Document ID: SEC-2016-1277-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Bats BZX Exchange, Inc.
Posted Date: 2016-07-21T04:00Z

[Federal Register Volume 81, Number 140 (Thursday, July 21, 2016)]
[Notices]
[Pages 47475-47481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17199]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78346; File No. SR-BatsBZX-2016-34]

Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change to BZX Rule 14.11(i), Managed Fund 
Shares, To List and Trade Shares of the ProShares Crude Oil Strategy 
ETF, a Series of ProShares

July 15, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 1, 2016, Bats 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\ 15 U.S.C. 78a.
    \3\ 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 the 
ProShares Crude Oil Strategy ETF (the ``Fund''), a series of ProShares 
Trust (the ``Trust''), under Rule 14.11(i) (``Managed Fund Shares''). 
The shares of the Fund are referred to herein as the ``Shares.''
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares under Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\4\ The Fund will be an actively managed fund that 
seeks to provide long term capital appreciation, primarily through 
exposure to the West Texas Intermediate (``WTI'') crude oil futures 
markets.
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    \4\ The Commission approved BZX Rule 14.11(i) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
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    The Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on May 29, 2002. The Trust is registered with 
the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\5\ The Commodity 
Futures Trading Commission (``CFTC'') has recently adopted substantial 
amendments to CFTC Rule 4.5 relating to the permissible exemptions and 
conditions for reliance on exemptions from registration as a commodity 
pool operator. As a result of the instruments that will be held by the 
Fund, the Adviser has registered as a Commodity Pool Operator (``CPO'') 
and is also a member of the National Futures Association (``NFA''). The 
Fund and a wholly-owned subsidiary of the Fund organized under the laws 
of the Cayman Islands (the ``Subsidiary'') will be subject to 
regulation by the CFTC and NFA and additional disclosure, reporting and 
recordkeeping rules imposed upon commodity pools. The Fund will 
generally obtain its exposure to WTI crude oil markets via investments 
in the Subsidiary. These investments are intended to provide the Fund 
with exposure to WTI crude oil markets in accordance with applicable 
rules and regulations. Henceforth, references to the investments of the 
Fund include investments of the Subsidiary, to which the Fund gains 
indirect exposure through its investment in the Subsidiary.
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    \5\ See Registration Statement on Form N-1A for the Trust, filed 
with the Commission on May 3, 2016 (File Nos. 333-89822 and 811-
21114). The descriptions of the Fund and the Shares contained herein 
are based, in part, on information contained in the Registration 
Statement. The Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act'') (the ``Exemptive Order''). See 
Investment Company Act Release No. 30562 (June 18, 2013) (File No. 
812-14041).
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Description of the Shares and the Fund
    ProShare Advisors LLC is the investment adviser (``Adviser'') to 
the Fund and the Subsidiary. JPMorgan Chase Bank, National Association 
(``JP Morgan'') is the administrator, custodian, fund account agent, 
index receipt agent and transfer agent for the Trust. SEI Investments 
Distribution Co. (``Distributor'') serves as the distributor for the 
Trust.
    Rule 14.11(i)(7) provides that, if the investment adviser to the 
investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company portfolio.\6\ In

[[Page 47476]]

