Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43621 

24 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 80911 

(June 13, 2017), 82 FR 27925 (‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 81247, 

82 FR 36031 (August 2, 2017). The Commission 

designated September 17, 2017, as the date by 

which the Commission shall approve or disapprove, 

or institute proceedings to determine whether to 

disapprove, the proposed rule change. 

6See Letter from Gary L. Gastineau, President, 

ETF Consultants.com, Inc., to Brent J. Fields, 

Secretary, Commission, dated July 7, 2017 

(‘‘Gastineau Letter’’); Letter from Todd J. Broms, 

Chief Executive Officer, Broms & Company LLC, to 

Brent J. Fields, Secretary, Commission, dated July 

10, 2017 (‘‘Broms Letter’’); Letter from James J. 

Angel, Associate Professor of Finance, Georgetown 

University, McDonough School of Business, to the 

Commission, dated July 10, 2017 (‘‘Angel Letter’’); 

and Letter from Terence W. Norman, Founder, Blue 

Tractor Group, LLC, to Brent J. Fields, Secretary, 

Commission, dated August 1, 2017 (‘‘Norman 

Letter’’). The comment letters are available on the 

Commission’s Web site at: https://www.sec.gov/ 

comments/sr-batsbzx-2017-30/batsbzx201730.htm. 

7 15 U.S.C. 78s(b)(2)(B). 

8For a complete description of the Exchange’s 

proposal, including a description of the Precidian 

ETF Trust II (‘‘Trust’’), see the Notice, supra note 

3. 

9Proposed Rule 14.11(k)(3)(A) defines the term 

‘‘Managed Portfolio Share’’ as a security that (a) is 

issued by a registered investment company 

(‘‘Investment Company’’) organized as an open-end 

management investment company or similar entity, 

that invests in a portfolio of securities selected by 

the Investment Company’s investment adviser 

consistent with the Investment Company’s 

investment objectives and policies; and (b) when 

aggregated in a number of shares equal to a 

Redemption Unit (as defined in proposed Rule 

14.11(k)(3)(C)) or multiples thereof, may be 

redeemed at the request of an authorized 

participant (as defined in the Investment 

Company’s Form N–1A filed with the Commission), 

which authorized participant will be paid through 

a confidential account (‘‘Confidential Account’’) 

established for its benefit, a portfolio of securities 

and/or cash with a value equal to the next 

determined net asset value (‘‘NAV’’). 

10The Exchange represents that, for purposes of 

describing the holdings of the Funds, ETFs include 

Portfolio Depository Receipts (as described in Rule 

14.11(b)); Index Fund Shares (as described in Rule 

14.11(c)); and Managed Fund Shares (as described 

in Rule 14.11(i)). The ETFs in which a Fund will 

invest all will be listed and traded on national 

securities exchanges. While the Funds may invest 

in inverse ETFs, the Funds will not invest in 

leveraged (e.g., 2X, -2X, 3X or -3X) ETFs. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.24

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–19807 Filed 9–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81599; File No. SR– 

BatsBZX–2017–30] 

Self-Regulatory Organizations; Bats 

BZX Exchange, Inc.; Order Instituting 

Proceedings To Determine Whether To 

Approve or Disapprove a Proposed 

Rule Change To Permit the Listing and 

Trading of Managed Portfolio Shares; 

and To List and Trade Shares of the 

Following Under Proposed Rule 

14.11(k): ClearBridge Appreciation 

ETF; ClearBridge Large Cap ETF; 

ClearBridge MidCap Growth ETF; 

ClearBridge Select ETF; and 

ClearBridge All Cap Value ETF 

September 13, 2017. 

On June 1, 2017, Bats BZX Exchange, 

Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to: (1) Adopt Rule 14.11(k) 

(Managed Portfolio Shares); and (2) list 

and trade shares (‘‘Shares’’) of the 

ClearBridge Appreciation ETF; 

ClearBridge Large Cap ETF; ClearBridge 

MidCap Growth ETF; ClearBridge Select 

ETF; and ClearBridge All Cap Value 

ETF under proposed Rule 14.11(k). The 

proposed rule change was published for 

comment in the Federal Register on 

June 19, 2017.3 On July 28, 2017, 

pursuant to Section 19(b)(2) of the Act,4

the Commission designated a longer 

period within which to approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.5

The Commission has received four 

comments on the proposed rule 

change.6 This order institutes 

proceedings under Section 19(b)(2)(B) of 

the Act 7 to determine whether to 

approve or disapprove the proposed 

rule change. 

I. Summary of the Exchange’s 

Description of the Proposed Rule 

Change 8

The Exchange proposes to adopt new 

Rule 14.11(k), which would govern the 

listing and trading of ‘‘Managed 

Portfolio Shares.’’ 9 The Exchange also 

proposes to list and trade Shares of the 

ClearBridge Appreciation ETF; 

ClearBridge Large Cap ETF; ClearBridge 

MidCap Growth ETF; ClearBridge Select 

ETF; and ClearBridge All Cap Value 

ETF under proposed Rule 14.11(k) (each 

a ‘‘Fund,’’ and collectively the 

‘‘Funds’’). 

A. Description of the Funds 

The portfolio for each Fund will 

consist primarily of long and/or short 

positions in U.S.-exchange-listed 

securities and shares issued by other 

U.S. exchange-listed exchange-traded 

funds (‘‘ETFs’’).10 All exchange-listed 

equity securities in which the Funds 

will invest will be listed and traded on 

U.S. national securities exchanges. 

1. ClearBridge Appreciation ETF 

The ClearBridge Appreciation ETF 

will seek to provide long-term 

appreciation of shareholders’ capital. 

