Document ID: SEC-2016-0097-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2016-01-20T05:00Z

[Federal Register Volume 81, Number 12 (Wednesday, January 20, 2016)]
[Notices]
[Pages 3195-3203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00896]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76884; File No. SR-BATS-2015-124]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change to Rule 14.11(i), Managed Fund Shares, 
To List and Trade Shares of the REX VolMAX Long VIX Weekly Futures 
Strategy ETF and the REX VolMAXX Inverse VIX Weekly Futures Strategy 
ETF of the Exchange Traded Concepts Trust

January 13, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 30, 2015, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to list and trade shares of the REX 
VolMAXXTM Long VIX Weekly Futures Strategy ETF and the REX 
VolMAXXTM Inverse VIX Weekly Futures Strategy ETF (each a 
``Fund'' and collectively, the ``Funds'') of the Exchange Traded 
Concepts Trust (the ``Trust'') under BATS Rule 14.11(i) (``Managed Fund 
Shares''). The shares of the Funds are referred to herein as the 
``Shares.''
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    The Exchange proposes to list and trade the Shares under BATS Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Funds will be actively managed funds. The 
Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on July 17, 2009. The Trust is registered with 
the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\4\ The Adviser is 
also registered as a Commodity Pool Operator. The REX 
VolMAXXTM Long VIX Weekly Futures Strategy ETF and the REX 
VolMAXXTM Inverse VIX Weekly Futures Strategy ETF and their 
subsidiaries, REX VolMAXXTM Long VIX Weekly Futures Strategy 
Subsidiary I and REX VolMAXXTM Inverse VIX Weekly Futures 
Strategy Subsidiary I, respectively, each a wholly-owned subsidiary of 
its associated Fund are organized under the laws of the Cayman Islands 
(each a ``Subsidiary'' and, collectively, the ``Subsidiaries''), will 
be subject to regulation by the CFTC and additional disclosure, 
reporting and recordkeeping rules imposed upon commodity pools.
---------------------------------------------------------------------------

    \3\ The Commission approved BATS Rule 14.11(i) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ See Registration Statement on Form N-1A for the Trust, dated 
December 29, 2015 (File Nos. 333-156529 and 811-22263). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement. The 
Commission has issued an order granting certain exemptive relief to 
the Company under the Investment Company Act of 1940 (15 U.S.C. 80a-
1) (``1940 Act'') (the ``Exemptive Order''). See Investment Company 
Act Release No. 30445, April 2, 2013 (File No. 812-13969).
---------------------------------------------------------------------------

    Exchange Traded Concepts, LLC is the investment adviser (the 
``Adviser'') to the Funds. Vident Investment Advisory, LLC is the sub-
adviser (the ``Sub-Adviser'') to the Funds. SEI Investments Global 
Funds Services serves as administrator for the Trust (the 
``Administrator''). Brown Brothers Harriman & Co. serves as custodian, 
transfer agent, and dividend disbursing agent for the Trust. SEI 
Investments Distribution Co. (``Distributor'') serves as the 
distributor for the Trust.
    BATS Rule 14.11(i)(7) provides that, if the investment adviser to 
the investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company portfolio.\5\ In addition, Rule 14.11(i)(7) further 
requires that personnel who make decisions on the investment company's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable investment company portfolio. Rule 14.11(i)(7) is 
similar to BATS Rule 14.11(b)(5)(A)(i), however, Rule 14.11(i)(7) in 
connection with the establishment of a ``fire wall'' between the 
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case 
with index-based funds. Neither the Adviser nor the Sub-Adviser is or 
is affiliated

[[Page 3196]]

with a broker-dealer. In the event that (a) the Adviser becomes a 
broker-dealer or newly affiliated with a broker-dealer, or (b) any new 
adviser or sub-adviser is a broker-dealer or becomes affiliated with a 
broker-dealer, it will implement a fire wall with respect to its 
relevant personnel or such broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition and/or 
changes to the portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
---------------------------------------------------------------------------

    \5\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser, the Sub-Adviser, and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
---------------------------------------------------------------------------

