Document ID: SEC-2016-0688-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2016-04-20T04:00Z

[Federal Register Volume 81, Number 76 (Wednesday, April 20, 2016)]
[Notices]
[Pages 23339-23342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09062]

[[Page 23339]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77620; File No. SR-BATS-2015-124]

Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
Nos. 1, 2, and 5, To List and Trade Shares of the REX VolMAXX Long VIX 
Weekly Futures Strategy ETF and the REX VolMAXX Inverse VIX Weekly 
Futures Strategy ETF of the Exchange Traded Concepts Trust

April 14, 2016.

I. Introduction

    On December 30, 2015, BATS Exchange, Inc. (``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the REX 
VolMAXX Long VIX Weekly Futures Strategy ETF and the REX VolMAXX 
Inverse VIX Weekly Futures Strategy ETF (each a ``Fund'' and 
collectively, ``Funds'') of the Exchange Traded Concepts Trust 
(``Trust'') under BATS Rule 14.11(i). The proposed rule change was 
published for comment in the Federal Register on January 20, 2016.\3\ 
On February 10, 2016, the Exchange filed Amendment No. 1 to the 
proposed rule change, and on February 12, 2016, the Exchange filed 
Amendment No. 2 to the proposed rule change.\4\ On March 3, 2016, 
pursuant to Section 19(b)(2) of the Act,\5\ the Commission designated a 
longer period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change.\6\ On March 
28, 2016, the Exchange filed Amendment No. 5 to the proposed rule 
change.\7\ The Commission received no comments on the proposed rule 
change. This order grants approval of the proposed rule change, as 
modified by Amendment Nos. 1, 2, and 5.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76884 (January 13, 
2016), 81 FR 3195 (``Notice'').
    \4\ On March 22, 2016, the Exchange filed Amendment No. 3 to the 
proposed rule change. On March 28, 2016, the Exchange withdrew 
Amendment No. 3 and filed and withdrew Amendment No. 4 to the 
proposed rule change.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 77287, 81 FR 12540 
(March 9, 2016).
    \7\ Amendment No. 5 replaced Amendment No. 1 (as subsequently 
amended by Amendment No. 2), which replaced and superseded the 
original filing in its entirety. In Amendment No. 5, the Exchange: 
(1) Provided additional clarification and specificity regarding the 
instruments in which the Funds may invest, including that the Funds 
will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) investment 
company securities; (2) provided additional clarification regarding 
the investment objective and investment restrictions of the 
Subsidiaries; (3) clarified how certain investments will be valued 
for computing each Fund's net asset value; (4) clarified where price 
information can be obtained for certain investments of the Funds; 
(5) supplemented the description of the information that will be 
contained in the Information Circular; (6) clarified that all 
statements and representations made in the filing regarding the 
description of the portfolio, limitations on portfolio holdings or 
reference assets, or the applicability of Exchange rules and 
surveillance procedures constitute continued listing requirements 
for listing the Shares on the Exchange; (7) stated that the issuer 
has represented to the Exchange that it will advise the Exchange of 
any failure by the Funds to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will surveil for compliance with 
the continued listing requirements, and if a Fund is not in 
compliance with the applicable listing requirements, the Exchange 
will commence delisting procedures under Exchange Rule 14.12; and 
(8) made other technical amendments. Because Amendment No. 5 does 
not materially alter the substance of the proposed rule change or 
raise unique or novel regulatory issues, Amendment No. 5 is not 
subject to notice and comment. Amendment No. 5 is available at 
http://www.sec.gov/comments/sr-bats-2015-124/bats2015124-5.pdf.
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II. The Exchange's Description of the Proposal

