Document ID: SEC-2017-2117-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2017-12-20T05:00Z

[Federal Register Volume 82, Number 243 (Wednesday, December 20, 2017)]
[Notices]
[Pages 60443-60451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27349]

[[Page 60443]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82328; File No. SR-CboeBZX-2017-011]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade the Common Shares of 
Beneficial Interest of the PowerShares Income Builder Portfolio, a 
Series of PowerShares Exchange-Traded Fund Trust II

December 14, 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 December 1, 2017, 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 proposed rule change to list and trade under BZX 
Rule 14.11(c)(3) the common shares of beneficial interest of the 
PowerShares Income Builder Portfolio (the ``Fund''), a series of 
PowerShares Exchange-Traded Fund Trust II (the ``Trust''). The common 
shares of beneficial interest of the Fund are referred to herein as the 
``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 the Shares of the Fund 
under BZX Rule 14.11(c)(5),\3\ which governs the listing and trading of 
Index Fund Shares based on equity and fixed income securities 
indexes.\4\ The Shares will be offered by the Fund, which will be a 
passively managed index-based exchange-traded fund (``ETF''). The Fund 
is a series of the Trust, which was established as a Massachusetts 
business trust on October 10, 2006. The Trust is registered with the 
Commission as an open-end management investment company and has filed a 
post-effective amendment to its registration statement on Form N-1A 
(the ``Registration Statement'') with the Commission to register the 
Fund and its Shares under the Investment Company Act of 1940 (``1940 
Act'') and the Securities Act of 1933.\5\
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    \3\ The Commission approved BZX Rule 14.11(c) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ BZX Rule 14.11(c)(1)(A)(i) provides that an Index Fund Share 
is a security that is issued by an open-end management investment 
company based on a portfolio of stocks or fixed income securities or 
a combination thereof, that seeks to provide investment results that 
correspond generally to the price and yield performance or total 
return performance of a specified foreign or domestic stock index, 
fixed income securities index or combination thereof.
    \5\ See Registration Statement on Form N-1A for the Trust, filed 
on July 31, 2017 (File Nos. 333-138490 and 811-21977). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement. In addition, 
the Commission has issued an order granting certain exemptive relief 
to the Trust under the 1940 Act. See Investment Company Act Release 
No. 27841 (May 25, 2007) (File No. 812-13335) (``Exemptive Order'').
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    Invesco PowerShares Capital Management LLC will be the investment 
adviser (the ``Adviser'') to the Fund. Invesco Advisers, Inc. will be 
the investment sub-adviser (the ``Sub-Adviser'') to the Fund.\6\ 
Invesco Distributors, Inc. will be the distributor (the 
``Distributor'') of the Shares. The Bank of New York Mellon (the 
``Custodian'') will act as the custodian, administrator, accounting 
agent and transfer agent for the Fund.
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    \6\ The Adviser and the Sub-Adviser are affiliated with a 
broker-dealer and have implemented, and will maintain, a fire wall 
with respect to its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio.
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    As discussed in more detail below, the Fund's investment objective 
is to seek to track the investment results (before fees and expenses) 
of the Goldman Sachs Bond Buyers Equity Basket Index (the ``Underlying 
Index''). The Underlying Index is designed to measure the performance 
of a hypothetical portfolio of common equity stocks with an overlay of 
fully-collateralized written put options on those stocks.
    The Underlying Index was developed by Goldman, Sachs & Co. 
(``Goldman Sachs''). Solactive AG (the ``Calculation Agent'') 
maintains, calculates, and publishes the value of the Underlying Index 
on each business day. The Calculation Agent is not registered as an 
investment adviser or broker-dealer and is not affiliated with any 
broker-dealers. The Calculation Agent has also implemented and will 
maintain procedures designed to prevent the use and dissemination of 
material, non-public information regarding the Underlying Index as 
required under Rule 14.11(c)(5)(A)(iii). None of the Trust, the 
Adviser, the Sub-Adviser, the Custodian or the Distributor is 
affiliated with Goldman Sachs, the Calculation Agent or their 
respective affiliates.
    The Exchange is submitting this proposed rule change because the 
Underlying Index for the Fund does not meet the listing requirements of 
Rule 14.11(c)(5) applicable to an index that consists of both equity 
securities (and with respect to this underlying index, U.S. Component 
Stocks) \7\ and Fixed Income Securities,\8\ which requires that the 
equity and fixed income component securities separately meet the 
criteria set forth in Rules 14.11(c)(5) because the Underlying Index 
consists partially of put options. The Fixed Income Security component 
of the Underlying Index, which consists of only Treasury bills, meets 
the ``generic'' listing requirements of Rule 14.11(c)(4).
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    \7\ 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 Depositary 
receipt, the underlying equity security of which is registered under 
Sections 12(b) or 12(g) of the Act.
    \8\ As defined in Rule 14.11(c)(4), the term ``Fixed Income 
Security'' shall mean debt securities that are notes, bonds, 
debentures or evidence of indebtedness that include, but are not 
limited to, Treasury bills, government-sponsored entity securities 
(``GSE Securities''), municipal securities, trust preferred 
securities, supranational debt and debt of a foreign country or 
subdivision thereof.
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    All statements and representations made in this filing regarding 
the Underlying Index composition, the description of the portfolio or 
reference assets, limitations on portfolio holdings or reference 
assets, dissemination and availability of the Underlying Index, 
reference asset, and intraday indicative values, and the applicability 
of

[[Page 60444]]