addition, Rule 14.11(i)(7) further requires that personnel who make 
decisions on the investment company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable investment 
company portfolio. Rule 14.11(i)(7) is similar to Rule 
14.11(b)(5)(A)(i), however, Rule 14.11(i)(7) in connection with the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer reflects the applicable open-end fund's portfolio, not an 
underlying benchmark index, as is the case with index-based funds. The 
Adviser is not a registered broker-dealer, but is currently affiliated 
with a broker-dealer and, in the future may be affiliated with other 
broker dealers. The Adviser has 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. The Adviser personnel who make decisions regarding the 
Fund's portfolio are subject to procedures designed to prevent the use 
and dissemination of material nonpublic information regarding the 
Fund's portfolio. In the event that (a) the Adviser becomes a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new adviser 
or sub-adviser is a broker-dealer or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its relevant 
personnel or such broker-dealer affiliate, as applicable, regarding 
access to information concerning the composition and/or changes to the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940, as amended 
(the ``Advisers Act''). As a result, the Adviser and its related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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ProShares Crude Oil Strategy ETF
    According to the Registration Statement, the Fund is an actively 
managed fund that seeks to provide long term capital appreciation, 
primarily through exposure to the WTI crude oil futures markets, which 
include only those WTI crude oil contracts traded on the New York 
Mercantile Exchange and ICE Futures Europe (``WTI Crude Oil Futures''). 
The Fund's active strategy seeks to provide this exposure by rolling 
WTI Crude Oil Futures contracts (e.g., selling a futures contract as it 
nears its expiration date and replacing it with a new futures contract 
that has a later expiration date). The Fund generally selecting between 
first, second and third month WTI Crude Oil Futures contracts based on 
an analysis of the liquidity and cost surrounding such positions.
    The Fund generally will not invest directly in WTI Crude Oil 
Futures. The Fund expects to gain exposure to these investments by 
investing a portion of its assets in the Subsidiary.\7\ The Subsidiary 
is advised by the Adviser. Unlike the Fund, the Subsidiary is not an 
investment company registered under the 1940 Act. The Fund's investment 
in the Subsidiary is intended to provide the Fund with exposure to the 
WTI crude oil markets in accordance with applicable rules and 
regulations. The Subsidiary has the same investment objective as the 
Fund. The Fund will generally invest up to 25% of its total assets in 
the Subsidiary and, through such investment, generally remain fully 
exposed to WTI Crude Oil Futures, even during times of adverse market 
conditions. Such positions are generally collateralized by the Fund's 
positions in Cash Assets, as defined below.
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    \7\ The Subsidiary is not registered under the 1940 Act and is 
not directly subject to its investor protections, except as noted in 
the Registration Statement. However, the Subsidiary is wholly-owned 
and controlled by the Fund and is advised by the Adviser. Therefore, 
because of the Fund's ownership and control of the Subsidiary, the 
Subsidiary would not take action contrary to the interests of the 
Fund or its shareholders. The Fund's Board of Trustees (``Board'') 
has oversight responsibility for the investment activities of the 
Fund, including its expected investment in the Subsidiary, and the 
Fund's role as the sole shareholder of the Subsidiary. The Adviser 
receives no additional compensation for managing the assets of the 
Subsidiary. The Subsidiary will also enter into separate contracts 
for the provision of custody, transfer agency, and accounting agent 
services with the same or with affiliates of the same service 
providers that provide those services to the Fund.
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    In order to achieve its investment objective, the Fund will invest 
in: (i) WTI Crude Oil Futures; and (ii) Cash Assets (which are used to 
collateralize the WTI Crude Oil Futures), which will, under normal 
circumstances,\8\ be held in cash or cash equivalents such as U.S. 
Treasury securities or other high credit quality short-term fixed-
income or similar securities (including US agency securities, shares of 
money market funds, bank deposits, bank money market accounts, certain 
variable rate-demand notes, and repurchase agreements collateralized by 
government securities). The Fund will use the Cash Assets to meet asset 
coverage tests resulting from the Subsidiary's derivative exposure on a 
day-to-day basis. As a whole, the Fund's investments are meant to 
achieve its investment objective within the limitations of the federal 
tax requirements applicable to regulated investment companies. The Fund 
does not invest in nor seek exposure to the current ``spot'' or cash 
price of physical crude oil. WTI Crude Oil Futures contracts typically 
perform very differently from, and commonly underperform, the spot 
price of WTI crude oil.
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    \8\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the futures markets or the financial markets generally; operational 
issues causing dissemination of inaccurate market information; or 
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\9\ The Fund will invest its assets (including via the 
Subsidiary), 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.
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    \9\ 26 U.S.C. 851.
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Investment Restrictions
    While the Fund does not currently anticipate holding illiquid 
assets, it may hold up to an aggregate amount of 15% of its net assets 
in illiquid assets (calculated at the time of investment) deemed 
illiquid by the Adviser \10\ under the 1940 Act.\11\ The Fund will 
monitor

