund's daily investment objective, the Sponsor will use statistical and 
quantitative analysis to determine the investments each Fund makes and 
the techniques it employs. Using this approach, the Sponsor determines 
the type, quantity and mix of investment positions that the Sponsor 
believes in combination should produce daily returns consistent with a 
Fund's investment objective. The Sponsor relies upon a pre-determined 
model to generate orders that result in repositioning each Fund's 
investments in accordance with its daily investment objective. As a 
consequence, if a Fund is performing as designed, the return of the 
target benchmark will dictate the return for that Fund. Each Fund 
pursues its investment objective regardless of the market conditions 
and does not take defensive positions.
    Each Fund, under normal market conditions, will seek to achieve its 
daily investment objective by investing in Bitcoin Financial 
Instruments. A Fund may invest in listed options on bitcoin and Bitcoin 
Futures Contracts and swaps on Bitcoin Futures Contracts in a manner 
consistent with its investment objective in situations where the 
Sponsor believes that investing in such financial instruments is in the 
best interests of a Fund. In addition, a Fund may invest in swap 
contracts referencing Bitcoin Futures Contracts if the market for a 
specific bitcoin futures contract experiences emergencies or if 
position price or accountability limits (if any) are reached with 
respect to any Bitcoin Futures Contracts. At the close of the U.S. 
equity markets each trading day, each Fund will position its portfolio 
to ensure that the Fund's exposure to the target benchmark is 
consistent with the Fund's investment objective. The impact of market 
movements during the day will determine whether a portfolio needs to be 
repositioned.
    According to the Registration Statement, with futures contracts, 
there is minimal but some counterparty risk to the Funds since futures 
contracts are exchange traded and the exchange's clearinghouse, as 
counterparty to all exchange-traded futures contracts, effectively 
guarantees futures contracts against default. Many futures exchanges 
and boards of trade limit the amount of fluctuation permitted in 
futures contract prices during a single trading day. Once the daily 
limit has been reached in a particular contract, no trades may be made 
that day at a price beyond that limit or trading may be suspended for 
specified times during the trading day.
    According to the Registration Statement, with respect to the 
Bitcoin Futures Contracts, as the futures contracts held by the Funds 
near expiration, the Funds do not intend to hold futures contracts 
through expiration, but instead to ``roll'' their respective positions. 
When the market for these contracts is such that the prices are higher 
in the more distant delivery months than in the nearer delivery months, 
the sale during the course of the ``rolling process'' of the more 
nearby contract would take place at a price that is lower than the 
price of the more distant contract. This pattern of higher futures 
prices for longer expiration futures contracts is often referred to as 
``contango.'' Alternatively,

[[Page 3383]]