Exchange rules specified in this filing shall constitute continued 
listing requirements for the Fund.
Description of the Fund
    As noted above, the Underlying Index will consist of a mixture of 
(1) 100 U.S. exchange-listed common stocks of large capitalization that 
have listed options traded on a U.S. exchange (the ``Stock 
Component''), (2) put options \9\ that are sold (or ``written'') on 
those same 100 stocks that comprise the Stock Component (the ``Options 
Strategy''), and (3) Treasury bills (the ``Collateral''), which are 
intended to collateralize the Options Strategy.
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    \9\ A put option is an option contract giving the contract 
holder (or ``option holder'') the right, but not the obligation, to 
sell a specified amount of an underlying stock, typically 100 shares 
per contract, at a predetermined, specified price (the ``strike 
price'') at any time within a specified time (the ``expiration 
date''). If the option holder exercise that right, the seller (or 
``writer'') of the put option must transfer to the option holder an 
amount equal to the product of the strike price and the total number 
of shares relating to such exercised put options. In exchange for 
such payment by the seller to the option holder, the option holder 
will transfer to the seller shares of the underlying stock equal to 
the total number of shares relating to such exercised put options. 
Put option sellers risk losses if the price of a stock drops below 
the strike price (a situation when the option is referred to as 
``in-the-money''). An option holder will have an unrealized gain if 
the written put option purchased by the option holder has 
appreciated in an amount greater than the purchase price of each 
such put option purchased by the option holder. The option holder 
may recognize a realized gain on a put option by exercising the put 
option and then selling the shares or by selling the put option 
(e.g., closing out the option transaction with by selling the put 
options). As an example of the gain by an option holder related to 
an ``in-the-money'' put option, if a put option has a strike price 
of $50 per share and at the time the underlying stock price is $40 
per share, the option holder will have a gross realized gain of $10 
per share. The option holder's realized gain for such transaction 
would be equal to the $10 per share less the put option purchase 
price per share paid by the option holder to acquire the put 
options).
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    Under normal market conditions,\10\ the Fund will seek to achieve 
its investment objective by generally investing at least 90% of its 
total assets in the components of the Underlying Index.\11\ The Fund 
will use an ``indexing'' investment approach to seek to achieve its 
investment objective. The Adviser will seek a correlation over time of 
0.95 or better between the Fund's performance and the performance of 
the Underlying Index; a figure of 1.00 would represent perfect 
correlation.\12\ The Fund generally will employ a ``full replication'' 
methodology, meaning that generally it will seek to invest in all of 
the components of the Underlying Index (i.e., all of the stocks in the 
Stock Component, the Options Strategy, and the Collateral for the put 
options) in proportion to their weightings in the Underlying Index. 
However, under various circumstances, it may not be possible or 
practicable for the Fund to purchase all of the components of the 
Underlying Index in the same weightings as the Underlying Index. In 
those circumstances, the Fund may purchase a representative sample of 
securities in the Underlying Index in pursuing its investment 
objective.\13\
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    \10\ 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.
    \11\ The Fund will operate as an index fund and will not be 
actively managed. Therefore, the Fund will not adopt temporary 
defensive strategies. It will continue to invest at least 90% of its 
assets in the components of the Underlying Index, in accordance with 
the terms of its Exemptive Order, even during unusual market 
conditions, including extreme volatility or trading halts in the 
financial markets generally.
    \12\ Another means of evaluating the relationship between the 
returns of the Fund and the Underlying Index is to assess the 
``tracking error'' between the two. Tracking error means the 
variation between the Fund's annual return and the return of the 
Underlying Index, expressed in terms of standard deviation. The Fund 
seeks to have a tracking error of less than 5%, measured on a 
monthly basis over a one-year period by taking the standard 
deviation of the difference in the Fund's returns versus the 
Underlying Index's returns.
    \13\ A ``sampling'' methodology means that the Adviser (or Sub-
Adviser) will use a quantitative analysis to select component 
securities of the Underlying Index for the Fund's portfolio that are 
a representative sample of securities that have, in the aggregate, 
investment characteristics similar to the Underlying Index in terms 
of key risk factors, performance attributes and other 
characteristics. These include industry weightings, market 
capitalization, return variability, earnings valuation, yield and 
other financial characteristics of securities. When employing a 
sampling methodology, the Adviser (or Sub-Adviser) bases the 
quantity of holdings in the Fund on a number of factors, including 
asset size of the Fund, and generally expects the Fund to hold less 
than the total number of securities in the Underlying Index. 
However, the Adviser (or Sub-Adviser) reserves the right to invest 
the Fund in as many securities as it believes necessary to achieve 
the Fund's investment objective.
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Index Methodology
    The Underlying Index is composed of a Stock Component (represented 
by 100 U.S. exchange-listed common stocks of large capitalization that 
have listed options traded on a U.S. exchange), the Options Strategy, 
and Collateral (represented by Treasury bills) intended to fully-
collateralize the Options Strategy. The selection of common stocks for 
the Stock Component, the selection of strike prices of the fully-
collateralized put options for the Options Strategy, and the asset 
allocation between the Stock Component and Collateral are determined 
pursuant to the Underlying Index's methodology, as described more fully 
below.
    According to the Registration Statement, the Underlying Index is 
designed to obtain yield from three sources: (1) The dividends and 
returns on the common stocks in the Stock Component, (2) the premiums 
received from the put options sold via the Options Strategy,\14\ and 
(3) the yield from Treasury bills serving as Collateral.\15\
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    \14\ As described above, a put option seller will incur a loss 
if the put option expires in-the-money at the expiration date or if 
the in-the-money put option is exercised by the option holder and, 
in each case, the in-the-money amount is greater than the purchase 
price of the put option (the ``premium'') collected by the put 
option seller. A put option seller will recognize a realized gain if 
the put option expires ``out of the money'' (i.e., the underlying 
stock price is below the put option strike price).
    \15\ The amount of the premiums received from selling options 
largely involves the level of implied volatility of the underlying 
reference security: The measurement of how much the market price of 
the underlying reference security historically varied from day to 
day over a specific period of time. The higher the implied 
volatility, the more likely the underlying reference security will 
experience large price changes. Another factor bearing on the put 
option premium is the time value of the options. The more time that 
remains until the expiration date of the option, the greater the 
amount of time that an option trade has to become profitable due to 
a favorable move in the underlying reference security. As a result, 
investors are willing to pay a higher premium for more time until 
the expiration date of an option (and conversely, as the expiration 
date of an option approaches, the market price of the option 
decreases, and down to zero if the option remains out-of-the-money 
on the expiration date of the option).
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    The constituents in the Stock Component are selected in accordance 
with Goldman Sachs' rules-based methodology, as described herein. The 
Underlying Index is designed to identify common stocks of companies 
with relatively low volatility, issued by companies with relatively 
strong financial conditions (as measured by a company's ``free cash 
flow'' (``FCF'')). Companies with high FCF have a lower probability of 
entering distress and/or higher probability of paying consistent 
dividends.\16\
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    \16\ In general, free cash flow is the money a company generates 
after accounting for daily operations or capital expenditures. 
Typically, a high or growing FCF indicates that a company has strong 
financial health (e.g., higher margins, lower interest expense and/
or more limited need for cash to maintain ongoing operations), is 
consistently de-leveraging and/or has the ability to return cash to 
shareholders through dividends or share buybacks.
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    From an investible universe consisting of common stocks (which 
excludes American depositary receipts and ETFs) that have listed 
options traded on a U.S. stock exchange, the Underlying Index 
identifies the 800 largest stocks (based on the issuer's 
capitalization) and applies two screens: (1) The first screen 
eliminates the 25%

