Document ID: SEC-2018-0472-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2018-03-21T04:00Z

[Federal Register Volume 83, Number 55 (Wednesday, March 21, 2018)]
[Notices]
[Pages 12449-12454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05647]

[[Page 12449]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82881; File No. SR-CboeBZX-2018-019]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List on the Exchange Eighteen 
ADRPLUS Funds of the Precidian ETFs Trust Under Rule 14.11(i), Managed 
Fund Shares

March 15, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 5, 2018, Cboe BZX Exchange, Inc. (``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 list on the Exchange eighteen 
ADRPLUS Funds of the Precidian ETFs Trust (the ``Trust''), under Rule 
14.11(i) (``Managed Fund Shares'').
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of 
eighteen different series of the Trust under Rule 14.11(i), which 
governs the listing and trading of Managed Fund Shares.\3\ 
Specifically, the Exchange is proposing to list shares of Anheuser-
Busch InBev SA/NV ADRPLUS Fund, AstraZeneca PLC ADRPLUS Fund, Banco 
Santander, S.A. ADRPLUS Fund, BP P.L.C. ADRPLUS Fund, British American 
Tobacco p.l.c. ADRPLUS Fund, Diageo plc ADRPLUS Fund, GlaxoSmithKline 
plc ADRPLUS Fund, HSBC Holdings Plc ADRPLUS Fund, Mitsubishi UFJ 
Financial Group, Inc. ADRPLUS Fund, Novartis AG ADRPLUS Fund, Novo 
Nordisk A/S (B Shares) ADRPLUS Fund, Royal Dutch Shell plc (Class A) 
ADRPLUS Fund, Royal Dutch Shell plc (Class B) ADRPLUS Fund, Sanofi 
ADRPLUS Fund, SAP AG ADRPLUS Fund, Total S.A. ADRPLUS Fund, Toyota 
Motor Corporation ADRPLUS Fund, and Vodafone Group Plc ADRPLUS Fund. 
The Funds are a series of, and the Shares will be offered by, the 
Trust, which was organized as a Delaware statutory trust on August 27, 
2010. Precidian Funds LLC (the ``Advisor'') will serve as the 
investment adviser to the Funds. The Trust is registered with the 
Commission as an open-end management investment company and has filed a 
registration statement on behalf of the Funds on Form N-1A 
(``Registration Statement'') with the Commission.\4\
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    \3\ The Commission originally approved Exchange Rule 14.11(i) in 
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 
55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently 
approved generic listing standards for Managed Fund Shares under 
Exchange Rule 14.11(i)(4)(C) in Securities Exchange Act Release No. 
78396 (July 22, 2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-
100) (``Generic Listing Rules'').
    \4\ See Registration Statement on Form N-1A for the Trust, filed 
with the Commission on June 14, 2017 (File Nos. 333-171987 and 811-
22524). The descriptions of the Funds and the Shares contained 
herein are based, in part, on information in the Registration 
Statement. The Commission has issued an order granting certain 
exemptive relief to the Adviser and open-end management companies 
advised by the Adviser under the Investment Company Act of 1940 (15 
U.S.C. 80a-1). See Investment Company Act Release No. 32622 (May 2, 
2017) (File No. 812-14584).
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    Exchange Rule 14.11(i)(7) provides that, if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect and maintain 
a ``fire wall'' between the investment adviser and the broker-dealer 
with respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\5\ In addition, Exchange 
Rule 14.11(i)(7) further requires that personnel who make decisions on 
the investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable investment company 
portfolio. Exchange Rule 14.11(i)(7) is similar to Exchange Rule 
14.11(b)(5)(A)(i) (which applies to index-based funds); however, 
Exchange Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not a registered broker-dealer and is not affiliated with a broker-
dealer. In addition, Adviser personnel who make decisions regarding a 
Fund's portfolio are subject to procedures designed to prevent the use 
and dissemination of material nonpublic information regarding the 
Fund's portfolio. In the event that (a) the Adviser becomes registered 
as a broker-dealer or 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 and maintain a fire 
wall with respect to its relevant personnel or such broker-dealer 
affiliate, as applicable, regarding access to information concerning 
the composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \5\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The Funds do not intend to qualify each year as a regulated 
investment company under Subchapter M of the

