Document ID: SEC-2017-1914-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2017-11-22T05:00Z

[Federal Register Volume 82, Number 224 (Wednesday, November 22, 2017)]
[Notices]
[Pages 55689-55696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25226]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82097; File No. SR-BatsBZX-2017-72]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
Innovator S&P 500 15% Shield Strategy ETF Series, Innovator S&P 500 -5% 
to -35% Shield Strategy ETF Series, Innovator S&P 500 Enhance and 10% 
Shield Strategy ETF Series, and Innovator S&P 500 Ultra Strategy ETF 
Series Under Rule 14.11(i)

November 16, 2017.
    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 November 7, 2017, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') (formerly known as Bats BZX Exchange, Inc.) 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 proposed rule change to list and trade shares 
of the Innovator S&P 500 15% Shield Strategy ETF Series, Innovator S&P 
500 -5% to -35% Shield Strategy ETF Series, Innovator S&P 500 Enhance 
and 10% Shield Strategy ETF Series and Innovator S&P 500 Ultra Strategy 
ETF Series under the Innovator ETFs Trust (formerly, Academy Funds 
Trust), under Rule 14.11(i) (``Managed Fund Shares'').
    The text of the proposed rule change is available at the Exchange's 
Web site 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

[[Page 55690]]

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 up 
to twelve monthly Innovator S&P 500 15% Shield Strategy ETF Series 
(collectively, the ``Shield Funds''), Innovator S&P 500 -5% to -35% 
Shield Strategy ETF Series (collectively, the ``Ultra Shield Funds''), 
Innovator S&P 500 Enhance and 10% Shield Strategy ETF Series 
(collectively, the ``Enhance and Shield Funds'') and Innovator S&P 500 
Ultra Strategy ETF Series (collectively, the ``Ultra Funds'') (each a 
``Fund'' and, collectively, the ``Funds'') under Rule 14.11(i), which 
governs the listing and trading of Managed Fund Shares on the 
Exchange.\3\ Each Fund will be an actively managed exchange traded fund 
(``ETF'').
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    \3\ The Commission originally approved BZX 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 
Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22, 
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100).
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    The Shares will be offered by Innovator ETFs Trust (formerly 
Academy Funds Trust) (the ``Trust''), which was established as a 
Delaware statutory trust on October 17, 2007. The Trust is registered 
with the Commission as an investment company and has filed, for each 
Fund, a registration statement on Form N-1A (``Registration 
Statement'') with the Commission on behalf of the Funds.\4\ Each Fund 
intends to qualify each year as a regulated investment company (a 
``RIC'') under Subchapter M of the Internal Revenue Code of 1986, as 
amended.\5\ Innovator Capital Management, LLC (the ``Adviser'') is the 
investment adviser to the Funds and Milliman Financial Risk Management 
LLC (the ``Sub-Adviser'') is the sub-adviser. Rule 14.11(i)(7) provides 
that, if the investment adviser to the investment company issuing 
Managed Fund Shares is affiliated with a broker-dealer, such investment 
adviser shall erect a ``fire wall'' between the investment adviser and 
the broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio.\6\ In 
addition, Rule 14.11(i)(7) further requires that personnel who make 
decisions on the investment company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable investment 
company portfolio. Neither the Adviser nor the Sub-Adviser is a 
registered broker-dealer, and neither the Adviser nor the Sub-Adviser 
are affiliated with broker-dealers. In addition, Adviser or Sub-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 or Sub-Adviser becomes registered as a broker-dealer or 
newly affiliated with another 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 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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    \4\ See Post-Effective Amendment Nos. 59 and 60 to Registration 
Statement on Form N-1A for the Trust, dated September 8, 2017 (File 
Nos. 333-146827 and 811-22135) and Post-Effective Amendment Nos. 63 
and 64 to Registration Statement on Form N-1A for the Trust, dated 
October 19, 2017 (File Nos. 333-146827 and 811-22135). The 
descriptions of the Funds and the Shares contained herein are based 
on information in the Registration Statement.
    \5\ 26 U.S.C. 851.
    \6\ 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 investment objective of the Shield Funds is to provide 
investors, over a one-year period, with returns equal to those of the 
S&P 500 Price Return Index, while providing protection from S&P 500 
Price Return Index losses. The investment objective of the Ultra Shield 
Funds is to provide investors, over a one-year period, with returns 
equal to those of the S&P 500 Price Return Index, while providing 
protection from S&P 500 Price Return Index losses. The investment 
objective of the Enhance and Shield Funds is to provide investors, over 
a one-year period, with returns that exceed those of the S&P 500 Price 
Return Index, while providing protection from S&P 500 Price Return 
Index losses. The investment objective of the Ultra Funds is to provide 
investors, over a one-year period, with returns that exceed those of 
the S&P 500 Price Return Index.
    The Shield Funds and the Ultra Shield Funds are each actively 
managed funds that seek to exceed the returns of a benchmark index that 
employs a ``defined outcome strategy'' that is: (1) For the Shield 
Funds, the Cboe S&P 500 15% Buffer Protect Index Series (the ``Shield 
Index''), which seeks to provide investment returns that match those of 
the S&P 500 Price Return Index (the ``S&P 500 Index''), up to a 
maximized annual return (the ``Shield Cap Level''), while guarding 
against a decline in the S&P 500 Index of the first 15% (the ``Shield 
Strategy''); and (2) for the Ultra Shield Funds, Cboe S&P 500 30% (-5% 
to -35%) Buffer Protect Index Series (the ``Ultra Shield Index''), 
which seeks to provide investment returns that match those of the S&P 
500 Index, up to a maximized annual return (the ``Ultra Shield Cap 
Level''), while guarding against a decline in the S&P 500 Index of 
between 5% and 35% (the ``Ultra Shield Strategy''). The Enhance and 
Shield Funds and the Ultra Funds do not utilize benchmark indexes and 
are each actively managed funds that employ a ``defined outcome 
strategy'' that: (1) For the Enhance and Shield Funds, seeks to provide 
investment returns that exceed the gains of the S&P 500 Index, up to a 
maximized annual return (the ``Enhance and Shield Cap Level''), while 
guarding against a decline in the S&P 500 Index of the first 10% (the 
``Enhance and Shield Strategy''); and (2) for the Ultra Funds, seeks to 
provide investment returns that exceed gains of the S&P 500 Index, up 
to a maximized annual return (the ``Ultra Cap Level'') (the ``Ultra 
Strategy'' and, collectively with the Shield Strategy, Ultra Shield 
Strategy and Enhance and Shield Strategy, the

