Document ID: SEC-2019-0322-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-03-22T04:00Z

[Federal Register Volume 84, Number 56 (Friday, March 22, 2019)]
[Notices]
[Pages 10863-10869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05459]

[[Page 10863]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85347; File No. SR-CboeBZX-2019-015]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Units of Each of (i) 
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy ETNs; 
(ii) Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETNs; (iii) 
Cboe Vest S&P 500[supreg] Accelerated Return Strategy ETNs; and (iv) 
Cboe Vest S&P 500[supreg] Power Buffer Strategy ETNs Under Rule 
14.11(d), Equity Index-Linked Securities

March 18, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 4, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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 proposes a rule change to list and trade units of each 
of (i) the Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect 
Strategy ETNs; (ii) the Cboe Vest S&P 500[supreg] Enhanced Growth 
Strategy ETNs; (iii) the Cboe Vest S&P 500[supreg] Accelerated Return 
Strategy ETNs; and (iv) the Cboe Vest S&P 500[supreg] Power Buffer 
Strategy ETNs under Rule 14.11(d), which governs the listing and 
trading of Equity Index-Linked Securities on the Exchange.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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 aspects 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 units (``Units'') of up to 
twelve monthly series of each of the following under Rule 14.11(d), 
which governs the listing and trading of Linked Securities \3\ on the 
Exchange: \4\ Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect 
Strategy ETNs (the ``Buffer Notes''), Cboe Vest S&P 500[supreg] 
Enhanced Growth Strategy ETNs (the ``Enhanced Growth Notes''), Cboe 
Vest S&P 500[supreg] Accelerated Return Strategy ETNs (the 
``Accelerated Return Notes''), and Cboe Vest S&P 500[supreg] Power 
Buffer Strategy ETNs (the ``Power Buffer Notes'') (each a ``Series of 
Notes'' and, collectively, the ``Notes'' or the ``Target Outcome 
Notes'').
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    \3\ As defined in Rule 14.11(d), ``Linked Securities'' includes 
Multifactor Index-Linked Securities, Equity Index-Linked Securities, 
Commodity-Linked Securities, Fixed Income Index-Linked Securities, 
and Futures-Linked Securities.
    \4\ The Commission originally approved BZX Rule 14.11(d) 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 Exchange is submitting this proposal because the indexes 
underlying the Notes (the ``Indexes'') do not meet the listing 
requirements of Rule 14.11(d)(2)(K)(i)(a) applicable to a series of 
Equity Index-Linked Securities,\5\ which requires that the equity 
securities in the underlying index meet the criteria set forth in Rule 
14.11(d)(2)(K)(i)(a)(1) \6\ or 14.11(d)(2)(K)(i)(a)(2).\7\ 
Specifically, the Notes do not meet all of the ``generic'' listing 
requirements of Rule 14.11(d)(2)(K)(i)(a)(2), applicable to the listing 
of Equity Index-Linked Securities. Rule 14.11(d)(2)(K)(i)(a)(2) sets 
forth the requirements to be met by components of an index of equity 
securities. Because the Indexes consist exclusively of standardized 
and/or FLexible EXchange Options (``FLEX Options'') on the S&P 
500[supreg] Index (together, ``SPX Options''), rather than equity 
securities, the Indexes do not satisfy the requirements of Rule 
14.11(d)(2)(K)(i)(a)(2).\8\ However, the Notes and the Issuer, as 
defined below, will conform to all other initial and continued listing 
criteria applicable to Equity Index-Linked Securities under Rule 
14.11(d).
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    \5\ As defined in Rule 14.11(d), ``Equity Index-Linked 
Securities'' are securities that provide for the payment at maturity 
of a cash amount based on the performance of an underlying equity 
index or indexes (an ``Equity Reference Asset'').
    \6\ Rule 14.11(d)(2)(K)(i)(a)(1) requires that the index or 
indexes to which the security is linked shall have been reviewed and 
approved for the trading of Index Fund Shares or options or other 
derivatives by the Commission under Section 19(b)(2) of the Act and 
rules thereunder and the conditions set forth in the Commission's 
approval order, including comprehensive surveillance sharing 
agreements for non-U.S. stocks, continue to be satisfied. The 
Indexes have not been reviewed and approved by the Commission under 
Section 19(b)(2) of the Act.
    \7\ Rule 14.11(d)(2)(K)(i)(a)(2) provides certain quantitative 
standards applicable to an underlying index or indexes and 
constituent securities.
    \8\ The Exchange notes that the Commission has approved the 
listing and trading of several series of funds, including both Index 
Fund Shares and Managed Fund Shares, that employ similar target 
outcome strategies as those of the Notes, as further discussed 
below. See Securities Exchange Act Release No. 83679 (July 26, 
2018), 83 FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72); and 83796 
(August 8, 2018), 83 FR 40361 (August 14, 2018) (SR-CboeBZX-2017-
005) (the ``Approval Order''). While such products are different 
product types than the Notes, the Exchange believes that many of the 
issues contemplated both in that proposal and in the Approval Order 
are either very similar or identical to those applicable to the 
Notes, specifically related to the susceptibility to manipulation of 
the underlying instruments, which include FLEX Options and certain 
other instruments based on the S&P 500[supreg] Index.
    Rule 14.11(d)(2)(K)(i)(a)(2)(E) provides that all U.S. listed 
equity securities in the applicable index shall be, among other 
things, an NMS Stock as defined in Rule 600 under Regulation NMS of 
the Act. Options are excluded from the definition of NMS Stock, 
meaning that the Indexes do not meet this requirement because they 
are composed exclusively of SPX Options. The Exchange, however, 
notes that each component stock of the S&P 500[supreg] Index is an 
NMS Stock and that the S&P 500[supreg] Index meets the requirements 
of Rule 14.11(d)(2)(K)(i)(a)(2)(A)-(E).
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    The Notes will be offered by Bank of Montreal. Bank of Montreal 
(the ``Issuer'') is a company listed on NYSE.\9\ The Notes will be the 
non-convertible debt of the Issuer. The Issuer is currently and will 
continue to be in compliance with Rule 10A-3 under the Act prior to 
initial listing and on a continual basis.\10\ Each Series of Notes 
will: Have a term not less than one year and not greater than thirty 
years, which the Issuer expects will consist of a twenty year term with 
two five-year extensions at the discretion of the Issuer; \11\ have a 
minimum public market value at the time of issuance of at least $4 
million; \12\ be redeemable at the option of holders thereof on at 
least