[[Page 60445]]

of those 800 stocks (that is, 200 stocks) with the least liquidity,\17\ 
and (2) the second screen eliminates the 25% of the remaining 600 
stocks (that is, 150 stocks) whose listed options have the lowest 
liquidity as judged by their ``notional volume.'' \18\ Next, the 
Underlying Index screens each of the remaining 450 eligible securities 
based on its current five-year credit default swap (``CDS'') 
spread.\19\ A security is eliminated from eligibility if it has a 5-
year CDS spread greater than 150 basis points annually.\20\
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    \17\ According to the Registration Statement, a stock's 
liquidity is measured by its one-year average daily trading dollar 
volume (with greater volume representing greater liquidity).
    \18\ According to the Registration Statement, a stock's notional 
volume is the one-year average notional value of all options traded 
on that stock.
    \19\ Generally, a CDS contract is a financial swap agreement 
wherein the seller of the swap will compensate the buyer should a 
credit event occur--such as a failure to pay interest or principle 
on a credit obligation, restructuring or default. A CDS generally 
operates as a form of insurance to the buyer against the risk of a 
bond. The buyer of the swap makes a series of payments (often called 
the ``spread'' or ``premiums'') to the seller up until the maturity 
date or execution of a contract. In return, the seller agrees that, 
should the credit event occur, the seller will pay the buyer the 
face value of a bond in exchange for physical delivery of an 
applicable bond of the entity.
    \20\ The ``spread'' of a CDS contract is the annual amount the 
protection buyer must pay the seller over the length of the 
contract, expressed as a percentage of the notional amount. For 
example, if the CDS has a spread of 200 basis points, or 2.0%, then 
an investor buying $1 million worth of protection from the seller 
must pay $20,000 annually. Such payments usually continue until 
either the CDS contract expires or a credit event occurs. In 
general, the higher the spread, the more likely that the marketplace 
believes the credit event will occur. Consequently, stocks with 
greater volatility (and greater likelihood of experiencing a 
significant decline in value) generally will have CDS contracts with 
a higher spread.
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    The Underlying Index calculates the following information for each 
remaining eligible security: (1) The security's latest available FCF 
yield \21\ (or change in book value (``BV'') \22\ for certain stocks, 
depending on the sector of the stock issuer \23\) for its most recently 
completed fiscal year (``FY0''); \24\ and (2) the security's estimated 
FCF yield, calculated by estimating the growth in earnings per share 
for its upcoming fiscal year (``FY1'').\25\ Next, each security's 
``implied volatility'' \26\ over the next 12 months is estimated using 
publicly available options prices.\27\
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    \21\ FCF yield is calculated by dividing a company's FCF per 
share by the company's current market price per share. FCF yield 
typically is expressed as a percentage; the greater the number, the 
greater amount of FCF (relative to its market capitalization) that a 
company generates annually.
    \22\ The book value of a company is the total value of that 
company (measured as the difference between the company's total 
assets and total liabilities). The change in book value (as a 
percent of market capitalization) for a stock is a measure of how 
the issuer's book value changed over the past year relative to the 
company's latest market value of equity.
    \23\ The Underlying Index will include stocks from issuers 
located in each of 9 market sectors (Information Technology, 
Healthcare, Consumer Services, Consumer Products, Industrials, 
Financials and Real Estate Investment Trusts, Utilities, Materials 
and Energy). Stocks issued by companies in the Financials and Real 
Estate Investment Trusts sector will use BV, while stocks issued by 
companies in the other 8 market sectors will use FCF yield. 
References herein to FCF yield are intended to include BV, as 
applicable, for securities in the Financials and Real Estate 
Investment Trusts sector.
    \24\ Securities with a FCF yield that is less than or equal to 
zero in FY0 are eliminated from eligibility.
    \25\ A stock's estimated growth in earnings from its most 
recently completed fiscal year to its next upcoming fiscal year is 
calculated using analysts' publically available consensuses.
    \26\ Implied volatility is a way of estimating the future 
fluctuations in the price of a security based on options prices. 
Implied volatility represents the marketplace's views about what the 
volatility of a stock should be in the future (i.e., high implied 
volatility means the marketplace expects a security to have large 
price swings, while low implied volatility means that the 
marketplace expects the price generally will have smaller 
movements).