[[Page 47477]]

its portfolio liquidity on an ongoing basis to determine whether, in 
light of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid assets. Illiquid assets include assets subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
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    \10\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
    \11\ The Commission has stated that long-standing Commission 
guidelines have 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), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). 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 No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
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    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to achieve leveraged or 
inverse leveraged returns (i.e. two times or three times the Fund's 
benchmark).
Net Asset Value
    According to the Registration Statement, the net asset value 
(``NAV'') of the Shares of the Fund will be calculated by dividing the 
value of the net assets of the Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares 
outstanding. Expenses and fees, including the management and 
administration fees, are accrued daily and taken into account for 
purposes of determining NAV. The NAV of the Fund is generally 
determined at 2:30 p.m. Eastern Time each business day when the 
Exchange is open for trading. If the Exchange or market on which the 
Fund's investments are primarily traded closes early, the NAV may be 
calculated prior to its normal calculation time. Creation/redemption 
transaction order time cutoffs (as further described below) would also 
be accelerated.
    U.S. Treasury and agency securities will generally be valued at 
their market price using market quotations or information provided by a 
pricing service. Certain short-term debt securities are valued on the 
basis of amortized cost. WTI Crude Oil Futures are generally valued at 
their settlement price as determined by the relevant exchange. 
Repurchase agreements, variable rate demand notes, overnight bank 
deposits, and overnight bank money market accounts are generally valued 
at cost. Bank money market accounts and time deposits with terms 
greater than a single day are fair valued per the procedures below. 
Money market funds would generally be valued at their current Net Asset 
Value per share, typically $1.00 per share.
    When the Adviser determines that the price of a security or 
derivative is not readily available or deems the price unreliable, it 
may, in good faith, establish a fair value for that security or 
derivative in accordance with procedures established by and under the 
general supervision and responsibility of the Board. The use of a fair 
valuation method may be appropriate if, for example, market quotations 
do not accurately reflect fair value for an investment, a trading halt 
closes an exchange or market early, or other events result in an 
exchange or market delaying its normal close. The Adviser may consider 
applying appropriate valuation methodologies, which may include 
discounts of market value of similar freely traded securities, yields 
to maturity, or any other appropriate method. In determining the 
appropriate methodology, the Adviser may consider all relevant factors, 
including, among other things: Fundamental analytical data; the types 
of instruments affected; pricing history of the instrument; whether 
dealer quotations are available; liquidity of the market; news or other 
events; and other factors the Adviser deems relevant.
    For more information regarding the valuation of Fund investments in 
calculating the Fund's NAV, see the Registration Statement.
The Shares
    The Fund will issue and redeem Shares on a continuous basis at the 
NAV per Share only in large blocks of a specified number of Shares or 
multiples thereof (``Creation Units'') in transactions with authorized 
participants who have entered into agreements with the Distributor. The 
Adviser currently anticipates that a Creation Unit will consist of 
25,000 Shares, though this number may change from time to time, 
including prior to listing of the Shares. The exact number of Shares 
that will constitute a Creation Unit will be disclosed in the 
Registration Statement. Once created, Shares of the Fund may trade on 
the secondary market in amounts less than a Creation Unit.
    Although the Adviser anticipates that purchases and redemptions for 
Creation Units will generally be executed on an all-cash basis, the 
consideration for purchase of Creation Units of the Fund may consist of 
an in-kind deposit of a designated portfolio of assets (including any 
portion of such assets for which cash may be substituted) (i.e., the 
``Deposit Assets''), and the ``Cash Component'' computed as described 
below. Together, the Deposit Assets and the Cash Component constitute 
the ``Fund Deposit,'' which represents the minimum initial and 
subsequent investment amount for a Creation Unit of the Fund. The 
specific terms surrounding the creation and redemption of shares are at 
the discretion of the Adviser.
    The Deposit Assets and Fund Securities (as defined below), as the 
case may be, in connection with a purchase or redemption of a Creation 
Unit, generally will correspond pro rata, to the extent practicable, to 
the assets held by the Fund.
    The Cash Component will be an amount equal to the difference 
between the NAV of the Shares (per Creation Unit) and the ``Deposit 
Amount,'' which will be an amount equal to the market value of the 
Deposit Assets, and serve to compensate for any differences between the 
NAV per Creation Unit and the Deposit Amount. The Fund generally offers 
Creation Units partially or entirely for cash. The Adviser will make 
available through the National Securities Clearing Corporation 
(``NSCC'') on each business day, prior to the opening of business on 
the Exchange, the list of names and the required number or par value of 
each Deposit Asset and the amount of the Cash Component to be included 
in the current Fund Deposit (based on information as of the end of the 
previous business day) for the Fund.
    The identity and number or par value of the Deposit Assets may 
change pursuant to changes in the composition of the Fund's portfolio 
as rebalancing adjustments and corporate action events occur from time 
to time. The composition of the Deposit Assets may also change in 
response to adjustments to the weighting or composition of the holdings 
of the Fund.
    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 Asset that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the Depository Trust Company (``DTC'') or the clearing process through 
the NSCC.\12\
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    \12\ The Adviser represents that, to the extent 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.