    The Exchange proposes to list and trade the Shares of the Funds 
under BATS Rule 14.11(i), which governs the listing and trading of 
Managed Fund Shares on the Exchange. The Shares will be offered by the 
Trust. According to the Exchange, the Trust is registered with the 
Commission as an open-end investment company and has filed a 
registration statement on behalf of the Funds on Form N-1A 
(``Registration Statement'') with the Commission.\8\ Exchange Traded 
Concepts, LLC will be the investment adviser (``Adviser'') \9\ to the 
Funds and Vident Investment Advisory, LLC will be the sub-adviser 
(``Sub-Adviser'') to the Funds.\10\ SEI Investments Global Funds 
Services serves as administrator for the Trust (``Administrator''); 
Brown Brothers Harriman & Co. serves as custodian, transfer agent, and 
dividend disbursing agent for the Trust; and SEI Investments 
Distribution Co. serves as the distributor for the Trust.\11\
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    \8\ See Registration Statement on Form N-1A for the Trust, dated 
December 29, 2015 (File Nos. 333-156529 and 811-22263). The Exchange 
states that the Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (``1940 Act''). See Investment Company Act Release No. 30445 
(April 2, 2013) (File No. 812-13969).
    \9\ The Exchange states that the Adviser is registered as a 
Commodity Pool Operator and that the Funds and their respective 
Subsidiaries (as defined below) will be subject to regulation by the 
Commodity Futures Trading Commission and to additional disclosure, 
reporting, and recordkeeping rules imposed upon commodity pools.
    \10\ The Exchange states that neither the Adviser nor the Sub-
Adviser is registered as a broker-dealer or is affiliated with a 
broker-dealer. The Exchange states that in the event that (a) the 
Adviser or Sub-Adviser becomes a broker-dealer or newly affiliated 
with a broker-dealer, or (b) any new adviser or sub-adviser is a 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to its relevant personnel or such 
broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition and/or changes to the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding 
such portfolio.
    \11\ The Commission notes that additional information regarding 
the Trust, the Funds, and the Shares, including investment 
strategies, risks, creation and redemption procedures, calculation 
of net asset value (``NAV''), fees, portfolio holdings disclosure 
policies, distributions, and taxes, among other things, can be found 
in the Notice, Amendment No. 5, and the Registration Statement, as 
applicable. See Notice, supra note 3, Amendment No. 5, supra note 7, 
and Registration Statement, supra note 8.
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A. The Funds' Investments

    According to the Exchange, the REX VolMAXX Long VIX Weekly Futures 
Strategy ETF seeks to provide investors with long exposure to the 
implied volatility of the broad-based, large-cap U.S. equity market by 
obtaining investment exposure to an actively managed portfolio of 
exchange-traded futures contracts based on the Chicago Board Options 
Exchange, Incorporated (``CBOE'') Volatility Index (``VIX Index'') 
(such futures contracts, ``VIX Futures Contracts'') with weekly and 
monthly expirations. According to the Exchange, the REX VolMAXX Inverse 
VIX Weekly Futures Strategy ETF seeks to provide investors with inverse 
exposure to the implied volatility of the broad-based, large-cap U.S. 
equity market by obtaining investment exposure to an actively managed 
portfolio of exchange-traded VIX Futures Contracts with weekly and 
monthly expirations.\12\
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    \12\ The Exchange represents that while the REX VolMAXX Long VIX 
Weekly Futures Strategy ETF generally will seek exposure to the VIX 
Index and the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF 
generally will seek inverse exposure to the VIX Index, the Funds are 
not index tracking funds and will generally seek to enhance their 
performance by actively selecting VIX Futures Contracts of varying 
maturities and they can be expected to perform very differently from 
the VIX Index over all periods of time.
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    According to the Exchange, each Fund will seek to achieve its 
investment objective by obtaining investment exposure to an actively 
managed portfolio of futures contracts based on VIX Futures Contracts 
with weekly and

[[Page 23340]]