REX VolMAXX Long VIX Weekly Futures Strategy ETF
    According to the Registration Statement, the Fund seeks to provide 
investors with long exposure to the implied volatility of the broad-
based, large-cap U.S. equity market by obtaining investment exposure to 
an actively managed portfolio of exchange-traded futures contracts 
based on the Chicago Board Options Exchange, Incorporated (``CBOE'') 
Volatility Index (the ``VIX Index'') (``VIX Futures Contracts'') with 
weekly and monthly expirations. The price at which a VIX Futures 
Contract trades represents the implied reading of the VIX Index upon 
the expiration of the VIX Futures Contract. The VIX Index is an index 
designed to measure the market price of volatility in large cap U.S. 
stocks over 30 days in the future and is calculated based on the prices 
of certain put and call options on the S&P 500. The VIX Index is 
calculated based on the premium paid by investors for certain options 
linked to the level of the S&P 500. During periods of market 
instability, the implied level of volatility of the S&P 500 typically 
increases and, consequently, the prices of options linked to the S&P 
500 typically increase (assuming all other relevant factors remain 
constant or have negligible changes). This, in turn, causes the reading 
of the VIX Index to increase.
    Unlike many indexes, the VIX Index is not an investable index. 
Rather, the VIX Index serves as a market volatility forecast. While the 
Fund generally will seek exposure to the VIX Index, the Fund is not an 
index tracking fund and will generally seek to enhance its performance 
by actively selecting VIX Futures Contracts of varying maturities for 
the Fund and, in fact, can be expected to perform very differently from 
the VIX Index over all periods of time.
Principal Holdings
    The Fund will seek to achieve its investment objective by obtaining 
investment exposure to an actively managed portfolio of futures 
contracts based on VIX Futures Contracts with weekly and monthly 
expirations.\6\ According to the Registration Statement, the Fund will 
obtain such exposure by investing, through both long and short 
positions, only in the following instruments: VIX Futures Contracts; 
\7\ swap agreements that provide exposure to VIX Futures Contracts; \8\ 
the securities of other investment companies,\9\ other pooled 
investment vehicles,\10\ and exchange-traded notes \11\ that provide 
exposure to VIX Futures Contracts; options on securities, securities 
indices, and currencies; \12\ repurchase agreements \13\ and reverse 
repurchase agreements; \14\ commercial paper; \15\ U.S. government 
obligations; \16\ and cash or cash equivalents \17\ to collateralize 
its exposure to the VIX Futures Contracts and for investment purposes.
---------------------------------------------------------------------------

    \6\ The Fund expects the notional value of its exposure to VIX 
Futures Contracts to be equal to approximately 100% of Fund assets 
at all times and the weighted average of time to expiry of the VIX 
Futures Contracts to be less than one month at all times.
    \7\ Consistent with the definition above, all VIX Futures 
Contracts held by the Fund will be exchange-traded.
    \8\ To the extent practicable, the Fund will invest in swaps 
cleared through the facilities of a centralized clearing house. To 
the extent that the Fund invests in swaps that are not centrally 
cleared, the Adviser will also attempt to mitigate the Fund's credit 
risk by transacting only with large, well-capitalized institutions 
using measures designed to determine the creditworthiness of a 
counterparty. The Adviser will take various steps to limit 
counterparty credit risk, as described in the Registration 
Statement. The Fund's investment in over-the-counter (``OTC'') 
derivatives, including OTC swaps, will not exceed 20% of its assets.
    \9\ The Fund may invest in the securities of other investment 
companies, including affiliated funds and money market funds, 
subject to applicable limitations under Section 12(d)(1) of the 1940 
Act.
    \10\ Pooled investment vehicles include only the following 
instruments: Trust Issued Receipts (as defined in BATS Rule 
14.11(f)); Commodity-Based Trust Shares (as defined in Rule 
14.11(e)(4)); Currency Trust Shares (as defined in Rule 
14.11(e)(5)); Commodity Index Trust Shares (as defined in Rule 
14.11(e)(6)); Trust Units (as defined in Rule 14.11(e)(9)); and 
Paired Class Shares (as defined in NASDAQ Stock Market LLC Rule 
5713). While the Funds may invest in inverse pooled investment 
vehicles, the Funds will not invest in leveraged (e.g., 2X, -2X, 3X 
or -3X) pooled investment vehicles.
    \11\ An ETN is a senior unsecured debt obligation designed to 
track the total return of an underlying index, benchmark, or 
strategy, minus investor fees. ETNs are registered under the 
Securities Act of 1933 and are redeemable to the issuer. While the 
Funds may invest in inverse ETNs, the Funds will not invest in 
leveraged (e.g., 2X, -2X, 3X or -3X) ETNs.
    \12\ All options written on indices or securities will be 
covered. For all OTC options, the Fund will seek, where possible, to 
use counterparties whose financial status is such that the risk of 
default is reduced; however, the risk of losses from default is 
still possible. The Sub-Adviser will monitor the financial standing 
of counterparties on an ongoing basis. As stated above, the Fund's 
investment in OTC derivatives, which includes OTC options, will not 
exceed 20% of its assets.
    \13\ The Fund follows certain procedures designed to minimize 
the risks inherent in repurchase agreements. Such procedures include 
effecting repurchase transactions only with large, well-capitalized, 
and well-established financial institutions whose condition will be 
continually monitored by the Sub-Adviser. It is the current policy 
of the Fund not to invest in repurchase agreements that do not 
mature within seven days if any such investment, together with any 
other illiquid assets held by the Fund, amount to more than 15% of 
the Fund's net assets. The investments of the Fund in repurchase 
agreements, at times, may be substantial when, in the view of the 
Sub-Adviser, liquidity or other considerations so warrant.
    \14\ Reverse repurchase agreements involve the sale of assets 
with an agreement to repurchase the assets at an agreed-upon price, 
date and interest payment and have the characteristics of borrowing. 
The Fund will establish a segregated account with the Trust's 
custodian bank in which the Fund will maintain cash, cash 
equivalents or other portfolio securities equal in value to the 
Fund's obligations in respect of reverse repurchase agreements. The 
Fund does not expect to engage, under normal circumstances, in 
reverse repurchase agreements with respect to more than 33\1/3\% of 
its assets.
    \15\ Commercial paper is a short-term obligation with a maturity 
ranging from one to 270 days issued by banks, corporations and other 
borrowers. Such investments are unsecured and usually discounted. 
The Funds may invest in commercial paper rated A-1 or A-2 by 
Standard and Poor's Ratings Services (``S&P'') or Prime-1 or Prime-2 
by Moody's Investors Service, Inc. (``Moody's'').
    \16\ U.S. government obligations include securities issued or 
guaranteed as to principal and interest by the U.S. government, its 
agencies, or instrumentalities, such as U.S. Treasury obligations, 
receipts, STRIPS, and U.S. Treasury zero-coupon bonds.
    \17\ Cash or cash equivalents includes assets such as U.S. 
Treasury securities or overnight repurchase agreements.
---------------------------------------------------------------------------