The Fund will seek to achieve its 

investment objective by investing 

primarily in U.S. exchange-listed equity 

securities. The Fund will typically 

invest in medium and large 

capitalization companies, but may also 

invest in small capitalization 

companies. 

2. ClearBridge Large Cap ETF 

The ClearBridge Large Cap ETF will 

seek long-term capital appreciation. The 

Fund will seek to achieve its investment 

objective by taking long and possibly 

short positions in equity securities or 

groups of equities that the portfolio 

managers believe will provide long term 

capital appreciation. The Fund will 

normally invest at least 80% of its net 

assets (plus borrowings for investment 

purposes) in stocks included in the 

Russell 1000 Index and ETFs that 

primarily invest in stocks in the Russell 

1000 Index. The Fund purchases 

securities that the Fund’s sub-adviser, 

ClearBridge Investments, LLC (‘‘SubAdviser’’), believes are undervalued, 

and sells short securities that it believes 

are overvalued. 

3. ClearBridge Mid Cap Growth ETF 

The ClearBridge Mid Cap Growth ETF 

will seek long-term growth of capital. 

The Fund will seek to achieve its 

investment objective by investing 

primarily in U.S. exchange-listed, 

publicly traded equity and equityrelated securities of U.S. companies or 

other instruments with similar 

economic characteristics. The Fund may 

invest in securities of issuers of any 

market capitalization. 

4. ClearBridge Select ETF 

The ClearBridge Select ETF will seek 

to provide long-term growth of capital. 

The Fund will seek to achieve its 

investment objective by investing 

primarily in U.S. exchange-listed, 

publicly traded equity and equityrelated securities of U.S. companies or 

other instruments with similar 

economic characteristics. The Fund may 

invest in securities of issuers of any 

market capitalization. 


sradovich on DSKBBY8HB2PROD with NOTICES
43622 Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 

11The Exchange states that it will be the policy 

of the Trust to enter into repurchase agreements 

only with recognized securities dealers, banks, and 

the Fixed Income Clearing Corporation. 

12The Exchange states that for purposes of the 

filing, cash equivalents include short-term 

instruments (instruments with maturities of less 

than 3 months) of the following types: (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. 

13 In reaching liquidity decisions, the investment 

adviser to the Trust, Precidian Funds LLC 

(‘‘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 in which it trades 

(e.g., the time needed to dispose of the security, the 

method of soliciting offers and the mechanics of 

transfer). 

14Managed Fund Shares are shares of activelymanaged Investment Companies listed and traded 

under Rule 14.11(i). 15Rule 14.11(i)(3)(B) defines the term ‘‘Disclosed 

Portfolio’’ as the identities and quantities of the 

securities and other assets held by the Investment 

Company that will form the basis for the Investment 

Company’s calculation of NAV at the end of the 

business day. Rule 14.11(i)(4)(B)(ii)(a) requires that, 

for Managed Fund Shares, the Disclosed Portfolio 

will be disseminated at least once daily and will be 

made available to all market participants at the 

same time. 

16The Exchange states that the portfolio for an 

issue of Managed Portfolio Shares would be 

disclosed quarterly in accordance with normal 

disclosure requirements otherwise applicable to 

open-end investment companies registered under 

the Investment Company Act of 1940 (‘‘1940 Act’’). 

17Proposed Rule 14.11(k)(3)(B) defines the VIIV 

as the estimated indicative value of a Managed 

Portfolio Share based on all of the issuer’s holdings 

as of the close of business on the prior business day, 

priced and disseminated in at least one second 

intervals, and subject to validation by a pricing 

verification agent of the Investment Company that 

is responsible for comparing multiple independent 

pricing sources to establish the accuracy of the 

VIIV. 

18According to the Exchange, the VIIV should not 

be viewed as a ‘‘real-time’’ update of the NAV per 

Share of each Fund, because the VIIV may not be 

calculated in the same manner as the NAV, which 

will be computed once a day, generally at the end 

of the business day. 

19According to the Exchange, statistical arbitrage 

enables a trader to construct an accurate proxy for 

another instrument, allowing the trader to hedge the 

other instrument or buy or sell the instrument when 

it is cheap or expensive in relation to the proxy. 

Statistical analysis permits traders to discover 

correlations based purely on trading data without 

regard to other fundamental drivers. These 

correlations are a function of differentials, over 

time, between one instrument or group of 

instruments and one or more other instruments. 

Once the nature of these price deviations has been 

quantified, a universe of securities is searched in an 

effort to, in the case of a hedging strategy, minimize 

the differential. Once a suitable hedging proxy has 

been identified, a trader can minimize portfolio risk 

by executing the hedging basket. The trader then 

can monitor the performance of this hedge 

throughout the trade period making correction 

where warranted. 

5. ClearBridge All Cap Value ETF 

The ClearBridge All Cap Value ETF 

will seek long-term capital growth with 

current income as a secondary 

consideration. The Fund will seek to 

achieve its investment objective by 

investing primarily in common stocks 

and common stock equivalents, such as 

preferred stocks and securities 

convertible into common stocks, of 

companies the Sub-Adviser believes are 

undervalued in the marketplace. The 

Fund may invest up to 25% of its net 

assets in equity securities of foreign 

issuers through U.S. exchange-listed 

depositary receipts. 

