Document ID: SEC-2017-2021-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2017-12-11T05:00Z

[Federal Register Volume 82, Number 236 (Monday, December 11, 2017)]
[Notices]
[Pages 58243-58248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26558]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82217; File No. SR-CboeBZX-2017-005]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of a Series 
of the Cboe Vest S&P 500 Buffer Protect Strategy ETF Under the ETF 
Series Solutions Trust, Under Rule 14.11(c)(3), Index Fund Shares

December 5, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 21, 2017, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to list and trade shares of a series 
of the Cboe Vest S&P 500[supreg] Buffer Protect Strategy ETF under the 
ETF Series Solutions Trust (the ``Trust''), under Rule 14.11(c)(3) 
(``Index 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 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 each 
series of the Cboe Vest S&P 500[supreg] Buffer Protect Strategy ETF 
(each a ``Fund'' and, collectively, the ``Funds'') under Rule 
14.11(c)(3), which governs the listing and trading of Index Fund Shares 
based on equity securities indexes on the Exchange. In total, the 
Exchange is proposing to list and trade Shares of twelve monthly series 
of the Cboe Vest S&P 500[supreg] Buffer Protect Strategy ETF. Each Fund 
will be an index-based exchange traded fund (``ETF''). The Funds will 
include the following: Cboe Vest S&P 500[supreg] Buffer Protect 
Strategy (January) ETF; Cboe Vest S&P 500[supreg] Buffer Protect 
Strategy (February) ETF; Cboe Vest S&P 500[supreg] Buffer Protect 
Strategy (March) ETF; Cboe Vest S&P 500[supreg] Buffer Protect Strategy 
(April) ETF; Cboe Vest S&P 500[supreg] Buffer Protect Strategy (May) 
ETF; Cboe Vest S&P 500[supreg] Buffer Protect Strategy (June) ETF; Cboe 
Vest S&P 500[supreg] Buffer Protect Strategy (July) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (August) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (September) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (October) ETF; Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (November) ETF; and Cboe Vest S&P 
500[supreg] Buffer Protect Strategy (December) ETF. Each Fund will be 
based on the Cboe S&P 500 Buffer Protect Index (Month) Series, where 
``Month'' is the corresponding month associated with the roll date of 
the applicable Fund (each an ``Index'' and, collectively, the 
``Indexes'').
    The Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on February 9, 2012. The Trust is registered 
with the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Funds on Form N-1A 
(``Registration Statement'') with the Commission.\3\ The Funds' 
adviser, Cboe Vest Financial, LLC (the ``Adviser''), and index 
provider, Cboe Exchange, Inc. (``Cboe Options'' or the ``Index 
Provider''), are not registered as broker-dealers, but are affiliated 
with a broker-dealer. The Index Provider has implemented and will 
maintain a ``fire wall'' with respect to such broker-dealer and its 
personnel regarding access to information concerning the composition 
and/or changes to the Indexes. In addition, Index Provider personnel 
who make decisions regarding the Index composition or methodology are 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the Index, pursuant to Rule 
14.11(c)(3)(B)(iii). The Adviser has also implemented and will maintain 
a ``fire wall'' with respect to such broker-dealer and its personnel 
regarding access to information concerning the composition and/or 
changes to the portfolio. In addition, Adviser personnel who make 
decisions regarding a Fund's portfolio are subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding a Fund's portfolio. In the event that (a) the 
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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    \3\ See Registration Statement on Form N-1A for the Trust, dated 
October 24, 2017 (File Nos. 333-179562 and 811-22668). The 
descriptions of the Funds and the Shares contained herein are based, 
in part, on information in the Registration Statement. The 
Commission has not yet issued an order granting exemptive relief to 
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1) 
applicable to the activities of the Funds, but the Funds will not be 
listed on the Exchange until such an order is issued and any 
conditions contained therein are satisfied [sic]
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    The Exchange also notes that the Adviser is a BZX Affiliate as 
defined in Rule 14.3(e)(1)(A),\4\ but the Funds are not Affiliate 
Securities, as defined in