[[Page 10864]]

a weekly basis; \13\ and will not have a loss (negative payment) at 
maturity accelerated by a multiple that exceeds three times the 
performance of the applicable Index.\14\
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    \9\ The Exchange notes that the Issuer will meet the 
requirements applicable under Rules 14.8(b)(2)(A)(1), 
14.11(d)(2)(E), 14.11(h)(1)(A), and 14.11(h)(1)(E) on both an 
initial and continual basis.
    \10\ See Rule 14.11(d)(2)(F).
    \11\ See Rule 14.11(d)(2)(B).
    \12\ See Rule 14.11(h)(1)(D).
    \13\ See Rule 14.11(d)(2)(A). Rule 14.11(d)(2)(A) provides that 
both the issue and the issuer of a security must meet the criteria 
applicable under Rule 14.11(h); however, where a security is 
redeemable at the option of holders thereof on at least a weekly 
basis, then no minimum number of holders and no minimum public 
distribution of trading units shall be required. Because the Notes 
will be redeemable at the option of a holder on at least a weekly 
basis, the Issuer and the Notes will not be required to meet such 
requirements under Rule 14.11(h). The public distribution and 
trading unit requirements under Rule 14.11(h) require a minimum of 
400 holders and a minimum public distribution of 1,000,000 trading 
units. See Rule 14.11(h)(1)(B) and (C).
    \14\ See Rule 14.11(d)(2)(D).
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    Rule 14.11(d)(2)(G)(i) requires that if the index is maintained by 
a broker-dealer, the broker-dealer shall erect and maintain a 
``firewall'' around the personnel who have access to information 
concerning changes and adjustments to the index, and the index shall be 
calculated by a third party who is not a broker-dealer. The Indexes are 
maintained by Cboe Exchange, Inc. (the ``Index Provider'' or ``Cboe 
Options''), which is not a broker-dealer.
Cboe Vest Target Outcome Notes
    The investment objective of each Series of Notes is to track, 
before fees and expenses, the performance of its respective Index. The 
value of each Index is calculated daily by the Index Provider utilizing 
an options valuation methodology. Each Index is a rules-based options 
index that consists exclusively of SPX Options and that is designed to 
provide a targeted outcome based on the performance of the S&P 
500[supreg] Index over a period of one year, as further described 
below.
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy ETNs
    The Exchange is proposing to list and trade each monthly series of 
the Buffer Notes,\15\ each of which is based on its respective Cboe S&P 
500[supreg] Buffer Enhanced Growth Protect Index. Each Index is a 
rules-based options index that consists exclusively of SPX Options. The 
Indexes are designed to provide exposure to the large capitalization 
U.S. equity market, with lower volatility and downside risk 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 SPX Options 
expire (the ``Expiry Date'') and on the following trading day 
(typically the last trading day of that month, subject to postponement; 
the applicable Index implements a new portfolio of SPX Options (the 
``Roll Date,'' and the time period from and including the Expiry Date 
to and including the Roll Date, is the ``Roll Period''),\16\ with 
expirations on the next Expiry Date that, if held to such Expiry Date, 
seeks to ``buffer protect'' against the first 10% decline in the value 
of the S&P 500[supreg] Index, while providing 200% participation up to 
a maximum capped gain in the value of the S&P 500[supreg] Index (the 
``Capped Level'').