6. Other Investments 

According to the Exchange, while 

each Fund, under normal market 

conditions, will invest primarily in U.S. 

exchange-listed securities, as described 

above, each Fund may invest its 

remaining assets in other securities and 

financial instruments as follows: (i) 

Repurchase agreements; 11 (ii) warrants, 

rights, and options (limited to 5% of 

total assets); (iii) cash or cash 

equivalents; 12 and (iv) other investment 

companies (including money market 

funds). 

7. Investment Restrictions 

Each Fund may invest up to an 

aggregate amount of 15% of its net 

assets in illiquid assets (calculated at 

the time of investment),13 consistent 

with Commission guidance. 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 invested in illiquid 

assets. Illiquid assets include securities 

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 Funds will not invest in 

securities listed on non-U.S. exchanges. 

The Funds also will not invest in 

futures, forwards, or swaps. Further, 

each Fund’s investments will be 

consistent with its investment objective 

and will not be used to enhance 

leverage. While a Fund may invest in 

inverse ETFs, a Fund will not invest in 

leveraged (e.g., 2X, ¥2X, 3X or ¥3X) 

ETFs. 

B. Key Features of Managed Portfolio 

Shares 

While Investment Companies issuing 

Managed Portfolio Shares would be 

actively-managed, and in that respect 

would be similar to those issuing 

Managed Fund Shares,14 Managed 

Portfolio Shares would differ from 

Managed Fund Shares in the following 

respects. 

• First, issues of Managed Fund 

Shares are required to disseminate their 

‘‘Disclosed Portfolio’’ at least once 

daily.15 By contrast, the portfolio for an 

issue of Managed Portfolio Shares 

would be disclosed only quarterly.16

• Second, in connection with the 

redemption of shares in ‘‘Redemption 

Unit’’ size, the delivery of any portfolio 

securities in kind would be effected 

through a Confidential Account for the 

benefit of the redeeming authorized 

participant without disclosing the 

identity of the securities to the 

authorized participant. 

• Third, for each series of Managed 

Portfolio Shares, a Verified Intraday 

Indicative Value (‘‘VIIV’’) would be 

disseminated by one or more major 

market data vendors at least every 

second during the Exchange’s Regular 

Trading Hours (normally, 9:30 a.m. to 

4:00 p.m., Eastern Time (‘‘E.T.’’)).17 The 

Exchange states that dissemination of 

the VIIV will allow investors to 

determine the estimated intra-day value 

of the underlying portfolio of a series of 

Managed Portfolio Shares and will 

provide a close estimate of that value 

throughout the trading day.18

C. Arbitrage of Managed Portfolio 

Shares 

The Exchange asserts that market 

makers will be able to make efficient 

and liquid markets priced near the VIIV, 

as long as a VIIV is disseminated at least 

every second, market makers have 

knowledge of a Fund’s means of 

achieving its investment objective, and 

market makers are permitted to engage 

in ‘‘bona fide arbitrage,’’ as described 

below. According to the Exchange, 

market makers would employ bona fide 

arbitrage in addition to riskmanagement techniques such as 

‘‘statistical arbitrage,’’ 19 which the 

Exchange states is currently used 

throughout the financial services 

industry, to make efficient markets in 

ETFs. 

According to the Exchange, if an 

authorized participant believes that 

Shares of a Fund are trading at a price 


sradovich on DSKBBY8HB2PROD with NOTICES
Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43623 

20Proposed Rule 14.11(k)(2)(D) requires that 

authorized participants redeeming Managed 

Portfolio Shares sign an agreement with an agent 

(‘‘Trusted Agent’’) to establish a Confidential 

Account, for the benefit of such authorized 

participant, that will receive all consideration from 

the issuer in a redemption. A Trusted Agent may 

not disclose the consideration received in a 

redemption except as required by law or as 

provided in the Investment Company’s Form N–1A, 

as applicable. 

21The Exchange represents that an authorized 

participant will issue execution instructions to the 

Trusted Agent and be responsible for all associated 

profit or losses. Like a traditional ETF, the 

authorized participant has the ability to sell the 

basket securities at any point during normal trading 

hours. 

22According to the Exchange, under applicable 

provisions of the Internal Revenue Code, the 

authorized participant is expected to be deemed a 

‘‘substantial owner’’ of the Confidential Account 

because it receives distributions from the 

Confidential Account. As a result, the Exchange 

states, all income, gain, or loss realized by the 

Confidential Account will be directly attributed to 

the authorized participant. The Exchange also states 

that, in a redemption, the authorized participant 

will have a basis in the distributed securities equal 

to the fair market value at the time of the 

distribution, and any gain or loss realized on the 

sale of those Shares will be taxable income to the 

authorized participant. 

23The Exchange states that it will disseminate the 

VIIV for each Fund in at least one-second intervals 

during Regular Trading Hours, through the facilities 

of the Consolidated Tape Association. 

that is higher than the value of the 

underlying portfolio—for example, if 

the market price for the Shares is higher 

than the VIIV—then the authorized 

participant may sell Shares of the Fund 

short and instruct its ‘‘Trusted Agent’’ 20

to buy portfolio securities for its 

Confidential Account. When the market 

price of the Shares falls in line with the 

value of the portfolio, the authorized 

participant can then close out its 

positions in both the Shares and the 

portfolio securities. According to the 

Exchange, the authorized participant’s 

purchase of the portfolio securities into 

its Confidential Account, combined 

with the sale of Shares, may create 

downward pressure on the price of 

Shares and/or upward pressure on the 

price of the portfolio securities, bringing 

the market price of Shares and the value 

of a Fund’s portfolio securities closer 

together. Similarly, according to the 

Exchange, an authorized participant 

could buy Shares and instruct the 

Trusted Agent to sell the underlying 

portfolio securities from its Confidential 

Account in an attempt to profit when a 

Fund’s Shares are trading at a discount 

to its portfolio. According to the 

Exchange, the authorized participant’s 

purchase of a Fund’s Shares in the 

secondary market, combined with the 

sale of the portfolio securities from its 

Confidential Account, may create 

upward pressure on the price of Shares 

and/or downward pressure on the price 

of portfolio securities, driving the 

market price of Shares and the value of 

a Fund’s portfolio securities closer 

together. The Exchange states that, 

according to the Adviser, this process is 

identical to how many authorized 

participants currently arbitrage existing 

traditional ETFs, except for the use of 

the Confidential Account. 

