Document ID: SEC-2018-0302-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2018-02-20T05:00Z

[Federal Register Volume 83, Number 34 (Tuesday, February 20, 2018)]
[Notices]
[Pages 7256-7269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03313]

[[Page 7256]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82705; File No. SR-CboeBZX-2018-010]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Adopt BZX Rule 14.11(k) To Permit 
the Listing and Trading of Managed Portfolio Shares and 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

February 13, 2018.
    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 February 5, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to adopt BZX Rule 14.11(k) to permit 
the listing and trading of Managed Portfolio Shares, which are shares 
of actively managed exchange-traded funds for which the portfolio is 
disclosed in accordance with standard mutual fund disclosure rules. In 
addition, the Exchange proposes 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.
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to add new Rule 14.11(k) for the purpose of 
permitting the listing and trading, or trading pursuant to unlisted 
trading privileges (``UTP''), of Managed Portfolio Shares, which are 
securities issued by an actively managed open-end investment management 
company.\3\ In addition, the Exchange proposes to list and trade shares 
(``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 (each, a 
``Fund'' and, collectively, the ``Funds'').
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    \3\ A Managed Portfolio Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment management company or similar entity that 
invests in a portfolio of securities selected by its investment 
adviser consistent with its investment objectives and policies.
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Proposed Listing Rules
    Proposed Rule 14.11(k)(1) provides that the Exchange will consider 
for trading, whether by listing or pursuant to UTP, Managed Portfolio 
Shares that meet the criteria of Rule 14.11(k).
    Proposed Rule 14.11(k)(2) provides that Rule 14.11(k) is applicable 
only to Managed Portfolio Shares and that, except to the extent 
inconsistent with Rule 14.11(k), or unless the context otherwise 
requires, the rules and procedures of the Exchange's Board of Directors 
shall be applicable to the trading on the Exchange of such securities. 
Proposed Rule 14.11(k)(2) provides further that Managed Portfolio 
Shares are included within the definition of ``security'' or 
``securities'' as such terms are used in the Rules of the Exchange.
    Proposed Rule 14.11(k)(2)(A) provides that the Exchange will file 
separate proposals under Section 19(b) of the Act before the listing 
and trading of Managed Portfolio Shares. All statements or 
representations contained in such rule filing regarding the description 
of the portfolio or reference assets, limitations on portfolio holdings 
or reference assets, dissemination and availability of VIIV, reference 
asset, and intraday indicative values, and the applicability of 
Exchange rules specified in the filing shall constitute continued 
listing requirements for such series of Managed Portfolio Shares. An 
issuer of such securities must notify the Exchange of any failure to 
comply with such continued listing requirements.
    Proposed Rule 14.11(k)(2)(B) provides that transactions in Managed 
Portfolio Shares will occur only during Regular Trading Hours.\4\
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    \4\ As defined in Rule 1.5(w), the term ``Regular Trading 
Hours'' means the time between 9:30 a.m. and 4:00 p.m. Eastern Time.
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    Proposed Rule 14.11(k)(2)(C) provides that the Exchange will 
implement and maintain written surveillance procedures for Managed 
Portfolio Shares.
    Proposed Rule 14.11(k)(2)(D) provides that Authorized Participants 
(as defined in the Investment Company's Form N-1A filed with the SEC) 
creating or redeeming Managed Portfolio Shares will sign an agreement 
with an agent (``AP Representative'') to establish a confidential 
account for the benefit of such AP that will deliver or receive all 
consideration from the issuer in a creation or redemption. An AP 
Representative may not disclose the consideration delivered or received 
in a creation or redemption.
    Proposed Rule 14.11(k)(2)(E) provides that, if the investment 
adviser to the investment company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such investment company 
portfolio. 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.
    Proposed Rule 14.11(k)(2)(F) provides that, if an AP 
Representative, the custodian, or pricing verification agent for an 
Investment Company issuing Managed Portfolio Shares, or any other 
entity that has access to information concerning the composition and/or 
changes to such Investment Company's portfolio, is registered as a 
broker-dealer or affiliated with a broker-dealer, such AP 
Representative, custodian, pricing,

[[Page 7257]]

verification agent or other entity will erect and maintain a ``fire 
wall'' between such AP Representative, custodian, pricing verification 
agent, or other entity and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company 
portfolio. 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.
    Proposed 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; (b) is issued in a specified aggregate minimum number of 
shares equal to a Creation Unit, or multiples thereof, in return for a 
designated portfolio of securities (and/or an amount of cash) with a 
value equal to the next determined net asset value; and (c) when 
aggregated in the same specified aggregate number of shares equal to a 
Redemption Unit, or multiples thereof, may be redeemed at the request 
of an AP (as defined in the Investment Company's Form N-1A filed with 
the Commission), which AP will be paid through a 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'').
    Proposed Rule 14.11(k)(3)(B) defines the term ``Verified Intraday 
Indicative Value'' (``VIIV'') as the estimated indicative value of a 
Managed Portfolio Share based on all of the holdings of a series of 
Managed Portfolio Shares as of the close of business on the prior 
business day and, for corporate actions, based on the applicable 
holdings as of the opening of business on the current business day, 
priced and disseminated in one second intervals during Regular Trading 
Hours. The VIIV is monitored by an Investment Company's pricing 
verification agent responsible for processing Consolidated Tape best 
bid and offer quotation information into more than one ``Calculation 
Engines,'' each of which then calculates a separate intraday indicative 
value for comparison by the pricing verification agent based on the 
mid-point of the highest bid and lowest offer for the portfolio 
constituents of a series of Managed Portfolio Shares. A single VIIV 
will be disseminated publicly during Regular Trading Hours for each 
series of Managed Portfolio Shares; and the pricing verification agent 
will continuously compare the publicly-disseminated VIIV against one or 
more non-public alternative intra-day indicative values to which the 
pricing verification agent has access.\5\
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    \5\ Each Calculation Engine is a computer that receives a file 
from a real-time quote feed, calculates a price for the securities 
in the portfolio, and aggregates the weights of the securities in 
the portfolio to produce an intra-day indicative value.
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    Proposed Rule 14.11(k)(3)(C) defines the term ``Creation Unit'' as 
a specified minimum number of Managed Portfolio Shares issued by an 
Investment Company at the request of an AP in return for a designated 
portfolio of securities (and/or an amount of cash) specified each day 
consistent with the Investment Company's investment objectives and 
policies.
    Proposed Rule 14.11(k)(3)(D) defines the term ``Redemption Unit'' 
as a specified minimum number of Managed Portfolio Shares that may be 
redeemed to an Investment Company at the request of an AP in return for 
a portfolio of securities and/or cash.
    Proposed Rule 14.11(k)(3)(E) defines the term ``Reporting 
Authority'' in respect of a particular series of Managed Portfolio 
Shares as the Exchange, the exchange that lists a particular series of 
Managed Portfolio Shares (if the Exchange is trading such series 
pursuant to unlisted trading privileges), an institution, or a 
reporting service designated by the issuer of a series of Managed 
Portfolio Shares as the official source for calculating and reporting 
information relating to such series, including, the net asset value, or 
other information (with the exception of the VIIV) relating to the 
issuance, redemption or trading of Managed Portfolio Shares. A series 
of Managed Portfolio Shares may have more than one Reporting Authority, 
each having different functions.
    Proposed Rule 14.11(k)(4)(F) defines the term ``normal market 
conditions'' as including, but not limited to, the absence of trading 
halts in the applicable financial markets generally; operational issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or manmade 
disaster, act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance.
    Proposed Rule 14.11(k)(4) sets forth initial and continued listing 
criteria applicable to Managed Portfolio Shares. Proposed Rule 
14.11(k)(4)(A)(i) provides that, for each series of Managed Portfolio 
Shares, the Exchange will establish a minimum number of Managed 
Portfolio Shares required to be outstanding at the time of commencement 
of trading on the Exchange. In addition, proposed Rule 
14.11(k)(4)(A)(ii) provides that the Exchange will obtain a 
representation from the issuer of each series of Managed Portfolio 
Shares that the NAV per share for the series will be calculated daily 
and that the NAV will be made available to all market participants at 
the same time.\6\ Proposed Rule 14.11(k)(4)(A)(iii) provides that all 
Managed Portfolio Shares shall have a stated investment objective, 
which shall be adhered to under normal market conditions.
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    \6\ Proposed Rule 14.11(k)(4) provides that if the Exchange 
becomes aware that the net asset value with respect to a series of 
Managed Portfolio Shares is not disseminated to all market 
participants at the same time, it will halt trading in such series 
until such time as the net asset value is available to all market 
participants.
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    Proposed Rule 14.11(k)(4)(B) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the following continued listing criteria. Proposed Rule 
14.11(k)(4)(B)(i) provides that the VIIV for Managed Portfolio Shares 
will be widely disseminated by the Reporting Authority and/or by one or 
more major market data vendors every second during Regular Trading 
Hours and will be disseminated to all market participants at the same 
time. Proposed Rule 14.11(k)(4)(B)(ii) provides that the Exchange will 
maintain surveillance procedures for securities listed under Rule 
14.11(k) and will consider the suspension of trading in, and will 
commence delisting proceedings under Rule 14.12 of, a series of Managed 
Portfolio Shares under any of the following circumstances: (a) If, 
following the initial twelve-month period after commencement of trading 
on the Exchange of a series of Managed Portfolio Shares, there are 
fewer than 50 beneficial holders of the series of Managed Portfolio 
Shares; (b) if the value of the VIIV is no longer calculated or 
available to all market participants at the same time; (c) if the 
Investment Company issuing the Managed Portfolio Shares has failed to 
file any filings required by the Commission or if the Exchange is aware 
that the Investment Company is not in compliance with the conditions of 
any exemptive order or no-action relief granted by the Securities and 
Exchange Commission to the Investment Company with respect to the