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    \15\ In total, the Exchange is proposing to list and trade 
twelve monthly series of the Cboe Vest S&P 500[supreg] Enhanced 
Growth Buffer Protect Strategy ETNs. The Buffer Notes will include 
the following: Cboe Vest S&P 500[supreg] Buffer Enhanced Growth 
Protect Strategy (January) ETN; Cboe Vest S&P 500[supreg] Buffer 
Enhanced Growth Protect Strategy (February) ETN; Cboe Vest S&P 
500[supreg] Buffer Enhanced Growth Protect Strategy (March) ETN; 
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy 
(April) ETN; Cboe Vest S&P 500[supreg] Buffer Enhanced Growth 
Protect Strategy (May) ETN; Cboe Vest S&P 500[supreg] Buffer 
Enhanced Growth Protect Strategy (June) ETN; Cboe Vest S&P 
500[supreg] Buffer Enhanced Growth Protect Strategy (July) ETN; Cboe 
Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy 
(August) ETN; Cboe Vest S&P 500[supreg] Buffer Enhanced Growth 
Protect Strategy (September) ETN; Cboe Vest S&P 500[supreg] Buffer 
Enhanced Growth Protect Strategy (October) ETN; Cboe Vest S&P 
500[supreg] Buffer Enhanced Growth Protect Strategy (November) ETN; 
and Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect 
Strategy (December) ETN. Each Note will be based on the Cboe S&P 
500[supreg] Buffer Enhanced Growth Protect Index (Month) Series, 
where ``Month'' is the corresponding month associated with the Roll 
Date as defined below, of the applicable Series of Notes.
    \16\ 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] Enhanced Growth Buffer Protect Index January Series is 
in January and the Roll Date for the Cboe[supreg] S&P 500[supreg] 
Enhanced Growth 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[supreg] Index declines more than 10%: The 
Index declines 10% less than the S&P 500[supreg] Index (e.g., if the 
S&P 500[supreg] Index returns -35%, the Index is designed to return -
25%);
     If the S&P 500[supreg] Index declines between 0% and 10%: 
The Index provides a total return of zero (0%);
     If the S&P 500[supreg] Index appreciates between 0% and 
the Capped Level: The Index appreciates by an amount that equals 200% 
of the gain in the level of the S&P 500[supreg] Index; and
     If the S&P 500[supreg] Index appreciates more than the 
Capped Level: The Index appreciates by the amount equal to the Capped 
Level.
    Each Index includes a mix of purchased and written (sold) SPX 
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 methodology, 
which utilizes the prices at which the component SPX Options that 
comprise the Index trade on that day or prices that are derived from a 
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETN
    The Exchange is proposing to list and trade each monthly series of 
the Enhanced Growth Notes,\17\ each of which is based on its respective 
Cboe S&P 500[supreg] Enhanced Growth Index. Each Index is a rules-based 
options index that consists exclusively of SPX Options. The Indexes are 
designed to provide exposure to the large capitalization U.S. equity 
market with similar volatility and downside risk, but higher upside 
potential in market environments with modest gains in the U.S. equity 
market over the course of one year. On a specified day of the 
applicable month for each Index the SPX Options expire (the ``Expiry 
Date'') and on the following trading day (typically the last trading 
day of that month, subject to postponement, the applicable Index 
implements a new portfolio of SPX Options (the ``Roll Date,'' and the 
time period from and including the Expiry Date to and including the 
Roll Date, is the ``Roll Period''),\18\ with expirations