According to the Exchange, a market 

participant that is not an authorized 

participant would also be able to 

establish a Confidential Account and 

could engage in arbitrage activity 

without using the creation or 

redemption processes described above. 

The Exchange states that if such a 

market participant believes that a Fund 

is overvalued relative to its underlying 

assets, the market participant could sell 

Shares short and instruct its Trusted 

Agent to buy portfolio securities in its 

Confidential Account, wait for the 

trading prices to move toward parity, 

and then close out the positions in both 

the Shares and the portfolio securities to 

realize a profit from the relative 

movement of their trading prices. 

Similarly, according to the Exchange, a 

market participant could buy Shares 

and instruct the Trusted Agent to sell 

the underlying portfolio securities in an 

attempt to profit when a Fund’s Shares 

are trading at a discount to a Fund’s 

underlying or reference assets. 

D. The Creation and Redemption 

Procedures 

The Exchange states that, generally, 

Shares will be purchased and redeemed 

on an in-kind basis. Accordingly, except 

where the purchase or redemption will 

include cash under the circumstances 

described in the applicable Fund’s 

registration statement, purchasers will 

be required to purchase ‘‘Creation 

Units’’ by making an in-kind deposit of 

specified instruments (‘‘Deposit 

Instruments’’), and shareholders 

redeeming their Shares will receive an 

in-kind transfer of specified instruments 

(‘‘Redemption Instruments’’). On any 

given business day, the names and 

quantities of the instruments that 

constitute the Deposit Instruments and 

the names and quantities of the 

instruments that constitute the 

Redemption Instruments will be 

identical, and these instruments may be 

referred to, in the case of either a 

purchase or a redemption, as the 

‘‘Creation Basket.’’ 

In the case of a redemption, a Fund’s 

custodian (‘‘Custodian’’) will typically 

deliver securities to the Confidential 

Account on a pro rata basis with a value 

approximately equal to the value of the 

Shares tendered for redemption at the 

redemption order cut-off time 

established by the Fund. The Custodian 

will make delivery of the securities by 

appropriate entries on its books and 

records transferring ownership of the 

securities to the authorized participant’s 

Confidential Account, subject to 

delivery of the Shares redeemed. The 

Trusted Agent of the Confidential 

Account will in turn liquidate, hedge, or 

otherwise manage the securities based 

on instructions from the authorized 

participant.21

If the Trusted Agent is instructed to 

sell all securities received at the close 

on the redemption date, the Trusted 

Agent will pay the liquidation proceeds 

net of expenses, plus or minus any cash 

balancing amount, to the authorized 

participant through DTC.22 The 

redemption securities that the 

Confidential Account receives are 

expected to mirror the portfolio 

holdings of a Fund pro rata. 

E. Availability of Information 

Each Fund will be required to file 

with the Commission its complete 

portfolio schedules for the second and 

fourth fiscal quarters on Form N–CSR 

under the 1940 Act, and to file its 

complete portfolio schedules for the 

first and third fiscal quarters on Form 

N–Q under the 1940 Act, within 60 days 

of the end of the quarter. Form N–Q 

requires funds to file the same 

schedules of investments that are 

required in annual and semi-annual 

reports to shareholders. The Trust’s SAI 

and each Fund’s shareholder reports 

will be available free upon request from 

the Trust. These documents and forms 

may be viewed on-screen or 

downloaded from the Commission’s 

Web site at www.sec.gov. 

In addition, the VIIV will be widely 

disseminated by one or more major 

market data vendors at least every 

second during the Regular Trading 

Hours.23 According to the Exchange, the 

VIIV will include all accrued income 

and expenses of a Fund and will assure 

that any extraordinary expenses, booked 

during the day, which would be taken 

into account in calculating a Fund’s 

NAV for that day, are also taken into 

account in calculating the VIIV. 

For purposes of the VIIV, securities 

held by a Fund will generally be valued 

throughout the day based on the midpoint between the disseminated current 

national best bid and offer. According to 

the Exchange, by utilizing the mid-point 

pricing for purposes of VIIV calculation, 

stale prices are eliminated and more 

accurate representation of the real-time 

value of the underlying securities is 

provided to the market. Specifically, 


sradovich on DSKBBY8HB2PROD with NOTICES
43624 Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 

24A Fund’s Custodian will provide, on a daily 

basis, the constituent basket file comprised of all 

securities plus any cash to the independent pricing 

agent(s) for purposes of pricing. 

25Proposed Rule 14.11(k)(4)(B)(iii) provides that, 

upon notification to the Exchange by the 

Investment Company or its agent that (i) the prices 

from the multiple independent pricing sources to be 

validated by the Investment Company’s Pricing 

Verification Agent differ by more than 25 basis 

points for 60 seconds in connection with pricing of 

the VIIV, or (ii) the VIIV of a series of Managed 

Portfolio Shares is not being priced and 

disseminated in at least one-second intervals, as 

required, the Exchange will halt trading in the 

Managed Portfolio Shares as soon as practicable. 