[[Page 7258]]

series of Managed Portfolio Shares; (d) if any of the continued listing 
requirements set forth in Rule 14.11(k) are not continuously 
maintained; (e) if the Exchange submits a rule filing pursuant to 
Section 19(b) of the Securities Exchange Act of 1934 to permit the 
listing and trading of a series of Managed Portfolio Shares and any of 
the statements or representations contained in such rule filing 
regarding the description of the portfolio or reference assets, 
limitations on portfolio holdings or reference assets, dissemination 
and availability of VIIV, reference asset, and intraday indicative 
values, and the applicability of Exchange rules specified in the filing 
are not continuously maintained; or (f) if such other event shall occur 
or condition exists which, in the opinion of the Exchange, makes 
further dealings on the Exchange inadvisable.
    Proposed Rule 14.11(k)(4)(B)(iii) provides that, upon notification 
to the Exchange by the Investment Company or its agent that (i) the 
intraday indicative values calculated by more than one Calculation 
Engines to be compared 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) that the VIIV of a series of Managed 
Portfolio Shares is not being calculated or disseminated in one-second 
intervals, as required, the Exchange shall halt trading in the Managed 
Portfolio Shares as soon as practicable. Such halt in trading shall 
continue until the Investment Company or its agent notifies the 
Exchange that the intraday indicative values calculated by the 
Calculation Engines no longer differ by more than 25 basis points for 
60 seconds or that the VIIV is being calculated and disseminated as 
required. The Investment Company or its agent shall be responsible for 
monitoring that the VIIV is being priced and disseminated as required 
and whether the intraday indicative values to be calculated by more 
than one Calculation Engines differ by more than 25 basis points for 60 
seconds. In addition, if the Exchange becomes aware that the net asset 
value with respect to a series of Managed Portfolio Shares is not 
disseminated to all market participants at the same time, it will halt 
trading in such series until such time as the net asset value is 
available to all market participants.
    Proposed Rule 14.11(k)(4)(B)(iv) provides that, upon termination of 
an Investment Company, the Exchange requires that Managed Portfolio 
Shares issued in connection with such entity be removed from Exchange 
listing.
    Proposed Rule 14.11(k)(4)(B)(v) provides that voting rights shall 
be as set forth in the applicable Investment Company prospectus.
    Proposed Rule 14.11(k)(5), which relates to limitation of Exchange 
liability, provides that Neither the Exchange, the Reporting Authority, 
nor any agent of the Exchange shall have any liability for damages, 
claims, losses or expenses caused by any errors, omissions, or delays 
in calculating or disseminating any current portfolio value; the 
current value of the portfolio of securities required to be deposited 
to the open-end management investment company in connection with 
issuance of Managed Portfolio Shares; the VIIV; the amount of any 
dividend equivalent payment or cash distribution to holders of Managed 
Portfolio Shares; net asset value; or other information relating to the 
purchase, redemption, or trading of Managed Portfolio Shares, resulting 
from any negligent act or omission by the Exchange, the Reporting 
Authority or any agent of the Exchange, or any act, condition, or cause 
beyond the reasonable control of the Exchange, its agent, or the 
Reporting Authority, including, but not limited to, an act of God; 
fire; flood; extraordinary weather conditions; war; insurrection; riot; 
strike; accident; action of government; communications or power 
failure; equipment or software malfunction; or any error, omission, or 
delay in the reports of transactions in one or more underlying 
securities.
Key Features of Managed Portfolio Shares
    While funds issuing Managed Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares, 
Managed Portfolio Shares differ from Managed Fund Shares in the 
following important respects. First, in contrast to Managed Fund 
Shares, which are actively-managed funds listed and traded under Rule 
14.11(i) \7\ and for which a ``Disclosed Portfolio'' is required to be 
disseminated at least once daily,\8\ the portfolio for an issue of 
Managed Portfolio Shares will be disclosed quarterly in accordance with 
normal disclosure requirements otherwise applicable to open-end 
investment companies registered under the 1940 Act.\9\ The composition 
of the portfolio of an issue of Managed Portfolio Shares would not be 
available at commencement of Exchange listing and trading. Second, in 
connection with the creation and redemption of shares in ``Creation 
Unit'' or ``Redemption Unit'' size (as described below), the delivery 
of any portfolio securities in kind will be effected through a 
``Confidential Account'' (as described below) for the benefit of the 
redeeming Authorized Participant (``AP'') (as described below in 
``Creation and Redemption of Shares'') without disclosing the identity 
of such securities to the AP.
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    \7\ The Commission has previously approved listing and trading 
on the Exchange of a number of issues of Managed Fund Shares under 
Rule 14.11(i). See, e.g., Securities Exchange Act Release Nos. 74193 
(February 3, 2015), 80 FR 7066 (February 9, 2015) (SR-BATS-2014-054) 
(order approving the listing and trading of the iShares Short 
Maturity Municipal Bond Fund); 74297 (February 18, 2015), 80 FR 9788 
(February 24, 2015) (SR-BATS-2014-056) (order approving the listing 
and trading of iShares U.S. Fixed Income Balanced Risk Fund). More 
recently, the Commission approved a proposed rule change to adopt 
generic listing standards for Managed Fund Shares. See Securities 
Exchange Act Release No. 78396 (July 22, 2016), 81 FR 49698 (July 
28, 2016 (SR-BATS-2015-100) (order approving proposed rule change to 
amend Rule 14.11(i) to adopt generic listing standards for Managed 
Fund Shares).
    \8\ BZX Rule 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 net asset value at the 
end of the business day. Rule 14.11(i)(4)(B)(ii)(a) requires that 
the Disclosed Portfolio will be disseminated at least once daily and 
will be made available to all market participants at the same time.
    \9\ A mutual fund is 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 is required 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. These forms are available to the public on the 
Commission's website at www.sec.gov.
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    For each series of Managed Portfolio Shares, an estimated value--
the VIIV--that reflects an estimated intraday value of a fund's 
portfolio will be disseminated. With respect to the Funds, the VIIV 
will be based upon all of a Fund's holdings as of the close of the 
prior business day and, for corporate actions, based on the applicable 
holdings as of the opening of business on the current business day, and 
will be widely disseminated by one or more major market data vendors 
every second during Regular Trading Hours. The 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.
    The Exchange, after consulting with various Lead Market Makers that 
trade exchange-traded funds (``ETFs'') on the Exchange, believes that 
market makers will be able to make efficient and liquid markets priced 
near the VIIV as long as