[[Page 55691]]

``Strategies''). Pursuant to the Strategies, each Fund will invest 
primarily in exchange-traded options contracts that reference either 
the S&P 500 Index or ETFs that track the S&P 500 Index. Defined outcome 
strategies are designed to participate in market gains and losses 
within pre-determined ranges over a specified period (i.e. point to 
point). These outcomes are predicated on the assumption that an 
investment vehicle employing the strategy is held for the designated 
outcome periods. As such, the Exchange is proposing to list up to 
twelve monthly series of each of the Shield Funds, Ultra Shield Funds, 
Enhance and Shield Funds and the Ultra Funds, as named above.
    The Exchange submits this proposal in order to allow each Fund to 
hold listed derivatives, in particular FLexible EXchange Options 
(``FLEX Options'') on the S&P 500 Index, in a manner that does not 
comply with Rule 14.11(i)(4)(C)(iv)(b).\7\ Otherwise, the Funds will 
comply with all other listing requirements of the Generic Listing 
Standards \8\ for Managed Fund Shares on an initial and continued 
listing basis under Rule 14.11(i).
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    \7\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate 
gross notional value of listed derivatives based on any five or 
fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and 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).'' The 
Exchange is proposing that the Funds be exempt from the requirement 
of Rule 14.11(i)(4)(C)(iv)(b) that prevents the aggregate gross 
notional value of listed derivatives based on any single underlying 
reference asset from exceeding 30% of the weight of the portfolio 
(including gross notional exposures) and the requirement that the 
aggregate gross notional value of listed derivatives based on any 
five or fewer underlying reference assets shall not exceed 65% of 
the weight of the portfolio (including gross notional exposures).
    \8\ For purposes of this proposal, the term ``Generic Listing 
Standards'' shall mean the generic listing rules for Managed Fund 
Shares under Rule 14.11(i)(4)(C).
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Innovator S&P 500 15% Shield Strategy ETF Series
    The Shield Funds are actively managed funds that seek to provide 
total return which exceeds that of the Shield Index. Each Shield Fund 
will seek excess return above the Shield Index, before expenses are 
taken into account, solely through the active management of any 
available assets not required to be deposited for margin in connection 
with the Shield Fund's respective investments in the Shield Index 
components. Under Normal Market Conditions,\9\ each Shield Fund will 
attempt to achieve its investment objective by taking positions that 
provide performance exposure substantially similar to the exposure 
provided by components of the Shield Index.\10\ Pursuant to the Shield 
Strategy, each Shield Fund will invest primarily in the FLEX Options 
included in the Shield Index or other standardized options contracts 
listed on a U.S. exchange that reference either the S&P 500 Index or 
ETFs that track the S&P 500 Index.
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    \9\ As defined in Rule 14.11(i)(3)(E), the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational 
issues causing dissemination of inaccurate market information or 
system failures; or force majeure type events such as natural or 
man-made disaster, act of God, armed conflict, act of terrorism, 
riot or labor disruption, or any similar intervening circumstance.
    \10\ The Shield Funds are not index tracking funds and are not 
required to invest in all components of the Shield Index.
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    The Shield Index is composed of U.S. exchange-listed FLEX Options 
that reference the S&P 500 Index. The Shield Index is designed to 
produce returns that, over a period of approximately one year, match 
the returns of the S&P 500 Index up to the Shield Cap Level, while 
guarding against a decline in the S&P 500 Index of the first 15%. More 
specifically, the Shield Index is designed to produce the following 
outcomes during the outcome period:
     If the S&P 500 Index appreciates over the outcome period: 
The Shield Index will provide a total return that matches the 
percentage increase of the S&P 500 Index, up to the Shield Cap Level;
     If the S&P 500 Index decreases over the outcome period by 
15% or less: The Shield Index will provide a total return of zero; and
     If the S&P 500 Index depreciates over the outcome period 
by greater than 15%: The Shield Index will provide a total return loss 
that is 15% less than the percentage loss on the S&P 500 Index with a 
maximum loss of approximately 85%.