[[Page 10865]]

on the next Expiry Date that, if held to such Expiry Date, seeks to 
provide 200% participation up to a maximum capped gain in the value of 
the S&P 500[supreg] Index (the ``Capped Level'') and 100% participation 
in losses in the value of the S&P 500[supreg] Index.
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    \17\ In total, the Exchange is proposing to list and trade 
twelve monthly series of the Cboe Vest S&P 500[supreg] Enhanced 
Growth Strategy ETNs. The Enhanced Growth Notes will include the 
following: Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETN. 
Each Note will be an index-based exchange traded note (``ETN''). The 
Notes will be the following: Cboe Vest S&P 500[supreg] Enhanced 
Growth Strategy (January) ETN; Cboe Vest S&P 500[supreg] Enhanced 
Growth Strategy (February) ETN; Cboe Vest S&P 500[supreg] Enhanced 
Growth Strategy (March) ETN; Cboe Vest S&P 500[supreg] Enhanced 
Growth Strategy (April) ETN; Cboe Vest S&P 500[supreg] Enhanced 
Growth Strategy (May) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth 
Strategy (June) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth 
Strategy (July) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth 
Strategy (August) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth 
Strategy (September) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth 
Strategy (October) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth 
Strategy (November) ETN; and Cboe Vest S&P 500[supreg] Enhanced 
Growth Strategy (December) ETN. Each Note will be based on the Cboe 
S&P 500 Enhanced Growth Index (Month) Series, where ``Month'' is the 
corresponding month associated with the Roll Date of the applicable 
Series of Notes.
    \18\ 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] Enhanced Growth Index January Series is in January and 
the Roll Date for the Cboe[supreg] S&P 500[supreg] Enhanced Growth 
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[supreg] Index declines: The Index declines 
by the same amount as the S&P 500[supreg] Index (e.g., if the S&P 
500[supreg] Index returns -35%, the Index is designed to return -35%);
     If the S&P 500[supreg] Index appreciates between 0% and 
the Capped Level: The Index appreciates by an amount that equals 200% 
of the gain in the price of the S&P 500[supreg] Index; and
     If the S&P 500[supreg] Index appreciates more than the 
Capped Level: The Index appreciates by the amount equal to the Capped 
Level.
    Each Index includes a mix of purchased and written (sold) SPX 
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 methodology, 
which utilizes the prices at which the component SPX Options that 
comprise the Index trade on that day or prices that are derived from a 
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Accelerated Return Strategy ETN
    The Exchange is proposing to list and trade each monthly series of 
the Accelerated Return Notes,\19\ each of which is based on its 
respective Cboe S&P 500[supreg] Accelerated Return Index. Each Index is 
a rules-based options index that consists exclusively of SPX Options. 
The Indexes are designed to provide exposure to the large 
capitalization U.S. equity market with similar volatility and downside 
risk, but higher upside potential in market environments with modest 
gains in the U.S. equity market over the course of one year. On a 
specified day of the applicable month for each Index the SPX Options 
expire (the ``Expiry Date'') and on the following trading day 
(typically the last trading day of that month, subject to postponement, 
the applicable Index implements a new portfolio of SPX Options (the 
``Roll Date,'' and the time period from and including the Expiry Date 