    The Fund expects to gain exposure to certain of these investments 
by investing a portion of its assets in the Subsidiary. The Subsidiary 
will be advised by the Adviser.\18\ The Fund's investment in the 
Subsidiary is intended to provide the Fund with exposure to markets (in 
general, the commodity markets) within the limits of current federal 
income tax laws applicable to investment companies such as the Fund, 
which limit the ability of investment companies to

[[Page 3197]]

invest directly in certain futures contracts. The Subsidiary will have 
the same investment objective as the Fund. Except as otherwise noted, 
references to the Fund's investments may also be deemed to include the 
Fund's indirect investments through the Subsidiary. The Fund will 
invest up to 25% of its total assets in the Subsidiary.
---------------------------------------------------------------------------

    \18\ The Subsidiary is not registered under the 1940 Act and is 
not directly subject to its investor protections, except as noted in 
the Registration Statement. However, the Subsidiary is wholly-owned 
and controlled by the Fund and is advised by the Adviser. Therefore, 
because of the Fund's ownership and control of the Subsidiary, the 
Subsidiary would not take action contrary to the interests of the 
Fund or its shareholders. The Fund's Board of Trustees (``Board'') 
has oversight responsibility for the investment activities of the 
Fund, including its expected investment in the Subsidiary, and the 
Fund's role as the sole shareholder of the Subsidiary. The Adviser 
receives no additional compensation for managing the assets of the 
Subsidiary. The Subsidiary will also enter into separate contracts 
for the provision of custody, transfer agency, and accounting agent 
services with the same or with affiliates of the same service 
providers that provide those services to the Fund.
---------------------------------------------------------------------------

    The Fund may lend its portfolio securities in an amount not to 
exceed 33\1/3\% of the value of its total assets via a securities 
lending program through a lending agent approved by the Board, to 
certain creditworthy borrowers desiring to borrow securities to 
complete transactions and for other purposes. A securities lending 
program allows the Fund to receive a portion of the income generated by 
lending its securities and investing the respective collateral. The 
Fund will receive collateral for each loaned security which is at least 
equal to the current market value of that security, marked to market 
each trading day.
    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\19\ The Fund will invest its assets (including via 
the Subsidiary), and otherwise conduct its operations, in a manner that 
is intended to satisfy the qualifying income, diversification and 
distribution requirements necessary to establish and maintain RIC 
qualification under Subchapter M. Aside from its investments in the 
Subsidiary, the Fund will not invest in non-U.S. equity securities or 
options.
---------------------------------------------------------------------------

    \19\ 26 U.S.C. 851.
---------------------------------------------------------------------------

Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment) deemed 
illiquid by the Adviser \20\ under the 1940 Act.\21\ The Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include assets 
subject to contractual or other restrictions on resale and other 
instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
---------------------------------------------------------------------------

    \20\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
    \21\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
---------------------------------------------------------------------------

    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to achieve leveraged or 
inverse leveraged returns (i.e. two times or three times the Fund's 
benchmark).
REX VolMAXXTM Inverse VIX Weekly Futures Strategy ETF
    According to the Registration Statement, the Fund seeks to provide 
investors with inverse exposure to the implied volatility of the broad-
based, large-cap U.S. equity market by obtaining investment exposure to 
an actively managed portfolio of exchange-traded VIX Futures Contracts 
with weekly and monthly expirations. The price at which a VIX Futures 
Contract trades represents the implied reading of the VIX Index upon 
the expiration of the VIX Futures Contract. The VIX Index is an index 
designed to measure the market price of volatility in large cap U.S. 
stocks over 30 days in the future and is calculated based on the prices 
of certain put and call options on the S&P 500. The VIX Index is 
calculated based on the premium paid by investors for certain options 
linked to the level of the S&P 500. During periods of market 
instability, the implied level of volatility of the S&P 500 typically 
increases and, consequently, the prices of options linked to the S&P 
500 typically increase (assuming all other relevant factors remain 
constant or have negligible changes). This, in turn, causes the reading 
of the VIX Index to increase.
    Unlike many indexes, the VIX Index is not an investable index. 
Rather, the VIX Index serves as a market volatility forecast. While the 
Fund generally will seek exposure to the VIX Index, the Fund is not an 
index tracking fund and will generally seek to enhance its performance 
by actively selecting VIX Futures Contracts of varying maturities for 
the Fund and, in fact, can be expected to perform very differently from 
the VIX Index over all periods of time.
Principal Holdings
    The Fund will seek to achieve its investment objective by obtaining 
investment exposure to an actively managed portfolio of futures 
contracts based on VIX Futures Contracts with weekly and monthly 
expirations.\22\ According to the Registration Statement, the Fund will 
obtain such exposure by investing, through both long and short 
positions, only in the following instruments: VIX Futures Contracts; 
\23\ swap agreements that provide exposure to VIX Futures Contracts; 
\24\ the securities of other investment companies,\25\ other pooled 
investment vehicles,\26\ and exchange-traded notes \27\ that provide 
exposure to VIX Futures Contracts; options on securities, securities 
indices, and currencies; \28\