The Shield Index will produce these outcomes by layering ``purchased'' 
and ``written'' FLEX Options. The customizable nature of FLEX Options 
allows for the creation of a strategy that sets desired defined outcome 
parameters. The FLEX Options comprising the Shield Index have terms 
that, when layered upon each other, are designed to buffer against 
losses of the S&P 500 Index. However, another effect of the layering of 
FLEX Options with these terms is a cap on the level of possible gains. 
Any FLEX Options that are written by the Shield Index that create an 
obligation to sell or buy an asset will be offset with a position in 
FLEX Options purchased by the Shield Index to create the right to buy 
or sell the same asset such that the Shield Index will always be in a 
net long position. That is, any theoretical obligations of a Shield 
Index created by its writing of FLEX Options will be covered by 
offsetting positions in other purchased FLEX Options. As the FLEX 
Options mature at the end of each outcome period, they are replaced. By 
replacing FLEX Options annually, each Shield Index seeks to ensure that 
investments made in a given month during the current year buffer 
against negative returns of the S&P 500 Index up to pre-determined 
levels in that same month of the following year.
    Similarly, each of the Shield Funds will layer purchased and 
written FLEX Options that comprise the Shield Index. Any FLEX Options 
that are written by a Shield Fund that create an obligation to sell or 
buy an asset will be offset with a position in FLEX Options purchased 
by the Shield Fund to create the right to buy or sell the same asset 
such that the Shield Fund will always be in a net long position. That 
is, any obligations of a Shield Fund created by its writing of FLEX 
Options will be covered by offsetting positions in other purchased FLEX 
Options. As the FLEX Options mature at the end of each outcome period, 
they are replaced. By replacing FLEX Options annually, each Shield Fund 
seeks to ensure that investments made in a given month during the 
current year buffer against negative returns of the S&P 500 Index up to 
pre-determined levels in that same month of the following year. The 
Shield Funds do not offer any protection against declines in the S&P 
500 Index exceeding 15% on an annualized basis. Shareholders will bear 
all S&P 500 Index losses exceeding 15% on a one-to-one basis.
    The FLEX Options owned by each of the Shield Funds will have the 
same terms (i.e. same strike price and expiration) for all investors of 
a Shield Fund within an outcome period. The Shield Cap Level will be 
determined with respect to each Shield Fund on the inception date of 
the Shield Fund and at the beginning of each outcome period.
Innovator S&P 500 -5% to -35% Shield Strategy ETF Series
    The Ultra Shield Funds are actively managed funds that seek to 
provide total return which exceeds that of the Ultra Shield Index. Each 
Ultra Shield Fund will seek excess return above the Ultra Shield Index, 
before expenses are taken into account, solely through the active 
management of any available assets not required to be deposited for 
margin in