monthly expirations.\13\ The Exchange states that each Fund will obtain 
such exposure by investing, through both long and short positions, only 
in the following instruments: VIX Futures Contracts; \14\ total return 
swap agreements that provide exposure to VIX Futures Contracts; \15\ 
the securities of other investment companies,\16\ other pooled 
investment vehicles,\17\ and exchange-traded notes \18\ that provide 
exposure to VIX Futures Contracts; options on securities, securities 
indices, and currencies; \19\ repurchase agreements \20\ and reverse 
repurchase agreements; \21\ and cash or cash equivalents (which include 
commercial paper \22\ and U.S. government obligations \23\) to 
collateralize its exposure to the VIX Futures Contracts and for 
investment purposes.
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    \13\ According to the Exchange, the REX VolMAXX Long VIX Weekly 
Futures Strategy ETF expects the notional value of its exposure to 
VIX Futures Contracts to be equal to approximately 100% of its 
assets at all times and the weighted average of time to expiry of 
the VIX Futures Contracts to be less than one month at all times. 
The REX VolMAXX Inverse VIX Weekly Futures Strategy ETF expects the 
notional value of its exposure to VIX Futures Contracts to be equal 
to approximately 100% of its assets at the close of each trading day 
and the weighted average of time to expiry of the VIX Futures 
Contracts to be less than one month at all times.
    \14\ The Exchange represents that all VIX Futures Contracts held 
by the Funds will be exchange-traded.
    \15\ The Exchange states that to the extent practicable, each 
Fund will invest in swaps cleared through the facilities of a 
centralized clearing house. The Exchange also states that, to the 
extent that a Fund invests in swaps that are not centrally cleared, 
the Adviser will attempt to mitigate the Fund's credit risk by 
transacting only with large, well-capitalized institutions using 
measures designed to determine the creditworthiness of a 
counterparty. According to the Exchange, the Adviser will take 
various steps to limit counterparty credit risk. The Exchange 
represents that each Fund's investments in over-the-counter 
(``OTC'') derivatives will not exceed 20% of its assets.
    \16\ Each Fund may invest in the securities of other investment 
companies, subject to applicable limitations under Section 12(d)(1) 
of the 1940 Act. These securities include only the following: The 
securities of exchange-traded investment companies including 
Portfolio Depositary Receipts (as defined in BATS Rule 14.11(b)); 
Index Fund Shares (as defined in BATS Rule 14.11(c)); and Managed 
Fund Shares (as defined in BATS Rule 14.11(i)); and money market 
mutual funds. The Exchange represents that although the Funds may 
invest in inverse investment company securities, the Funds will not 
invest in leveraged (e.g., 2X, -2X, 3X or -3X) investment company 
securities.
    \17\ According to the Exchange, pooled investment vehicles 
include only the following instruments: Trust Issued Receipts (as 
defined in BATS Rule 14.11(f)); Commodity-Based Trust Shares (as 
defined in Rule 14.11(e)(4)); Currency Trust Shares (as defined in 
Rule 14.11(e)(5)); Commodity Index Trust Shares (as defined in Rule 
14.11(e)(6)); Trust Units (as defined in Rule 14.11(e)(9)); and 
Paired Class Shares (as defined in NASDAQ Stock Market LLC Rule 
5713). The Exchange represents that although the Funds may invest in 
inverse pooled investment vehicles, the Funds will not invest in 
leveraged (e.g., 2X, -2X, 3X or -3X) pooled investment vehicles.
    \18\ The Exchange represents that although the Funds may invest 
in inverse ETNs, the Funds will not invest in leveraged (e.g., 2X, -
2X, 3X or -3X) ETNs.
    \19\ The Exchange states that all options written on indices or 
securities will be covered. According to the Exchange, for all OTC 
options, the Funds will seek, where possible, to use counterparties 
whose financial status is such that the risk of default is reduced; 
however, the risk of losses from default is still possible. The 
Exchange represents that the Sub-Adviser will monitor the financial 
standing of counterparties on an ongoing basis.
    \20\ According to the Exchange, the Funds follow certain 
procedures designed to minimize the risks inherent in repurchase 
agreements. The Exchange represents that it is the current policy of 