[[Page 7259]]

a VIIV is disseminated every second, and market makers employ market 
making techniques such as ``statistical arbitrage,'' including 
correlation hedging, beta hedging, and dispersion trading, which is 
currently used throughout the financial services industry, to make 
efficient markets in exchange-traded products.\10\ This ability should 
permit market makers to make efficient markets in an issue of Managed 
Portfolio Shares without precise knowledge of a Fund's underlying 
portfolio.\11\
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    \10\ Statistical arbitrage enables a trader to construct an 
accurate proxy for another instrument, allowing it 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 have 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. In the case of correlation hedging, the 
analysis seeks to find a proxy that matches the pricing behavior of 
a fund. In the case of beta hedging, the analysis seeks to determine 
the relationship between the price movement over time of a Fund and 
that of another stock.
    \11\ APs that enter into their own separate Confidential 
Accounts shall have enough information to ensure that they are able 
to comply with applicable regulatory requirements. For example, for 
purposes of net capital requirements, the maximum Securities Haircut 
applicable to the securities in a Creation Basket, as determined 
under Rule 15c3-1, will be disclosed daily on each Fund's website.
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    On each ``Business Day'' (as defined below), before commencement of 
trading in Shares on the Exchange, the Funds will provide to an ``AP 
Representative'' (as described below) of each AP the identities and 
quantities of portfolio securities that will form the basis for a 
Fund's calculation of NAV per Share at the end of the Business Day, as 
well as the names and quantities of the instruments comprising a 
``Creation Basket'' or the ``Redemption Instruments'' and the estimated 
``Balancing Amount'' (if any) (as described below), for that day. This 
information will permit APs to purchase ``Creation Units'' or redeem 
``Redemption Units'' through an in-kind transaction with a Fund, as 
described below.
    Using various trading methodologies such as statistical arbitrage, 
both APs and ``Non-AP Market Makers'' will be able to hedge exposures 
by trading correlative portfolios, securities or other proxy 
instruments, thereby enabling an arbitrage functionality throughout the 
trading day. For example, if an AP believes that Shares of a Fund are 
trading at a price that is higher than the value of its underlying 
portfolio based on the VIIV, the AP may sell Shares short and purchase 
securities that the AP believes will track the movements of a Fund's 
Shares until the spread narrows and the AP executes offsetting orders 
or the AP enters an order with its AP Representative to create Fund 
Shares. Upon the completion of the Creation Unit, the AP will unwind 
its correlative hedge. A non-AP Market Maker would be able to perform 
the same function but would be required to employ an AP to create or 
redeem Shares on its behalf.
    The AP Representative's execution of a Creation Unit in a 
Confidential Account,\12\ combined with the sale of Fund 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, an AP could buy Shares and instruct the AP Representative to 
redeem Fund Shares and liquidate underlying portfolio securities in a 
Confidential Account. The AP's purchase of a Fund's Shares in the 
secondary market, combined with the liquidation of the portfolio 
securities from its Confidential Account by an AP Representative, may 
also 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 ``Adviser'' (as defined below) represents that it 
understands that, other than the confidential nature of the account, 
this process is identical to how many APs currently arbitrage existing 
traditional ETFs.
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    \12\ A Confidential Account is a restricted account owned by an 
AP and held at a broker-dealer who will act as an AP Representative 
(execution agent acting on agency basis) on their behalf. The 
restricted account will be established and governed via contract and 
used solely for creation and redemption activity, while protecting 
the confidentiality of the portfolio constituents. For reporting 
purposes, the books and records of the Confidential Account will be 
maintained by the AP Representative and provided to the appropriate 
regulatory agency as required. The Confidential Account will be 
liquidated daily, so that the account holds no positions at the end 
of day.
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    APs can engage in arbitrage by creating or redeeming Shares if the 
AP believes the Shares are overvalued or undervalued. As discussed 
above, the trading of a Fund's Shares and the creation or redemption of 
portfolio securities may bring the prices of a Fund's Shares and its 
portfolio assets closer together through market pressure.
    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers may use the knowledge of a Fund's means of achieving its 
investment objective, as described in the applicable Fund registration 
statement, to construct a hedging proxy for a Fund to manage a market 
maker's quoting risk in connection with trading Fund Shares. Market 
makers can then conduct statistical arbitrage between their hedging 
proxy (for example, the Russell 1000 Index) and Shares of a Fund, 
buying and selling one against the other over the course of the trading 
day. They will evaluate how their proxy performed in comparison to the 
price of a Fund's Shares, and use that analysis as well as knowledge of 
risk metrics, such as volatility and turnover, to enhance their proxy 
calculation to make it a more efficient hedge.
    Market makers have indicated to the Exchange that there will be 
sufficient data to run a statistical analysis which will lead to 
spreads being tightened substantially around the VIIV. This is similar 
to certain other existing exchange traded products (for example, ETFs 
that invest in foreign securities that do not trade during U. S. 
trading hours), in which spreads may be generally wider in the early 
days of trading and then narrow as market makers gain more confidence 
in their real-time hedges.
Description of the Funds and the Trust
    The Shares of each Fund will be issued by Precidian ETF Trust II 
(``Trust''), a statutory trust organized under the laws of the State of 
Delaware and registered with the Commission as an open-end management 
investment company.\13\ The investment adviser to the Trust will be 
Precidian Funds LLC (the ``Adviser''). The Sub-Adviser to each of the 
Funds will be ClearBridge Investments, LLC (the ``Sub-Adviser'' or 
``ClearBridge'') Legg Mason Investor Services, LLC (the 
``Distributor'') will

[[Page 7260]]

serve as the distributor of each of the Fund's Shares. All statements 
and representations made in this filing regarding the description of 
the portfolio or reference assets, limitations on portfolio holdings or 
reference assets, dissemination and availability of VIIV, reference 
asset, and intraday indicative values, and the applicability of 
Exchange rules shall constitute continued listing requirements for 
listing the Shares on the Exchange.
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    \13\ The Trust will be registered under the 1940 Act. On April 
4, 2017, the Trust filed a registration statement on Form N-1A 
relating to the Funds (File No. 811-23246) (the ``Registration 
Statement''). The Shares will not be listed on the Exchange until an 
order (``Exemptive Order'') under the 1940 Act has been issued by 
the Commission with respect to the Exemptive Application. 
Investments made by the Funds will comply with the conditions set 
forth in the Exemptive Order. The description of the operation of 
the Trust and the Funds herein is based, in part, on the 
Registration Statement.
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    As noted above, proposed Rule 14.11(k)(2)(E) provides that, if the 
investment adviser to the investment company issuing Managed Portfolio 
Shares is registered as a broker-dealer or is affiliated with a broker-
dealer, such investment adviser will erect and maintain a ``fire wall'' 
between the investment adviser and personnel of the broker-dealer or 
broker-dealer affiliate, as applicable, with respect to access to 
information concerning the composition and/or changes to such 
investment company portfolio.\14\ In addition, proposed Rule 
14.11(k)(2)(E) further requires 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. Proposed Rule 14.11(k)(2)(E) is similar to Rule 14.11(i)(7), 
related to Managed Fund Shares, and Rule 14.11(c)(5)(A)(i), related to 
Index Fund Shares, except that proposed Rule 14.11(k)(2)(E) relates to 
the establishment of a ``fire wall'' between the investment adviser and 
the broker-dealer as applicable to an Investment Company's portfolio, 
not an underlying benchmark index, as is the case with index-based 
funds. The Adviser is not registered as a broker-dealer or affiliated 
with a broker-dealer. The Sub-Adviser is not registered as a broker-
dealer, but is affiliated with a broker-dealer and has implemented and 
will maintain a ``fire wall'' with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to a Fund's portfolio.
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    \14\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and the Sub-Adviser and their 
respective related personnel will be 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 violations, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    In the event (a) the Adviser or Sub-Adviser becomes registered as a 
broker-dealer or becomes newly affiliated with a broker-dealer, or (b) 
any new adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement a fire wall with 
respect to its relevant personnel or its broker-dealer affiliate 
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 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 ETFs.\15\ All exchange-listed equity 
securities in which the Funds will invest will be listed and traded on 
U.S. national securities exchanges.
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    \15\ 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
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Description of the Funds
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.
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 normally invests 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 Sub-Adviser 
believes are undervalued, and sells short securities that it believes 
are overvalued.
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 
equity-related securities of U.S. companies or other instruments with 
similar economic characteristics. The fund may invest in securities of 
issuers of any market capitalization.
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 
equity-related securities of U.S. companies or other instruments with 
similar economic characteristics. The fund may invest in securities of 
issuers of any market capitalization.
ClearBridge All Cap Value ETF
    The ClearBridge All Cap Value ETF will seeks 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.
Other Investments
    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 described below.
    According to the Registration Statement, each Fund may enter into 
repurchase agreements. It will be the policy of the Trust to enter into 
repurchase agreements only with recognized securities dealers, banks 
and Fixed Income Clearing Corporation, a