    \27\ A stock's implied volatility typically is a key driver in 
the pricing of put options on the stock. Options tend to have higher 
premiums when the underlying stock has high levels of implied 
volatility. This is because a greater possibility of wider 
fluctuations in the price of an underlying stock creates a greater 
likelihood that the stock's price will drop below the option's 
strike price, resulting in a loss to the seller. By taking greater 
risk, the put option seller accordingly receives greater premiums.
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    The Underlying Index then adjusts each remaining eligible stock's 
FCF yield based on its implied volatility by dividing each stock's 
actual FCF yield in FY0 and estimated FCF yield in FY1 by its implied 
volatility. The result produces two values for each eligible stock: A 
``volatility-adjusted'' FCF yield for FY0 and a volatility-adjusted FCF 
yield for FY1. It then averages the two results from FY0 and FY1 to 
establish each security's ``average volatility adjusted FCF yield.'' 
The 100 stocks with the highest average FCF yield, after adjusting for 
volatility, are included in the Underlying Index, subject to minimum 
and maximum sector weighting requirements. Stocks with lower implied 
volatility receive greater weighting in the Underlying Index.\28\
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    \28\ According to the Registration Statement, the Underlying 
Index's methodology requires that each of the 9 market sectors have 
a maximum of 25 stocks included in the Stock Component. The 
Underlying Index targets a minimum of two stocks from each sector; 
however, if there are not two stocks in a sector that pass the 
liquidity and CDS screen, then it is possible to have no stocks from 
that sector.
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    After establishing the Stock Component, the Underlying Index's 
methodology determines the Options Strategy. The Options Strategy 
writes or sells put options on the 100 stocks included in the Stock 
Component. Those put options are standardized options listed and traded 
on U.S. exchanges and will have terms of at least six but no more than 
18 months as of each quarterly rebalance date (described below).
    The strike price for each put option will be selected, in 
accordance with the Underlying Index's methodology, at an amount that 
will generate a premium that (when annualized) is as close as possible 
to the expected return of the underlying stock.\29\ The put options 
related to the Options Strategy will have expirations between six and 
18 months. All put options in the Underlying Index are fully 
collateralized with Treasury bills in an amount equal to the 
outstanding notional value of the put options. The collateral may also 
include the premiums collected on the put options.
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    \29\ Like free cash flow, the annualized premium is expressed as 
a percentage. For example, the Underlying Index will not sell puts 
that derive premiums in an amount (when annualized) that is less 
than 2% of the underlying stock's FCF yield, calculated in the 
manner described above.
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    According to the Registration Statement, at any given time, 
depending on market conditions, the Underlying Index's assets are 
allocated between the Stock Component and the Collateral to generate 
income.\30\ According to the Registration Statement, the allocation 
depends on the amount of FCF yield or dividend yield from the Stock 
Component: During periods when the stocks' FCF yield is high (leading 
to a lower proportion of puts written) and dividend yield is high 
(leading to a lower proportion of puts written), a greater percentage 
of the Underlying Index's assets will be allocated to the Stock 
Component. Conversely, when the FCF yield and dividend yield of such 
stocks are low, a greater percentage of the Underlying Index's assets 
will be allocated to Treasury bills collateralizing the Options 
Strategy.\31\
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    \30\ There is no limit to how much or how little the Underlying 
Index may allocate to the Stock Component (i.e., at any given time, 
the portion of the Underlying Index's assets allocated to the Stock 
Component may be anywhere from 0% to 100%).
    \31\ When companies have low FCF yield, there is elevated risk 
associated with owning their stock. Therefore, the Underlying Index 
rebalances to reduce exposure to the Stock Component (where 
investors have potential losses equal to the stock price) and 
increases exposure to the Treasury bills collateralizing the Options 
Strategy (where investors have potential losses equal to the stock 
price minus the Treasury bill yield and the premiums collected).
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    The Underlying Index is rebalanced quarterly in March, June, 
September and December, typically on the Friday before the third 
Saturday of the month (the ``rebalance date''). The 100 common stocks 
to be included in the Stock

[[Page 60446]]