[[Page 12450]]

Internal Revenue Code of 1986, as amended, but rather as a grantor 
trust.
    The Exchange submits this proposal in order to allow the Funds to 
hold U.S. Component Stocks \6\ and listed and/or OTC derivatives in a 
manner that does not comply with Exchange Rules 14.11(i)(4)(C)(i)(3)-
(4) [sic],\7\ 14.11(i)(4)(C)(iv)(b),\8\ and 14.11(i)(4)(C)(v),\9\ 
respectively. Otherwise, the Funds will comply with all other listing 
requirements on an initial and continued listing basis under Exchange 
Rule 14.11(i) for Managed Fund Shares.
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    \6\ As defined in Rule 14.11(c)(1)(D), the term ``U.S. Component 
Stock'' shall mean an equity security that is registered under 
Sections 12(b) or 12(g) of the Act, or an American Depository 
Receipt, the underlying equity security of which is registered under 
Sections 12(b) or 12(g) of the Act.
    \7\ In particular, the Funds will not meet: (i) The requirement 
under Exchange Rule 14.11(i)(4)(C)(i)(3) [sic] that the most heavily 
weighted component stock shall not exceed 30% of the equity weight 
of the portfolio; and (ii) the requirement under Exchange Rule 
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the portfolio 
shall include a minimum of 13 component stocks.
    \8\ In particular, the Funds may not meet the requirement under 
Exchange Rule 14.11(i)(4)(C)(iv)(b) that the aggregate gross 
notional value of listed derivatives based on any single underlying 
reference asset shall not exceed 30% of the weight of the portfolio 
(including gross notional exposures).
    \9\ In particular, the Funds may not meet the requirement under 
Exchange Rule 14.11(i)(4)(C)(v) that the aggregate gross notional 
value of OTC derivatives shall not exceed 20% of the weight of the 
portfolio (including gross notional exposures).
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ADRPLUS Funds
    Each Fund seeks to provide investment results that correspond 
generally, before fees and expenses, to the price and yield performance 
of a particular American Depositary Receipt, hedged against 
fluctuations in the exchange rate between the U.S. dollar and the local 
currency of the foreign security underlying the American Depositary 
Receipt (``Local Currency''). For example, the Anheuser-Busch InBev SA/
NV ADRPLUS Fund seeks to provide investment results that correspond 
generally, before fees and expenses, to the price and yield performance 
of Anheuser-Busch InBev SA/NV (ADR), hedged against fluctuations in the 
exchange rate between the U.S. dollar and the euro. The following chart 
includes the underlying company and the Local Currency for each of the 
Funds.