[[Page 55692]]

connection with the Ultra Shield Fund's respective investments in the 
Ultra Shield Index components. Under Normal Market Conditions, each 
Ultra Shield Fund will attempt to achieve its investment objective by 
taking positions that provide performance exposure substantially 
similar to the exposure provided by components of the Ultra Shield 
Index.\11\ Pursuant to the Ultra Shield Strategy, each Ultra Shield 
Fund will invest primarily in the FLEX Options included in the Ultra 
Shield Index or other standardized options contracts listed on a U.S. 
exchange that reference either the S&P 500 Index or ETFs that track the 
S&P 500 Index.
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    \11\ The Ultra Shield Funds are not index tracking funds and are 
not required to invest in all components of the Ultra Shield Index.
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    The Ultra Shield Index is composed of U.S. exchange-listed FLEX 
Options that reference the S&P 500 Index. The Ultra Shield Index is 
designed to produce returns that, over a period of approximately one 
year, match the returns of the S&P 500 Index up the Ultra Shield Cap 
Level while guarding against a decline in the S&P 500 Index of between 
5% and 35%. More specifically, the Ultra Shield Index is designed to 
produce the following outcomes during the outcome period:
     If the S&P 500 Index appreciates over the outcome period: 
The Ultra Shield Index seeks to provide a total return that matches the 
percentage increase of the S&P 500 Index, up to the Ultra Shield Cap 
Level;
     If the S&P 500 Index decreases over the outcome period by 
5% or less: The Ultra Shield Index seeks to provide a total return loss 
that is equal to the percentage loss on the S&P 500 Index;
     If the S&P 500 Index decreases over the outcome period by 
5%-35%: The Ultra Shield Index seeks to provide a total return loss of 
5%; and
     If the S&P 500 Index depreciates over the outcome period 
by greater than 35%: The Ultra Shield Index seeks to provide a total 
return loss that is 30% less than the percentage loss on the S&P 500 
Index with a maximum loss of approximately 70%.

The Ultra Shield Index will produce these outcomes by layering 
``purchased'' and ``written'' FLEX Options. The customizable nature of 
FLEX Options allows for the creation of a strategy that sets desired 
defined outcome parameters. The FLEX Options comprising the Ultra 
Shield Index have terms that, when layered upon each other, are 
designed to buffer against losses of the S&P 500 Index. However, 
another effect of the layering of FLEX Options with these terms is a 
cap on the level of possible gains. Any FLEX Options that are written 
by the Ultra Shield Index that create an obligation to sell or buy an 
asset will be offset with a position in FLEX Options purchased by the 
Ultra Shield Index to create the right to buy or sell the same asset 
such that the Ultra Shield Index will always be in a net long position. 
That is, any theoretical obligations of an Ultra Shield Index created 
by its writing of FLEX Options will be covered by offsetting positions 
in other purchased FLEX Options. As the FLEX Options mature at the end 
of each outcome period, they are replaced. By replacing FLEX Options 
annually, each Ultra Shield Index seeks to ensure that investments made 
in a given month during the current year buffer against negative 
returns of the S&P 500 Index up to pre-determined levels in that same 
month of the following year.
    Similarly, each of the Ultra Shield Funds will layer purchased and 
written FLEX Options that comprise the Ultra Shield Index. Any FLEX 
Options that are written by an Ultra Shield Fund that create an 
obligation to sell or buy an asset will be offset with a position in 
FLEX Options purchased by the Ultra Shield Fund to create the right to 
buy or sell the same asset such that the Ultra Shield Fund will always 
be in a net long position. That is, any obligations of an Ultra Shield 
Fund created by its writing of FLEX Options will be covered by 
offsetting positions in other purchased FLEX Options. As the FLEX 
Options mature at the end of each outcome period, they are replaced. By 
replacing FLEX Options annually, each Ultra Shield Fund seeks to ensure 
that investments made in a given month during the current year buffer 
against negative returns of the S&P 500 Index up to pre-determined 
levels in that same month of the following year. The Ultra Shield Funds 
do not offer any protection against declines in the S&P 500 Index 
exceeding 35% on an annualized basis. Shareholders will bear all S&P 
500 Index losses exceeding 35% on a one-to-one basis.
    The FLEX Options owned by each of the Ultra Shield Funds will have 
the same terms (i.e. same strike price and expiration) for all 
investors of an Ultra Shield Fund within an outcome period. The Ultra 
Shield Cap Level will be determined with respect to each Ultra Shield 
Fund on the inception date of the Ultra Shield Fund and at the 
beginning of each outcome period.
Innovator S&P 500 Enhance and 10% Shield Strategy ETF Series
    Under Normal Market Conditions, each Enhance and Shield Fund will 
attempt to achieve its investment objective by employing a ``defined 
outcome strategy'' that seeks to provide investment returns that exceed 
the gains of the S&P 500 Index, up to the Enhance and Shield Cap Level, 
while shielding investors from S&P 500 Index losses of up to 10%. 
Pursuant to the Enhance and Shield Strategy, each Enhance and Shield 
Fund will invest primarily in FLEX Options or other standardized 
options contracts listed on a U.S. exchange that reference either the 
S&P 500 Index or ETFs that track the S&P 500 Index.
    The portfolio managers will invest in a portfolio of FLEX Options 
linked to an underlying asset, the S&P 500 Index, that, when held for 
the specified period, seeks to produce returns that, over a period of 
approximately one year, exceed the returns of the S&P 500 Index up to 
the Enhance and Shield Cap Level. Pursuant to the Enhance and Shield 
Strategy, each Enhance and Shield Fund's portfolio managers will seek 
to produce the following outcomes during the outcome period:
     If the S&P 500 Index appreciates over the outcome period: 
The Enhance and Shield Fund seeks to provide shareholders with a total 
return that exceeds that of the S&P 500 Index, up to and including the 
Enhance and Shield Cap Level;
     If the S&P 500 Index depreciates over the outcome period 
by 10% or less: The Enhance and Shield Fund seeks to provide a total 
return of zero;
     If the S&P 500 Index decreases over the outcome period by 
more than 10%: The Enhance and Shield Fund seeks to provide a total 
return loss that is 10% less than the percentage loss on the S&P 500 
Index with a maximum loss of approximately 90%.