[[Page 7261]]

securities clearing agency registered with the Commission.
    Each Fund may invest up to 5% of its total assets in warrants, 
rights and options.
    Each Fund may invest a portion of its assets in cash or cash 
equivalents.\16\
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    \16\ For purposes of this 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.
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    Each Fund may invest in the securities of other investment 
companies (including money market funds) to the extent allowed by law.
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),\17\ 
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.\18\
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    \17\ 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 in which it trades (e.g., 
the time needed to dispose of the security, the method of soliciting 
offers and the mechanics of transfer).
    \18\ 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 
Commission recently codified this long standing position in Rule 
22e-4. See Investment Company Act Release No. 32315 (October 13, 
2016), 81 FR 82142 (November 18, 2016) (adopting requirements for 
investment company liquidity risk management programs).
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    According to the Registration Statement, each Fund will seek to 
qualify for treatment as a Regulated Investment Company (``RIC'') under 
the Internal Revenue Code.\19\
---------------------------------------------------------------------------

    \19\ 26 U.S.C. 851.
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    The Funds will not invest in securities listed on non-U.S. 
exchanges.
    The Shares of each Fund will conform to the initial and continued 
listing criteria under proposed Rule 14.11(k). The Funds will not 
invest in futures, forwards or swaps.
    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.
Creations and Redemptions of Shares
    In connection with the creation and redemption of Creation Units 
and Redemption Units, the delivery or receipt of any portfolio 
securities in-kind will be required to be effected through a separate 
confidential brokerage account (i.e., a Confidential Account) with an 
AP Representative,\20\ which will be a bank or broker-dealer such as 
broker-dealer affiliates of JP Morgan Chase, State Street Bank and 
Trust, or Bank of New York Mellon, for the benefit of an AP.\21\ An AP 
must be a Depository Trust Company (``DTC'') Participant that has 
executed a ``Participant Agreement'' with the Distributor with respect 
to the creation and redemption of Creation Units and formed a 
Confidential Account for its benefit in accordance with the terms of 
the Participant Agreement. For purposes of creations or redemptions, 
all transactions will be effected through the respective AP's 
Confidential Account, for the benefit of the AP without disclosing the 
identity of such securities to the AP.
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    \20\ Each AP shall enter into its own separate Confidential 
Account with an AP Representative.
    \21\ In the event that an AP Representative is a bank, the bank 
will be required to have an affiliated broker-dealer to accommodate 
the execution of hedging transactions on behalf of the holder of a 
Confidential Account.
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    Each AP Representative will be given, before the commencement of 
trading each Business Day (defined below), the ``Creation Basket'' (as 
described below) for that day. This information will permit an AP that 
has established a Confidential Account with an AP Representative, to 
instruct the AP Representative to buy and sell positions in the 
portfolio securities to permit creation and redemption of Creation 
Units and Redemption Units.
    In the case of a creation, the Authorized Participant would enter 
into an irrevocable creation order with the Fund and then direct the AP 
Representative to purchase the necessary basket of portfolio 
securities. The AP Representative would then purchase the necessary 
securities in the Confidential Account. In purchasing the necessary 
securities, the AP Representative would be required, by the terms of 
the Confidential Account Agreement, to obfuscate the purchase by use of 
tactics such as breaking the purchase into multiple purchases and 
transacting in multiple marketplaces. Once the necessary basket of 
securities has been acquired, the purchased securities held in the 
Confidential Account would be contributed in-kind to the Fund.
    Shares of each Fund will be issued in Creation Units of 5,000 or 
more Shares. The Funds will offer and sell Creation Units and 
Redemption Units on a continuous basis at the NAV per Share next 
determined after receipt of an order in proper form. The NAV per Share 
of each Fund will be determined as of the close of regular trading on 
the New York Stock Exchange (``NYSE'') on each day that the NYSE is 
open. A ``Business Day'' is defined as any day that the Exchange is 
open for business. The Funds will sell and redeem Creation Units and 
Redemption Units only on Business Days. The Adviser anticipates that 
the initial price of a Share will range from $20 to $60, and that the 
price of a Creation Unit will initially range from $100,000 to 
$300,000.
    In order to keep costs low and permit each Fund to be as fully 
invested as possible, Shares will be purchased and redeemed in Creation 
Units and Redemption Units and generally on an in-kind basis. 
Accordingly, except where the purchase or redemption will include cash 
under the circumstances described in the 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'' through the AP 
Representative in their Confidential

[[Page 7262]]

Account).\22\ 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.'' \23\
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    \22\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the 1933 Act.
    \23\ In determining whether a particular Fund will sell or 
redeem Creation Units entirely on a cash or in-kind basis, whether 
for a given day or a given order, the key consideration will be the 
benefit that would accrue to a Fund and its investors. The Adviser 
represents that the Funds do not currently anticipate the need to 
sell or redeem Creation Units entirely on a cash basis.
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    As noted above, each AP will be required to establish a 
Confidential Account with an AP Representative and transact with each 
Fund through that Confidential Account.\24\ Therefore, before the 
commencement of trading on each Business Day, the AP Representative of 
each AP will be provided, on a confidential basis and at the same time 
as other Authorized Participants, with a list of the names and 
quantities of the instruments comprising a Creation Basket, as well as 
the estimated Balancing Amount (if any), for that day. The published 
Creation Basket will apply until a new Creation Basket is announced on 
the following Business Day, and there will be no intra-day changes to 
the Creation Basket except to correct errors in the published Creation 
Basket. The instruments and cash that the purchaser is required to 
deliver in exchange for the Creation Units it is purchasing are 
referred to as the ``Portfolio Deposit.''
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    \24\ The Adviser represents that transacting through a 
Confidential Account is similar to transacting through any broker-
dealer account, except that the AP Representative will be bound to 
keep the names and weights of the portfolio securities confidential. 
To comply with certain recordkeeping requirements applicable to APs, 
the AP Representative will maintain and preserve, and make available 
to the Commission, certain required records related to the 
securities held in the Confidential Account.
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    APs will enter into an agreement with an AP Representative to open 
a Confidential Account, for the benefit of the AP. The AP 
Representative will serve as an agent between a Fund and each AP and 
act as a broker-dealer on behalf of the AP. Each day, the Custodian 
(defined below) will transmit the Fund Constituent file to each AP 
Representative and, acting on execution instructions from AP, the AP 
Representative may purchase or sell the securities currently held in a 
Fund's portfolio for purposes of effecting in-kind creation and 
redemption activity during the day.\25\
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    \25\ Each Fund will identify one or more entities to enter into 
a contractual arrangement with the Fund to serve as an AP 
Representative. In selecting entities to serve as AP 
Representatives, a Fund will obtain representations from the entity 
related to the confidentiality of the Fund's Creation Basket 
portfolio securities, the effectiveness of information barriers, and 
the adequacy of insider trading policies and procedures. In 
addition, as a broker-dealer, Section 15(g) of the Act requires the 
AP Representative to establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
material, nonpublic information by the AP Representative or any 
person associated with the AP Representative.
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    As with the AP, Non-Authorized Participant Market Makers will have 
the ability to facilitate efficient market making in the Shares. 
However, Non-Authorized Participant Market Makers will not have the 
ability to create or redeem shares directly with a Fund. Rather, if a 
Non-Authorized Participant Market Maker wishes to create Shares in a 
Fund, it will have to do so through an AP.
Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous 
basis at NAV. The Exchange represents that the issuance of Shares will 
operate in a manner substantially similar to that of other ETFs. Each 
Fund will issue Shares only at the NAV per Share next determined after 
an order in proper form is received.
    Shares may be purchased from a Fund by an AP for its own account or 
for the benefit of a customer. The Distributor will furnish 
acknowledgements to those placing such orders that the orders have been 
accepted, but the Distributor may reject any order which is not 
submitted in proper form, as described in a Fund's prospectus or 
Statement of Additional Information (``SAI''). Purchases of Shares will 
be settled in-kind or cash for an amount equal to the applicable NAV 
per Share purchased plus applicable ``Transaction Fees,'' as discussed 
below.
    The NAV of each Fund is expected to be determined once each 
Business Day at a time determined by the Trust's Board of Directors 
(``Board''), currently anticipated to be as of the close of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the 
``Valuation Time''). Each Fund will establish a cut-off time (``Order 
Cut-Off Time'') for purchase orders in proper form. To initiate a 
purchase of Shares, an AP must submit to the Distributor an irrevocable 
order to purchase such Shares after the most recent prior Valuation 
Time.
    All orders to purchase Creation Units must be received by the 
Distributor no later than the scheduled closing time of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) in each case on 
the date such order is placed (``Transmittal Date'') in order for the 
purchaser to receive the NAV per Share determined on the Transmittal 
Date. In the case of custom orders made in connection with creations or 
redemptions in whole or in part in cash, the order must be received by 
the Distributor, no later than the Order Cut-Off Time.\26\ The 
Distributor will maintain a record of Creation Unit purchases and will 
send out confirmations of such purchases.\27\
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    \26\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis, as provided in the 
Registration Statement.
    \27\ A AP Representative will provide information related to 
creations and redemption of Creation Units to the Financial Industry 
Regulatory Authority (``FINRA'') upon request.
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Transaction Fees
    The Trust may impose purchase or redemption transaction fees 
(``Transaction Fees'') in connection with the purchase or redemption of 
Shares from the Funds. The exact amounts of any such Transaction Fees 
will be determined by the Adviser. The purpose of the Transaction Fees 
is to protect the continuing shareholders against possible dilutive 
transactional expenses, including operational processing and brokerage 
costs, associated with establishing and liquidating portfolio 
positions, including short positions, in connection with the purchase 
and redemption of Shares.
Purchases of Shares--Secondary Market
    Only APs will be able to acquire Shares at NAV directly from a Fund 
through the Distributor. The required payment must be transferred in 
the manner set forth in a Fund's SAI by the specified time on the 
second DTC settlement day following the day it is transmitted (the 
``Transmittal Date''). These investors and others will also be able to 
purchase Shares in secondary market transactions at prevailing market 
prices.
Redemption
    Beneficial Owners may sell their Shares in the secondary market. 
Alternatively, investors that own enough Shares to constitute a 
Redemption Unit (currently, 25,000 Shares) or multiples thereof may 
redeem those Shares through the Distributor, which will act as the 
Trust's representative for redemption. The size