each Fund not to invest in repurchase agreements that do not mature 
within seven days if any such investment, together with any other 
illiquid assets held by the Fund, amount to more than 15% of the 
Fund's net assets. The Exchange states that the investments of the 
Funds in repurchase agreements, at times, may be substantial when, 
in the view of the Sub-Adviser, liquidity or other considerations so 
warrant.
    \21\ According to the Exchange, each Fund will establish a 
segregated account with the Trust's custodian bank in which the Fund 
will maintain cash, cash equivalents or other portfolio securities 
equal in value to its obligations in respect of reverse repurchase 
agreements. The Exchange represents that each Fund does not expect 
to engage, under normal circumstances, in reverse repurchase 
agreements with respect to more than 33\1/3\% of its assets.
    \22\ The Exchange states that the Funds may invest in commercial 
paper rated A-1 or A-2 by Standard and Poor's Ratings Services or 
Prime-1 or Prime-2 by Moody's Investors Service, Inc.
    \23\ U.S. government obligations include securities issued or 
guaranteed as to principal and interest by the U.S. government, its 
agencies, or instrumentalities, such as U.S. Treasury obligations, 
receipts, STRIPS, and U.S. Treasury zero-coupon bonds.
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    Each of the REX VolMAXX Long VIX Weekly Futures Strategy ETF and 
the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF expects to gain 
exposure to certain of these investments by investing a portion of its 
assets in its wholly-owned Cayman Islands subsidiary, the REX VolMAXX 
Long VIX Weekly Futures Strategy Subsidiary I and the REX VolMAXX 
Inverse VIX Weekly Futures Strategy Subsidiary I, respectively (each a 
``Subsidiary'' and, collectively, ``Subsidiaries''). The Subsidiaries 
will be advised by the Adviser.\24\ According to the Exchange, each 
Fund's investment in its Subsidiary is intended to provide the Fund 
with exposure to markets within the limits of current federal income 
tax laws applicable to investment companies such as the Funds, which 
limit the ability of investment companies to invest directly in certain 
futures contracts. According to the Exchange, each Subsidiary will have 
the same investment objective and investment restrictions as its 
applicable Fund and, except as otherwise noted, references to each 
Fund's investments may also be deemed to include the Fund's indirect 
investments through its Subsidiary. Each Fund will invest up to 25% of 
its total assets in its Subsidiary.
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    \24\ The Exchange states that the Subsidiaries are not 
registered under the 1940 Act and are not directly subject to its 
investor protections, except as noted in the Registration Statement. 
However, according to the Exchange, each Subsidiary is wholly-owned 
and controlled by its respective Fund and is advised by the Adviser. 
Therefore, according to the Exchange, because of each Fund's 
ownership and control of its Subsidiary, the Subsidiary will not 
take action contrary to the interests of its respective Fund or its 
shareholders. Each Fund's Board of Trustees (``Board'') has 
oversight responsibility for the investment activities of the Fund, 
including the Fund's expected investment in its Subsidiary, and the 
Fund's role as the sole shareholder of the Subsidiary. The Adviser 
receives no additional compensation for managing the assets of the 
Subsidiaries. The Exchange states that each Subsidiary will enter 
into separate contracts for the provision of custody, transfer 
agency, and accounting agent services with the same or with 
affiliates of the same service providers that provide those services 
to the applicable Fund.
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    Each Fund may lend its portfolio securities in an amount not to 
exceed 33\1/3\% of the value of its total assets, and each Fund will 
receive collateral for each loaned security which is at least equal to 
the current market value of that security, marked to market each 
trading day. The Exchange represents that aside from each Fund's 
investments in its Subsidiary, each Fund and its Subsidiary will not 
invest in non-U.S. equity securities or options.
    Each Fund intends to qualify each year as a regulated investment 
company under the Internal Revenue Code.