 
------------------------------------------------------------------------
          Fund name            Underlying company      Local currency
------------------------------------------------------------------------
Anheuser-Busch InBev SA/NV    Anheuser-Busch InBev  Euro.
 ADRPLUS Fund.                 SA/NV.
AstraZeneca PLC ADRPLUS Fund  AstraZeneca PLC.....  British pound.
Banco Santander, S.A.         Banco Santander,      Euro.
 ADRPLUS Fund.                 S.A..
BP P.L.C. ADRPLUS Fund......  BP p.l.c............  British pound
British American Tobacco      British American      British pound.
 p.l.c. ADRPLUS Fund.          Tobacco p.l.c..
Diageo plc ADRPLUS Fund.....  Diageo plc..........  British pound.
GlaxoSmithKline plc ADRPLUS   GlaxoSmithKline plc.  British pound.
 Fund.
HSBC Holdings Plc ADRPLUS     HSBC Holdings Plc...  British pound.
 Fund.
Mitsubishi UFJ Financial      Mitsubishi UFJ        Japanese yen
 Group, Inc. ADRPLUS Fund.     Financial Group,
                               Inc..
Novartis AG ADRPLUS Fund....  Novartis AG.........  Swiss franc.
Novo Nordisk A/S (B Shares)   Novo Nordisk A/S (B   Danish krone.
 ADRPLUS Fund.                 Shares).
Royal Dutch Shell plc (Class  Royal Dutch Shell     Euro.
 A) ADRPLUS Fund.              plc (Class A).
Royal Dutch Shell plc (Class  Royal Dutch Shell     British pound.
 B) ADRPLUS Fund.              plc (Class B).
Sanofi ADRPLUS Fund.........  Sanofi..............  Euro.
SAP AG ADRPLUS Fund.........  SAP AG..............  Euro.
Total S.A. ADRPLUS Fund.....  Total S.A...........  Euro.
Toyota Motor Corporation      Toyota Motor          Japanese yen.
 ADRPLUS Fund.                 Corporation.
Vodafone Group Plc ADRPLUS    Vodafone Group Plc..  British pound.
 Fund.
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    Each of the Funds will hold only: (i) Shares of an American 
Depositary Receipt (an ``Unhedged ADR'') listed on a national 
securities exchange; (ii) listed and/or OTC derivatives that hedge 
against fluctuations in the exchange rate (the ``Exchange Rate'') 
between the U.S. dollar and the Local Currency (the ``Currency 
Hedge''); and (iii) cash and cash equivalents.\10\
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    \10\ As defined in Rule 14.11(i)(4)(C)(iii), cash equivalents 
include short-term instruments with maturities of less than three 
months, including: (i) U.S. Government securities, including bills, 
notes, and bonds differing as to maturity and rates of interest, 
which are either issued or guaranteed by the U.S. Treasury or by 
U.S. Government agencies or instrumentalities; (ii) certificates of 
deposit issued against funds deposited in a bank or savings and loan 
association; (iii) bankers acceptances, which are short-term credit 
instruments used to finance commercial transactions; (iv) repurchase 
agreements and reverse repurchase agreements; (v) bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; (vi) commercial paper, which are short-term unsecured 
promissory notes; and (vii) money market funds.
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    The Funds will provide investors with the opportunity to easily 
eliminate currency exposure that they may not even realize exists with 
Unhedged ADRs without having to transact in the currency derivatives 
market. The Exchange believes that this confers a significant benefit 
to investors and the broader marketplace by adding transparency and 
simplifying the process of eliminating risk from an investor's 
portfolio. As further described below in the section entitled Policy 
Discussion, the Exchange believes that the policy concerns underlying 
the listing rules which the Funds would not meet, specifically Rules 
14.11(i)(4)(C)(i)(3)-(4) [sic],\11\ 14.11(i)(4)(C)(iv)(b),\12\ and 
14.11(i)(4)(C)(v),\13\ are mitigated by the structure, holdings, and 
purpose of the Funds and, as such, this proposal to list and trade the 
ADRPLUS Funds should be approved.
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    \11\ In particular, the Funds will not meet: (i) The requirement 
under Exchange Rule 14.11(i)(4)(C)(i)(3) [sic] that the most heavily 
weighted component stock shall not exceed 30% of the equity weight 
of the portfolio; and (ii) the requirement under Exchange Rule 
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the portfolio 
shall include a minimum of 13 component stocks.
    \12\ In particular, the Funds may not meet the requirement under 
Exchange Rule 14.11(i)(4)(C)(iv)(b) that the aggregate gross 
notional value of listed derivatives based on any single underlying 
reference asset shall not exceed 30% of the weight of the portfolio 
(including gross notional exposures).
    \13\ In particular, the Funds may not meet the requirement under 
Exchange Rule 14.11(i)(4)(C)(v) that the aggregate gross notional 
value of OTC derivatives shall not exceed 20% of the weight of the 
portfolio (including gross notional exposures).
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    The Trust is required to comply with Rule 10A-3 under the Act \14\ 
for the initial and continued listing of the Shares of each Fund. In 
addition, the Exchange represents that the Shares of each Fund will 
meet and be subject to all other requirements of the Generic Listing 
Rules, as defined below, and