to and including the Roll Date, is the ``Roll Period''),\20\ with 
expirations on the next Expiry Date that, if held to such Expiry Date, 
seeks to provide 300% participation up to a maximum capped gain in the 
value of the S&P 500[supreg] Index (the ``Capped Level'') and 100% 
participation in losses in the value of the S&P 500[supreg] Index.
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    \19\ In total, the Exchange is proposing to list and trade 
twelve monthly series of the Cboe Vest S&P 500[supreg] Accelerated 
Return Strategy ETNs. The Accelerated Return Notes will include the 
following: Cboe Vest S&P 500[supreg] Accelerated Return Strategy 
ETN. Each Note will be an index-based exchange traded note 
(``ETN''). The Notes will be the following: Cboe Vest S&P 
500[supreg] Accelerated Return Strategy (January) ETN; Cboe Vest S&P 
500[supreg] Accelerated Return Strategy (February) ETN; Cboe Vest 
S&P 500[supreg] Accelerated Return Strategy (March) ETN; Cboe Vest 
S&P 500[supreg] Accelerated Return Strategy (April) ETN; Cboe Vest 
S&P 500[supreg] Accelerated Return Strategy (May) ETN; Cboe Vest S&P 
500[supreg] Accelerated Return Strategy (June) ETN; Cboe Vest S&P 
500[supreg] Accelerated Return Strategy (July) ETN; Cboe Vest S&P 
500[supreg] Accelerated Return Strategy (August) ETN; Cboe Vest S&P 
500[supreg] Accelerated Return Strategy (September) ETN; Cboe Vest 
S&P 500[supreg] Accelerated Return Strategy (October) ETN; Cboe Vest 
S&P 500[supreg] Accelerated Return Strategy (November) ETN; and Cboe 
Vest S&P 500[supreg] Accelerated Return Strategy (December) ETN. 
Each Note will be based on the Cboe S&P 500[supreg] Accelerated 
Return Index (Month) Series, where ``Month'' is the corresponding 
month associated with the Roll Date of the applicable Series of 
Notes.
    \20\ 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] Accelerated Return Index January Series is in January 
and the Roll Date for the Cboe[supreg] S&P 500[supreg] Accelerated 
Return 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[supreg] Index declines: The Index declines 
by the same amount as the S&P 500[supreg] Index (e.g., if the S&P 
500[supreg] Index returns -35%, the Index is designed to return -35%);
     If the S&P 500[supreg] Index appreciates between 0% and 
the Capped Level: The Index appreciates by an amount that equals 300% 
of the gain in the price of the S&P 500[supreg] Index; and
     If the S&P 500[supreg] Index appreciates more than the 
Capped Level: The Index appreciates by the amount equal to the Capped 
Level.
    Each Index includes a mix of purchased and written (sold) SPX 
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 methodology, 
which utilizes the prices at which the component SPX Options that 
comprise the Index trade on that day or prices that are derived from a 
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Power Buffer Strategy ETN
    The Exchange is proposing to list and trade each monthly series of 
the Power Buffer Notes,\21\ each of which is based on its respective 
Cboe S&P 500[supreg] Power Buffer Index. Each Index is a rules-based 
options index that consists exclusively of SPX Options. 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 SPX Options expire (the ``Expiry 
Date'') and on the following trading day (typically the last trading 
day of that month, subject to postponement, the applicable Index 
implements a new portfolio of SPX Options (the ``Roll Date,'' and the 
time period from and including the Expiry Date to and including the 
Roll Date, is the ``Roll Period''),\22\ with expirations on the next 
Expiry Date that, if held to such Expiry Date, seeks to ``buffer