[[Page 7263]]

of a Redemption Unit will be subject to change. Redemption orders for 
Redemption Units or multiples thereof must be placed by or through an 
AP.
Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by or through an AP (``AP Redemption Order''). 
Each Fund will establish an Order Cut-Off Time for redemption orders of 
Redemption Units in proper form. Redemption Units of the Fund will be 
redeemable at their NAV per Share next determined after receipt of a 
request for redemption by the Trust in the manner specified below 
before the Order Cut-Off Time. To initiate an AP Redemption Order, an 
AP must submit to the Distributor an irrevocable order to redeem such 
Redemption Unit after the most recent prior Valuation Time but not 
later than the Order Cut-Off Time. The Order Cut-Off Time for a Fund 
will ordinarily be its Valuation Time, or may be prior to the Valuation 
Time if the Board determines that an earlier Order Cut-Off Time for 
redemption of Redemption Units is necessary and is in the best 
interests of Fund shareholders.
    In the case of a redemption, the Authorized Participant would enter 
into an irrevocable redemption order, and then immediately instruct the 
AP Representative to sell the underlying basket of securities that it 
will receive in the redemption. As with the purchase of securities, the 
AP Representative would be required to obfuscate the sale of the 
portfolio securities it will receive as redemption proceeds using 
similar tactics. The positions in the underlying portfolio securities 
sold from the Confidential Account would be covered by the in-kind 
redemption proceeds received by the Confidential Account from the Fund.
    Consistent with the provisions of Section 22(e) of the 1940 Act and 
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor 
payment upon redemption delayed, except for: (1) Any period during 
which the NYSE is closed other than customary weekend and holiday 
closings, (2) any period during which trading on the NYSE is 
restricted, (3) any period during which an emergency exists as a result 
of which disposal by a Fund of securities owned by it is not reasonably 
practicable or it is not reasonably practicable for a Fund to determine 
its NAV, and (4) for such other periods as the Commission may by order 
permit for the protection of shareholders.
    Redemptions will occur primarily in-kind, although redemption 
payments may also be made partly or wholly in cash.\28\ The Participant 
Agreement signed by each AP will require establishment of a 
Confidential Account to receive distributions of securities in-kind 
upon redemption.\29\ Each AP will be required to open a Confidential 
Account with an AP Representative in order to facilitate orderly 
processing of redemptions. While a Fund will generally distribute 
securities in-kind, the Adviser may determine from time to time that it 
is not in a Fund's best interests to distribute securities in-kind, but 
rather to sell securities and/or distribute cash. For example, the 
Adviser may distribute cash to facilitate orderly portfolio management 
in connection with rebalancing or transitioning a portfolio in line 
with its investment objective, or if there is substantially more 
creation than redemption activity during the period immediately 
preceding a redemption request, or as necessary or appropriate in 
accordance with applicable laws and regulations. In this manner, a Fund 
can use in-kind redemptions to reduce the unrealized capital gains that 
may, at times, exist in a Fund by distributing low cost lots of each 
security that a Fund needs to dispose of to maintain its desired 
portfolio exposures. Shareholders of a Fund would benefit from the in-
kind redemptions through the reduction of the unrealized capital gains 
in a Fund that would otherwise have to be realized and, eventually, 
distributed to shareholders.
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    \28\ It is anticipated that any portion of a Fund's NAV 
attributable to appreciated short positions will be paid in cash, as 
securities sold short are not susceptible to in-kind settlement. The 
value of other positions not susceptible to in-kind settlement may 
also be paid in cash.
    \29\ The terms of each Confidential Account will be set forth as 
an exhibit to the applicable Participant Agreement, which will be 
signed by each AP. The terms of the Confidential Account will 
provide that the trust be formed under applicable state laws; the 
Custodian may act as AP Representative of the Confidential Account; 
and the AP Representative will be paid by the AP a fee negotiated 
directly between the APs and the AP Representative(s).
---------------------------------------------------------------------------

    The redemption basket will consist of the same securities for all 
APs on any given day subject to the Adviser's ability to make minor 
adjustments to address odd lots, fractional shares, tradeable sizes or 
other situations.
    After receipt of a Redemption Order, a Fund's custodian 
(``Custodian'') will typically deliver securities to the Confidential 
Account on a pro rata basis (which securities are determined by the 
Adviser) with a value approximately equal to the value of the Shares 
\30\ tendered for redemption at the Cut-Off time. The Custodian will 
make delivery of the securities by appropriate entries on its books and 
records transferring ownership of the securities to the AP's 
Confidential Account, subject to delivery of the Shares redeemed. The 
AP Representative of the Confidential Account will in turn liquidate 
the securities based on instructions from the AP.\31\ The AP 
Representative will pay the liquidation proceeds net of expenses plus 
or minus any cash balancing amount to the AP through DTC.\32\ The 
redemption securities that the Confidential Account receives are 
expected to mirror the portfolio holdings of a Fund pro rata. To the 
extent a Fund distributes portfolio securities through an in-kind 
distribution to more than one Confidential Account for the benefit of 
that account's AP, each Fund expects to distribute a pro rata portion 
of the portfolio securities selected for distribution to each redeeming 
AP.
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    \30\ If the NAV of the Shares redeemed differs from the value of 
the securities delivered to the applicable Confidential Account, the 
Fund will pay a cash balancing amount to compensate for the 
difference between the value of the securities delivered and the 
NAV.
    \31\ An AP will issue execution instructions to the AP 
Representative and be responsible for all associated profit or 
losses. Like a traditional ETF, the AP has the ability to sell the 
basket securities at any point during normal trading hours.
    \32\ Under applicable provisions of the Internal Revenue Code, 
the AP is expected to be deemed a ``substantial owner'' of the 
Confidential Account because it receives distributions from the 
Confidential Account. As a result, all income, gain or loss realized 
by the Confidential Account will be directly attributed to the AP. 
In a redemption, the AP 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 AP.
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    If the AP would receive a security that it is restricted from 
receiving, a Fund will deliver cash equal to the value of that 
security. APs and Non-Authorized Participant Market Makers will provide 
the AP Representative with a list of restricted securities applicable 
to the AP or Non-Authorized Participant Market Maker on a daily basis, 
and a Fund will substitute cash for those securities in the applicable 
Confidential Account.
    To address odd lots, fractional shares, tradeable sizes or other 
situations where dividing securities is not practical or possible, the 
Adviser may make minor adjustments to the pro rata portion of portfolio 
securities selected for distribution to each redeeming AP on such 
Business Day.
    The Trust will accept a Redemption Order in proper form. A 
Redemption Order is subject to acceptance by the Trust and must be 
preceded or accompanied by an irrevocable commitment to deliver the 
requisite