The Enhance and Shield Funds will produce these outcomes by layering 
purchased and written FLEX Options. The customizable nature of FLEX 
Options allows for the creation of a strategy that sets desired defined 
outcome parameters. The FLEX Options comprising an Enhance and Shield 
Fund's portfolio have terms that, when layered upon each other, are 
designed to buffer against losses or exceed the gains of the S&P 500 
Index. However, another effect of the layering of FLEX Options with 
these terms is a cap on the level of possible gains.
    Any FLEX Options that are written by an Enhance and Shield Fund 
that create an obligation to sell or buy an asset will be offset with a 
position in FLEX Options purchased by the Enhance and Shield Fund to 
create the right to buy or sell the same asset such that the

[[Page 55693]]

Enhance and Shield Fund will always be in a net long position. That is, 
any obligations of an Enhance and Shield Fund created by its writing of 
FLEX Options will be covered by offsetting positions in other purchased 
FLEX Options. As the FLEX Options mature at the end of each outcome 
period, they are replaced. By replacing FLEX Options annually, each 
Enhance and Shield Fund seeks to ensure that investments made in a 
given month during the current year buffer against negative returns of 
the S&P 500 Index up to pre-determined levels in that same month of the 
following year. The Enhance and Shield Funds do not offer any 
protection against declines in the S&P 500 Index exceeding 10% on an 
annualized basis. Shareholders will bear all S&P 500 Index losses 
exceeding 10% on a one-to-one basis.
    The FLEX Options owned by each of the Enhance and Shield Funds will 
have the same terms (i.e. same strike price and expiration) for all 
investors of an Enhance and Shield Fund within an outcome period. The 
Enhance and Shield Cap Level will be determined with respect to each 
Enhance and Shield Fund on the inception date of the Enhance and Shield 
Fund and at the beginning of each outcome period.
Innovator S&P 500 Ultra Strategy ETF Series
    Under Normal Market Conditions, each Ultra Fund will attempt to 
achieve its investment objective by employing a ``defined outcome 
strategy'' that seeks to provide investment returns that exceed the 
gains of the S&P 500 Index, up to the Ultra Cap Level. Pursuant to the 
Ultra Strategy, each Ultra Fund will invest primarily in FLEX Options 
or other standardized options contracts listed on a U.S. exchange that 
reference either the S&P 500 Index or ETFs that track the S&P 500 
Index.
    The portfolio managers will invest in a portfolio of FLEX Options 
linked to an underlying asset, the S&P 500 Index, that, when held for 
the specified period, seeks to produce returns that, over a period of 
approximately one year, exceed the returns of the S&P 500 Index up to 
the Ultra Cap Level. Pursuant to the Ultra Strategy, each Ultra Fund's 
portfolio managers will seek to produce the following outcomes during 
the outcome period:
     If the S&P 500 Index appreciates over the outcome period: 
The Ultra Fund seeks to provide shareholders with a total return that 
exceeds that of the S&P 500 Index, up to the Ultra Cap Level;
     If the S&P 500 Index decreases over the outcome period: 
The Ultra Fund seeks to provide a total return loss that is equal to 
the percentage loss of the S&P 500 Index.