[[Page 12451]]

other applicable continued listing requirements for Managed Fund Shares 
under Exchange Rule 14.11(i), including those requirements regarding 
the Disclosed Portfolio (as defined in the Exchange rules) and the 
requirement that the Disclosed Portfolio and the net asset value 
(``NAV'') will be made available to all market participants at the same 
time,\15\ intraday indicative value,\16\ suspension of trading or 
removal,\17\ trading halts,\18\ disclosure,\19\ and firewalls.\20\ 
Further, at least 100,000 Shares of each Fund will be outstanding upon 
the commencement of trading.\21\ 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 reference assets and intraday 
indicative values, and the applicability of Exchange listing rules 
specified in this filing shall constitute continued listing 
requirements for the Funds. The Trust, on behalf of the Funds, has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the Shares to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will surveil for compliance with the continued 
listing requirements. If a Fund or the Shares are not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Exchange Rule 14.12.
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    \14\ 17 CFR 240.10A-3.
    \15\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \16\ See Exchange Rule 14.11(i)(4)(B)(i).
    \17\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \18\ See Exchange Rule 14.11(i)(4)(B)(iv). The Exchange will 
also halt trading in a Fund where there has been a regulatory 
trading halt declared in the associated Unhedged ADR until trading 
in the Unhedged ADR resumes.
    \19\ See Exchange Rule 14.11(i)(6).
    \20\ See Exchange Rule 14.11(i)(7).
    \21\ See Exchange Rule 14.11(i)(4)(A)(i).
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Policy Discussion
    The generic listing standards for listing Managed Fund Shares 
pursuant to Rule 19b-4(e) (the ``Generic Listing Standards''), as 
approved by the Commission,\22\ are designed to ensure that the 
holdings of the portfolio of a series of Managed Fund Shares listed 
pursuant to 19b-4(e) are sufficiently liquid, diverse, and non-
concentrated as to mitigate the policy concerns regarding the 
manipulability and liquidity for the creation and redemption mechanism 
associated with that series of Managed Fund Shares. As described above, 
the Funds do not meet the Generic Listing Standards.
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    \22\ See supra note 3.
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    The Exchange believes that, while the Funds would not meet the 
Generic Listing Standards, in particular Rules 14.11(i)(4)(C)(i)(a)(3) 
and (4), 14.11(i)(4)(C)(iv)(b), and 14.11(i)(4)(C)(v), the policy 
issues that those rules are intended to address are otherwise mitigated 
by the structure, holdings, and purpose of the Funds. Rule 
14.11(i)(4)(C)(i)(a)(3) is intended to ensure that no single equity 
security constitutes too concentrated of a position in a series of 
Managed Fund Shares and Rule 14.11(i)(4)(C)(i)(a)(4) is similarly 
intended to diversify the holdings of a series of Managed Fund Shares. 
The Exchange believes that these policy concerns are mitigated as it 
relates to the Funds because: (i) The Unhedged ADR will meet the market 
cap and liquidity requirements of Rules 14.11(i)(4)(C)(i)(a)(1) and 
(2); and (ii) the intended function of the Funds is to eliminate 
currency exposure risk for a single security, which means that the 
Funds are necessarily concentrated. As described above, the creation 
and redemption mechanism will provide a near frictionless arbitrage 