B. The Funds' Investment Restrictions

    Each Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment) deemed 
illiquid by the Adviser \25\ under the 1940 Act. 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 the Fund's net assets are held 
in illiquid assets. Illiquid assets include assets subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available

[[Page 23341]]

markets as determined in accordance with Commission staff guidance.
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    \25\ The Exchange states that, 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).
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    Each Fund's investments will be consistent with the Fund's 
investment objective and will not be used to achieve leveraged or 
inverse leveraged returns.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\26\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment Nos. 1, 2, and 5, is 
consistent with Section 6(b)(5) of the Act,\27\ which requires, among 
other things, that the Exchange's rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \26\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposal to list and trade the 
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of 
the Act,\28\ which sets forth Congress's finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities.
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    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    According to the Exchange, quotation and last sale information for 
the Shares will be available on the facilities of the Consolidated Tape 
Association (``CTA''), and the previous day's closing price and trading 
volume information for the Shares will be generally available daily in 
the print and online financial press. Additionally, information 
regarding market price and volume of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services. Daily trading volume information 
will be available in the financial section of newspapers, through 
subscription services such as Bloomberg, Thomson Reuters, and 
International Data Corporation, which can be accessed by authorized 
participants and other investors, as well as through other electronic 
services, including major public Web sites.
    In addition, for each Fund, the Intraday Indicative Value \29\ will 
be updated and widely disseminated by one or more major market data 
vendors at least every 15 seconds during the Exchange's Regular Trading 
Hours.\30\ On each business day, before commencement of trading in the 
Shares during Regular Trading Hours on the Exchange, each Fund will 
disclose on its Web site the Disclosed Portfolio \31\ that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day.\32\ Each Fund's Web site will also include a form of the 
prospectus for the Fund that may be downloaded and additional data 
relating to NAV and other applicable quantitative information.
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    \29\ According to the Exchange, the Intraday Indicative Value 
for each Fund will reflect an estimated intraday value of such 
Fund's portfolio, and will be based upon the current value for the 
components of the Disclosed Portfolio (as defined below). The 
quotations of certain of the Funds' holdings may not be updated for 
purposes of calculating Intraday Indicative Value during U.S. 
trading hours where the market on which the underlying asset is 
traded settles prior to the end of the Exchange's Regular Trading 
Hours. The Exchange's Regular Trading Hours are 9:30 a.m. to 4:00 
p.m. Eastern Time.
    \30\ The Exchange notes that several major market data vendors 
display and/or make widely available Intraday Indicative Values 
published via the CTA or other data feeds.
    \31\ The Disclosed Portfolio will include, as applicable: Ticker 
symbol or other identifier, a description of the holding, identity 
of the asset upon which the derivative is based, the strike price 
for any options, the quantity of each security or other asset held 
as measured by select metrics, maturity date, coupon rate, effective 
date, market value and percentage weight of the holding in the 
portfolio. The Web site and information will be publicly available 
at no charge.
    \32\ The NAV of each Fund will generally be determined at 4:15 
p.m. Eastern Time each business day when the Exchange is open for 
trading.
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    Intraday price quotations on cash and cash equivalents, repurchase 
agreements, and reverse repurchase agreements of the type held by the 
Funds are available from major broker-dealer firms and from third-
parties, which may provide prices free with a time delay, or ``live'' 
with a paid fee. Price information for investment company securities 
(other than exchange-traded investment company securities) will be 
available from the applicable investment company's Web site and from 
market data vendors. Price information for OTC-traded options will be 
available from market data vendors. Major broker-dealer firms will 
provide intraday quotes on swaps of the type held by the Funds. Pricing 
information related to exchange-listed instruments, including exchange-
listed options, securities of other investment companies, pooled 
investment vehicles, and exchange-traded notes, will be available 
directly from the listing exchange. Pricing information related to 
money market fund shares will be available through issuer Web sites and 
publicly available quotation services such as Bloomberg, Markit and 
Thomson Reuters. For VIX Futures Contracts, intraday information is 
available directly from CBOE. Intraday price information for the 
underlying investments of the Funds is also available through 
subscription services, such as Bloomberg and Thomson Reuters, which can 
be accessed by authorized participants and other investors.
    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Exchange will obtain a representation from the issuer of 
the Shares that the NAV will be calculated daily and that the NAV and 
the Disclosed Portfolio will be made available to all market 
participants at the same time. Further, trading in the Shares will be 
subject to BATS Rules 11.18 and 14.11(i)(4)(B)(iv), which set forth 
circumstances under which trading in Shares of a Fund may be halted. 
Trading may also be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) The extent to which trading is not 
occurring in the instruments composing the Disclosed Portfolio of a 
Fund; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. The Reporting Authority that provides the Disclosed Portfolio 
must implement and maintain, or be subject to, procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the actual components of the portfolio.\33\ The Exchange 
represents that it prohibits the distribution of material non-public 
information by its employees. The Exchange states that neither the 
Adviser nor the Sub-Adviser is or is affiliated with a broker-dealer 
and that, in the event that (a) the Adviser or Sub-Adviser becomes a 
broker-dealer or newly affiliated with a broker-dealer, or (b) any new 
adviser or sub-adviser is a broker-dealer or becomes affiliated with a 
broker-dealer, it will implement a fire wall with