[[Page 7264]]

number of Shares. At the time of settlement, an AP will initiate a 
delivery of the Shares versus subsequent payment against the proceeds, 
if any, of the sale of portfolio securities distributed to the 
applicable Confidential Account plus or minus any cash balancing 
amounts, and less the expenses of liquidation.
Independent Pricing Calculations
    According to the Exemptive Application, the Pricing Verification 
Agent, on behalf of each Fund, will utilize at least two separate 
calculation engines to calculate intra-day indicative values 
(``Calculation Engines''), based on the mid-point between the current 
national best bid and offer disseminated by the Consolidated Quotation 
System (``CQS'') and Unlisted Trading Privileges (``UTP'') Plan 
Securities Information Processor,\33\ to provide the real-time value on 
a per Share basis of each Fund's holdings every second during the 
Exchange's Core Trading Session.\34\ The Custodian will provide, on a 
daily basis, the identities and quantities of portfolio securities that 
will form the basis for the Fund's calculation of NAV at the end of the 
Business Day,\35\ plus any cash in the portfolio, to the Pricing 
Verification Agent for purposes of pricing.
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    \33\ According to the Exemptive Application, all Commission-
registered exchanges and market centers send their trades and quotes 
to a central consolidator where the Consolidated Tape System (CTS) 
and CQS data streams are produced and distributed worldwide. See 
https://www.ctaplan.com/index. Although there is only one source of 
market quotations, each Calculation Engine will receive the data 
directly and calculate an indicative value separately and 
independently from each other Calculation Engine.
    \34\ The Adviser represents that the dissemination of VIIV at 
one second intervals strikes a balance of providing all investors 
with useable information at a rate that can be processed by retail 
investors, does not provide so much information so as to allow 
market participants to accurately determine the constituents, and 
their weightings, of the portfolio, can be accurately calculated and 
disseminated, and still provides professional traders with per 
second data.
    \35\ Under accounting procedures followed by the Funds, trades 
made on the prior Business Day (T) will be booked and reflected in 
the NAV on the current Business Day (T+1). Thus, the VIIV calculated 
throughout the day will be based on the same portfolio as is used to 
calculate the NAV on that day.
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    According to the Exemptive Application, it is anticipated that each 
Calculation Engine could be using some combination of different 
hardware, software and communications platforms to process the CQS 
data. Different hardware platforms' operating systems could be 
receiving and calculating the CQS data inputs differently, potentially 
resulting in one Calculation Engine processing the indicative value in 
a different time slice than another Calculation Engine's system, thus 
processing values in different sequences. The processing differences 
between different Calculation Engines will most likely be in the sub-
second range. Consequently, the frequency of occurrence of out of 
sequence values among different Calculation Engines due to differences 
in operating system environments should be minimal. Other factors that 
could result in sequencing that is not uniform among the different 
Calculation Engines are message gapping, internal system software 
design, and how the CQS data is transmitted to the Calculation Engine. 
While the expectation is that the separately calculated intraday 
indicative values will generally match, having dual streams of 
redundant data that must be compared by the Pricing Verification Agent 
will provide an additional check that the resulting VIIV is accurate.
    According to the Exemptive Application, each Fund's Board has a 
responsibility to oversee the process of calculating an accurate VIIV 
and to make an affirmative determination, at least annually, that the 
procedures used to calculate the VIIV and maintain its accuracy are, in 
its reasonable business judgment, appropriate.
    These procedures and their continued effectiveness will be subject 
to the ongoing oversight of the Fund's chief compliance officer. The 
specific methodology for calculating the VIIV will be disclosed on each 
Fund's website. While each Fund will oversee the calculation of the 
VIIV, a Fund will utilize multiple Calculation Engines, one of which 
may be supplied by the Pricing Verification Agent.
Net Asset Value
    The NAV per Share of a Fund will be computed by dividing the value 
of the net assets of a Fund (i.e. the value of its total assets less 
total liabilities) by the total number of Shares of a Fund outstanding, 
rounded to the nearest cent. Expenses and fees, including, without 
limitation, the management, administration and distribution fees, will 
be accrued daily and taken into account for purposes of determining 
NAV. Interest and investment income on the Trust's assets accrue daily 
and will be included in the Fund's total assets. The NAV per Share for 
a Fund will be calculated by a Fund's administrator (``Administrator'') 
and determined as of the close of the regular trading session on the 
NYSE (ordinarily 4:00 p.m., E.T.) on each day that the NYSE is open.
    Shares of exchange-listed equity securities and exchange listed 
options will be valued at market value, which will generally be 
determined using the last reported official closing or last trading 
price on the exchange or market on which the securities are primarily 
traded at the time of valuation. Repurchase agreements will be valued 
based on price quotations or other equivalent indications of value 
provided by a third-party pricing service. Money market funds will be 
valued based on price quotations or other equivalent indications of 
value provided by a third-party pricing service. Cash equivalents will 
generally be valued on the basis of independent pricing services or 
quotes obtained from brokers and dealers. Options not listed on an 
exchange, rights and warrants will be valued based on price quotations 
or other equivalent indications of value provided by a third-party 
pricing service.
    When last sale prices and market quotations are not readily 
available, are deemed unreliable or do not reflect material events 
occurring between the close of local markets and the time of valuation, 
investments will be valued using fair value pricing as determined in 
good faith by the Adviser under procedures established by and under the 
general supervision and responsibility of the Trust's Board of 
Trustees. Investments that may be valued using fair value pricing 
include, but are not limited to: (1) Securities that are not actively 
traded; (2) securities of an issuer that becomes bankrupt or enters 
into a restructuring; and (3) securities whose trading has been halted 
or suspended.
    The frequency with which each Fund's investments will be valued 
using fair value pricing will primarily be a function of the types of 
securities and other assets in which the respective Fund will invest 
pursuant to its investment objective, strategies and limitations. If 
the Funds invest in open-end management investment companies registered 
under the 1940 Act (other than ETFs), they may rely on the NAVs of 
those companies to value the shares they hold of them.
    Valuing the Funds' investments using fair value pricing involves 
the consideration of a number of subjective factors and thus the prices 
for those investments may differ from current market valuations. 
Accordingly, fair value pricing could result in a difference between 
the prices used to calculate NAV and the prices used to determine a 
Fund's VIIV, which could result in the market prices for Shares 
deviating from NAV. In cases where the fair value price of the security 
is materially different from the midpoint of the bid/ask spread 
provided to the

[[Page 7265]]