The Ultra Funds will produce these outcomes by layering purchased and 
written FLEX Options. The customizable nature of FLEX Options allow for 
the creation of a strategy that sets desired defined outcome 
parameters. The FLEX Options comprising the Ultra Fund's portfolio have 
terms that, when layered upon each other, are designed to exceed the 
gains of the S&P 500 Index. However, another effect of the layering of 
FLEX Options with these terms is a cap on the level of possible gains.
    Any FLEX Options that are written by the Ultra Fund that create an 
obligation to sell or buy an asset will be offset with a position in 
FLEX Options purchased by the Ultra Fund to create the right to buy or 
sell the same asset such that the Ultra Fund will always be in a net 
long position. That is, any obligations of an Ultra Fund created by its 
writing of FLEX Options will be covered by offsetting positions in 
other purchased FLEX Options. As the FLEX Options mature at the end of 
each outcome period, they are replaced.
    The FLEX Options owned by each of the Ultra Funds will have the 
same terms (i.e. same strike price and expiration) for all investors of 
an Enhance and Shield Fund within an outcome period. The Ultra Cap 
Level will be determined with respect to each Ultra Fund on inception 
date of the Ultra Fund and at the beginning of each outcome period.
Investment Methodology for the Funds
    Under Normal Market Conditions, each Fund will invest primarily in 
U.S. exchange-listed FLEX Options on the S&P 500 Index. Each of the 
Funds may invest its net assets (in the aggregate) in other investments 
which the Adviser or Sub-Adviser believes will help each Fund to meet 
its investment objective and that will be disclosed at the end of each 
trading day (``Other Assets''). Other Assets include only the 
following: cash or cash equivalents, as defined in Rule 
14.11(i)(4)(C)(iii) \12\ and standardized options contracts listed on a 
U.S. securities exchange that reference either the S&P 500 Index or 
that reference ETFs that track the S&P 500 Index (``Reference ETFs'').
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    \12\ 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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S&P 500 Index FLEX Options
    The market for options contracts on the S&P 500 Index traded on 
Cboe Exchange, Inc. (``Cboe Options'') is among the most liquid markets 
in the world. In 2016, 1,023,623 options contracts on the S&P 500 Index 
were traded per day on Cboe Options, which is more than $200 billion in 
notional volume traded on a daily basis. While FLEX Options are traded 
differently than standardized options contracts, the Exchange believes 
that this liquidity bolsters the market for FLEX Options, as described 
below. Every FLEX Option order submitted to Cboe Options is exposed to 
a competitive auction process for price discovery. The process begins 
with a request for quote (``RFQ'') in which the interested party 
establishes the terms of the FLEX Options contract. The RFQ solicits 
interested market participants, including on-floor market makers, 
remote market makers trading electronically, and member firm traders, 
to respond to the RFQ with bids or offers through a competitive 
process. This solicitation contains all of the contract specifications-
underlying, size, type of option, expiration date, strike price, 
exercise style and settlement basis. During a specified amount of time, 
responses to the RFQ are received and at the end of that time period, 
the initiator can decide whether to accept the best bid or offer. The 
process occurs under the rules of Cboe Options which means that 
customer transactions are effected according to the principles of a 
fair and orderly market following trading procedures and policies 
developed by Cboe Options.
    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and FLEX 
Options on the S&P 500 Index for several reasons: (i) The diversity, 
liquidity, and market cap of the securities underlying the S&P 500 
Index; (ii) the competitive quoting process for FLEX Options; (iii) the 
significant liquidity in the market for options on the S&P 500 Index 
results in a well-established price discovery process that provides 
meaningful guideposts for FLEX Option pricing; and (iv) surveillance by 
the Exchange, Cboe

[[Page 55694]]