when the market for these contracts is such that the prices are higher 
in the nearer months than in the more distant months, the sale during 
the course of the ``rolling process'' of the more nearby contract would 
take place at a price that is higher than the price of the more distant 
contract. This pattern of higher futures prices for shorter expiration 
futures contracts is referred to as ``backwardation.'' The presence of 
contango in certain futures contracts at the time of rolling would be 
expected to adversely affect the Funds with long positions, and 
positively affect the Funds with short positions. Similarly, the 
presence of backwardation in certain futures contracts at the time of 
rolling such contracts would be expected to adversely affect the Funds 
with short positions and positively affect the Funds with long 
positions.
    To reduce the credit risk that arises in connection with swaps, a 
Fund will generally enter into an agreement with each counterparty 
based on the Master Agreement published by the International Swaps and 
Derivatives Association, Inc.\12\
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    \12\ The Sponsor on behalf of the corresponding Fund intends to 
enter into OTC swaps only with counterparties who are, or are 
affiliates of, (a) banks regulated by a federal bank regulator, (b) 
broker-dealers regulated by the Commission, (c) insurance companies 
domiciled in the U.S., and (d) producers, users or traders of an 
underlying commodity or currency, whether or not regulated by the 
CFTC. Any entity acting as a counterparty must also be regulated in 
either the U.S. or the U.K. unless otherwise approved by the 
Sponsor. A Fund will also require that the counterparty be highly 
rated and/or provide collateral or other credit support. The Sponsor 
also assesses or reviews, as appropriate, the creditworthiness of 
each potential or existing counterparty pursuant to established 
guidelines.
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    Assets of each Fund not invested in the Bitcoin Financial 
Instruments will be held in cash or invested in cash equivalents such 
as U.S. Treasury Securities or other high credit quality short- term 
fixed-income or similar securities (including shares of money market 
funds, bank deposits, bank money market accounts, certain variable 
rate-demand notes and repurchase agreements collateralized by 
government securities) (collectively ''Money Market Investments'') that 
serve as collateral for, or pending investments in, the Funds' 
investments.
    In the future, the Funds will disclose certain information relating 
to margin levels held at the FCM based on how each Fund will be 
managed. While the portfolio composition may vary over time, it is not 
expected that any Fund will ever have futures exposure greater than 
300% of Fund assets. Thus the maximum margin held at an FCM would not 
exceed three times the margin requirement.
Overview of Bitcoin
    According to the Registration Statement, Bitcoin is a digital asset 
that is not issued by any government, bank or organization. Bitcoin is 
a digital asset based on the decentralized, open source protocol of the 
peer-to-peer 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 and demand for bitcoin on websites that facilitate the 
transfer of bitcoin in exchange for government-issued currencies 
(``Bitcoin Exchanges''), and in private end-user-to-end-user 
transactions.
    Bitcoin transactions and ownership records are reflected on the 
``Blockchain'', which is a digital public record or ledger. Copies of 
this ledger are stored in a decentralized manner on the computers of 
each Bitcoin Network user. Transaction date is permanently recorded in 
files called ``blocks,'' which reflect transactions that have been 
recorded and authenticated by Bitcoin Network participants. The Bitcoin 
Network software source codes includes protocols that govern the 
creation of bitcoin and the cryptographic system that secures and 
verifies Bitcoin transactions.
Overview of Bitcoin Futures Contracts
    According to the Registration Statement, unlike the futures markets 
for traditional physical commodities, the market for exchange-traded 
bitcoin futures contract has limited trading history and operational 
experience and may be riskier, less liquid, more volatile and more 
vulnerable to economic, market and industry changes than more 
established futures markets. The liquidity of the market will depend 
on, among other things, the adoption of bitcoin and the commercial and 
speculative interest in the market for the ability to hedge against the 
price of bitcoin with exchange-traded bitcoin futures contracts.
    The CFTC has noted that the U.S. futures exchanges that will trade 
bitcoin futures have agreed to significant enhancements to protect 
customers and maintain orderly markets, and announced its expectation 
that futures exchanges that list and trade bitcoin futures contracts 
will, through information sharing agreements, monitor the trading 
activity on the relevant cash platforms for potential impacts on the 
price discovery process for bitcoin futures contracts, including 
potential market manipulation and market dislocations due to flash 
rallies and crashes and trading outages.\13\
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    \13\ See CFTC Release, supra, ftnt. 7.
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Net Asset Value
    According to the Registration Statement, the NAV per Share of each 
Fund is computed by dividing the value of the net assets of such Fund 
(i.e., the value of its total assets less total liabilities) by its 
total number of Shares outstanding. Expenses and fees are accrued daily 
and taken into account for purposes of determining NAV. Each Fund's NAV 
is calculated on each business day that the New York Stock Exchange LLC 
(``NYSE'') is open. The Funds compute their NAVs as of 11:00 a.m. E.T., 
or such earlier time that the NYSE may close.
    In calculating the NAV of a Fund, the settlement value of a Fund's 
non-exchange traded Bitcoin Financial Instruments is determined by 
applying the then-current prices for the target benchmark to the terms 
of such Fund's non-exchange traded Bitcoin Financial Instruments. 
However, in the event that an underlying Bitcoin Futures Contract is 
not trading due to the operation of daily limits or otherwise, the 
Sponsor may in its sole discretion choose to fair value the Reference 
Asset in order to value a Fund's non-exchange traded Bitcoin Financial 
Instruments for purposes of the NAV calculation.\14\ Such fair value 
prices would generally be determined based on available inputs about 
the current value of the underlying Reference Assets and would be based 
on principles that the Sponsor deems fair and equitable so long as such 
principles are consistent with normal industry standards.
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    \14\ The value of a futures contract is derived from the value 
of an underlying asset, rate or benchmark (such asset, rate or 
benchmark, a ``Reference Asset'').
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    All open futures contracts traded on an exchange are calculated at 
their then current market value, which is based upon the settlement or 
the last traded price before the NAV calculation time, for that 
particular futures contract traded on the applicable exchange on the 
date with respect to which NAV is being determined; provided, that if a 
futures contract traded on an exchange could not be liquidated on such 
day, due to the operation of daily limits or other rules of the 
exchange upon which that position is traded or otherwise, the Sponsor 
may in its sole discretion choose to determine a fair value price as