[[Page 58244]]

Rule 14.11(e)(1)(B),\5\ and are therefore not subject to the additional 
requirements applicable to Affiliate Securities because such definition 
explicitly excludes Index Fund Shares. The Funds intend to qualify each 
year as a regulated investment company under Subchapter M of the 
Internal Revenue Code of 1986, as amended.
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    \4\ As defined in Rule 14.3(e)(1)(A), the term ``BZX Affiliate'' 
means the Exchange and any entity that directly or indirectly, 
through one or more intermediaries, controls, is controlled by, or 
is under common control with the Exchange, where ``control'' means 
that one entity possesses, directly or indirectly, voting control of 
the other entity either through ownership of capital stock or other 
equity securities or through majority representation on the board of 
directors or other management body of such entity.
    \5\ As defined in Rule 14.3(e)(1)(B), the term ``Affiliate 
Security'' means any security issued by a BZX Affiliate or any 
Exchange-listed option on any such security, with the exception of 
Portfolio Depository Receipts as defined in Rule 14.11(b) and Index 
Fund Shares as defined in Rule 14.11(c).
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    Each Fund's investment objective is to track, before fees and 
expenses, the performance of its respective Index. The value of each 
Index is calculated daily by Cboe Options utilizing an option valuation 
model. The Exchange is submitting this proposed rule change because the 
Indexes for the Funds do not meet the listing requirements of Rule 
14.11(c)(3) applicable to an index that consists of equity securities 
(and with respect to this underlying index, an index that consists of 
options on an index of U.S. Component Stocks),\6\ which requires that 
each component of an index be a U.S. Component Stock. As further 
described below, the Indexes consist of options on an index of U.S. 
Component Stocks. Because the Indexes consist of options based on an 
index of U.S. Component Stocks (the S&P 500 Index) and Rule 
14.11(c)(3)(A)(i) applies only to U.S. Component Stocks (that is, the 
rule provides criteria for an index composed of equity securities and 
not for an index that includes options on an index of equity 
securities), it does not meet the criteria set forth in Rule 
14.11(c)(3). As such, the Exchange submits this proposal to list the 
Shares on the Exchange.
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    \6\ As defined in Rule 14.11(c)(1)(D), the term ``U.S. Component 
Stock'' shall mean an equity security that is registered under 
Sections 12(b) or 12(g) of the Act, or an American Depositary 
receipt, the underlying equity security of which is registered under 
Sections 12(b) or 12(g) of the Act.
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Cboe Vest S&P 500[supreg] Buffer Protect Index
    Each Index is a rules-based options index that consists exclusively 
of FLexible EXchange Options on the S&P 500 Index (``FLEX Options'') 
listed on Cboe Options.\7\ The Indexes are designed to provide exposure 
to the large capitalization U.S. equity market with lower volatility 
and downside risks than traditional equity indices, except in 
environments of rapid appreciation in the U.S. equity market over the 
course of one year. On a specified day of the applicable month for each 
Index (the ``Roll Date''),\8\ the applicable Index implements a 
portfolio of put and call FLEX Options with expirations on the next 
Roll Date that, if held to such Roll Date, seeks to ``buffer protect'' 
against the first 10% decline in the value of the S&P 500 Index, while 
providing participation up to a maximum capped gain in the value of the 