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[[Page 47478]]

    Except as noted below, all creation orders must be placed for one 
or more Creation Units and must be received by the Distributor at a 
time specified by the Adviser. The Fund currently intends that such 
orders must be received in proper form no later than 2:00 p.m. Eastern 
Time on the date such order is placed in order for creation of Creation 
Units to be effected based on the NAV of Shares of the Fund as next 
determined on such date after receipt of the order in proper form. The 
``Settlement Date'' is generally the third business day after the 
transmittal date. On days when the Exchange or the futures markets 
close earlier than normal, the Fund may require orders to create or to 
redeem Creation Units to be placed earlier in the day.
    Fund Deposits must be delivered through either the Continuous Net 
Settlement facility of the NSCC, the Federal Reserve System (for cash 
and government securities), through DTC (for corporate securities), or 
through a central depository account, such as with Euroclear or DTC, 
maintained by JP Morgan (a ``Central Depository Account''), in any case 
at the discretion of the Adviser, by an authorized participant. Any 
portion of a Fund Deposit that may not be delivered through the NSCC, 
Federal Reserve System or DTC must be delivered through a Central 
Depository Account.
    A standard creation transaction fee may be imposed to offset the 
transfer and other transaction costs associated with the issuance of 
Creation Units.
    Shares of the Fund may be redeemed only in Creation Units at their 
NAV next determined after receipt of a redemption request in proper 
form by the Distributor and only on a business day. The Adviser will 
make available through the NSCC, prior to the opening of business on 
the Exchange on each business day, the designated portfolio of assets 
(including any portion of such assets 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 
(``Fund Securities''). The redemption proceeds for a Creation Unit 
generally will consist of a specified amount of cash less a redemption 
transaction fee. The Fund generally will redeem Creation Units entirely 
for cash.
    A standard redemption transaction fee may be imposed to offset 
transfer and other transaction costs that may be incurred by the Fund.
    Redemption requests for Creation Units of the Fund must be 
submitted to the Distributor by or through an authorized participant by 
a time specified by the Adviser. The Fund currently intends that such 
requests must be received no later than 2:00 p.m. Eastern Time on any 
business day, in order to receive that day's NAV. The authorized 
participant must transmit the request for redemption in the form 
required by the Fund to the Distributor in accordance with procedures 
set forth in the authorized participant agreement.
    Additional information regarding the Shares and the Fund, including 
investment strategies, risks, creation and redemption procedures, fees 
and expenses, portfolio holdings disclosure policies, distributions, 
taxes and reports to be distributed to beneficial owners of the Shares 
can be found in the Registration Statement or on the Web site for the 
Fund (www.ProShares.com), as applicable.
Availability of Information
    The Fund's Web site, 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 Web sites will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's reported NAV, the closing market 
price or the midpoint of the bid/ask spread at the time of calculation 
of such NAV (the ``Bid/Ask Price''),\13\ daily trading volume, and a 
calculation of the premium and discount of the closing market price or 
Bid/Ask Price against the NAV; and (2) data in chart format displaying 
the frequency distribution of discounts and premiums of the daily 
closing market price or Bid/Ask Price against the NAV, within 
appropriate ranges, for each of the four previous calendar quarters. 
Daily trading volume information will be available in the financial 
section of newspapers, through subscription services such as Bloomberg, 
Thomson Reuters, and International Data Corporation, which can be 
accessed by authorized participants and other investors, as well as 
through other electronic services, including major public Web sites. On 
each business day, before commencement of trading in Shares during 
Regular Trading Hours \14\ on the Exchange, the Fund will disclose on 
its Web site the identities and quantities of the portfolio WTI Crude 
Oil Futures and other assets (the ``Disclosed Portfolio'') held by the 
Fund and the Subsidiary that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\15\ The Disclosed 
Portfolio will include, as applicable: Ticker symbol or other 
identifier, a description of the holding, identity of the asset upon 
which the derivative is based, the quantity of each security or other 
asset held as measured by select metrics, maturity date, coupon rate, 
effective date, market value and percentage weight of the holding in 
the portfolio. The Web site and information will be publicly available 
at no charge.
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    \13\ The Bid/Ask Price of the Fund will be determined using the 
midpoint 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.
    \14\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \15\ 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''). 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.
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    In addition, for the Fund, an estimated value, defined in Rule 
14.11(i)(3)(C) 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 at 
least every 15 seconds during the Exchange's Regular Trading Hours.\16\ 
In addition, the quotations of certain of the Fund's holdings may not 
be updated for purposes of calculating Intraday Indicative Value during 
U.S. trading hours where the market on which the underlying asset is 
traded settles prior to the end of the Exchange's Regular Trading 
Hours.
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    \16\ 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.
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    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 provide an 
estimate of that value throughout the trading day.
    Intraday price quotations on cash equivalents of the type held by 
the Fund are available from major broker-dealer firms and from third-
parties, which may provide prices free with a time delay, or ``live'' 
with a paid fee. For WTI Crude Oil Futures, such intraday information 
is available directly from the applicable listing exchange. Intraday 
price