[[Page 3198]]

repurchase agreements \29\ and reverse repurchase agreements; \30\ 
commercial paper; \31\ U.S. government obligations; \32\ and cash or 
cash equivalents \33\ to collateralize its exposure to the VIX Futures 
Contracts and for investment purposes.
---------------------------------------------------------------------------

    \22\ The Fund expects the notional value of its exposure to VIX 
Futures Contracts to be equal to approximately 100% of Fund assets 
at the close of each trading day and the weighted average of time to 
expiry of the VIX Futures Contracts to be less than one month at all 
times.
    \23\ Consistent with the definition above, all VIX Futures 
Contracts held by the Fund will be exchange-traded.
    \24\ To the extent practicable, the Fund will invest in swaps 
cleared through the facilities of a centralized clearing house. To 
the extent that the Fund invests in swaps that are not centrally 
cleared, the Adviser will also attempt to mitigate the Fund's credit 
risk by transacting only with large, well-capitalized institutions 
using measures designed to determine the creditworthiness of a 
counterparty. The Adviser will take various steps to limit 
counterparty credit risk, as described in the Registration 
Statement. The Fund's investment in over-the-counter (``OTC'') 
derivatives, including OTC swaps, will not exceed 20% of its assets.
    \25\ The Fund may invest in the securities of other investment 
companies, including affiliated funds and money market funds, 
subject to applicable limitations under Section 12(d)(1) of the 1940 
Act.
    \26\ Pooled investment vehicles include only the following 
instruments: Trust Issued Receipts (as defined in BATS Rule 
14.11(f)); Commodity-Based Trust Shares (as defined in Rule 
14.11(e)(4)); Currency Trust Shares (as defined in Rule 
14.11(e)(5)); Commodity Index Trust Shares (as defined in Rule 
14.11(e)(6)); Trust Units (as defined in Rule 14.11(e)(9)); and 
Paired Class Shares (as defined in NASDAQ Stock Market LLC Rule 
5713).
    \27\ An ETN is a senior unsecured debt obligation designed to 
track the total return of an underlying index, benchmark, or 
strategy, minus investor fees. ETNs are registered under the 
Securities Act of 1933 and are redeemable to the issuer.
    \28\ All options written on indices or securities will be 
covered. For all OTC options, the Fund will seek, where possible, to 
use counterparties whose financial status is such that the risk of 
default is reduced; however, the risk of losses from default is 
still possible. The Sub-Adviser will monitor the financial standing 
of counterparties on an ongoing basis. As stated above, the Fund's 
investment in OTC derivatives, which includes OTC options, will not 
exceed 20% of its assets.
    \29\ The Fund follows certain procedures designed to minimize 
the risks inherent in repurchase agreements. Such procedures include 
effecting repurchase transactions only with large, well-capitalized, 
and well-established financial institutions whose condition will be 
continually monitored by the Sub-Adviser. It is the current policy 
of the Fund not to invest in repurchase agreements that do not 
mature within seven days if any such investment, together with any 
other illiquid assets held by the Fund, amount to more than 15% of 
the Fund's net assets. The investments of the Fund in repurchase 
agreements, at times, may be substantial when, in the view of the 
Sub-Adviser, liquidity or other considerations so warrant.
    \30\ Reverse repurchase agreements involve the sale of assets 
with an agreement to repurchase the assets at an agreed-upon price, 
date and interest payment and have the characteristics of borrowing. 
The Fund will establish a segregated account with the Trust's 
custodian bank in which the Fund will maintain cash, cash 
equivalents or other portfolio securities equal in value to the 
Fund's obligations in respect of reverse repurchase agreements. The 
Fund does not expect to engage, under normal circumstances, in 
reverse repurchase agreements with respect to more than 33\1/3\% of 
its assets.
    \31\ Commercial paper is a short-term obligation with a maturity 
ranging from one to 270 days issued by banks, corporations and other 
borrowers. Such investments are unsecured and usually discounted. 
The Funds may invest in commercial paper rated A-1 or A-2 by 
Standard and Poor's Ratings Services (``S&P'') or Prime-1 or Prime-2 
by Moody's Investors Service, Inc. (``Moody's'').
    \32\ U.S. government obligations include securities issued or 
guaranteed as to principal and interest by the U.S. government, its 
agencies, or instrumentalities, such as U.S. Treasury obligations, 
receipts, STRIPS, and U.S. Treasury zero-coupon bonds.
    \33\ Cash or cash equivalents includes assets such as U.S. 
Treasury securities or overnight repurchase agreements.
---------------------------------------------------------------------------