[[Page 10866]]

protect'' against the first 15% decline in the value of the S&P 
500[supreg] Index, while providing 100% participation up to a maximum 
capped gain in the value of the S&P 500[supreg] Index (the ``Capped 
Level'').
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    \21\ In total, the Exchange is proposing to list and trade 
twelve monthly series of the Cboe Vest S&P 500[supreg] Power Buffer 
Strategy ETNs. The Power Buffer Notes will include the following: 
Cboe Vest S&P 500[supreg] Power Buffer Strategy (January) ETN; Cboe 
Vest S&P 500[supreg] Power Buffer Strategy (February) ETN; Cboe Vest 
S&P 500[supreg] Power Buffer Strategy (March) ETN; Cboe Vest S&P 
500[supreg] Power Buffer Strategy (April) ETN; Cboe Vest S&P 
500[supreg] Power Buffer Strategy (May) ETN; Cboe Vest S&P 
500[supreg] Power Buffer Strategy (June) ETN; Cboe Vest S&P 
500[supreg] Power Buffer Strategy (July) ETN; Cboe Vest S&P 
500[supreg] Power Buffer Strategy (August) ETN; Cboe Vest S&P 
500[supreg] Power Buffer Strategy (September) ETN; Cboe Vest S&P 
500[supreg] Power Buffer Strategy (October) ETN; Cboe Vest S&P 
500[supreg] Power Buffer Strategy (November) ETN; and Cboe Vest S&P 
500[supreg] Power Buffer Strategy (December) ETN. Each Note will be 
based on the Cboe S&P 500[supreg] Power Buffer Index (Month) Series, 
where ``Month'' is the corresponding month associated with the Roll 
Date of the applicable Series of Notes.
    \22\ 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] Power Buffer Index January Series is in January and the 
Roll Date for the Cboe[supreg] S&P 500[supreg] Power Buffer 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[supreg] Index declines more than 15%: The 
Index declines 15% less than the S&P 500[supreg] Index (e.g., if the 
S&P 500[supreg] Index returns -35%, the Index is designed to return -
20%);
     If the S&P 500[supreg] Index declines between 0% and 15%: 
The Index provides a total return of zero (0%);
     If the S&P 500[supreg] Index appreciates between 0% and 
the Capped Level: The Index appreciates by an amount that equals the 
gain in the price of the S&P 500[supreg] Index; and
     If the S&P 500[supreg] Index appreciates more than the 
Capped Level: The Index appreciates by the amount equal to the Capped 
Level.
    Each Index includes a mix of purchased and written (sold) SPX 
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 methodology, 
which utilizes the prices at which the component SPX Options that 
comprise the Index trade on that day or prices that are derived from a 
valuation model when a traded price is not available or appropriate.
S&P 500[supreg] Options
    The market for options contracts on the S&P 500[supreg] Index 
traded on Cboe Options is among the most liquid markets in the world. 
According to publicly available data, more than 1.48 million options 
contracts on the S&P 500[supreg] Index were traded per day on Cboe 
Options in 2018, which is more than $350 billion in notional volume 
traded on a daily basis. While FLEX Options are traded differently than 
standardized options contracts, the Exchange believes that this 
liquidity bolsters the market for FLEX Options, as described below. 
Every FLEX Option order submitted to Cboe Options is exposed to a 
competitive auction process for price discovery. The process begins 
with a request for quote (``RFQ'') in which the interested party 
establishes the terms of the FLEX Options contract. The RFQ solicits 
interested market participants, including on-floor market makers, 
remote market makers trading electronically, and member firm traders, 
to respond to the RFQ with bids or offers through a competitive 
process. This solicitation contains all of the contract specifications-
underlying, size, type of option, expiration date, strike price, 
exercise style and settlement basis. During a specified amount of time, 
responses to the RFQ are received and at the end of that time period, 
the initiator can decide whether to accept the best bid or offer. The 
process occurs under the rules of Cboe Options, which means that 
customer transactions are effected according to the principles of a 
fair and orderly market following trading procedures and policies 
developed by Cboe Options.
    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Notes and SPX Options for 
several reasons: (i) The diversity, liquidity, and market cap of the 
securities underlying the S&P 500[supreg] Index; (ii) the significant 
liquidity in the market for options on the S&P 500[supreg] Index; (iii) 
the competitive quoting process for FLEX Options combined with the 
significant liquidity in the market for options on the S&P 500[supreg] 
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 \23\ and the Financial 
Industry Regulatory Authority (``FINRA'') designed to detect violations 
of the federal securities laws and self-regulatory organization 
(``SRO'') rules. The Exchange has in place a surveillance program for 
derivative products, including Linked Securities, to ensure the 
availability of information necessary to detect and deter potential 
manipulations and other trading abuses, thereby making the Notes less 
readily susceptible to manipulation. Further, the Exchange believes 
that because the Indexes will consist only of SPX Options, which trade 
in extremely liquid and highly regulated markets, the Notes are less 
readily susceptible to manipulation.
---------------------------------------------------------------------------