Component are made available one week prior to the rebalance date. The 
put option strike prices and weights of the Underlying Index's 
components will be made available prior to the end of the business day 
on the rebalance date.
Other Investments
    After investing at least 90% of its total assets in components of 
the Underlying Index, the Fund may invest up to 10% of its total assets 
in the following: (i) Exchange-traded U.S. equity securities not 
included in the Underlying Index, but which the Adviser or Sub-Adviser 
believes will help the Fund to track the Underlying Index; \32\ (ii) 
high quality securities issued or guaranteed by the U.S. government (in 
addition to Treasury bills) and non-U.S. governments, and each of their 
agencies and instrumentalities; (iii) money market instruments, 
including repurchase agreements or other funds which invest exclusively 
in money market instruments (subject to applicable limitations under 
the 1940 Act, or exemptions therefrom); \33\ (iv) convertible 
securities; (v) structured notes; \34\ (vi) securities of other 
investment companies (including affiliated and unaffiliated funds, such 
as open-end or closed-end management investment companies, and other 
ETFs) beyond the limits permitted under the 1940 Act, subject to 
certain terms and conditions set forth in a Commission exemptive order 
issued to the Trust pursuant to Section 12(d)(1)(J) of the 1940 Act; 
\35\ and (vii) OTC options.\36\
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    \32\ For example, there may be instances in which the Adviser or 
Sub-Adviser may choose to purchase or sell securities not in the 
Underlying Index which the Adviser or Sub-Adviser believes are 
appropriate to substitute for one or more Underlying Index 
components in seeking to replicate, before fees and expenses, the 
performance of the Underlying Index.
    \33\ The Fund may invest in repurchase agreements with 
commercial banks, brokers or dealers to generate income from its 
excess cash balances and to invest securities lending cash 
collateral.
    \34\ Structured notes are derivative securities for which the 
amount of principal repayment and/or interest payments is based on 
the movement of one or more factors, including but not limited to, 
currency exchange rates, interest rates (such as the prime lending 
rate or LIBOR), referenced bonds and stock indices.
    \35\ See Investment Company Act Release No. 30238 (October 23, 
2012) (File No. 812-13820).
    \36\ The Fund may use OTC options, together with positions in 
cash and money market instruments, to simulate full investment in 
the Underlying Index. The Fund will only enter into OTC options with 
counterparties that the Adviser or Sub-Adviser reasonably believes 
are capable of performing under the contract, and the Fund will post 
collateral as required by the counterparty and applicable 
regulations. The Adviser or Sub-Adviser will attempt to mitigate the 
Fund's respective credit risk by transacting, where possible, with 
large, well-capitalized institutions using measures designed to 
determine the creditworthiness of the counterparty. The Adviser and/
or Sub-Adviser will evaluate the creditworthiness of counterparties 
on a regular basis. In addition to information provided by credit 
agencies, the Adviser and/or Sub-Adviser will review approved 
counterparties using various factors, which may include the 
counterparty's reputation, the Adviser's or Sub-Adviser's past 
experience with the counterparty, and the price/market actions of 
debt of the counterparty. The Fund may also use various techniques 
to minimize credit risk, including early termination or reset and 
payment, using different counterparties, and limiting the net amount 
due from any individual counterparty. However, the risk of losses to 
the Fund resulting from counterparty default is still possible.
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Investment Restrictions
    The Fund will concentrate its investments (i.e., invest more than 
25% of the value of its net assets) in securities of issuers in any one 
industry or group of industries only to the extent that the Underlying 
Index reflects a concentration in that industry or group of industries. 
The Fund will not otherwise concentrate its investments in securities 
of issuers in any one industry or group of industries. This restriction 
will not apply to obligations issued or guaranteed by the U.S. 
government, its agencies or instrumentalities.\37\ The Fund will be 
classified as a ``non-diversified'' investment company under the 1940 
Act.\38\
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    \37\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
    \38\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets (calculated at the time of investment) in assets deemed illiquid 
by the Adviser or Sub-Adviser.\39\ The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid securities or other illiquid assets.\40\ Illiquid securities 
and other illiquid assets include those subject to contractual or other 
restrictions on resale and other instruments or assets that lack 
readily available markets as determined in accordance with Commission 
staff guidance.\41\
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    \39\ In reaching liquidity decisions, the Adviser or Sub-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).
    \40\ See Rule 22e-4(b)(1)(iv), which prohibits a fund from 
acquiring any illiquid investment if, immediately after the 
acquisition, the fund would have invested more than 15% of its net 
assets in illiquid investments that are assets. See Investment 
Company Act Release No. 32315 (Oct. 13, 2016), 81 FR 82142 (Nov. 18, 
2016) (adopting Rule 22e-4 under the 1940 Act). Prior to the 
adoption of Rule 22e-4 in 2016, the Commission had long-standing 
guidelines that required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), FN 34. See also Investment Company Act 
Release Nos. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); and 18612 
(March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions of 
Guidelines to Form N-1A).
    \41\ A fund's portfolio security is illiquid if it cannot be 
disposed of in the ordinary course of business within seven days at 
approximately the value ascribed to it by the fund. See Investment 
Company Act Release Nos. 14983 (March 12, 1986), 51 FR 9773 (March 
21, 1986) (adopting amendments to Rule 2a-7 under the 1940 Act); and 
17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 
144A under the Securities Act of 1933).
---------------------------------------------------------------------------

    The Fund may loan the equity securities in its portfolio; however, 
the Fund will not loan its securities if, as a result, the aggregate 
amount of all outstanding securities loans by the Fund exceeds 33\1/3\% 
of the Fund's total assets (including the market value of collateral 
received). To the extent the Fund engages in securities lending, it 
will loan securities to broker-dealers that the Adviser believes to be 
of relatively high credit standing pursuant to agreements that require 
the loans to be continuously collateralized by cash, liquid securities, 
or shares of other investment companies with a value at least equal to 
the market value of the loaned securities.
    The Fund intends to qualify for, and to elect to be treated as, a 
regulated investment company (``RIC'') under Subchapter M of the 
Internal Revenue Code of 1986, as amended.\42\ The Fund will invest its 
respective assets, and otherwise conduct its operations, in a manner 
that is intended to satisfy the qualifying income, diversification and 
distribution requirements necessary to establish and maintain RIC 
qualification under Subchapter M. In addition to satisfying the above 
referenced RIC diversification requirements, no portfolio security held 
by the Fund (other than U.S. government securities) will represent more 
than 30% of the weight of the Fund's portfolio, and the five most 
heavily weighted component stocks of the Fund (other than U.S. 
government securities) will not in the aggregate account for more than 
65% of the weight of the Fund's portfolio. For these purposes, the Fund 
may treat

[[Page 60447]]

repurchase agreements collateralized by U.S. government securities as 
U.S. government securities.
---------------------------------------------------------------------------

    \42\ 26 U.S.C. 851 et seq.
---------------------------------------------------------------------------