S&P 500 Index (the ``Capped Level''). The Capped Level is calculated as 
of each Roll Date based on the prices of the applicable FLEX Options, 
such that the value of the portfolio of FLEX Options that comprises 
each Index is equivalent to the value of a portfolio comprised of the 
S&P 500 Index constituents. As of the 2017 Roll Date, the Capped Level 
for the January Index was 11%, meaning that the January Index is 
designed to provide participation up to a maximum 11% gain in the value 
of the S&P 500 Index from the 2017 Roll Date to the 2018 Roll Date, but 
to not provide any participation for gains in the S&P 500 Index in 
excess of 11%.
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    \7\ More information about the Indexes and methodology is 
available on the Index Provider's Web site at www.cboe.com.
    \8\ As described above, each of the twelve Indexes are designed 
to provide returns over a defined year long period and, thus, there 
is an Index associated with each month. As such, the Roll Date for a 
specific Index is dependent on the monthly series for which the 
index is associated. For example, the Roll Date for the Cboe[supreg] 
S&P 500[supreg] Buffer Protect Index January Series is in January 
and the Roll date for the Cboe[supreg] S&P 500[supreg] Buffer 
Protect Index February Series is in February, a pattern which 
continues through the rest of the calendar year.
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    Each Index is designed to provide the following outcomes between 
Roll Dates:
     If the S&P 500 declines more than 10%: The Index declines 
10% less than the S&P 500 Index (e.g., if the S&P 500 Index returns -
35%, the Index is designed to return -25%);
     If the S&P 500 declines between 0% and 10%: The Index 
provides a total return of zero (0%);
     If the S&P 500 appreciates between 0% and the Capped 
Level: The Index appreciates the same amount as the S&P 500 Index; and
     If the S&P 500 appreciates more than the Capped Level: The 
Index appreciates by the amount of the Capped Level.
    Each Index includes a mix of purchased and written (sold) put and 
call FLEX Options structured to achieve the results described above. 
Such results are only applicable for each full 12-month period from one 
Roll Date to the next Roll Date, and the Index may not return such 
results for shorter or longer periods. The value of each Index is 
calculated daily by Cboe Options utilizing a rules-based options 
valuation model.
Fund Holdings
    Under Normal Market Conditions,\9\ each Fund will seek to track the 
total return performance, before fees and expenses, of its respective 
Index. Under Normal Market Conditions, each Fund will invest all, or 
substantially all, of its assets in the FLEX Options that make up each 
respective underlying Index, standardized U.S. exchange-listed options 
contracts based on the S&P 500 (``S&P 500 Index Options''), U.S. 
exchange-listed options based on one or more ETFs \10\ that track the 
performance of the S&P 500 Index and have the same economic 
characteristics as the FLEX Options that make up each Index 
(``Comparable ETF Options''),\11\ as well as cash and cash 
equivalents.\12\ Under Normal Market Conditions, at least 80% of each 
Fund's total assets (exclusive of any collateral held from securities 
lending) will be invested in the FLEX Options that make up the Index. 
The Funds will hold only FLEX Options, standardized exchange-listed 
options on the S&P 500 Index, Comparable ETF Options, and cash and cash 
equivalents. The FLEX Options owned by each Fund will have the same 
terms (i.e. same strike price and expiration) for all investors of that 
Fund within an outcome period. The Capped Level is determined with 
respect to the applicable Index on the inception date