    \23\ 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.
---------------------------------------------------------------------------

    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Notes 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 Notes 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Linked Securities. 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 Notes on the Exchange. The Issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Series of Notes 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 Series of Notes is not in compliance with 
the applicable listing requirements, then, with respect to such Series 
of Notes, 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.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Units and exchange-traded options 
contracts with other markets and other entities that are members of the 
Intermarket Surveillance Group (``ISG'') \24\ and may obtain trading 
information regarding trading in the Units and exchange-traded options 
contracts from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Units and SPX 
Options from Cboe Options. In addition, the Exchange also has a general 
policy prohibiting the distribution of material, non-public information 
by its employees.
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    \24\ 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.
---------------------------------------------------------------------------

    As noted above, options on the S&P 500[supreg] Index are among the 
most liquid options in the world and derive their value from the 
actively traded S&P 500[supreg] 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

[[Page 10867]]

500[supreg] Index make securities that derive their value from that 
index less susceptible to market manipulation in view of the market 
capitalization and liquidity of the S&P 500[supreg] Index components, 
price and quote transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 
500[supreg] Index securities, options on the S&P 500[supreg] Index, and 
other related derivatives is sufficiently great to deter fraudulent or 
manipulative acts associated with the price of the Units. The Exchange 
also believes that such liquidity is sufficient to support the creation 
and redemption mechanism. Coupled with the extensive surveillance 
programs of the SROs described above, the Exchange does not believe 
that trading in the Notes would present manipulation concerns.
    The Exchange represents that, except for the exception to Rule 
14.11(d)(2)(K)(i)(a), the Indexes will satisfy, on an initial and 
continued listing basis, all of the listing standards under BZX Rule 
14.11(d)(K)(i) and all other requirements under Rule 14.11(d) that are 
applicable to Equity Index-Linked Securities. The Issuer is required to 
comply with Rule 10A-3 under the Act for the initial and continued 
listing of the Notes. In addition, the Exchange represents that the 
Notes will comply with all other requirements applicable to Equity 
Index-Linked Securities, which includes index dissemination,\25\ 
suspension of trading or removal,\26\ trading halts,\27\ 
surveillance,\28\ minimum price variation for quoting and order 
entry,\29\ and the information circular,\30\ as set forth in Exchange 
rules applicable Equity Index-Linked Securities. Further, all 
statements or representations regarding the description of the 
portfolio or reference assets, limitations on portfolio holdings or 
reference assets, dissemination and availability of the index, 
reference asset, and intraday indicative values, or the applicability 
of Exchange listing rules shall constitute continued listing 
requirements for the Notes. Moreover, all of the options contracts 
included in the Indexes will trade on markets that are a member of ISG 
or affiliated with a member of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Quotation and 
last sale information for U.S. exchange-listed options contracts 
cleared by The Options Clearing Corporation will be available via the 
Options Price Reporting Authority. RFQ information for FLEX Options 
will be available directly from Cboe Options. The intra-day, closing 
and settlement prices of exchange-traded options will be readily 
available from the options exchanges, automated quotation systems, 
published or other public sources, or online information services such 
as Bloomberg or Reuters.
---------------------------------------------------------------------------