    The Fund's investments will be consistent with the Fund's 
investment objective. The Fund does not presently intend to engage in 
any form of borrowing for investment purposes, and will not be operated 
as a ``leveraged ETF'' or ``inverse leveraged ETF,'' i.e., it will not 
be operated in a manner designed to seek a multiple or an inverse 
multiple of the performance of an underlying reference index.
Creation and Redemption of Shares
    The Fund will issue and sell Shares only in large blocks of Shares 
(``Creation Units'') in transactions with Authorized Participants, as 
defined below. The Fund currently anticipates that a Creation Unit will 
consist of 50,000 Shares, though this number may change from time to 
time, including prior to the listing of the Fund. The exact number of 
Shares that will comprise a Creation Unit will be disclosed in the 
Fund's Registration Statement. The Trust will issue and sell Shares of 
the Fund in Creation Units on a continuous basis through the 
Distributor or its agent, without a sales load, at a price based on the 
Fund's net asset value (``NAV'') per Share next determined after 
receipt, on any business day.\43\
---------------------------------------------------------------------------

    \43\ To be eligible to place orders with the Distributor or its 
agent to create a Creation Unit of the Fund, an entity must be: (i) 
A ``Participating Party,'' i.e., a broker-dealer or other 
participant in the clearing process through the Continuous Net 
Settlement System of the National Securities Clearing Corporation 
(``NSCC'') (the ``Clearing Process''); or (ii) a DTC Participant (as 
defined below); and, in either case, must have executed an agreement 
with the Distributor (as it may be amended from time to time in 
accordance with its terms) (``Participant Agreement''). DTC 
Participants are participants of the Depository Trust Company 
(``DTC''), which acts as a securities depositary for Index Fund 
Shares. A Participating Party and DTC Participant are collectively 
referred to as an ``Authorized Participant.''
---------------------------------------------------------------------------

    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 of the Fund, in proper form, generally before 3:30 
p.m., Eastern Time, on any business day to receive that day's NAV. On 
days when the Exchange closes earlier than normal, the Fund may require 
orders to be placed earlier in the day.
    The consideration for a purchase of a Creation Unit of the Fund 
generally will consist of either (i) the in-kind deposit of a 
designated portfolio of securities (including any portion of such 
securities for which cash may be substituted) (``Deposit Securities'') 
and a corresponding ``Cash Component'' (defined below), computed as 
described below, or the cash value of the Deposit Securities (``Deposit 
Cash'') and the ``Cash Component,'' computed as described below.\44\
---------------------------------------------------------------------------

    \44\ Because OTC options and certain listed options are not 
currently eligible for in-kind transfer, they will be substituted 
with an amount of cash of equal value (i.e., Deposit Cash) when the 
Fund processes purchases of Creation Units in-kind. When accepting 
purchases of Creation Units for cash, the Fund may incur additional 
costs associated with the acquisition of Deposit Securities that 
would otherwise be provided by an in-kind purchase.
---------------------------------------------------------------------------

    Together, the Deposit Securities or Deposit Cash, as applicable, 
and the Cash Component constitute the ``Fund Deposit,'' which will be 
applicable (subject to possible amendment or correction) to creation 
requests received in proper form. The Fund Deposit represents the 
minimum initial and subsequent investment amount for a Creation Unit. 
The ``Cash Component'' represents the difference between the NAV of the 
Shares (per Creation Unit) and the market value of the Deposit 
Securities or Deposit Cash, as applicable. The Cash Component serves 
the function of compensating for any difference between the NAV per 
Creation Unit and the market value of the Deposit Securities or Deposit 
Cash, as applicable.
    A portfolio composition file, to be sent via the 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), containing a list of the 
names and the required number of shares of each Deposit Security to be 
included in the current Fund Deposit (based on information at the end 
of the previous business day). In addition, on each business day, the 
estimated Cash Component, effective through and including the previous 
business day, will be made available through NSCC. Such Fund Deposit is 
applicable, subject to any adjustments,\45\ to purchases of Creation 
Units of Shares of the Fund until such time as the next-announced Fund 
Deposit composition is made available.
---------------------------------------------------------------------------

    \45\ The Fund reserves the right to permit or require the 
substitution of a ``cash in lieu'' amount to be added to the Cash 
Component to replace any Deposit Security that may not be available 
in sufficient quantity for delivery or that may not be eligible for 
transfer through the DTC or the Clearing Process. The Fund also 
reserves the right to permit or require a ``cash in lieu'' amount in 
certain circumstances, including circumstances in which the delivery 
of the Deposit Security 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 Fund also 
reserves the right to permit or require Creation Units to be issued 
solely in exchange for cash.
---------------------------------------------------------------------------

    Shares of the Fund may be redeemed only in Creation Units on a 
business day, and only by Authorized Participants at the NAV next 
determined after receipt of a redemption request in proper form by the 
Distributor or its agent. Unless cash redemptions are permitted or 
required for the Fund, the redemption proceeds for a Creation Unit 
generally will consist of a designated portfolio of securities 
(including any portion of such securities for which cash may be 
substituted) that will be applicable (subject to possible amendment or 
correction) to redemption requests received in proper form on that day 
(the ``Fund Securities''), plus an amount of cash (the ``Cash Amount'') 
equal to the difference between the NAV of the Shares being redeemed, 
as next determined after the receipt of a redemption request in proper 
form, and the value of Fund Securities, less any redemption transaction 
fees.\46\
---------------------------------------------------------------------------

    \46\ Should the Fund Securities have a value greater than the 
NAV of the Shares being redeemed, a compensating cash payment to the 
Trust equal to the differential plus the applicable redemption 
transaction fee will be required to be arranged for, by or on behalf 
of, the redeeming shareholder.
---------------------------------------------------------------------------

    The Custodian will make available through the NSCC, prior to the 
opening of business on the Exchange on each business day, the Fund 
Securities and corresponding Cash Amount (each being subject to 
possible amendment or correction) that will be applicable to 
redemptions requests received in proper form on that day. The Fund 
reserves the right to honor a redemption request by delivering a basket 
of securities or cash that differs from the Fund Securities.\47\
---------------------------------------------------------------------------