opportunity that would minimize the risk of manipulation of either the 
Unhedged ADR or the applicable Fund and, thus, mitigate the 
manipulation concerns that Rule 14.11(i)(4)(C)(i)(a)(3) and (4) were 
intended to address.
    The Exchange also believes that the policy issues that Rules 
14.11(i)(4)(C)(iv)(b) and 14.11(i)(4)(C)(v) are intended to address are 
also mitigated by the way that the Funds would use derivatives, whether 
listed or OTC. Such rules are intended to mitigate concerns around the 
manipulability of a particular underlying reference asset or 
derivatives contract and, for OTC derivatives, to minimize counterparty 
risk. While the Currency Hedge positions taken by the Currency Hedged 
ADRs would not meet the Generic Listing Standards, the policy concerns 
that the Generic Listing Standards are intended to address are 
otherwise mitigated by the liquidity in the underlying spot currency 
market that prevents manipulation of the reference prices used by the 
Currency Hedge. The Funds will attempt to limit counterparty risk in 
OTC derivatives by: (i) Entering into such contracts only with 
counterparties the Advisor believes are creditworthy; (ii) limiting a 
Fund's exposure to each counterparty; and (iii) monitoring the 
creditworthiness of each counterparty and the Fund's exposure to each 
counterparty on an ongoing basis. The Exchange also believes that the 
counterparty risk associated with OTC derivatives is further mitigated 
because the currency swaps are settled on a daily basis and, thus, the 
counterparty risk for any particular swap is limited in two ways--first 
that the counterparty credit exposure is always limited to a 24 hour 
period and second that the exposure of the swap is only to the movement 
in the currencies over that same 24 hour period.
Availability of Information
    As noted above, the Funds will each comply with the requirements 
for Managed Fund Shares related to Disclosed Portfolio, Net Asset 
Value, and the Intraday Indicative Value. Additionally, the intra-day, 
closing and settlement prices of exchange-traded portfolio assets, 
including Unhedged ADRs and listed derivatives, will be readily 
available from the securities exchanges, futures exchanges, and swap 
execution facilities trading such securities and futures, as the case 
may be, automated quotation systems, published or other public sources, 
or online information services such as Bloomberg or Reuters. Intraday 
price quotations on both listed and OTC swaps are available from major 
broker-dealer firms and from third-parties, which may provide prices 
free with a time delay or in real-time for a paid fee. Price 
information for cash equivalents will be available from major market 
data vendors. Each Fund's Disclosed Portfolio will be available on the 
issuer's website free of charge. Each Fund's website will include the 
prospectus for the applicable Fund and additional information related 
to NAV and other applicable quantitative information. Information 
regarding market price and trading volume of the Shares will be 
continuously available throughout the day on brokers' computer screens 
and other electronic services. Information regarding the previous day's 
closing price and trading volume for the Shares will be published daily 
in the financial section of newspapers. Trading in the Shares may be 
halted for market conditions or for reasons that, in the view of the 
Exchange, make trading inadvisable. 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. 
The Exchange has appropriate rules to facilitate trading in the shares 
during all trading sessions.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Funds on the Exchange during all