[[Page 58245]]

of the applicable Fund and at the beginning of each outcome period.
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    \9\ 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\ For purposes of this proposal, the term ETF means Portfolio 
Depositary Receipts and Index Fund Shares as defined in Rule 
14.11(b) and 14.11(c), respectively, and their equivalents on other 
national securities exchanges.
    \11\ The term ``Comparable ETF Options'' will at any time 
include only the five ETFs based on the S&P 500 Index with the 
greatest options consolidated average daily exchange trading volume 
for the previous quarter.
    \12\ For purposes of this filing, cash equivalents are 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 Options
    The market for S&P 500 Index Options traded on Cboe Options, 
including FLEX Options, is among the most liquid markets in the world. 
FLEX Options are a subset of S&P 500 Index options traded on Cboe 
Options.\13\ 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.\14\ While FLEX Options are 
traded differently than traditional options contracts, the Exchange 
believes that the liquidity and arbitrage opportunities of the S&P 500 
Index bolsters the market for FLEX Options, as described below.
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    \13\ See https://www.theocc.com/webapps/flex-reports. Unless 
otherwise noted, all statistics provided herein are based on 
information from the Options Clearing Corporation (``OCC'').
    \14\ As of July 24, 2017, FLEX Options had open interest of 
349,596 contracts, which equates to approximately $86 billion in 
notional interest.
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    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.
Additional Discussion
    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of each Fund's Shares and S&P 500 
Index Options and Comparable ETF Options for several reasons: (i) The 
diversity, liquidity, and market cap of the securities underlying the 
S&P 500 Index; \15\ (ii) the competitive quoting process for FLEX 
Options; \16\ (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 the Financial 
Industry Regulatory Authority (``FINRA'') designed to detect violations 
of the federal securities laws and self-regulatory organization 
(``SRO'') rules.
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    \15\ The Exchange notes that the diversity, liquidity, and 
market cap of the components of the S&P 500 Index are such that the 
S&P 500 Index would without question meet the generic listing 
standards applicable to an index composed of U.S. Component Stocks 
in Rule 14.11(c)(3)(A)(i).
    \16\ Intraday quotations and last sale information for FLEX 
Options are available directly from Cboe Options or through the 
Options Price Reporting Authority. Additionally, information about 
existing outstanding interest in FLEX Options is available on the 
OCC's Web site.
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    Trading in the Shares and the underlying investments will be 
subject to the federal securities laws and Exchange, Cboe Options, 
FINRA, and, with respect to the Comparable ETF Options, other U.S. 
options exchanges' rules and surveillance programs.\17\
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    \17\ 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.
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    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,\18\ 
the Shares are less readily susceptible to manipulation.
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    \18\ 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 Index 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 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 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, S&P 500 Index Options 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

[[Page 58246]]

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, S&P 500 Index Options, including FLEX Options, and 
other related derivatives is sufficiently great to deter fraudulent or 
manipulative acts associated with the price of a Fund's Shares. The 
Exchange also believes that such efficiency and liquidity are 
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 a Fund's Shares would 
present manipulation concerns. Each Fund's investments will be 
consistent with its investment objective and will not be used to 
enhance leverage (although certain derivatives and other investments 
may result in leverage).\19\ Each Fund's investments will not be used 
to seek performance that is the multiple or inverse multiple (i.e. 2x 
or -2x) of the Index. Each Fund's use of derivative instruments will be 
collateralized.
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    \19\ The Funds will each include appropriate risk disclosure in 
its offering documents, including leveraging risk. Leveraging risk 
is the risk that certain transactions of a fund, including a fund's 
use of derivatives, may give rise to leverage, causing a fund to be 
more volatile than if it had not been leveraged. To mitigate 
leveraging risk, the Adviser will segregate or earmark liquid assets 
or otherwise cover the transactions that give rise to such risk. See 
15 U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 
18, 1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic 
Investing, Commission No-Action Letter (June 22, 1987); Merrill 
Lynch Asset Management, L.P., Commission No-Action Letter (July 2, 
1996).
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    The Exchange represents that, except as described above, each Fund 
will meet each of the initial and continued listing criteria in BZX 
Rule 14.11(c)(3) with the exception of meeting the requirements of Rule 
14.11(c)(3)(A)(i), applicable to the listing of Index Fund Shares based 
upon an index of ``U.S. Component Stocks.'' 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 each Fund will 
comply with all other requirements applicable to Index Fund Shares, 
which includes requirements relating to the dissemination of key 
information such as the Index value,\20\ the Net Asset Value, and the 
Intraday Indicative Value, rules governing the trading of equity 
securities, trading hours, trading halts, firewalls for the Index 
Provider and Adviser, surveillance, and the information circular, as 
set forth in Exchange rules applicable to Index Fund Shares and the 
orders approving such rules.
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    \20\ Rule 14.11(c)(3)(B)(ii) requires that the index value must 
be disseminated by one or more major market data vendors at least 
once every 15 seconds during regular market session, provided 
however, that if the index value does not change during some or all 
of the period when trading is occurring on the Exchange, then the 
last official calculated index value must remain available 
throughout the Exchange's trading hours. The value of the Indexes 
will not change during the period when trading is occurring on the 
Exchange and the last official calculated index value will remain 
available throughout the Exchange's trading hours.
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    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 
Treasury bills and other 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. On each business day, before commencement of 
trading in the Shares on the Exchange during Regular Trading Hours, the 
portfolio that will form the basis for each Fund's calculation of NAV 
at the end of the business day will be provided on the Advisor's Web 
site at www.cboevest.com.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \21\ in general and Section 6(b)(5) of the Act \22\ 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.
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    \21\ 15 U.S.C. 78f.
    \22\ 15 U.S.C. 78f(b)(5).
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    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 of the 
Funds will meet each of the initial and continued listing criteria 
required by BZX Rule 14.11(c)(3), which includes the listing 
requirements for an index that is composed of equity securities, except 
that the Indexes consist of options on an index of U.S. Component 
Stocks and Rule 14.11(c)(3)(A)(i) applies only to U.S. Component Stocks 
(that is, the rule provides criteria for an index composed of equity 
securities and not for an index that is composed of options on an index 
of equity securities), the Indexes do not meet the criteria set forth 
in Rule 14.11(c)(3).\23\ The Exchange believes that the concerns that 
Rule 14.11(c)(3)(A)(i) are intended to address are mitigated by: (i) 
The diversity, liquidity, and market cap of the securities underlying 
the S&P 500 Index; \24\ (ii) the competitive quoting process for and 
availability of information related to FLEX Options; \25\ (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