    \47\ The Fund reserves the right to distribute cash as some or 
all of the payment for Creation Units being redeemed. The Adviser 
represents that, to the extent that the Trust permits or requires a 
``cash in lieu'' amount, such transactions will be effected in the 
same or equitable manner for all Authorized Participants.
---------------------------------------------------------------------------

    Orders to redeem Creation Units of the 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 the 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 3:30 p.m. 
Eastern Time on such transmittal date; (ii) such order is preceded or 
accompanied by the requisite number of Shares of

[[Page 60448]]

Creation Units specified in such order, which delivery must be made 
through DTC to the Distributor no later than 11:00 a.m. Eastern Time, 
on such transmittal date (the ``DTC Cut-Off-Time''); 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.
    The right of redemption may be suspended or the date of payment 
postponed with respect to the Fund: (i) For any period during which the 
Exchange is closed (other than customary weekend and holiday closings); 
(ii) for any period during which trading on the Exchange is suspended 
or restricted; (iii) for any period during which an emergency exists as 
a result of which disposal of the shares of the Fund's portfolio 
securities or determination of its NAV is not reasonably practicable; 
or (iv) in such other circumstance as is permitted by the Commission.
Availability of Information
    The Trust's website (www.invesco.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The website will 
include additional quantitative information updated on a daily basis, 
including, for the Fund: (1) The prior business day's reported NAV, 
mid-point of the bid/ask spread at the time of calculation of such NAV 
(the ``Bid/Ask Price''),\48\ daily trading volume, and a calculation of 
the premium and discount of the Bid/Ask Price against the NAV; and (2) 
data in chart format displaying the frequency distribution of discounts 
and premiums of the daily Bid/Ask Price against the NAV, within 
appropriate ranges, for each of the four previous calendar quarters. 
Daily trading volume information for the Fund will also 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 
websites.
---------------------------------------------------------------------------

    \48\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
---------------------------------------------------------------------------

    On each business day, before commencement of trading in Shares 
during the Regular Trading Hours \49\ on the Exchange, the Fund will 
disclose on its website the identities and quantities of the portfolio 
of securities and other assets in the daily disclosed portfolio held by 
the Fund (the ``Disclosed Portfolio'') that will form the basis for the 
Fund's calculation of NAV at the end of the business day.\50\ The 
Disclosed Portfolio will include the following information regarding 
each portfolio holding, as applicable to the type of holding: Ticker 
symbol, CUSIP number or other identifier, if any; a description of the 
holding (including the type of holding); the identity of the security, 
index or other asset or instrument underlying the holding, if any; for 
options, the option strike price; quantity held (as measured by, for 
example, par value, notional value or number of shares, contracts or 
units); maturity date, if any; coupon rate, if any; effective date, if 
any; market value of the holding; and the percentage weighting of the 
holding in the Fund's portfolio. The website and information will be 
publicly available at no charge. The value of the Underlying Index will 
be calculated and disseminated at least once every 15 seconds during 
regular market session and will be available from major market data 
vendors, provided however, that with respect to the fixed income 
components of the index, such data points will be calculated and 
disseminated at least once daily.
---------------------------------------------------------------------------

    \49\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \50\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). 
Notwithstanding the foregoing, portfolio trades that are executed 
prior to the opening of the Exchange on any business day may be 
booked and reflected in NAV on such business day. Accordingly, the 
Fund will be able to disclose at the beginning of the business day 
the portfolio that will form the basis for the NAV calculation at 
the end of the business day.
---------------------------------------------------------------------------

    In addition, for the Fund, an estimated value, defined in BZX Rule 
14.11(c)(6)(A) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the Intraday Indicative Value will be based upon the current 
value for the components of the Disclosed Portfolio and will be updated 
and widely disseminated by one or more major market data vendors and 
broadly displayed at least every 15 seconds during the Exchange's 
Regular Trading Hours.\51\ In addition, the quotations of certain of 
the Fund's holdings may not be updated if updated prices cannot be 
ascertained.
---------------------------------------------------------------------------

    \51\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the Consolidated Tape 
Association (``CTA'') or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and will provide 
a close estimate of that value throughout Regular Trading Hours.
    Intraday, closing, and settlement prices of common stocks and other 
exchange-listed instruments will be readily available from the 
exchanges trading such securities as well as automated quotation 
systems, published or other public sources, or online information 
services such as Bloomberg or Reuters. In addition, price information 
for U.S. exchange-traded options will be available from the Options 
Price Reporting Authority. Quotation information from brokers and 
dealers or pricing services will be available for U.S. government 
obligations, high quality securities issued or guaranteed by the U.S. 
government (in addition to Treasury bills) and non-U.S. governments, 
and each of their agencies and instrumentalities, money market 
instruments, convertible securities, structured notes, and OTC options.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume for the 
Shares will be published daily in the financial section of newspapers. 
Quotation and last sale information for the Shares will be on the 
facilities of the CTA.
Initial and Continued Listing
    The Shares of the Fund will conform to the initial and continued 
listing criteria under BZX Rule 14.11(c), other than the portion of the 
Fund that consists of options. The Exchange represents that, for 
initial and/or continued listing, the Fund and the Trust must be in 
compliance with Rule 10A-3 \52\ under the Act. A minimum of 100,000 
Shares of the Fund will be outstanding at the commencement of trading 
on the Exchange. The Exchange

[[Page 60449]]

will obtain a representation from the issuer of the Shares that the NAV 
per Share for the Fund will be calculated daily and will be made 
available to all market participants at the same time.
---------------------------------------------------------------------------