    The Fund expects to gain exposure to certain of these investments 
by investing a portion of its assets in the Subsidiary. The Subsidiary 
will be advised by the Adviser.\34\ The Fund's investment in the 
Subsidiary is intended to provide the Fund with exposure to markets (in 
general, the commodity markets) within the limits of current federal 
income tax laws applicable to investment companies such as the Fund, 
which limit the ability of investment companies to invest directly in 
certain futures contracts. The Subsidiary will have the same investment 
objective as the Fund. Except as otherwise noted, references to the 
Fund's investments may also be deemed to include the Fund's indirect 
investments through the Subsidiary. The Fund will invest up to 25% of 
its total assets in the Subsidiary.
---------------------------------------------------------------------------

    \34\ The Subsidiary is not registered under the 1940 Act and is 
not directly subject to its investor protections, except as noted in 
the Registration Statement. However, the Subsidiary is wholly-owned 
and controlled by the Fund and is advised by the Adviser. Therefore, 
because of the Fund's ownership and control of the Subsidiary, the 
Subsidiary would not take action contrary to the interests of the 
Fund or its shareholders. The Fund's Board of Trustees (``Board'') 
has oversight responsibility for the investment activities of the 
Fund, including its expected investment in the Subsidiary, and the 
Fund's role as the sole shareholder of the Subsidiary. The Adviser 
receives no additional compensation for managing the assets of the 
Subsidiary. The Subsidiary will also enter into separate contracts 
for the provision of custody, transfer agency, and accounting agent 
services with the same or with affiliates of the same service 
providers that provide those services to the Fund.
---------------------------------------------------------------------------

    The Fund may lend its portfolio securities in an amount not to 
exceed 33\1/3\% of the value of its total assets via a securities 
lending program through a lending agent approved by the Board, to 
certain creditworthy borrowers desiring to borrow securities to 
complete transactions and for other purposes. A securities lending 
program allows the Fund to receive a portion of the income generated by 
lending its securities and investing the respective collateral. The 
Fund will receive collateral for each loaned security which is at least 
equal to the current market value of that security, marked to market 
each trading day.
    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\35\ The Fund will invest its assets (including via 
the Subsidiary), and otherwise conduct its operations, in a manner that 
is intended to satisfy the qualifying income, diversification and 
distribution requirements necessary to establish and maintain RIC 
qualification under Subchapter M. Aside from its investments in the 
Subsidiary, the Fund will not invest in non-U.S. equity securities or 
options.
---------------------------------------------------------------------------

    \35\ 26 U.S.C. 851.
---------------------------------------------------------------------------

Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment) deemed 
illiquid by the Adviser \36\ under the 1940 Act.\37\ The Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include assets 
subject to contractual or other restrictions on resale and other 
instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
---------------------------------------------------------------------------

    \36\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
    \37\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
---------------------------------------------------------------------------

    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to achieve leveraged or 
inverse leveraged returns (i.e. two times or three times the Fund's 
benchmark).
Net Asset Value
    According to the Registration Statement, the net asset value 
(``NAV'') of the Shares of each Fund will be calculated by dividing the 
value of the net assets of such Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares of the 
Fund outstanding. Expenses and fees, including the management and 
administration fees, are accrued daily and taken into account for 
purposes of determining NAV. The NAV of the Fund is generally 
determined at 4:15 p.m. Eastern Time each business day when the 
Exchange is open for trading. If the Exchange or market on which the 
Fund's investments are primarily traded closes early, the NAV may be 
calculated prior to its normal calculation time. Creation/redemption 
transaction order time cutoffs (as further described below) would also 
be accelerated.
    Securities and other assets are generally valued at their market 
price using information provided by a pricing service or market 
quotations. VIX Futures Contracts are generally valued at their 
settlement price as determined

[[Page 3199]]