The halt in trading would continue until the 

Investment Company or its agent notifies the 

Exchange that the prices from the independent 

pricing sources no longer differ by more than 25 

basis points for 60 seconds or that the VIIV is being 

priced and disseminated as required. The 

Investment Company or its agent would be 

responsible for monitoring that the VIIV is being 

priced and disseminated as required and whether 

the prices to be validated from multiple 

independent pricing sources differ by more than 25 

basis points for 60 seconds. 

26The Exchange represents that the Exchange or 

FINRA, on behalf of the Exchange, or both, will 

communicate as needed regarding trading in the 

Shares, underlying stocks, ETFs, and exchangelisted options with other markets and other entities 

that are members of the Intermarket Surveillance 

Group (‘‘ISG’’), and the Exchange or FINRA, on 

behalf of the Exchange, or both, may obtain trading 

information regarding such securities from such 

markets and other entities. In addition, the 

Exchange may obtain information regarding trading 

in the Shares, underlying stocks, ETFs and 

exchange-listed options from markets and other 

entities that are members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. 

27See supra note 6. 

28The Gastineau Letter is available at: https:// 

www.sec.gov/comments/sr-batsbzx-2017-30/batsbzx

201730-1852499-155333.pdf. 

29The commenter also states that the use of bidask midpoints can result in flawed intraday 

valuations for funds holding thinly-traded stocks, 

and that bid-ask midpoints may reflect prices at 

which no trading is permitted. 

according to the Exchange, quotations 

based on the mid-point of bid/ask 

spreads more accurately reflect current 

market sentiment by providing real time 

information on where market 

participants are willing to buy or sell 

securities at that point in time. The 

Exchange also believes that the use of 

quotations will dampen the impact of 

any momentary spikes in the price of a 

portfolio security. 

According to the Exchange, each 

Fund will utilize two independent 

pricing sources to provide two 

independent sources of pricing 

information. Each Fund will also utilize 

a ‘‘Pricing Verification Agent’’ and 

establish a computer-based protocol that 

will permit the Pricing Verification 

Agent to continuously compare the two 

data streams from the independent 

pricing sources on a real time basis.24 A 

single VIIV will be disseminated 

publicly for each Fund; however, the 

Pricing Verification Agent will 

continuously compare the public VIIV 

against a non-public alternative intraday indicative value to which the 

Pricing Verification Agent has access. If 

it becomes apparent that there is a 

material discrepancy between the two 

data streams, the Exchange will be 

notified and have the ability to halt 

trading in a Fund until the discrepancy 

is resolved.25 Each Fund’s board of 

directors will review the procedures 

used to calculate the VIIV and maintain 

its accuracy as appropriate, but not less 

than annually. The specific 

methodology for calculating the VIIV 

will be disclosed on each Fund’s Web 

site. 

F. Surveillance 

The Exchange represents that trading 

of the Shares will be subject to its 

surveillance procedures for derivative 

products. 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.26

The Exchange represents that the 

Funds’ Adviser will make available 

daily to FINRA and the Exchange the 

portfolio holdings of each Fund in order 

to facilitate the performance of the 

surveillances referred to above. In 

addition, the Exchange states that it has 

a general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

II. Summary of Comment Letters 

The Commission has received four 

comment letters on the proposed rule 

change, each of which expresses 

opposition to the proposed rule 

change.27 As of the date of this order 

instituting proceedings, the Exchange 

has not submitted a response to the 

comments. 

A. Gastineau Letter.28 The commenter 

opposes approval of the proposed rule 

change and recommends imposition of 

a number of requirements in the event 

the proposed rule change and exemptive 

application are approved. As an initial 

matter, the commenter believes that the 

proposed selective disclosure of Fund 

portfolio holdings information to 

Trusted Agents trading on behalf of 

Confidential Account holders would 

constitute insider trading and would 

violate federal securities laws. 

In addition, the commenter asserts 

that market makers will face significant 

impediments to successfully arbitrage 

the Shares and predicts that this will 

lead to the Shares trading at wider bidask spreads and more variable 

premiums/discounts than activelymanaged ETFs available today. First, the 

commenter questions the Exchange’s 

assertion that the VIIV will provide an 

adequate basis for ensuring a Fund’s 

ongoing price value alignment and 

secondary market trading efficiency. In 

evaluating the Exchange’s statements 

regarding VIIVs, the commenter asserts 

that their utility should be compared 

not to the intraday indicative values 

(‘‘IIVs’’) of existing ETFs but rather to 

the independently derived, real-time 

estimates of underlying fund value that 

ETF market makers use today to identify 

arbitrage opportunities and manage 

their risks (‘‘MM IIVs’’). The commenter 

asserts that, because existing activelymanaged ETFs (and most index ETFs) 

provide full daily disclosure of their 

current portfolio, market makers of 

transparent funds have access to far 

better information about the current 

value of fund holdings than the 

proposed VIIVs would provide. 

Moreover, the commenter asserts that 

VIIVs will be significantly less precise 

than MM IIVs. The commenter also 

asserts that MM IIVs include significant 

information that would not be reflected 

in VIIVs, noting as follows: 

• In calculating VIIVs, Fund 

securities would be valued based on the 

mid-point between the current national 

best bid and offer quotations. The 

commenter characterizes the bid-ask 

midpoint as a ‘‘fairly crude valuation 

metric’’ that does not capture important 

trading information incorporated into 

MM IIVs, such as the current bid-ask 

spread, the depth of the current order 

book on the bid and offer side of the 

market, and the predominance of 

current trading between bid-side and 

offer-side transactions.29

• VIIVs would be disseminated at 

least every second, while internal 

valuations used by market makers 

update continuously (often at 

frequencies higher than once per 

second) and may be reflected in MM 

IIVs with less time lag. 