Options \13\ and the Financial Industry Regulatory Authority 
(``FINRA'') designed to detect violations of the federal securities 
laws and self-regulatory organization (``SRO'') rules. The Exchange has 
in place a surveillance program for transactions in ETFs to ensure the 
availability of information necessary to detect and deter potential 
manipulations and other trading abuses, thereby making the Shares less 
readily susceptible to manipulation. Further, the Exchange believes 
that because the assets in each Fund's portfolio, which are comprised 
primarily of FLEX Options on the S&P 500 Index, will be acquired in 
extremely liquid and highly regulated markets,\14\ the Shares are less 
readily susceptible to manipulation.
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    \13\ The Exchange notes that Cboe Options is a member of the 
Option Price Regulatory Surveillance Authority, which was 
established in 2006, to provide efficiencies in looking for insider 
trading and serves as a central organization to facilitate 
collaboration in insider trading and investigations for the U.S. 
options exchanges. For more information, see http://www.cboe.com/aboutcboe/legal/departments/orsareg.aspx.
    \14\ All exchange-listed securities that the Funds may hold will 
trade on a market that is a member of the Intermarket Surveillance 
Group (``ISG'') and the Funds will not hold any non-exchange-listed 
equities or options, however, not all of the components of the 
portfolio for the Funds may trade on exchanges that are members of 
the ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. For a list of the current members of 
ISG, see www.isgportal.org.
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    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. All 
statements and representations made in this filing regarding (a) the 
description of the portfolio, reference assets, and index, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules shall constitute continued listing 
requirements for listing the Shares on the Exchange. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related 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 related Shares are not 
in compliance with the applicable listing requirements, then, with 
respect to such Fund or Shares, the Exchange will commence delisting 
procedures under Exchange Rule 14.12. FINRA conducts certain cross-
market surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement. The Exchange is responsible for FINRA's performance 
under this regulatory services agreement. If a Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures with respect to such Fund under Exchange 
Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares and exchange-traded options 
contracts with other markets and other entities that are members of the 
ISG and may obtain trading information regarding trading in the Shares 
and exchange-traded options contracts from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and exchange-traded options contracts from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    As noted above, options on the S&P 500 Index are among the most 
liquid options in the world and derive their value from the actively 
traded S&P 500 Index components. The contracts are cash-settled with no 
delivery of stocks or ETFs, and trade in competitive auction markets 
with price and quote transparency. The Exchange believes the highly 
regulated options markets and the broad base and scope of the S&P 500 
Index make securities that derive their value from that index less 
susceptible to market manipulation in view of market capitalization and 
liquidity of the S&P 500 Index components, price and quote 
transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 500 
Index securities, options on the S&P 500 Index, and other related 
derivatives is sufficiently great to deter fraudulent or manipulative 
acts associated with the Funds' Shares price. The Exchange also 
believes that such liquidity is sufficient to support the creation and 
redemption mechanism. Coupled with the extensive surveillance programs 
of the SROs described above, the Exchange does not believe that trading 
in the Funds' Shares would present manipulation concerns.
    The Exchange represents that, except for the limitations on listed 
derivatives in BZX Rule 14.11(i)(4)(C)(iv)(b), the Funds' proposed 
investments will satisfy, on an initial and continued listing basis, 
all of the generic listing standards under BZX Rule 14.11(i)(4)(C) and 
all other applicable requirements for Managed Fund Shares under Rule 
14.11(i). The Trust is required to comply with Rule 10A-3 under the Act 
for the initial and continued listing of the Shares of the Funds. A 
minimum of 100,000 Shares will be outstanding at the commencement of 
trading on the Exchange. In addition, the Exchange represents that the 
Shares of the Funds will comply with all other requirements applicable 
to Managed Fund Shares, which includes the dissemination of key 
information such as the Disclosed Portfolio,\15\ Net Asset Value,\16\ 
and the Intraday Indicative Value,\17\ suspension of trading or 
removal,\18\ trading halts,\19\ surveillance,\20\ minimum price 
variation for quoting and order entry,\21\ and the information 
circular,\22\ as set forth in Exchange rules applicable to Managed Fund 
Shares. Moreover, all of the options contracts held by the Funds will 
trade on markets that are a member of ISG or affiliated with a member 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. Quotation and last sale information for 
U.S. exchange-listed options contracts cleared by The Options Clearing 
Corporation will be available via the Options Price Reporting 
Authority. RFQ information for FLEX Options will be available directly 
from Cboe Options. The intra-day, closing and settlement prices of 
exchange-traded options will be readily available from the options 
exchanges, automated quotation systems, published or other public 
sources, or online information services such as Bloomberg or Reuters. 
Price information on cash equivalents is available from major broker-
dealer firms or market data vendors, as well as from automated 
quotation systems, published or other public sources, or online 
information services.
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    \15\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \16\ See Rule 14.11(i)(4)(A)(ii).
    \17\ See Rule 14.11(i)(4)(B)(i).
    \18\ See Rule 14.11(i)(4)(B)(iii).
    \19\ See Rule 14.11(i)(4)(B)(iv).
    \20\ See Rule 14.11(i)(2)(C).
    \21\ See Rule 14.11(i)(2)(B).
    \22\ See Rule 14.11(i)(6).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ in 
particular in that

[[Page 55695]]