[[Page 3384]]

the basis for determining the market value of such position for such 
day.
    Money Market Investments will be valued on the basis of broker 
quotes, valuations provided by a third party pricing service or at 
amortized cost.
Indicative Fund Value
    In order to provide updated information relating to the Funds for 
use by investors and market professionals, the Exchange will calculate 
an updated ``Indicative Fund Value'' (``IFV''). The IFV will be 
calculated by using the prior day's closing net assets of a Fund as a 
base and updating throughout the Exchange's Core Trading Session of 
9:30 a.m. E.T. to 4:00 p.m. E.T. changes in the value of the Bitcoin 
Financial Instruments held by a Fund based on the most recently 
available prices for the Fund's investments.
    The IFV will be disseminated on a per Share basis every 15 seconds 
during the Exchange's Core Trading Session and be widely disseminated 
by one or more major market data vendors during the NYSE Arca Core 
Trading Session.\15\ In addition, circumstances may arise in which the 
NYSE Arca Core Trading Session is in progress, but trading in the 
Bitcoin Futures Contracts is not occurring. Such circumstances may 
result from reasons including, but not limited to, a futures exchange 
having a separate holiday schedule than the NYSE Arca, a futures 
exchange closing prior to the close of the NYSE Arca, price fluctuation 
limits being reached in a Bitcoin Futures Contract, or a futures 
exchange, imposing any other suspension or limitation on trading in a 
Bitcoin Futures Contract. In such instances, for IFV calculation 
purposes, the price of the applicable Bitcoin Futures Contracts, as 
well as Bitcoin Financial Instruments whose price is derived from the 
Bitcoin Futures Contracts, would be static or priced by a Fund at the 
applicable early cut-off time of the exchange trading the applicable 
Bitcoin Futures Contract.
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    \15\ Several major market data vendors display and/or make 
widely available IFVs taken from the CTA or other data feeds.
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Creation and Redemption of Shares
    According to the Registration Statement, each Fund will create and 
redeem Shares in one or more Creation Units. A Creation Unit is a block 
of 50,000 Shares of a Fund.
    A creation transaction, which is subject to acceptance by the 
Distributor, generally takes place when an Authorized Participant 
deposits a specified amount of cash in exchange for a specified number 
of Creation Units. Similarly, Shares can be redeemed only in Creation 
Units, generally for cash.
    Only ``Authorized Participants'' may purchase and redeem Shares 
from a Fund and then only in Creation Units. An Authorized Participant 
is an entity that has entered into an ``Authorized Participant 
Agreement'' with the Trust and the Sponsor.
Creation Procedures
    On any Business Day, an Authorized Participant may place an order 
with the Distributor to create one or more Creation Units. For purposes 
of processing both purchase and redemption orders, a ``Business Day'' 
means any day on which the NAV of a Fund is calculated. Purchase orders 
must be placed by 11 a.m. E.T. or earlier if the NYSE Arca closes 
before the cut-off time.
Redemption Procedures
    According to the Registration Statement, the procedures by which an 
Authorized Participant can redeem one or more Creation Units mirror the 
procedures for the creation of Creation Units. On any Business Day, an 
Authorized Participant may place an order with the Distributor to 
redeem one or more Creation Units.
    By placing a redemption order, an Authorized Participant agrees to 