• The VIIV verification process would 

leave significant room for dissemination 

of erroneous values. In particular, a 

Fund’s Pricing Verification Agent would 

take no action to address observed 

discrepancies in VIIV input prices until 

the calculated Fund values differ by at 

least 25 bps for 60 seconds. The 

commenter characterizes that disparity 

as ‘‘huge,’’ asserting that it would be 


sradovich on DSKBBY8HB2PROD with NOTICES
Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43625 

30This commenter also expresses concern that if 

trading in a Fund’s Shares is frequently interrupted 

by trading halts, there could be severe damage to 

the Fund’s ongoing liquidity and trading efficiency. 

Moreover, the commenter states that the proposal 

does not address the treatment of erroneous Fund 

Share trades resulting from faulty VIIVs. 

31The commenter also expresses concerns with 

respect to VIIV-related costs and liabilities for the 

Funds. 

32The Broms Letter is available at: https://

www.sec.gov/comments/sr-batsbzx-2017-30/batsbzx

201730-1842158-155104.pdf. 

wider than the customary bid-ask 

spread of most domestic equity ETFs.30

• The VIIV process would not address 

all potential intraday valuation errors. 

The commenter notes that if the 

constituent basket file for a Fund 

includes material inaccuracies, the 

VIIVs would be erroneous. The 

commenter also describes that market 

makers would not be able to verify that 

corporate actions are appropriately 

reflected in a Fund’s VIIVs because of 

the non-transparent portfolio. 

• The process for adjusting VIIVs in 

the event of trading halts in portfolio 

securities is cumbersome and likely to 

result in errors in disseminated VIIVs. 

The commenter states that, throughout 

this process, which may be protracted, 

the Fund would continue to disseminate 

VIIVs that do not reflect fair values of 

the halted security, and therefore may 

vary significantly from the Fund’s true 

underlying value at that time. The 

commenter asserts that the internal 

valuation process of any existing ETF’s 

market makers would almost certainly 

arrive at a fair estimate of a Fund’s 

current underlying value far faster than 

the VIIV adjustment process. 

The commenter asserts that reliance 

on faulty VIIVs may expose market 

makers to unrecoverable losses, noting 

that: (1) No liability for the timeliness 

and accuracy of the VIIVs appears to 

rest with the Exchange, its agents, or the 

Reporting Authority; and (2) the 

circumstances under which the 

independent pricing sources and the 

Pricing Verification Agent are legally 

liable for such issues are limited. 

According to the commenter, market 

makers’ forced reliance on VIIVs to 

determine intraday Fund valuations is a 

source of significant incremental risk for 

them versus making markets in existing 

ETFs. The commenter predicts that this 

will result in the Shares trading at wider 

bid-ask spreads and more variable 

premiums and discounts to NAV than 

similar existing ETFs.31

The commenter also criticizes the 

Confidential Accounts structure. The 

commenter asserts that, compared to the 

usual manner in which market makers 

in existing ETFs engage in arbitrage and 

buy and sell creation basket 

instruments, the Confidential Accounts 

arrangement exposes market makers to 

significant additional costs, risks, and 

lost opportunities, including: 

• Less control over trade execution 

and trade order management when 

implementing portfolio hedging and 

Creation Unit instrument transactions, 

which will result in more cost and risk, 

and less profit opportunity. 

• No ability for market makers to use 

their market knowledge and their 

positions in other securities to enhance 

arbitrage profits and minimize costs. 

• Reduced incentive for third-party 

service providers to trade expeditiously 

and with low market impact. 

• Little or no ability for market 

makers to monitor trading in 

Confidential Accounts to ensure best 

execution or to evaluate trading 

performance. 

• Forced pro rata hedging, which is 

very often not the best hedge. Suboptimal hedging results in less efficient 

arbitrage. 

• Given the more-involved routing of 

trade instructions and trade orders that 

the Confidential Account structure 

would necessitate, hedging and Creation 

Unit instrument transactions through 

Confident Accounts will almost 

certainly take longer, on average, for a 

market maker to execute than similar 

transactions that the market maker 

executes internally. Slower executions 

may translate into less efficient 

arbitrage. 

• Potentially significant explicit costs 

to establish and maintain Confidential 

Accounts. 

Additionally, the commenter 

questions the Exchange’s statements 

regarding the efficiency and utility of 

statistical arbitrage. The commenter 

states that while market makers may be 

able to gain some useful information 

about a Fund’s current composition by 

knowing the Fund’s investment 

objective and tracking performance 

correlations over time versus a known 

index, the amount of portfolio 

information that can be gleaned using 

this approach is limited. The 

commenter states that, as a result, any 

portfolio hedge constructed using this 

information would be subject to 

meaningful basis risk, especially during 

times of market stress or volatility. 

The commenter expresses concerns 

regarding data security, and the 

misappropriation and misuse of a 

Fund’s confidential portfolio 

information, in light of the 

dissemination of this information across 

a potentially broad network of Trusted 

Agents, affiliated broker-dealers, and 

other Confidential Account service 

providers. The commenter also raises 

concerns regarding the possibility that 

market participants could reverseengineer the Funds’ portfolio holdings, 

subjecting the Funds to the dilutive 

effects of front-running. The commenter 

asserts that ‘‘it is far from a settled 

question that the Funds would not ever 

be susceptible to reverse engineering.’’ 