    \52\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in BZX Rule 11.18. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments constituting the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(c)(1)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted. Further, trading in the Shares will be 
halted if an interruption to the dissemination of either of the 
Intraday Indicative Value or the value of the Underlying Index persists 
past the trading day in which it occurred.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Exchange will 
allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time 
and has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BZX Rule 11.11(a), the 
minimum price variation for quoting and entry of orders in securities 
traded on the Exchange is $0.01, with the exception of securities that 
are priced less than $1.00, for which the minimum price variation for 
order entry is $0.0001.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Index Fund Shares. The 
issuer has represented to the Exchange that it will advise the Exchange 
of any failure by the 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 the Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under BZX Rule 14.12. All exchange-listed options and 
equities (including certain investment company securities such as ETFs) 
held by the Fund will be traded on U.S. exchanges, all of which are 
members of ISG or are exchanges with which the Exchange has in place a 
comprehensive surveillance sharing agreement. The Exchange may obtain 
information regarding trading in the Shares and other exchange-traded 
securities and instruments held by the 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.\53\ The Exchange prohibits the distribution of material non-
public information by its employees.
---------------------------------------------------------------------------

    \53\ For a list of the current members of ISG, see 
www.isgportal.org. 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.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) 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 and the Underlying Index is disseminated; 
(4) the risks involved in trading the Shares during the Pre-Opening 
\54\ and After Hours Trading Sessions \55\ when an updated Intraday 
Indicative Value and Underlying Index 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.
---------------------------------------------------------------------------

    \54\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \55\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV calculation time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
website. In addition, the Information Circular will reference that the 
Fund is subject to various fees and expenses described in the Fund's 
Registration Statement.
2. Statutory Basis
    Item 3(b) Purpose of 19b-4 Information [sic] The Exchange believes 
that the proposal is consistent with Section 6(b) of the Act \56\ in 
general and Section 6(b)(5) of the Act \57\ 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.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78f.
    \57\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
listing criteria in BZX Rule 14.11(c), except that the Underlying Index 
will consist in part of written put options, which are based on U.S. 
Component Stocks, rather than completely on U.S. Component Stocks 
themselves. The Exchange believes that its surveillances, which 
generally focus on detecting securities trading outside of their normal 
patterns which could be indicative of manipulative or other

[[Page 60450]]

violative activity, and associated 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. The Exchange will 
communicate as needed regarding trading in the Shares with other 
markets or other entities that are members of the Intermarket 
Surveillance group (``ISG''), and may obtain trading information 
regarding trading in the Shares from such markets or entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and other exchange-traded securities and instruments held by the 
Fund from markets and other entities that are members of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.
    The Calculation Agent has implemented and will maintain procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the Underlying Index. The Adviser and the Sub-
Adviser are affiliated with a broker-dealer and have implemented, and 
will maintain, a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio.
    Under normal market conditions, not less than 90% of the Fund's 
total assets will be comprised of common stocks, put options, and 
Treasury bills (serving as collateral for written put options), 
although the Fund may also invest in other U.S. government and money 
market instruments. The Fund may hold up to an aggregate amount of 15% 
of its net assets in illiquid assets (calculated at the time of 
investment), consistent with Commission guidance. The Fund will not use 
derivative instruments to enhance leverage.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that a large amount of information will be publicly available regarding 
the Fund and the Shares, thereby promoting market transparency. The 
Fund's portfolio holdings will be disclosed on the Fund's website daily 
after the close of trading on the Exchange and prior to the opening of 
trading on the Exchange the following day.
    Moreover, the Intraday Indicative Value will be widely disseminated 
by one or more major market data vendors at least every 15 seconds 
during Regular Trading Hours. The current value of the Underlying Index 
will be calculated and disseminated at least once every 15 seconds 
during regular market session and will be available from major market 
data vendors, provided however, that with respect to the fixed income 
components of the index, such value will be calculated and disseminated 
at least once daily. Information regarding market price and trading 
volume of the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and quotation and last sale information will be available via 
the CTA high-speed line. 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. The intra-day, closing and settlement prices of exchange-
traded portfolio assets, including investment companies, will be 
readily available from the securities exchanges trading such 
securities, as the case may be, automated quotation systems, published 
or other public sources, or online information services such as 
Bloomberg or Reuters. Such price information on other portfolio 
securities, including money market instruments, and other Fund assets 
traded in the OTC markets, 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.
    The website for the Fund will include the prospectus for the Fund 
and additional data relating to NAV and other applicable quantitative 
information. Moreover, 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. 
If the Exchange becomes aware that the NAV is not being disseminated to 
all market participants at the same time, it will halt trading in the 
Shares until such time as the NAV is available to all market 
participants. With respect to trading halts, the Exchange may consider 
all relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. Trading also may be halted because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments composing the daily disclosed portfolio of the 
Fund; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. Trading in the Shares also will be subject to Rule 
14.11(c)(1)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted. If the Intraday Indicative Value of the Fund 
or value of the Underlying Index are not being disseminated as 
required, the Exchange may halt trading during the day in which the 
interruption to the dissemination of the Intraday Indicative Value or 
index value occurs.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares and may obtain information 
in the Shares and other exchange-traded securities and instruments held 
by the Fund via ISG, from other exchanges that are members of ISG, or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement. In addition, investors will have ready access to 
information regarding the Intraday Indicative Value and quotation and 
last sale information for the Shares.
    For the above reasons, the Exchange believes 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 purposes of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of exchange-traded product 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

[[Page 60451]]

Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove 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 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 No. SR-CboeBZX-2017-011 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-2017-011. 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-2017-011 and should be submitted on 
or before January 10, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
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    \58\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27349 Filed 12-19-17; 8:45 am]
 BILLING CODE 8011-01-P