deliver the Creation Units to be redeemed through DTC's book-entry 
system to the applicable Fund not later than noon (Eastern Time), on 
the first Business Day immediately following the redemption order date 
(T+1). The Sponsor reserves the right to extend the deadline for the 
Fund to receive the Creation Units required for settlement up to the 
second Business Day following the redemption order date (T+2).
Availability of Information
    The NAV for the Funds' Shares will be disseminated daily to all 
market participants at the same time. The intraday, closing prices, and 
settlement prices of the Bitcoin Futures Contracts will be readily 
available from the applicable futures exchange websites, automated 
quotation systems, published or other public sources, or major market 
data vendors. The value of the Bitcoin Futures Contract will be 
disseminated by one or more major market data vendors on at least a 15-
second delayed basis during the NYSE Arca Core Trading Session of 9:30 
a.m. to 4:00 p.m. E.T.
    Complete real-time data for the Bitcoin Futures Contracts and 
Options on Bitcoin Futures will be available by subscription through 
on-line information services. CME and CBOE will provide delayed futures 
and options on futures (once available) information on current and past 
trading sessions and market news free of charge on their respective 
websites. The specific contract specifications for Bitcoin Futures 
Contracts would also be available on such websites, as well as other 
financial informational sources. Quotation and last-sale information 
regarding the Shares will be disseminated through the facilities of the 
Consolidated Tape Association (``CTA''). Quotation information for 
Money Market Investments and OTC swaps agreements may be obtained from 
brokers and dealers who make markets in such instruments. Quotation 
information for exchange-traded swaps will be available from the 
applicable exchange and major market vendors. The IFV will be available 
through on-line information services.
    In addition, the Funds' website, www.direxioninvestments.com, will 
display the applicable end of day closing NAV. The daily holdings of 
each Fund will be available on the Funds' website before 9:30 a.m. E.T. 
Each Fund's total portfolio composition will be disclosed each Business 
Day that NYSE Arca is open for trading, on the Funds' website. The 
Funds' website will also include a form of the prospectus for the Funds 
that may be downloaded. The website will include the Shares' ticker and 
CUSIP information, along with additional quantitative information 
updated on a daily basis for each Fund. The Funds' website will include 
(1) the prior business day's reported NAV and closing price, and a 
calculation of the premium and discount of the closing price or mid-
point of the bid/ask spread at the time of NAV calculation (``Bid/Ask 
Price'') against the NAV; and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily closing 
price or Bid/Ask Price against the NAV, within appropriate ranges, for 
at least each of the four previous calendar quarters. The website 
disclosure of portfolio holdings will be made daily and will include, 
as applicable, (i) the name, quantity, value, expiration and strike 
price of Bitcoin Futures Contracts and Bitcoin Financial Instruments, 
(ii) the value of Bitcoin Financial Instruments, and (iii) the 
aggregate net value of the Money Market Investments held in each Fund's 
portfolio, if applicable. The Funds' website will be publicly available 
prior to the public offering of Shares and accessible at no charge.
    The spot price of bitcoin also is available on a 24-hour basis from 
major market data vendors.