Moreover, the commenter raises 

concerns regarding the ability of the 

Funds, the authorized participants, and 

the non-authorized participant market 

makers, to comply with various laws, 

rules, and regulations. In addition, the 

commenter recommends certain 

limitations on the permitted 

investments of the Funds, and 

recommends the availability of certain 

information. 

B. Broms Letter.32 The commenter 

opposes the proposed rule change. The 

commenter asserts that the proposed 

selective disclosure of confidential 

Fund holdings information to Trusted 

Agents for trading on behalf of 

Confidential Account holders would 

violate federal securities laws. In 

addition, the commenter believes that 

the mechanism for ensuring secondary 

market trading efficiency in the Shares 

is ‘‘unreliable’’ and predicts that the 

Shares will likely trade at significantly 

wider bid-ask spreads and/or more 

variable premiums/discounts than 

existing ETFs. The commenter also 

expresses concerns regarding the 

following: 

• The likelihood that the Shares’ 

trading performance will be especially 

poor during periods of market stress and 

volatility. 

• The ability to ensure the security of 

confidential Fund information 

disseminated to Trusted Agents, their 

affiliates, and service providers. 

• Potentially significant added Fund 

costs and risks associated with 

calculating, verifying, and 

disseminating the VIIV and associated 

Fund warranties. 

• The potential for frequent Share 

trading halts. 

• The likely incidence of erroneous 

Share trades and the absence of an 

Exchange program to detect and remedy 

such trades. 

• The potential for reverse 

engineering of a Fund’s portfolio 

holdings. 

• The tax risk due to the Funds’ 

distinctive in-kind redemption program. 

• The costs, risks, and uncertainties 

to broker-dealers serving as authorized 

participants and non-authorized 

participant market makers in meeting 

their compliance obligations with 

respect to securities traded on their 

behalf through Confidential Accounts. 


sradovich on DSKBBY8HB2PROD with NOTICES
43626 Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 

33The Angel Letter is available at: https://

www.sec.gov/comments/sr-batsbzx-2017-30/batsbzx

201730-1843677-155109.pdf. 

34The commenter also states that VIIVs should be 

disseminated over the standard consolidated feeds, 

not specialized feeds, such that they are widely 

available to all investors. 

35The Norman Letter is available at: https://

www.sec.gov/comments/sr-batsbzx-2017-30/batsbzx

201730-2161995-157800.pdf. 

36See Third Amended and Restated Application 

for an Order for exemptions from various provisions 

of the 1940 Act and rules thereunder (File No. 812– 

14405), dated May 2, 2017, at Exhibit E 

(‘‘Additional Research on the Ability to Reverse 

Engineer the Proposed Precidian ETF,’’ by Ricky 

Alyn Cooper, Ph.D., dated August 2015). 

37See Norman Letter, Appendix One (‘‘The 

Reverse Engineering of Portfolio Compositions,’’ by 

Dr. Anthony Hayter, dated July 17, 2017). 

38 15 U.S.C. 78s(b)(2)(B). 

39 Id. 

40 15 U.S.C. 78f(b)(5). 

41Section 19(b)(2) of the Act, as amended by the 

Securities Acts Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Acts Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

42See supra note 3. 

C. Angel Letter.33 The commenter 

opposes the proposal. The commenter 

believes that the opaque nature of the 

products and the inability of 

arbitrageurs to closely monitor 

execution quality will make arbitrage 

more difficult and the added costs and 

risks will lead to wider deviations of the 

market price from the underlying asset 

value. In addition, the commenter raises 

concerns that the Funds may fare worse 

than traditional ETFs during times of 

market disruption given their opacity 

and the complexity of the arbitrage 

relationship between the Funds and the 

underlying securities. The commenter 

also expresses concern that selective 

disclosure of portfolio information 

could raise issues under Regulation FD 

and that the use of Confidential 

Accounts could raise issues under 

Regulation SHO. 

In addition, the commenter expresses 

the following concerns: 

• It is unclear whether a firm’s risk 

management would have access to the 

contents of Confidential Accounts. If a 

firm’s risk management does not have 

access to such information, the firm 

would be subject to too much risk, but 

if the firm’s risk management does have 

access, information barriers would 

create compliance complexities. 

• Positions held in the Confidential 

Account not closed out by the end of the 

day would have to be settled, and the 

settlement information would be 

available to settlement personnel. 

• The Trusted Agents would have 

serious compliance burdens, and these 

burdens could drive up the cost of being 

a Trusted Agent, which would drive up 

the cost of arbitrage. Higher costs and 

compliance risks would severely limit 

the number of firms willing to take on 

the burden of becoming Trusted Agents, 

and less competition could lead to 

higher fees and inferior service. In the 

event that there were many Trusted 

Agents, the likelihood of data breaches 

would increase. 

In addition, the commenter believes 

that the VIIV calculations are 

dangerously flawed because they rely on 

sometimes flawed bid-ask quotes. The 

commenter believes that the VIIV 

should instead be based on the last 

trade, and if the underlying market is 

closed or the underlying asset has not 

traded recently, then a reasonable fair 

value methodology should be used.34

Moreover, the commenter states that 

the proposed Funds are very different 

from ETFs and should not be labeled or 

approved as ETFs. 