by CBOE. Listed options will generally be valued at the last sale price 
on the applicable exchange. Non-exchange traded derivatives, including 
OTC-traded options and swaps, will normally be valued on the basis of 
quotations or equivalent indication of value supplied by a third-party 
pricing service or broker-dealer who makes markets in such instruments. 
Repurchase agreements and reverse repurchase agreements will generally 
be valued at bid prices received from independent pricing services as 
of the announced closing time for trading in such instruments. U.S 
government obligations are generally priced at a quoted market price 
from an active market, generally the midpoint between the bid/ask 
quotes. U.S. government obligations that mature within sixty days may 
be valued using amortized cost. Money market funds would generally be 
valued at their current Net Asset Value per share. Certain short-term 
debt securities will be valued on the basis of amortized cost.
    Exchange-traded securities, including those exchange-traded 
securities of other investment companies, other pooled investment 
vehicles, and exchange-traded notes, generally will be valued at the 
official closing price on the listing exchange. Non-exchange traded 
securities will be valued at their net asset value.
    For more information regarding the valuation of Fund investments in 
calculating the Fund's NAV, see the Registration Statement.
The Shares
    The Funds will issue and redeem Shares on a continuous basis at the 
NAV per Share only in large blocks of a specified number of Shares or 
multiples thereof (``Creation Units'') in transactions with authorized 
participants who have entered into agreements with the Distributor. The 
Adviser currently anticipates that a Creation Unit will consist of at 
least 25,000 Shares, though this number may change from time to time, 
including prior to listing of the Shares. The exact number of Shares 
that will constitute a Creation Unit will be disclosed in the 
Registration Statement. Once created, Shares of each Fund may trade on 
the secondary market in amounts less than a Creation Unit.
    Although the Adviser anticipates that purchases and redemptions for 
Creation Units will generally be executed on an all-cash basis, the 
consideration for purchase of Creation Units of the Fund may consist of 
an in-kind deposit of a designated portfolio of securities (including 
any portion of such assets for which cash may be substituted) (i.e., 
the ``Deposit Assets''), and the ``Cash Component'' computed as 
described below. Together, the Deposit Assets and the Cash Component 
constitute the ``Fund Deposit,'' which represents the minimum initial 
and subsequent investment amount for a Creation Unit of the Fund. The 
specific terms surrounding the creation and redemption of shares are at 
the discretion of the Adviser.
    The Deposit Assets and Fund Securities (as defined below), as the 
case may be, in connection with a purchase or redemption of a Creation 
Unit, generally will correspond pro rata, to the extent practicable, to 
the assets held by the Fund.
    The Cash Component will be an amount equal to the difference 
between the NAV of the Shares (per Creation Unit) and the ``Deposit 
Amount,'' which will be an amount equal to the market value of the 
Deposit Assets, and serve to compensate for any differences between the 
NAV per Creation Unit and the Deposit Amount. Each Fund generally 
offers Creation Units partially or entirely for cash. The Administrator 
will make available through the National Securities Clearing 
Corporation (``NSCC'') on each business day, prior to the opening of 
business on the Exchange, the list of names and the required number or 
par value of each Deposit Security and the amount of the Cash Component 
to be included in the current Fund Deposit (based on information as of 
the end of the previous business day) for the Fund.
    The identity and number or par value of the Deposit Assets may 
change pursuant to changes in the composition of each Fund's portfolio 
as rebalancing adjustments and corporate action events occur from time 
to time. The composition of the Deposit Assets may also change in 
response to adjustments to the weighting or composition of the holdings 
of the Fund.
    Each Fund reserves the right to permit or require the substitution 
of a ``cash in lieu'' amount to be added to the Cash Component to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the Depository Trust Company (``DTC'') or the clearing process through 
the NSCC.\38\
---------------------------------------------------------------------------

    \38\ The Adviser represents that, to the extent the Trust 
permits or requires a ``cash in lieu'' amount, such transactions 
will be effected in the same or equitable manner for all authorized 
participants.
---------------------------------------------------------------------------

    Except as noted below, all creation orders must be placed for one 
or more Creation Units and must be received by the Distributor at a 
time specified by the Adviser. Currently, such orders must be received 
in proper form no later than 3:00 p.m. Eastern Time on the date such 
order is placed in order for creation of Creation Units to be effected 
based on the NAV of Shares of the Fund as next determined on such date 
after receipt of the order in proper form. The ``Settlement Date'' is 
generally the third business day after the transmittal date. On days 
when the Exchange or the bond markets close earlier than normal, the 
Fund may require orders to create or to redeem Creation Units to be 
placed earlier in the day.
    To be eligible to place orders with the Distributor to create a 
Creation Unit of a Fund, an entity must be (i) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the NSCC, a 
clearing agency that is registered with the Commission; or (ii) a DTC 
Participant, and, in each case, must have executed an agreement with 
the Trust, the Distributor and the Administrator with respect to 
creations and redemptions of Creation Units (``Participant 
Agreement'').
    A standard creation transaction fee may be imposed to offset the 
transfer and other transaction costs associated with the issuance of 
Creation Units.
    Shares of the Funds may be redeemed only in Creation Units at their 
NAV next determined after receipt of a redemption request in proper 
form by the Distributor and only on a business day. The Administrator 
will make available through the NSCC, prior to the opening of business 
on the Exchange on each business day, the designated portfolio of 
securities (including any portion of such securities for which cash may 
be substituted) that will be applicable (subject to possible amendment 
or correction) to redemption requests received in proper form on that 
day (``Fund Securities''). The redemption proceeds for a Creation Unit 
generally will consist of a specified amount of cash less a redemption 
transaction fee. The Fund generally will redeem Creation Units entirely 
for cash.
    A standard redemption transaction fee may be imposed to offset 
transfer and other transaction costs that may be incurred by the Fund.
    Redemption requests for Creation Units of the Funds must be 
submitted to the Distributor by or through an authorized participant by 
a time specified by the Adviser. Currently, such requests must be 
received no later than 3:00 p.m. Eastern Time on any business day, in 
order to receive that day's NAV. The authorized participant

[[Page 3200]]