[[Page 58247]]

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, will be acquired in 
extremely liquid and highly regulated markets, the Shares are less 
readily susceptible to manipulation.
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    \23\ Rule 14.11(c)(3)(A)(i)(e) provides that all securities in 
the applicable index or portfolio shall be U.S. Component Stocks 
listed on a national securities exchange and shall be NMS Stocks as 
defined in Rule 600 under Regulation NMS of the Act. Each component 
stock of the S&P 500 Index is a U.S. Component Stock that is listed 
on a national securities exchange and is an NMS Stock. Options are 
excluded from the definition of NMS Stock. The Funds and the Indexes 
meet all of the requirements of the listing standards for Index Fund 
Shares in Rule 14.11(c)(3), except the requirements in Rule 
14.11(c)(3)(A)(i)(a)-(e), as the Index consists of options on the 
S&P 500 Index. The S&P 500 Index consists of U.S. Component Stocks 
and satisfies the requirements of Rule 14.11(c)(3)(A)(i)(a)-(e).
    \24\ The Exchange notes that the diversity, liquidity, and 
market cap of the components of the S&P 500 Index are such that the 
S&P 500 Index would without question meet the generic listing 
standards applicable to an index composed of U.S. Component Stocks 
in Rule 14.11(c)(3)(A)(i).
    \25\ Intraday quotations and last sale information for FLEX 
Options are available directly from Cboe Options or through the 
Options Price Reporting Authority. Additionally, information about 
existing outstanding interest in FLEX Options is available on the 
OCC's Web site.
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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 Index 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 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 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, S&P 500 Index Options 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, S&P 500 Index Options, and other related derivatives 
is sufficiently great to deter fraudulent or manipulative acts 
associated with the price of the Shares. The Exchange also believes 
that such efficiency and liquidity are 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 Shares would present manipulation 
concerns.
    The Exchange represents that, except as it relates to the options 
portion of the Indexes described above, the Funds will meet and be 
subject to all other requirements of Rule 14.11(c)(3) related to 
generic listing standards of the Indexes and other applicable 
requirements for such a series of Index Fund Shares under Rule 14.11(c) 
on an initial and continued listing basis, including those requirements 
regarding the dissemination of key information such as the Index Value, 
Net Asset Value, and the Intraday Indicative Value, rules governing the 
trading of equity securities, trading hours, trading halts, 
surveillance, and the information circular, as set forth in Exchange 
rules applicable to Index Fund Shares and the orders approving such 
rules. 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. 
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.
    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 Index Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the 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-2017-005 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.

[[Page 58248]]

All submissions should refer to File No. SR-CboeBZX-2017-005. 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 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-2017-005 and should be 
submitted on or before January 2, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26558 Filed 12-8-17; 8:45 am]
 BILLING CODE 8011-01-P