[[Page 23342]]

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.\34\ 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. The Exchange may obtain information regarding 
trading in the Shares, exchange-listed options, exchange-listed equity 
securities, and the underlying futures via the Intermarket Surveillance 
Group (``ISG'') from other exchanges who are members or affiliates of 
the ISG or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, the Exchange is able to 
access, as needed, trade information for certain fixed income 
instruments reported to FINRA's Trade Reporting and Compliance Engine.
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    \33\ See BATS Rule 14.11(i)(4)(B)(ii)(b).
    \34\ The Exchange represents that an investment adviser to an 
open-end fund is required to be registered under the Investment 
Advisers Act of 1940.
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    The Exchange represents that it 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. 
In support of this proposal, the Exchange has made the following 
representations:
    (1) The Shares will be subject to BATS Rule 14.11(i), which sets 
for the initial and continued listing criteria applicable to Managed 
Fund Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading of the Shares through the Exchange will be subject to 
the Exchange's surveillance procedures for derivative products, 
including Managed Fund Shares, and such 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.
    (4) 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: (a) The procedures for 
purchases and redemptions of Shares in creation units (and that Shares 
are not individually redeemable); (b) BATS Rule 3.7, which imposes 
suitability obligations on Exchange members with respect to 
recommending transactions in the Shares to customers; (c) how 
information regarding the Intraday Indicative Value and Disclosed 
Portfolio is disseminated; (d) the risks involved in trading the Shares 
during the Pre-Opening and After Hours Trading Sessions (as defined in 
the Exchange's rules) when an updated Intraday Indicative Value will 
not be calculated or publicly disseminated; (e) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (5) For initial and continued listing, each Fund must be in 
compliance with Rule 10A-3 under the Act.\35\
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    \35\ See 17 CFR 240.10A-3.
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    (6) All VIX Futures Contracts held by the Funds will be exchange-
traded.
    (7) All of the futures contracts in the Disclosed Portfolio for 
each Fund (including futures contracts held by each Subsidiary) will 
trade on markets that are a member of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.
    (8) Aside from each Fund's investments in its Subsidiary, neither 
the Fund nor its respective Subsidiary will invest in non-U.S. equity 
securities or options.
    (9) Although the Funds may invest in inverse investment company 
securities, pooled investment vehicles, and ETNs, the Funds will not 
invest in leveraged (e.g., 2X, -2X, 3X or -3X) investment company 
securities, pooled investment vehicles, or ETNs.
    (10) Each Fund's investments in OTC derivatives will not exceed 20% 
of its assets.
    (11) Each Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment) deemed 
illiquid by the Adviser under the 1940 Act. 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 the Fund's net assets are held 
in illiquid assets.
    (12) Each Fund's investments will be consistent with the Fund's 
investment objective and will not be used to achieve leveraged or 
inverse leveraged returns.
    (13) A minimum of 100,000 Shares for each Fund will be outstanding 
at the commencement of trading on the Exchange.
    The Exchange represents that all statements and representations 
made in the filing regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules and surveillance procedures constitute 
continued listing requirements for listing the Shares on the Exchange. 
In addition, 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 procedures under Exchange Rule 14.12.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in Amendment No. 
5. The Commission notes that the Funds and the Shares must comply with 
the requirements of BATS Rule 14.11(i) to be initially and continuously 
listed and traded on the Exchange.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment Nos. 1, 2, and 5, is consistent 
with Section 6(b)(5) of the Act \36\ and Section 11A(a)(1)(C)(iii) of 
the Act \37\ and the rules and regulations thereunder applicable to a 
national securities exchange.
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    \36\ 15 U.S.C. 78f(b)(5).
    \37\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\38\ that the proposed rule change (SR-BATS-2015-124), as modified 
by Amendment Nos. 1, 2, and 5, be, and it hereby is, approved.
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    \38\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-09062 Filed 4-19-16; 8:45 am]
 BILLING CODE 8011-01-P