must transmit the request for redemption in the form required by the 
Fund to the Distributor in accordance with procedures set forth in the 
authorized Participant Agreement.
    Additional information regarding the Shares and the Funds, 
including investment strategies, risks, creation and redemption 
procedures, fees and expenses, portfolio holdings disclosure policies, 
distributions, taxes and reports to be distributed to beneficial owners 
of the Shares can be found in the Registration Statement or on the Web 
site for the Fund, as applicable.
Availability of Information
    Each Fund's Web site, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. The Web sites will include additional 
quantitative information updated on a daily basis, including, for the 
respective Fund: (1) The prior business day's reported NAV, the closing 
market price or the midpoint of the bid/ask spread at the time of 
calculation of such NAV (the ``Bid/Ask Price''),\39\ daily trading 
volume, and a calculation of the premium and discount of the closing 
market price or 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 against the NAV, within appropriate ranges, 
for each of the four previous calendar quarters. Daily trading volume 
information will be available in the financial section of newspapers, 
through subscription services such as Bloomberg, Thomson Reuters, and 
International Data Corporation, which can be accessed by authorized 
participants and other investors, as well as through other electronic 
services, including major public Web sites. On each business day, 
before commencement of trading in Shares during Regular Trading Hours 
\40\ on the Exchange, each Fund will disclose on its Web site the 
identities and quantities of the portfolio instruments (the ``Disclosed 
Portfolio'') held by the Fund that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\41\ The Disclosed 
Portfolio will include, as applicable: ticker symbol or other 
identifier, a description of the holding, identity of the asset upon 
which the derivative is based, the strike price for any options, the 
quantity of each security or other asset held as measured by select 
metrics, maturity date, coupon rate, effective date, market value and 
percentage weight of the holding in the portfolio. The Web site and 
information will be publicly available at no charge.
---------------------------------------------------------------------------

    \39\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \40\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \41\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    In addition, for each Fund, an estimated value, defined in BATS 
Rule 14.11(i)(3)(C) as the ``Intraday Indicative Value,'' that reflects 
an estimated intraday value of the Fund's portfolio, will be 
disseminated. Moreover, the Intraday Indicative Value will be based 
upon the current value for the components of the Disclosed Portfolio 
and will be updated and widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Exchange's Regular 
Trading Hours.\42\ In addition, the quotations of certain of the Fund's 
holdings may not be updated for purposes of calculating Intraday 
Indicative Value during U.S. trading hours where the market on which 
the underlying asset is traded settles prior to the end of the 
Exchange's Regular Trading Hours.
---------------------------------------------------------------------------

    \42\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the Consolidated Tape 
Association (``CTA'') or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of each Fund on a daily basis and provide an 
estimate of that value throughout the trading day.
    Intraday price quotations on U.S. government securities, repurchase 
agreements, and reverse repurchase agreements of the type held by the 
Funds are available from major broker-dealer firms and from third-
parties, which may provide prices free with a time delay, or ``live'' 
with a paid fee. Major broker-dealer firms will also provide intraday 
quotes on swaps of the type held by the Funds. Pricing information 
related to exchange-listed instruments, including exchange-listed 
options, securities of other investment companies, pooled investment 
vehicles, and exchange-traded notes, will be available directly from 
the listing exchange. Pricing information related to money market fund 
shares will be available through issuer Web sites and publicly 
available quotation services such as Bloomberg, Markit and Thomson 
Reuters. For VIX Futures Contracts, such intraday information is 
available directly from CBOE. Intraday price information is also 
available through subscription services, such as Bloomberg and Thomson 
Reuters, which can be accessed by authorized participants and other 
investors.
    Information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information for the Shares will 
be generally available daily in the print and online financial press. 
Quotation and last sale information for the Shares will be available on 
the facilities of the CTA.
Initial and Continued Listing
    The Shares will be subject to BATS Rule 14.11(i), which sets forth 
the initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, each Fund must be in compliance with Rule 10A-3 under the Act. 
\43\ A minimum of 100,000 Shares of each Fund will be outstanding at 
the commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV will be 
calculated daily and that the NAV and the Disclosed Portfolio will be 
made available to all market participants at the same time.
---------------------------------------------------------------------------

    \43\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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 the Funds. The Exchange will halt trading in 
the Shares under the conditions specified in BATS Rule 11.18. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
instruments composing the Disclosed Portfolio of a Fund; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in the 
Shares also will be subject to Rule 14.11(i)(4)(B)(iv), which sets 
forth circumstances under which Shares of a Fund may be halted.

[[Page 3201]]

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. BATS will allow 
trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BATS Rule 11.11(a), the 
minimum price variation for quoting and entry of orders in Managed Fund 
Shares traded on the Exchange is $0.01, with the exception of 
securities that are priced less than $1.00, for which the minimum price 
variation for order entry is $0.0001.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. The 
Exchange may obtain information regarding trading in the Shares, 
exchange-listed options, exchange listed equity securities, and the 
underlying futures via the Intermarket Surveillance Group (``ISG'') 
from other exchanges who are members or affiliates of the ISG or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement.\44\ In addition, the Exchange is able to access, as 
needed, trade information for certain fixed income instruments reported 
to FINRA's Trade Reporting and Compliance Engine (``TRACE''). The 
Exchange prohibits the distribution of material non-public information 
by its employees.
---------------------------------------------------------------------------

    \44\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Exchange 
also notes that all of the futures contracts in the Disclosed 
Portfolio for the Fund will trade on markets that are a member of 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BATS Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value is disseminated; (4) the risks involved 
in trading the Shares during the Pre-Opening \45\ and After Hours 
Trading Sessions \46\ when an updated Intraday Indicative Value will 
not be calculated or publicly disseminated; (5) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (6) trading information.
---------------------------------------------------------------------------