[[Page 12452]]

trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. Trading of the Funds 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund 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 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 
proceedings under Rule 14.12. The Exchange will also consider the 
suspension of trading and commence delisting proceedings pursuant to 
Rule 14.12 for a Fund if the Unhedged ADR held by the Fund has been 
suspended from trading or delisted by the Unhedged ADR's listing 
exchange. As described above, all Unhedged ADRs will be listed on a 
U.S. national securities exchange, all of which are members of the 
Intermarket Surveillance Group (``ISG'') or are exchanges with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.\23\ The Exchange may obtain information regarding trading in 
the Funds, Unhedged ADRs, and listed derivative instruments held by 
each Fund via the ISG, from other exchanges that are members or 
affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement.
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    \23\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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Creation and Redemption Process
    The Funds will create and redeem shares in large blocks of a 
specified number of shares or multiples thereof (``Creation Units'') in 
transactions with Authorized Participants \24\ that have entered into 
agreements with the distributor for each Fund, Foreside Fund Services, 
LLC (the ``Distributor''). The Exchange expects that a Creation Unit 
for a Fund will consist of 25,000 or more shares. The Trust will issue 
and sell shares of each Fund in Creation Units on a continuous basis 
through the Distributor or the Distributor's agent, without a sales 
load, at a price based on the Fund's net asset value (``NAV'') per 
Share next determined after receipt of the purchase or redemption 
order, on any day that the Exchange is open for trading (a ``Business 
Day''). Explained simply, for a creation, an Authorized Participant 
will be required to deliver the Unhedged ADRs in an amount equal to 
that day's NAV (the ``Deposit Assets'') plus a cash amount representing 
the value of fractional shares (the ``Cash Component'' and, 
collectively with the Deposit Assets, the ``Fund Deposit''); and for a 
redemption, the Trust will deliver Unhedged ADRs to the Authorized 
Participant equal to the value of that day's NAV plus the Cash 
Component (the ``Redemption Basket'').
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    \24\ For purposes of this proposal, the term ``Authorized 
Participant'' is either (1) a ``Participating Party,'' (i.e., a 
broker-dealer or other participant in the clearing process of the 
Continuous Net Settlement System of the NSCC) (``Clearing 
Process''); or (2) a participant of the Depository Trust Company 
(the ``DTC'') (a ``DTC Participant'').
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    To initiate an order for a Creation Unit, an Authorized Participant 
must submit to the Distributor or its agent an irrevocable order to 
purchase Shares, in proper form, generally before 4:00 p.m., Eastern 
Time, on any Business Day to receive that day's NAV. On days when the 
Exchange closes earlier than normal, a Fund may require orders to be 
placed earlier in the day. The consideration for a purchase of a 
Creation Unit of a Fund generally will consist only of the Deposit 
Assets and the Cash Component.
    A portfolio composition file, to be sent via the National 
Securities Clearing Corporation (``NSCC''), will be made available on 
each Business Day, prior to the opening of business of the Exchange 
(currently 9:30 a.m., Eastern Time) which includes the required number 
of shares of the Deposit Assets and Cash Component to be included in 
the current Fund Deposit (based on information at the end of the 
previous Business Day). Such Fund Deposit is applicable, subject to any 
adjustments,\25\ to purchases of Creation Units of Shares of the 
applicable Fund until such time as the next-announced Fund Deposit 
composition is made available.
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    \25\ The Funds may permit or require the substitution of a 
``cash in lieu'' amount to be added to the Cash Component in the 
event that the Deposit Asset is not available in sufficient quantity 
for delivery. The Funds also reserve the right to permit or require 
a ``cash in lieu'' amount in certain circumstances, including 
circumstances in which the delivery of the Deposit Asset by the 
Authorized Participant would be restricted under applicable 
securities or other local laws or in certain other situations, such 
as if the Authorized Participant is not able to trade due to a 
trading restriction. The Funds also reserve the right to permit or 
require Creation Units to be issued solely in exchange for cash.
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    An order to redeem Creation Units of a Fund is deemed received by 
the Distributor on the transmittal date if (i) such order is received 
not later than 4:00 p.m. Eastern Time on such transmittal date; (ii) 
such order is preceded or accompanied by the requisite amount of Shares 
based on the Creation Units specified in such order, which delivery 
must be made through DTC to the Distributor by a specified time on such 
transmittal date (the ``DTC Cut-Off Time''); and (iii) all other 
procedures set forth in the Participant Agreement are properly 
followed.
    Each Fund's custodian will make available through the NSCC, prior 
to the opening of business on the Exchange on each Business Day, the 
Redemption Basket (subject to possible amendment or correction) that 
will be applicable to redemption requests received in proper form on 
that day. Orders to redeem Creation Units of a Fund must be delivered 
through a DTC Participant that has executed the Participant Agreement 
with the Distributor. A DTC Participant who wishes to place an order 
for redemption of Creation Units of a Fund to be effected need not be a 
Participating Party, but such orders must state that redemption of 
Creation Units of the Fund will instead be effected through transfer of 
Creation Units of the Fund directly through DTC. An order to redeem 
Creation Units of a Fund is deemed received by the Distributor on the 
transmittal date if (i) such order is received not later than 4:00 p.m. 
Eastern Time on such transmittal date; (ii) such order is preceded or 
accompanied by the requisite number of Shares of Creation Units 
specified in such order, which delivery must be made through DTC to the 
Distributor no later than the DTC Cut-Off Time on such transmittal 
date; and (iii) all other procedures set forth in the Participant 
Agreement are properly followed.
    After the Distributor has deemed an order for redemption received, 
the Distributor will initiate procedures to transfer the requisite Fund 
Securities which are expected to be delivered within two Business Days 
and the Cash Amount to the redeeming beneficial owner by the second 
Business Day following the transmittal date on which such redemption 
order is deemed received.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually

[[Page 12453]]

redeemable); (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 Intraday 
Indicative Value is disseminated; (4) the risks involved in trading the 
Shares during the Pre-Opening \26\ and After Hours Trading Sessions 
\27\ when an updated Intraday Indicative Value will not be calculated 
or publicly disseminated; (5) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (6) trading 
information.
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    \26\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \27\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
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    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Funds. Members purchasing Shares from a Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act. The Information Circular will also reference that the Funds are 
subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares and the applicable NAV calculation time for the 
Shares. The Information Circular will disclose that information about 
the Shares will be publicly available on each Fund's website.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \28\ in general and Section 6(b)(5) of the Act \29\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest given that the Shares will meet each of the initial and 
continued listing criteria in Exchange Rule 14.11(i) with the exception 
of Exchange Rules 14.11(i)(4)(C)(i)(3)-(4)[sic],\30\ 
14.11(i)(4)(C)(iv)(b),\31\ and 14.11(i)(4)(C)(v).\32\ The Generic 
Listing Standards are designed to ensure that the holdings of the 
portfolio of a series of Managed Fund Shares listed pursuant to 19b-
4(e) are sufficiently liquid, diverse, and non-concentrated as to 
mitigate the policy concerns regarding the manipulability and liquidity 
for the creation and redemption mechanism associated with that series 
of Managed Fund Shares. As described above, the Funds do not meet the 
Generic Listing Standards.
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    \28\ 15 U.S.C. 78f.
    \29\ 15 U.S.C. 78f(b)(5).
    \30\ In particular, the Funds will not meet: (i) The requirement 
under Exchange Rule 14.11(i)(4)(C)(i)(3) [sic] that the most heavily 
weighted component stock shall not exceed 30% of the equity weight 
of the portfolio; and (ii) the requirement under Exchange Rule 
14.11(i)(4)(C)(i)(4) [sic] that the equity portion of the portfolio 
shall include a minimum of 13 component stocks.
    \31\ In particular, the Funds may not meet the requirement under 
Exchange Rule 14.11(i)(4)(C)(iv)(b) that the aggregate gross 
notional value of listed derivatives based on any single underlying 
reference asset shall not exceed 30% of the weight of the portfolio 
(including gross notional exposures).
    \32\ In particular, the Funds may not meet the requirement under 
Exchange Rule 14.11(i)(4)(C)(v) that the aggregate gross notional 
value of OTC derivatives shall not exceed 20% of the weight of the 
portfolio (including gross notional exposures).
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    The Exchange believes that, while the Funds would not meet the 
Generic Listing Standards, in particular Rules 14.11(i)(4)(C)(i)(a)(3) 
and (4), 14.11(i)(4)(C)(iv)(b), and 14.11(i)(4)(C)(v), the policy 
issues that those rules are intended to address are otherwise mitigated 
by the structure, holdings, and purpose of the Funds. Rule 
14.11(i)(4)(C)(i)(a)(3) is intended to ensure that no single equity 
security constitutes too concentrated of a position in a series of 
Managed Fund Shares and Rule 14.11(i)(4)(C)(i)(a)(4) is similarly 
intended to diversify the holdings of a series of Managed Fund Shares. 
The Exchange believes that these policy concerns are mitigated as it 
relates to the Funds because: (i) The Unhedged ADR will meet the market 
cap and liquidity requirements of Rules 14.11(i)(4)(C)(i)(a)(1) and 
(2); and (ii) the intended function of the Funds is to eliminate 
currency exposure risk for a single security, which means that the 
Funds are necessarily concentrated. As described above, the creation 
and redemption mechanism will provide a near frictionless arbitrage 
opportunity that would minimize the risk of manipulation of either the 
Unhedged ADR or the applicable Fund and, thus, mitigate the 