D. Norman Letter.35 The commenter 

opposes the proposed rule change. The 

commenter refutes the Trust’s statistical 

analysis that purports to demonstrate 

that the Funds’ portfolio compositions 

could not be reverse engineered.36 The 

commenter’s analysis concludes that 

reverse engineering of a Fund’s portfolio 

is in fact ‘‘achievable with a substantial 

degree of accuracy.’’ 37 The commenter 

also asserts that, without knowledge of 

a Fund’s underlying stocks, market 

makers may be unable to hedge their 

risks, which would result in wider and 

more persistent spreads or the market 

maker choosing not to make a market in 

the Shares. In addition, the commenter 

questions the sufficiency of 

disseminating the VIIV at one-second 

intervals, given that high frequency 

trading takes place in milliseconds, and 

raises concerns about potential systems 

failures that may disrupt the 

dissemination of VIIV. Finally, the 

commenter believes that selective 

disclosure of portfolio information to 

Trusted Agents would violate federal 

securities laws, and expresses concern 

regarding the security of confidential 

portfolio information. 

III. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

BatsBZX–2017–30 and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 38 to determine 

whether the proposed rule change 

should be approved or disapproved. 

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues raised by the 

proposed rule change. Institution of 

proceedings does not indicate that the 

Commission has reached any 

conclusions with respect to any of the 

issues involved. Rather, as described 

below, the Commission seeks and 

encourages interested persons to 

provide comments on the proposed rule 

change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,39 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of the proposed rule 

change’s consistency with Section 

6(b)(5) of the Act, which requires, 

among other things, that the rules of a 

national securities exchange be 

‘‘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 a national market 

system, and, in general, to protect 

investors and the public interest.’’ 40

IV. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written views of interested 

persons concerning whether the 

proposal is consistent with Section 

6(b)(5) or any other provision of the Act, 

or the rules and regulations thereunder. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b–4, any 

request for an opportunity to make an 

oral presentation.41

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by October 10, 2017. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by October 23, 2017. 

The Commission asks that 

commenters address the sufficiency of 

the Exchange’s statements in support of 

the proposal, which are set forth in the 

Notice,42 in addition to any other 


sradovich on DSKBBY8HB2PROD with NOTICES
Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43627 

43 17 CFR 200.30–3(a)(57). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4 15 U.S.C. 78s(b)(1). 

5 17 CRF 240.19b–4. 

6Non-displayed priority refers to an order or 

portion of a reserve order that is booked and ranked 

with non-display priority on the Order Book. See 

Rules 11.190(b)(3) and 11.190(b)(2). 

7This pricing is referred to by the Exchange as 

the ‘‘Non-Displayed Match Fee’’ on the Fee 

Schedule with a Fee Code of ‘I’ which is provided 

by the Exchange on execution reports. 

8See Rule 11.190(b)(3). 

comments they may wish to submit 

about the proposed rule change. 

Specifically, the Commission seeks 

comment on the statements of the 

Exchange contained in the Notice, the 

issues raised by the commenters, and 

any other issues raised by the proposed 

rule change. In addition, the 

Commission seeks comment on whether 

the trading of the Shares would be 

consistent with the maintenance of fair 

and orderly markets. In this regard, the 

Commission specifically seeks comment 

regarding market makers’ ability to 

make markets in the Shares and the 

sufficiency of the proposed VIIV as 

pricing information to market 

participants. Further, the Commission 

solicits comments on whether the 

selective disclosure of portfolio 

holdings to a Trusted Agent, as well as 

the non-transparent structure of the 

Funds, could result in any information 

asymmetry that would be inconsistent 

with the Act or other federal securities 

laws or rules and regulations 

thereunder. 

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– 

BatsBZX–2017–30 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–BatsBZX–2017–30. 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 Web site (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 Web site 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; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

BatsBZX–2017–30 and should be 

submitted on or before October 10, 

2017. Rebuttal comments should be 

submitted by October 23, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.43

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–19808 Filed 9–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81602; File No. SR–IEX– 

2017–29] 

Self-Regulatory Organizations; 

Investors Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Related to Fees 

Pursuant to Rule 15.110 

September 13, 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 August 

30, 2017, the Investors Exchange LLC 

(‘‘IEX’’ or the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Pursuant to the provisions of Section 

19(b)(1) under the Securities Exchange 

Act of 1934 (‘‘Act’’),4 and Rule 19b–4 

thereunder,5 Investors Exchange LLC 

(‘‘IEX’’ or ‘‘Exchange’’) is filing with the 

Commission a proposed rule change to 

make a correction to the Exchange Fee 

Schedule related to fees for executions 

that involve taking resting interest with 

non-displayed priority with a 

displayable order. The Exchange 

proposes to implement the change 

beginning on September 1, 2017. The 

text of the proposed rule change is 

available at the Exchange’s Web site at 

www.iextrading.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 

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 these statements may be examined at 

the places specified in Item IV below. 

The self-regulatory organization has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

Fee Schedule, pursuant to IEX Rule 

15.110 (a) and (c), to make a correction 

related to the fees for executions that 

involve taking non-displayed resting 

interest with a displayable order. 

Subject to certain exceptions, the 

Exchange charges $0.0009 per share (or 

0.30% of the total dollar value of the 

transaction for securities priced below 

$1.00) to Members for executions on IEX 

that include resting non-displayed 

interest 6 for both the liquidity 

providing and liquidity removing order 

(the ‘‘Non-Displayed Match Fee’’).7 One 

such exception relates to certain 

displayable orders that remove nondisplayed liquidity upon entry. The 

Exchange Fee Schedule provides that 

the Non-Displayed Match Fee is not 

charged for displayable orders 8 that 

remove non-displayed liquidity upon 

entry if, on a monthly basis, at least 

90% of the liquidity removing MPID’s 

aggregate executed shares of displayable 

orders added liquidity during the month 


sradovich on DSKBBY8HB2PROD with NOTICES