[[Page 47479]]

information is also available through subscription services, such as 
Bloomberg and Thomson Reuters, which can be accessed by authorized 
participants and other investors. Pricing information related to money 
market fund shares will be available through issuer Web sites and 
publicly available quotation services such as Bloomberg, Markit and 
Thomson Reuters. Money market fund shares are not generally priced or 
quoted on an intraday basis.
    Information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information for the Shares will 
be generally available daily in the print and online financial press. 
Quotation and last sale information for the Shares will be available on 
the facilities of the CTA.
Initial and Continued Listing
    The Shares will be subject to Rule 14.11(i), which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Fund must be in compliance with Rule 10A-3 under the 
Act.\17\ A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV will be 
calculated daily and that the NAV and the Disclosed Portfolio will be 
made available to all market participants at the same time.
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    \17\ See 17 CFR 240.10A-3.
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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 the Fund. The Exchange will halt trading in the 
Shares under the conditions specified in 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 WTI 
Crude Oil Futures and other assets composing 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(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted.
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. The Exchange has appropriate rules to facilitate transactions in 
the Shares during all trading sessions. As provided in Rule 11.11(a), 
the minimum price variation for quoting and entry of orders in Managed 
Fund Shares 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 Managed Fund Shares. The 
Exchange may obtain information regarding trading in the Shares and the 
underlying futures via the Intermarket Surveillance Group (``ISG'') 
from other exchanges who are members or affiliates of the ISG or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement.\18\ In addition, the Exchange is able to access, as 
needed, trade information for certain fixed income instruments reported 
to FINRA's Trade Reporting and Compliance Engine (``TRACE''). The 
Exchange prohibits the distribution of material non-public information 
by its employees.
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    \18\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. At least 90% 
of the weight of the futures contracts held by the Fund will trade 
on markets that are a member of ISG or affiliated with a member of 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
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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) Exchange Rule 3.7, which imposes 
suitability obligations on Exchange members with respect to 
recommending transactions in the Shares to customers; (3) how 
information regarding the Intraday Indicative Value is disseminated; 
(4) the risks involved in trading the Shares during the Pre-Opening 
\19\ and After Hours Trading Sessions \20\ when an updated Intraday 
Indicative Value will not be calculated or publicly disseminated; (5) 
the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (6) trading information.
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    \19\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \20\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
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    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the 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 
Web site. In addition, the Information Circular will reference that the 
Trust is subject to various fees and expenses described in the 
Registration Statement.
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

[[Page 47480]]

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).
---------------------------------------------------------------------------