    \45\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \46\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to each Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that each Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Funds and the applicable NAV calculation 
time for the Shares. The Information Circular will disclose that 
information about the Shares of the Funds will be publicly available on 
the Funds' respective Web site. In addition, the Information Circular 
will reference that the Trust is subject to various fees and expenses 
described in the Registration Statement.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \47\ in general and Section 6(b)(5) of the Act \48\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f.
    \48\ 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 in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in BATS Rule 14.11(i). The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. If the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser to the investment company 
shall erect a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. 
Neither the Adviser nor the Sub-Adviser is or is affiliated with a 
broker-dealer. In the event that (a) the Adviser becomes a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new adviser 
or sub-adviser is a broker-dealer or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its relevant 
personnel or such broker-dealer affiliate, as applicable, regarding 
access to information concerning the composition and/or changes to the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio. The Exchange may obtain information regarding trading in the 
Shares and the underlying futures via the ISG from other exchanges who 
are members or affiliates of the ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement.\49\ In 
addition, the Exchange is able to access, as needed, trade information 
for certain fixed income instruments reported to FINRA's TRACE.
---------------------------------------------------------------------------

    \49\ See note 44, supra.
---------------------------------------------------------------------------

    According to the Registration Statement, the REX VolMAXX Long VIX 
Weekly Futures Strategy ETF expects the notional value of its exposure 
to VIX Futures Contracts to be equal to approximately 100% of Fund 
assets at all times and the weighted average of time to expiry of the 
VIX Futures Contracts to be less than one month at all times. According 
to the Registration Statement, the REX VolMAXXTM

[[Page 3202]]

Inverse VIX Weekly Futures Strategy ETF expects the notional value of 
its exposure to VIX Futures Contracts to be equal to approximately 100% 
of Fund assets at the close of each trading day and the weighted 
average of time to expiry of the VIX Futures Contracts to be less than 
one month at all times.
    Additionally, each Fund may hold up to an aggregate amount of 15% 
of its net assets in illiquid assets (calculated at the time of 
investment). The Fund will monitor its portfolio liquidity on an 
ongoing basis to determine whether, in light of current circumstances, 
an adequate level of liquidity is being maintained, and will consider 
taking appropriate steps in order to maintain adequate liquidity if, 
through a change in values, net assets, or other circumstances, more 
than 15% of the Fund's net assets are held in illiquid assets. Illiquid 
assets include assets subject to contractual or other restrictions on 
resale and other instruments that lack readily available markets as 
determined in accordance with Commission staff guidance.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV will be calculated daily and that the NAV and the 
Disclosed Portfolio will be made available to all market participants 
at the same time. In addition, a large amount of information is 
publicly available regarding each Fund and the Shares, thereby 
promoting market transparency. Moreover, the Intraday Indicative Value 
will be disseminated by one or more major market data vendors at least 
every 15 seconds during Regular Trading Hours. On each business day, 
before commencement of trading in Shares during Regular Trading Hours, 
each Fund will disclose on its Web site the Disclosed Portfolio that 
will form the basis for the Fund's calculation of NAV at the end of the 
business day. Pricing information will be available on the Fund's Web 
site including: (1) The prior business day's reported NAV, the closing 
market price or the Bid/Ask Price, daily trading volume, and a 
calculation of the premium and discount of the closing market price or 
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 against the NAV, within appropriate ranges, for each of 
the four previous calendar quarters. Additionally, information 
regarding market price and trading of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services, and quotation and last sale 
information for the Shares will be available on the facilities of the 
CTA. The Web sites for the Funds will include a form of the prospectus 
for the Fund and additional data relating to NAV and other applicable 
quantitative information. Trading in Shares of the Fund will be halted 
under the conditions specified in BATS Rule 11.18. Trading may also be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. Finally, trading 
in the Shares will be subject to BATS Rule 14.11(i)(4)(B)(iv), which 
sets forth circumstances under which Shares of the Fund may be halted. 
In addition, as noted above, investors will have ready access to 
information regarding each Fund's holdings, the Intraday Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    Intraday price quotations on securities, repurchase agreements, and 
reverse repurchase agreements of the type held by the Fund are 
available from major broker-dealer firms and from third-parties, which 
may provide prices free with a time delay, or ``live'' with a paid fee. 
Major broker-dealer firms will also provide intraday quotes on swaps of 
the type held by the Fund. Pricing information related to exchange-
listed instruments, including exchange-listed options, securities of 
other investment companies, pooled investment vehicles, and exchange-
traded notes, will be available directly from the listing exchange. 
Pricing information related to money market fund shares will be 
available through issuer Web sites and publicly available quotation 
services such as Bloomberg, Markit and Thomson Reuters. For VIX Futures 
Contracts, such intraday information is available directly from CBOE. 
Intraday price information is also available through subscription 
services, such as Bloomberg and Thomson Reuters, which can be accessed 
by authorized participants and other investors.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of actively-managed exchange-traded product that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement as well as trade information for certain 
fixed income instruments as reported to FINRA's TRACE. In addition, as 
noted above, investors will have ready access to information regarding 
the Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change, rather will facilitate the listing and trading of 
additional actively-managed exchange-traded products that will enhance 
competition among both market participants and listing venues, to the 
benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 3203]]

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-BATS-2015-124 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-BATS-2015-124. 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 such 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-BATS-2015-124, and should be 
submitted on or before February 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
---------------------------------------------------------------------------

    \50\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00896 Filed 1-19-16; 8:45 am]
 BILLING CODE 8011-01-P