[[Page 3385]]

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of a Fund.\16\ Trading in Shares of a Fund will 
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E 
have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
---------------------------------------------------------------------------

    \16\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the IFV or the value of the 
Bitcoin Futures Contract occurs. If the interruption to the 
dissemination of the IFV or the value of the Bitcoin Futures Contract 
persists past the trading day in which it occurred, the Exchange will 
halt trading no later than the beginning of the trading day following 
the interruption. In addition, if the Exchange becomes aware that the 
NAV with respect to the Shares is not disseminated to all market 
participants at the same time, it will halt trading in the Shares until 
such time as the NAV is available to all market participants.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Rule 7.34-E (Early, Core, and Late Trading Sessions). The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in NYSE Arca Rule 7.6-E, the 
minimum price variation (``MPV'') for quoting and entry of orders in 
equity securities traded on the NYSE Arca Marketplace is $0.01, with 
the exception of securities that are priced less than $1.00 for which 
the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.200-E. The trading of the Shares will 
be subject to NYSE Arca Rule 8.200-E, Commentary .02(e), which sets 
forth certain restrictions on Equity Trading Permit (``ETP'') Holders 
acting as registered Market Makers in Trust Issued Receipts to 
facilitate surveillance. The Exchange represents that, for initial and 
continued listing, each Fund will be in compliance with Rule 10A-3 \17\ 
under the Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 
100,000 Shares of each Fund will be outstanding at the commencement of 
trading on the Exchange.
---------------------------------------------------------------------------

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

Surveillance
    The Exchange represents that trading in the Shares of each Fund 
will be subject to the existing trading surveillances administered by 
the Exchange, as well as cross-market surveillances administered by 
Financial Industry Regulatory Authority, Inc. (``FINRA'') on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\18\ The Exchange represents 
that these procedures are adequate to properly monitor Exchange trading 
of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and federal securities laws applicable to 
trading on the Exchange.
---------------------------------------------------------------------------

    \18\ FINRA conducts 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.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and certain 
Bitcoin Futures Contracts with other markets and other entities that 
are members of the ISG, and the Exchange or FINRA, on behalf of the 
Exchange, or both, may obtain trading information regarding trading in 
the Shares and certain Bitcoin Futures Contracts from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and certain Bitcoin Futures Contracts 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement (``CSSA'').\19\ The Exchange is also able to obtain 
information regarding trading in the Shares, futures, the commodity 
underlying futures or options on futures through ETP Holders, in 
connection with such ETP Holders' proprietary or customer trades which 
they effect through ETP Holders on any relevant market. The Exchange 
can obtain market surveillance information, including customer identity 
information, with respect to transactions (including transactions in 
cash-settled Options) occurring on US futures exchanges, which are 
members of the ISG.
---------------------------------------------------------------------------

    \19\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of a 
Fund may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolios of the Funds or the target 
benchmark, (b) limitations on portfolio holdings, reference assets or 
the target benchmark, or (c) the applicability of Exchange listing 
rules specified in this rule filing 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 the Funds to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If a Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Bulletin will discuss the following: (1) The risks involved 
in trading the Shares during the Early and Late Trading Sessions when 
an updated IFV will not be calculated or publicly disseminated; (2) the 
procedures for purchases and redemptions of Shares in Creation Units 
(and that Shares are not individually redeemable); (3) NYSE Arca Rule 
9.2-E(a), which imposes a duty of due diligence on its ETP Holders to 
learn the essential facts relating to every customer prior to trading 
the Shares; (4) how information regarding the IFV is disseminated; (5) 
how information regarding portfolio holdings is disseminated; (6) that 
a static IFV will be disseminated, between the close of trading on the 
CME and CBOE and the close of the NYSE Arca Core Trading Session; (7) 
the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the