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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices, 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 in that the Shares will meet 
each of the initial and continued listing criteria in BZX Rule 14.11(i) 
with the exception of Rule 14.11(i)(4)(C)(iv)(b), which requires that 
the aggregate gross notional value of listed derivatives based on any 
five or fewer underlying reference assets shall not exceed 65% of the 
weight of the portfolio (including gross notional exposures), and 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).\25\ Rule 
14.11(i)(4)(C)(iv)(b) is intended to ensure that a fund is not subject 
to manipulation by virtue of significant exposure to a manipulable 
underlying reference asset by establishing concentration limits among 
the underlying reference assets for listed derivatives held by a 
particular fund.
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    \25\ As noted above, the Exchange is proposing that each Fund be 
exempt only from the requirements of Rule 14.11(i)(4)(C)(iv)(b) 
which prevents the aggregate gross notional value of listed 
derivatives based on any single underlying reference asset from 
exceeding 30% of the weight of the portfolio (including gross 
notional exposures) and the aggregate gross notional value of listed 
derivatives based on any five or fewer underlying reference assets 
from exceeding 65% of the weight of the portfolio (including gross 
notional exposures).
---------------------------------------------------------------------------

    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and FLEX 
Options on the S&P 500 Index for several reasons: (i) The diversity, 
liquidity, and market cap of the securities underlying the S&P 500 
Index; (ii) the competitive quoting process for FLEX Options; (iii) the 
significant liquidity in the market for options on the S&P 500 Index 
results in a well-established price discovery process that provides 
meaningful guideposts for FLEX Option pricing; and (iv) surveillance by 
the Exchange, Cboe Options and FINRA designed to detect violations of 
the federal securities laws and SRO rules. The Exchange has in place a 
surveillance program for transactions in ETFs to ensure the 
availability of information necessary to detect and deter potential 
manipulations and other trading abuses, thereby making the Shares less 
readily susceptible to manipulation. Further, the Exchange believes 
that because the assets in each Fund's portfolio, which are comprised 
primarily of FLEX Options on the S&P 500 Index, will be acquired in 
extremely liquid and highly regulated markets, the Shares are less 
readily susceptible to manipulation.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. All 
statements and representations made in this filing regarding (a) the 
description of the portfolio, reference assets, and index, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules shall constitute continued listing 
requirements for listing the Shares on the Exchange. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related 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 related Shares are not 
in compliance with the applicable listing requirements, then, with 
respect to such Fund or Shares, the Exchange will commence delisting 
procedures under Exchange Rule 14.12. FINRA conducts certain cross-
market surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement. The Exchange is responsible for FINRA's performance 
under this regulatory services agreement. If a Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures with respect to such Fund under Exchange 
Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares and exchange-traded options 
contracts with other markets and other entities that are members of the 
ISG and may obtain trading information regarding trading in the Shares 
and exchange-traded options contracts from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and exchange-traded options contracts from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees. As 
noted above, options on the S&P 500 Index are among the most liquid 
options in the world and derive their value from the actively traded 
S&P 500 Index components. The contracts are cash-settled with no 
delivery of stocks or ETFs, and trade in competitive auction markets 
with price and quote transparency. The Exchange believes the highly 
regulated options markets and the broad base and scope of the S&P 500 
Index make securities that derive their value from that index less 
susceptible to market manipulation in view of market capitalization and 
liquidity of the S&P 500 Index components, price and quote 
transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 500 
Index securities, options on the S&P 500 Index, and other related 
derivatives is sufficiently great to deter fraudulent or manipulative 
acts associated with the Funds' Shares price. The Exchange also 
believes that such liquidity is sufficient to support the creation and 
redemption mechanism. Coupled with the extensive surveillance programs 
of the SROs described above, the Exchange does not believe that trading 
in the Funds' Shares would present manipulation concerns.
    The Exchange represents that, except as described above, the Funds 
will meet and be subject to all other requirements of the Generic 
Listing Standards and other applicable continued listing requirements 
for Managed Fund Shares under Rule 14.11(i), including those 
requirements regarding the Disclosed Portfolio,\26\ Intraday Indicative 
Value,\27\ suspension of trading or removal,\28\ trading halts,\29\ 
disclosure,\30\ and firewalls.\31\ The Trust is required to comply with 
Rule 10A-3 under the Act

[[Page 55696]]

for the initial and continued listing of the Shares of each Fund. 
Moreover, all of the options contracts held by the Funds will trade on 
markets that are a member of ISG or affiliated with a member of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    \26\ See Rule 14.11(i)(4)(B)(ii).
    \27\ See Rule 14.11(i)(4)(B)(i).
    \28\ See Rule 14.11(i)(4)(B)(iii).
    \29\ See Rule 14.11(i)(4)(B)(iv).
    \30\ See Rule 14.11(i)(6).
    \31\ See Rule 14.11(i)(7).
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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 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 the 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-BatsBZX-2017-72 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BatsBZX-2017-72. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. 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-BatsBZX-2017-72 and should 
be submitted on or before December 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25226 Filed 11-21-17; 8:45 am]
 BILLING CODE 8011-01-P