    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 
initial and continued listing criteria in BZX Rule 14.11(i). 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. If the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser to the investment company 
shall erect a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. The 
Adviser is not a registered broker-dealer, but is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. At least 90% of the 
weight of the futures contracts held by the Fund 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. The Exchange may obtain information regarding trading in the 
Shares and at least 90% of the weight of the underlying futures 
contracts held by the Fund via the ISG from other exchanges who are 
members or affiliates of the ISG or with which the Exchange has entered 
into a comprehensive surveillance sharing agreement.\23\ In addition, 
the Exchange is able to access, as needed, trade information for 
certain fixed income instruments reported to FINRA's TRACE.
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    \23\ See note 18, supra.
---------------------------------------------------------------------------

    The Fund expects that it will generally seek to remain fully 
exposed to WTI Crude Oil Futures even during times of adverse market 
conditions. Under normal circumstances, the Fund's cash assets (which 
are used to collateralize the WTI Crude Oil Futures) will be held in: 
Cash or cash equivalents such as U.S. Treasury securities or other high 
credit quality short-term fixed-income or similar securities (including 
U.S. agency securities, shares of money market funds, bank deposits, 
bank money market accounts, certain variable rate-demand notes, and 
repurchase agreements collateralized by government securities).
    Additionally, the Fund may hold up to an aggregate amount of 15% of 
its net assets in illiquid assets (calculated at the time of 
investment). 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 assets. Illiquid 
assets include assets subject to contractual or other restrictions on 
resale and other instruments that lack readily available markets as 
determined in accordance with Commission staff guidance.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV will be calculated daily and that the NAV and the 
Disclosed Portfolio will be made available to all market participants 
at the same time. In addition, a large amount of information is 
publicly available regarding the Fund and the Shares, thereby promoting 
market transparency. Moreover, the Intraday Indicative Value will be 
disseminated by one or more major market data vendors at least every 15 
seconds during Regular Trading Hours. On each business day, before 
commencement of trading in Shares during Regular Trading Hours, the 
Fund will disclose on its Web site the Disclosed Portfolio that will 
form the basis for the Fund's calculation of NAV at the end of the 
business day. Pricing information will be available on the Fund's Web 
site including: (1) The prior business day's reported NAV, the Bid/Ask 
Price of the Fund, 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. Additionally, information regarding 
market price and trading 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 for 
the Shares will be available on the facilities of the CTA. The Web site 
for the Fund will include a form of the prospectus for the Fund and 
additional data relating to NAV and other applicable quantitative 
information. Trading in Shares of the Fund will be halted under the 
conditions specified in BZX Rule 11.18. Trading may also be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable. Finally, trading in 
the Shares will be subject to BZX Rule 14.11(i)(4)(B)(iv), which sets 
forth circumstances under which Shares of the Fund may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the Intraday Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    Intraday price quotations on U.S. government securities and 
repurchase agreements of the type held by the Fund are available from 
major broker-dealer firms and from third-parties, which may provide 
prices free with a time delay, or ``live'' with a paid fee. Major 
broker-dealer firms will also provide intraday quotes on swaps of the 
type held by the Fund. For WTI Crude Oil Futures, such intraday 
information is available directly from the applicable listing exchange. 
Intraday price information is also available through subscription 
services, such as Bloomberg and Thomson Reuters, which can be accessed 
by authorized participants and other investors. Pricing information 
related to money market fund shares will be available through issuer 
Web sites and publicly available quotation services such as Bloomberg, 
Markit and Thomson Reuters. Money market fund shares are not generally 
priced or quoted on an intraday basis.
    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 
additional types of actively-managed 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 via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement as well as trade information for certain 
fixed income instruments as reported to FINRA's TRACE. At least 90% of 
the weight of the futures contracts held by the Fund 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

[[Page 47481]]

agreement. In addition, as noted above, investors will have ready 
access to information regarding the Fund's holdings, the Intraday 
Indicative Value, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.
    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, rather will facilitate the listing and trading of 
additional actively-managed exchange-traded products that will enhance 
competition among both market participants and listing venues, 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 such proposed rule change; or (b) 
institute proceedings to determine whether the proposed rule change 
should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BatsBZX-2016-34 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BatsBZX-2016-34. 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BatsBZX-2016-34 and should 
be submitted on or before August 11, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17199 Filed 7-20-16; 8:45 am]
BILLING CODE 8011-01-P