[[Page 3386]]

confirmation of a transaction; and (8) trading information.
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders of the suitability requirements of NYSE Arca Rule 9.2-E(a) 
in an Information Bulletin. Specifically, ETP Holders will be reminded 
in the Information Bulletin that, in recommending transactions in the 
Shares, they must have a reasonable basis to believe that (1) the 
recommendation is suitable for a customer given reasonable inquiry 
concerning the customer's investment objectives, financial situation, 
needs, and any other information known by such ETP Holder, and (2) the 
customer can evaluate the special characteristics, and is able to bear 
the financial risks, of an investment in the Shares. In connection with 
the suitability obligation, the Information Bulletin will also provide 
that ETP Holders must make reasonable efforts to obtain the following 
information: (1) The customer's financial status; (2) the customer's 
tax status; (3) the customer's investment objectives; and (4) such 
other information used or considered to be reasonable by such ETP 
Holder or registered representative in making recommendations to the 
customer.
    Further, the Exchange states that FINRA has implemented increased 
sales practice and customer margin requirements for FINRA members 
applicable to inverse, leveraged and inverse leveraged securities 
(which include the Shares) and options on such securities, as described 
in FINRA Regulatory Notices 09-31 (June 2009), 09-53 (August 2009), and 
09-65 (November 2009) (collectively, ``FINRA Regulatory Notices''). ETP 
Holders that carry customer accounts will be required to follow the 
FINRA guidance set forth in these notices. As noted above, the Funds 
will seek investment results that daily short, leverage long or 
leverage short the performance of the target benchmark. Over a period 
of time in excess of one day, the cumulative percentage increase or 
decrease in the NAV of the Shares of a Fund may diverge significantly 
from a multiple or inverse multiple of the cumulative percentage 
decrease or increase in the relevant benchmark due to a compounding 
effect.
    In addition, the Information Bulletin will advise ETP Holders, 
prior to the commencement of trading, of the prospectus delivery 
requirements applicable to a Fund. The Information Bulletin will also 
discuss any exemptive, no-action, and interpretive relief granted by 
the Commission from any rules under the Act. In addition, the 
Information Bulletin will reference that a Fund is subject to various 
fees and expenses described in the Registration Statement. The 
Information Bulletin will also reference that the CFTC has regulatory 
jurisdiction over the trading of Bitcoin Futures Contracts traded on 
U.S. markets.
    The Information Bulletin will also disclose the trading hours of 
the Shares that the NAV for the Shares will be calculated after 11:00 
a.m. E.T. each trading day. The Information Bulletin will disclose that 
information about the Shares will be publicly available on the Funds' 
website.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \20\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \20\ 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 and to protect 
investors and the public interest in that the Shares will be listed and 
traded on the Exchange pursuant to the initial and continued listing 
criteria in NYSE Arca Rule 8.200-E.
    The Exchange has in place surveillance procedures that are adequate 
to properly monitor trading in the Shares in all trading sessions and 
to deter and detect violations of Exchange rules and applicable federal 
securities laws. The Exchange or FINRA, on behalf of the Exchange, or 
both, will communicate as needed regarding trading in the Shares, and 
certain Bitcoin Futures Contracts with other markets and other entities 
that are members of the ISG, and the Exchange or FINRA, on behalf of 
the Exchange, or both, may obtain trading information regarding trading 
in the Shares and certain Bitcoin Futures Contracts from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and certain Bitcoin Futures Contracts 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a CSSA. The Exchange is also able to obtain 
information regarding trading in the Shares, the commodity underlying 
futures or options on futures through ETP Holders, in connection with 
such ETP Holders' proprietary or customer trades which they effect 
through ETP Holders on any relevant market.
    The Exchange can obtain market surveillance information, including 
customer identity information, with respect to transactions (including 
transactions in cash-settled Options) occurring on U.S. futures 
exchanges, which are members of the ISG. The intraday, closing prices, 
and settlement prices of the Bitcoin Futures Contracts will be readily 
available from the applicable futures exchange websites, automated 
quotation systems, published or other public sources, or major market 
data vendors website or on-line information services.
    Complete real-time data for the Bitcoin Futures Contracts and 
Options on Bitcoin Futures will be available by subscription from on-
line information services. CME and CBOE will provide delayed futures 
information on current and past trading sessions and market news free 
of charge on their websites. The specific contract specifications for 
Bitcoin Futures Contracts would also be available on such websites, as 
well as other financial informational sources. Information regarding 
options will be available from the applicable exchanges or major market 
data vendors. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the CTA. The Funds' 
website will also include a form of the prospectus for the Funds that 
may be downloaded. The website will include the Shares' ticker and 
CUSIP information, along with additional quantitative information 
updated on a daily basis for each Fund. The Funds' website will include 
(1) the prior business day's reported NAV and closing price, and a 
calculation of the premium and discount of the closing price or mid-
point 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 closing price or Bid/Ask Price against the NAV, within 
appropriate ranges, for at least each of the four previous calendar 
quarters. The website disclosure of portfolio holdings will be made 
daily and will include, as applicable, (i) the name, quantity, value, 
expiration and strike price of Bitcoin Futures Contracts and Bitcoin 
Financial Instruments, (ii) the value of Bitcoin Financial Instruments, 
and (iii) the aggregate net value of the Money Market Investments held 
in each Fund's portfolio, if applicable. The Funds' website will be 
publicly available prior to the public offering of Shares and 
accessible at no charge.