Calculation Engine and the Adviser determined that the ongoing pricing 
information is not likely to be reliable, the fair value will be used 
for calculation of the VIIV, and a Fund's Custodian will be instructed 
to disclose the identity and weight of the fair valued securities, as 
well as the fair value price being used for the security.
Availability of Information
    The Funds' website (www.precidianfunds.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for each Fund that may be downloaded. The Funds' 
website will include additional quantitative information updated on a 
daily basis, including, for each Fund, (1) daily trading volume, the 
prior Business Day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\36\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. The website and information will be 
publicly available at no charge.
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    \36\ The Bid/Ask Price of a Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of a Fund's NAV. The records relating to 
Bid/Ask Prices will be retained by each Fund and its service 
providers.
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    As noted above, a mutual fund is 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 is required 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 
website at www.sec.gov.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Updated price information for U.S. exchange-
listed equity securities is available through major market data vendors 
or securities exchanges trading such securities. The intraday, closing 
and settlement prices of money market funds, repurchase agreements, 
reverse repurchase agreements and cash equivalents will be readily 
available from published or other public sources, or major market data 
vendors such as Bloomberg and Thomson Reuters. The NAV of any 
investment company security investment will be readily available on the 
website of the relevant investment company and from major market data 
vendors. Quotation and last sale information for the Shares will be 
available via the Consolidated Tape Association (``CTA'') high-speed 
line. In addition, the VIIV, as defined in proposed Rule 14.11(k)(3)(B) 
and as described further below, will be widely disseminated by one or 
more major market data vendors at least every second during Regular 
Trading Hours.
Dissemination of the VIIV
    The VIIV, which is approximate value of each Fund's investments on 
a per Share basis, will be disseminated every second during Regular 
Trading Hours. The VIIV should not be viewed as a ``real-time'' update 
of NAV because the VIIV may not be calculated in the same manner as 
NAV, which is computed once per day.
    The VIIV for each Fund will be disseminated by one or more major 
market data vendors in one-second intervals during Regular Trading 
Hours. The VIIV is essentially an intraday NAV calculation at least 
every second during Regular Trading Hours. Each Fund will adopt 
procedures governing the calculation of the VIIV. Pursuant to those 
procedures, the VIIV will include all accrued income and expenses of a 
Fund and will assure that any extraordinary expenses booked during the 
day that 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 be valued 
throughout the day based on the mid-point between the disseminated 
current national best bid and offer. If the Adviser determines that the 
mid-point of the bid/ask spread is inaccurate, a Fund will use fair 
value pricing. That fair value pricing will be carried over to the next 
day's VIIV until the first trade in that stock is reported unless the 
Adviser deems a particular portfolio security to be illiquid and/or the 
available ongoing pricing information unlikely to be reliable. In such 
case, that fact will be disclosed as soon as practicable on each Fund's 
website, including the identity and weighting of that security in a 
Fund's portfolio, and the impact of that security on VIIV calculation, 
including the fair value price for that security being used for the 
calculation of that day's VIIV.
    The Adviser represents that, 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, 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. Using quotations rather than last sale information addresses 
concerns regarding the staleness of pricing information of less 
actively traded securities. Because quotations are updated more 
frequently than last sale information especially for inactive 
securities, the VIIV will be based on more current and accurate 
information. The use of quotations will also dampen the impact of any 
momentary spikes in the price of a portfolio security.
    Each Fund will utilize two separate pricing feeds to provide two 
separate 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 multiple intraday indicative values from the Calculation Engines on 
a real time basis.\37\ 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 intra-day 
indicative value to which the Pricing Verification Agent has access. 
Upon notification to the Exchange by the issuer of a series of Managed 
Portfolio Shares or its agent that the public VIIV and non-public 
alternative intra-day indicative value differ by more than 25 basis 
points for 60 seconds, the Exchange will halt trading as soon as 
practicable in a Fund until the discrepancy is resolved.\38\ Each 
Fund's

[[Page 7266]]

Board 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 website.
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    \37\ A Fund's Custodian will provide, on a daily basis, the 
identities and quantities of portfolio securities that will form the 
basis for a Fund's calculation of NAV at the end of the Business 
Day, plus any cash in the portfolio, to the Pricing Verification 
Agent for purposes of pricing.
    \38\ A continuous deviation for sixty seconds could indicate an 
error in the feed or in a Calculation Engine. The Trust reserves the 
right to change these thresholds to the extent deemed appropriate 
and approved by a Fund's Board.
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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 BZX 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, including 
whether 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 proposed Rule 14.11(k)(4)(B)(iii), which 
sets forth circumstances under which Shares of the Funds may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the Exchange only during Regular Trading Hours as provided in proposed 
Rule 14.11(k)(2)(B). As provided in BZX Rule 11.11(a), the minimum 
price variation for quoting and entry of orders in securities 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.
    The Shares will conform to the initial and continued listing 
criteria under Rule 14.11(k). The Exchange represents that, for initial 
and/or continued listing, each Fund will be in compliance with Rule 
10A-3 under the Act.\39\ 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 of 
each Fund that the NAV per Share of each Fund will be calculated daily 
and will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \39\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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 Portfolio Shares. 
The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by a Fund to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Exchange Act, the Exchange will surveil for compliance with the 
continued listing requirements. If a Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under Exchange Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, underlying 
stocks, ETFs, and exchange-listed 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 trading 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.\40\
---------------------------------------------------------------------------

    \40\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    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 also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular (``Circular'') of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Circular will discuss the following: (1) The 
procedures for purchases and redemptions of Shares; (2) BZX 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 VIIV is disseminated; (4) the requirement 
that members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (5) trading information.
    In addition, the Circular will reference that the Funds are subject 
to various fees and expenses described in the Registration Statement. 
The Circular will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Circular will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \41\ in general and Section 6(b)(5) of the Act \42\ in 
particular in that it is 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f.
    \42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.11(k) is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Managed Portfolio 
Shares provide specific initial and continued listing criteria required 
to be met by such securities. Proposed Rule 14.11(k)(4) sets forth 
initial and continued listing criteria applicable to Managed Portfolio 
Shares. Proposed Rule 14.11(k)(A) provides that, for each series of 
Managed Portfolio Shares, the Exchange will establish a minimum number 
of Managed Portfolio Shares required to be outstanding at the time of 
commencement of trading. In addition, the Exchange will obtain a 
representation from the issuer of each series of Managed Portfolio 
Shares that the NAV per share for the series will be calculated daily 
and that the NAV will be made available to all market participants at 
the same time. Proposed Rule 14.11(k)(4)(B) provides that each series 
of Managed Portfolio Shares will be listed and traded subject to 
application of the specified continued listing criteria, as described 
above. Proposed Rule 14.11(k)(4)(B)(i) provides that the VIIV for 
Managed Portfolio Shares will be widely disseminated by one or more 
major market data vendors every second during Regular Trading Hours. 
Proposed Rule 14.11(k)(4)(B)(iii)

[[Page 7267]]

provides that, upon notification to the Exchange by the Investment 
Company or its agent that (i) the intraday indicative values calculated 
from more than one Calculation Engines to be compared 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) 
that the VIIV of a series of Managed Portfolio Shares is not being 
calculated or disseminated in one-second intervals, as required, the 
Exchange shall halt trading in the Managed Portfolio Shares as soon as 
practicable. Such halt in trading shall continue until the Investment 
Company or its agent notifies the Exchange that the intraday indicative 
values no longer differ by more than 25 basis points for 60 seconds or 
that the VIIV is being calculated and disseminated as required. 
Proposed Rule 14.11(k)(2)(E) provides that, if the investment adviser 
to the Investment Company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company 
portfolio. Proposed Rule 14.11(k)(2)(F) provides that, if an AP 
Representative, the custodian or pricing verification agent for an 
Investment Company issuing Managed Portfolio Shares, or any other 
entity that has access to information concerning the composition and/or 
changes to such Investment Company's portfolio, is registered as a 
broker-dealer or affiliated with a broker-dealer, such AP 
Representative, custodian, pricing verification agent or other entity 
will erect and maintain a ``fire wall'' between such AP Representative, 
custodian, pricing verification agent, or other entity and personnel of 
the broker- dealer or broker-dealer affiliate, as applicable, with 
respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio. 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 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.
    With respect to the proposed listing and trading of Shares of the 
Funds, 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 Rule 14.11(k). Price 
information for the exchange-listed equity securities held by the Funds 
will be available through major market data vendors or securities 
exchanges listing and trading such securities. All exchange-listed 
equity securities held by the Funds will be listed on U.S. national 
securities exchanges. The listing and trading of such securities is 
subject to rules of the exchanges on which they are listed and traded, 
as approved by the Commission. The Funds will primarily hold U.S.-
listed equity securities and shares issued by other U.S.-listed ETFs. 
All exchange-listed equity securities in which the Funds will invest 
will be listed and traded on U.S. national securities exchanges. A 
Fund's investments will be consistent with its respective investment 
objective and will not be used to enhance leverage. The Funds will not 
invest in non-U.S.-listed securities. The Exchange or FINRA, on behalf 
of the Exchange, or both, will communicate as needed regarding trading 
in the Shares, underlying stocks, ETFs, and exchange-listed options 
with other markets and other entities that are members of the ISG, and 
the Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading 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. An AP Representative will provide information 
related to creations and redemption of Creation Units and Redemption 
Instruments to FINRA upon request. 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.
    The Exchange, after consulting with various Lead Market Makers that 
trade ETFs on the Exchange, believes that market makers will be able to 
make efficient and liquid markets priced near the VIIV, market makers 
have knowledge of a Fund's means of achieving its investment objective 
even without daily disclosure of a fund's underlying portfolio. The 
Exchange believes that market makers will employ risk-management 
techniques to make efficient markets in exchange traded products. This 
ability should permit market makers to make efficient markets in shares 
without knowledge of a fund's underlying portfolio.
    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers utilizing statistical arbitrage use the knowledge of a fund's 
means of achieving its investment objective, as described in the 
applicable fund registration statement, to construct a hedging proxy 
for a fund to manage a market maker's quoting risk in connection with 
trading fund shares. Market makers will then conduct statistical 
arbitrage between their hedging proxy (for example, the Russell 1000 
Index) and shares of a fund, buying and selling one against the other 
over the course of the trading day. Eventually, at the end of each day, 
they will evaluate how their proxy performed in comparison to the price 
of a fund's shares, and use that analysis as well as knowledge of risk 
metrics, such as volatility and turnover, to enhance their proxy 
calculation to make it a more efficient hedge.
    Market makers have indicated to the Exchange that there will be 
sufficient data to run a statistical analysis which will lead to 
spreads being tightened substantially around the VIIV. This is similar 
to certain other existing exchange traded products (for example, ETFs 
that invest in foreign securities that do not trade during U.S. trading 
hours), in which spreads may be generally wider in the early days of 
trading and then narrow as market makers gain more confidence in their 
real-time hedges.
    The Lead Market Makers also indicated that, as with some other new 
exchange-traded products, spreads would tend to narrow as market makers 
gain more confidence in the accuracy of their hedges and their ability 
to adjust these hedges in real-time relative to the published VIIV and 
gain an understanding of the applicable market risk metrics such as 
volatility and turnover, and as natural buyers and sellers enter the 
market. Other relevant factors cited by Lead Market Makers were that a 
fund's investment objectives are clearly disclosed in the applicable 
prospectus, the existence of quarterly