manipulation concerns that Rule 14.11(i)(4)(C)(i)(a)(3) and (4) were 
intended to address.
    The Exchange also believes that the policy issues that Rules 
14.11(i)(4)(C)(iv)(b) and 14.11(i)(4)(C)(v) are intended to address are 
also mitigated by the way that the Funds would use derivatives, whether 
listed or OTC. Such rules are intended to mitigate concerns around the 
manipulability of a particular underlying reference asset or 
derivatives contract and, for OTC derivatives, to minimize counterparty 
risk. While the Currency Hedge positions taken by the Currency Hedged 
ADRs would not meet the Generic Listing Standards, the policy concerns 
that the Generic Listing Standards are intended to address are 
otherwise mitigated by the liquidity in the underlying spot currency 
market that prevents manipulation of the reference prices used by the 
Currency Hedge. The Funds will attempt to limit counterparty risk in 
OTC derivatives by: (i) Entering into such contracts only with 
counterparties the Advisor believes are creditworthy; (ii) limiting a 
Fund's exposure to each counterparty; and (iii) monitoring the 
creditworthiness of each counterparty and the Fund's exposure to each 
counterparty on an ongoing basis. The Exchange also believes that the 
counterparty risk associated with OTC derivatives is further mitigated 
because the currency swaps are settled on a daily basis and, thus, the 
counterparty risk for any particular swap is limited in two ways--first 
that the counterparty credit exposure is always limited to a 24 hour 
period and second that the exposure of the swap is only to the movement 
in the currencies over that same 24 hour period.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Funds 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 Funds 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund 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 reference assets and intraday indicative values, and the 
applicability of Exchange listing rules specified in this filing shall 
constitute continued listing requirements for the Funds. The Trust, on 
behalf of the Funds, has represented to the Exchange that it will 
advise the Exchange of any failure by a Fund or the Shares to comply 
with the continued

[[Page 12454]]

listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will surveil for compliance with the 
continued listing requirements. If a Fund or the Shares are not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under Exchange Rule 14.12.
    The Exchange will also consider the suspension of trading and 
commence delisting proceedings pursuant to Rule 14.12 for a Fund if the 
Unhedged ADR held by the Fund has been suspended from trading or 
delisted by the Unhedged ADR's listing exchange. As described above, 
all Unhedged ADRs will be listed on a U.S. national securities 
exchange, all of which are members of ISG or are exchanges with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.\33\ The Exchange may obtain information regarding trading in 
the Funds, Unhedged ADRs, and listed derivative instruments held by 
each Fund via the ISG, from other exchanges that are members or 
affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. At least 100,000 Shares 
of each Fund will be outstanding upon the commencement of trading.
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    \33\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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    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 will facilitate the listing and trading of an 
additional type of Managed Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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

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

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

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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-2018-019 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 No. SR-CboeBZX-2018-019. 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 such filing will also be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File No. SR-CboeBZX-2018-019 and should be submitted on 
or before April 11, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05647 Filed 3-20-18; 8:45 am]
 BILLING CODE 8011-01-P