[[Page 3387]]

    In addition, the CFTC has noted that the U.S. futures exchanges 
that will trade bitcoin futures have agreed to significant enhancements 
to protect customers and maintain orderly markets, and announced its 
expectation that futures exchanges that list and trade bitcoin futures 
contracts will, through information sharing agreements, monitor the 
trading activity on the relevant cash platforms for potential impacts 
on the price discovery process for bitcoin futures contracts, including 
potential market manipulation and market dislocations due to flash 
rallies and crashes and trading outages.
    Moreover, prior to the commencement of trading, the Exchange will 
inform its Equity Trading Permit Holders in an Information Bulletin of 
the special characteristics and risks associated with trading the 
Shares and of the suitability requirements of NYSE Arca Rule 9.2-E(a). 
The Information Bulletin will advise ETP Holders, prior to the 
commencement of trading, of the prospectus delivery requirements 
applicable to a Fund. The Information Bulletin will also discuss any 
exemptive, no-action, and interpretive relief granted by the Commission 
from any rules under the Act. In addition, the Information Bulletin 
will reference that a Fund is subject to various fees and expenses 
described in the Registration Statement. The Information Bulletin will 
also reference that the CFTC has regulatory jurisdiction over the 
trading of Bitcoin Futures Contracts traded on U.S. markets. The 
Information Bulletin will also disclose the trading hours of the Shares 
and that the NAV for the Shares will be calculated after 11:00 a.m. 
E.T. each trading day. The Information Bulletin will disclose that 
information about the Shares will be publicly available on the Funds' 
website.
    Trading in Shares of a Fund will be halted if the circuit breaker 
parameters in NYSE Arca Rule 7.12-E have been reached or because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable.
    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 a 
new type of Trust Issued Receipt based on the price of Bitcoin Futures 
Contracts 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 that are adequate to 
properly monitor trading in the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws.

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 a new 
type of Trust Issued Receipt based on the price of Bitcoin Futures 
Contracts and 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

    No written comments were solicited or received with respect to 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#80f2f5ece5ade3efedede5eef4f3c0f3e5e3aee7eff6"><span class="__cf_email__" data-cfemail="4634332a236b25292b2b232832350635232568212930">[email protected]</span></a>. Please include 
File Number SR-NYSEArca-2018-02 on the subject line.

Paper Comments

    <bullet> 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-NYSEArca-2018-02. 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 will also 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-NYSEArca-2018-02 and should be submitted 
on or before February 14, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01209 Filed 1-23-18; 8:45 am]
BILLING CODE 8011-01-P


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