[[Page 7268]]

portfolio disclosure and the ability to create shares in creation unit 
size.
    The real-time dissemination of a fund's VIIV together with the 
right of APs to create and redeem each day at the NAV will be 
sufficient for market participants to value and trade shares in a 
manner that will not lead to significant deviations between the shares' 
Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed 
Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the shares and a fund's portfolio, in 
addition to the ability of market participants to assess a fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in shares effectively. Professional traders can buy 
shares that they perceive to be trading at a price less than that which 
will be available at a subsequent time, and sell shares they perceive 
to be trading at a price higher than that which will be available at a 
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to shares by the Exchange, 
off-exchange market makers, firms that specialize in electronic 
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being 
``long'' or ``short'' shares through such trading and will hedge such 
risk wholly or partly by simultaneously taking positions in correlated 
assets \43\ or by netting the exposure against other, offsetting 
trading positions--much as such firms do with existing ETFs and other 
equities. Disclosure of a fund's investment objective and principal 
investment strategies in its prospectus and SAI, along with the 
dissemination of the VIIV every second, should permit professional 
investors to engage easily in this type of hedging activity.\44\
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    \43\ Price correlation trading is used throughout the financial 
industry. It is used to discover both trading opportunities to be 
exploited, such as currency pairs and statistical arbitrage, as well 
as for risk mitigation such as dispersion trading and beta hedging. 
These correlations are a function of differentials, over time, 
between one or multiple securities pricing. Once the nature of these 
price deviations have 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 basket 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 corrections where 
warranted.
    \44\ With respect to trading in Shares of the Funds, market 
participants would manage risk in a variety of ways. It is expected 
that market participants will be able to determine how to trade 
Shares at levels approximating the VIIV without taking undue risk by 
gaining experience with how various market factors (e.g., general 
market movements, sensitivity of the VIIV to intraday movements in 
interest rates or commodity prices, etc.) affect VIIV, and by 
finding hedges for their long or short positions in Shares using 
instruments correlated with such factors. The Adviser expects that 
market participants will initially determine the VIIV's correlation 
to a major large capitalization equity benchmark with active 
derivative contracts, such as the Russell 1000 Index, and the degree 
of sensitivity of the VIIV to changes in that benchmark. For 
example, using hypothetical numbers for illustrative purposes, 
market participants should be able to determine quickly that price 
movements in the Russell 1000 Index predict movements in a Fund's 
VIIV 95% of the time (an acceptably high correlation) but that the 
VIIV generally moves approximately half as much as the Russell 1000 
Index with each price movement. This information is sufficient for 
market participants to construct a reasonable hedge--buy or sell an 
amount of futures, swaps or ETFs that track the Russell 1000 equal 
to half the opposite exposure taken with respect to Shares. Market 
participants will also continuously compare the intraday performance 
of their hedge to a Fund's VIIV. If the intraday performance of the 
hedge is correlated with the VIIV to the expected degree, market 
participants will feel comfortable they are appropriately hedged and 
can rely on the VIIV as appropriately indicative of a Fund's 
performance.
---------------------------------------------------------------------------

    With respect to trading of Shares of the Funds, the ability of 
market participants to buy and sell Shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for a Fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
a Fund's actual portfolio holdings, (2) the securities in which the 
Funds plan to invest are generally highly liquid and actively traded 
and therefore generally have accurate real time pricing available, and 
(3) market participants will have a daily opportunity to evaluate 
whether the VIIV at or near the close of trading is indeed predictive 
of the actual NAV.
    The real-time dissemination of a Fund's VIIV together with the 
ability of APs to create and redeem each day at the NAV, will be 
crucial for market participants to value and trade Shares in a manner 
that will not lead to significant deviations between the Shares' Bid/
Ask Price and NAV.\45\
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    \45\ The statements in the Statutory Basis section of this 
filing relating to pricing efficiency, arbitrage, and activities of 
market participants, including market makers and APs, are based on 
representation by the Adviser and review by the Exchange.
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    In a typical Index-based ETF, it is standard for APs to know what 
securities must be delivered in a creation or will be received in a 
redemption. For Managed Portfolio Shares, however, APs do not need to 
know the securities comprising the portfolio of a Fund since creations 
and redemptions are handled through the Confidential Account mechanism. 
The Adviser represents that the in-kind creations and redemptions 
through a Confidential Account will preserve the integrity of the 
active investment strategy and reduce the potential for ``free riding'' 
or ``front-running,'' while still providing investors with the 
advantages of the ETF structure.
    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 an 
issue of Managed Portfolio Shares that the NAV per share of a fund will 
be calculated daily and that the NAV will be made available to all 
market participants at the same time. Investors can also obtain a 
fund's SAI, shareholder reports, and its Form N-CSR, Form N-Q and Form 
N-SAR. A fund's SAI and shareholder reports will be available free upon 
request from the applicable fund, and those documents and the Form N-
CSR, Form N-Q and Form N-SAR may be viewed on-screen or downloaded from 
the Commission's website. In addition, with respect to the Funds, a 
large amount of information will be publicly available regarding the 
Funds and the Shares, thereby promoting market transparency. Quotation 
and last sale information for the Shares will be available via the CTA 
high-speed line. Information regarding the VIIV will be widely 
disseminated every second throughout Regular Trading Hours by one or 
more major market data vendors. The website for the Funds will include 
a form of the prospectus for the Funds that may be downloaded, and 
additional data relating to NAV and other applicable quantitative 
information, updated on a daily basis.
    Moreover, prior to the commencement of trading, the Exchange will 
inform its members in a Circular of the special characteristics and 
risks associated with trading the Shares. The Exchange will halt 
trading in the Shares under the conditions specified in BZX Rule 11.18, 
market conditions, or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. Trading in the Shares will be 
subject to proposed Rule 14.11(k)(4)(B)(iii), which sets forth 
circumstances under which Shares of the Funds will be halted. In 
addition, as noted above, investors will have ready access to the VIIV, 
and quotation and last sale information for the Shares. The Shares will 
conform to the initial and continued listing criteria under proposed 
Rule 14.11(k). The Funds will not invest in futures, forwards or swaps. 
Each Fund's investments will be consistent with its investment 
objective and will not be used to enhance

[[Page 7269]]

leverage. While a Fund may invest in inverse ETFs, a Fund will not 
invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
    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 
an additional type 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. In addition, as noted above, investors 
will have ready access to information regarding the VIIV and quotation 
and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

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

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove 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:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-010 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2018-010. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2018-010 and should be submitted 
on or before March 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03313 Filed 2-16-18; 8:45 am]
 BILLING CODE 8011-01-P