    \25\ See Rule 14.11(d)(2)(G).
    \26\ See Rule 14.11(d)(2)(K)(i)(b).
    \27\ See Rule 14.11(d)(2)(H).
    \28\ See Rule 14.11(d)(2)(I).
    \29\ See Rule 11.11(a).
    \30\ See Rule 14.11(h)(1)(F).
---------------------------------------------------------------------------

    Lastly, the Issuer represents that there will be a publicly 
available web tool for each Series of Notes on a website that provides 
existing and prospective investors with important information to help 
inform investment decisions. The information provided will include the 
start and end dates of the current outcome period, the time remaining 
in the outcome period, the Index's current value, the applicable cap 
for the outcome period and the maximum investment gain available up to 
the cap for an investor purchasing Notes at the current Index value. 
For each of the Series of Notes, the web tool will also provide 
information regarding its buffer. This information will include the 
remaining buffer available for an investor purchasing Notes at the 
current Index value or the amount of losses that an investor purchasing 
Notes at the Index value would incur before benefitting from the 
protection of the buffer.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \31\ in general and Section 6(b)(5) of the Act \32\ 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.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f.
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest in that the Notes will meet 
each of the initial and continued listing criteria in BZX Rule 14.11(d) 
with the exception of Rule 14.11(d)(2)(K)(i)(a)(2), because the Indexes 
consist exclusively of SPX Options, rather than equity securities. Rule 
14.11(d)(2)(K)(i)(a)(2) is intended to ensure that a series of Equity 
Index-Linked Securities is not subject to manipulation by requiring 
that the underlying reference index is composed of equity securities 
that are sufficiently large, liquid, and diverse to mitigate 
manipulation concerns. The Exchange believes that these manipulation 
concerns are otherwise mitigated.
    Specifically, the Exchange believes that sufficient protections are 
in place to protect against market manipulation of the Units and SPX 
Options for several reasons: (i) The diversity, liquidity, and market 
cap of the securities underlying the S&P 500[supreg] Index; (ii) the 
significant liquidity in the market for options on the S&P 500[supreg] 
Index; (iii) the competitive quoting process for FLEX Options combined 
with the significant liquidity in the market for options on the S&P 
500[supreg] 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 Linked 
Securities to ensure the availability of information necessary to 
detect and deter potential manipulations and other trading abuses, 
thereby making the Notes less readily susceptible to manipulation. 
Further, the Exchange believes that because the assets in each Index, 
which are comprised entirely of SPX Options on the S&P 500[supreg] 
Index, are priced in extremely liquid and highly regulated markets, the 
Notes are less readily susceptible to manipulation.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Notes 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 Notes 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Linked Securities. 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

[[Page 10868]]

of Exchange rules shall constitute continued listing requirements for 
listing the Notes on the Exchange. The Issuer has represented to the 
Exchange that it will advise the Exchange of any failure by a Series of 
Notes 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 
Series of Notes is not in compliance with the applicable listing 
requirements, then, with respect to such Notes, 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 
Series of Notes is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures with 
respect to such Series of Notes under Exchange Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Notes 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 Notes 
and exchange-traded options contracts from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Notes and exchange-traded options contracts from markets 
and other entities that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. In 
addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees. As 
noted above, options on the S&P 500[supreg] Index are among the most 
liquid options in the world and derive their value from the actively 
traded S&P 500[supreg] 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[supreg] Index make securities that derive their value from that 
index less susceptible to market manipulation in view of the market 
capitalization and liquidity of the S&P 500[supreg] Index components, 
price and quote transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 
500[supreg] Index securities, options on the S&P 500[supreg] Index, and 
other related derivatives is sufficiently great to deter fraudulent or 
manipulative acts associated with the price of the Notes. Coupled with 
the extensive surveillance programs of the SROs described above, the 
Exchange does not believe that trading in the Units would present 
manipulation concerns.
    The Exchange represents that, except as described above, the Notes 
will meet and be subject to all other requirements of the listing 
standards and other applicable continued listing requirements for 
Equity Index-Linked Securities, including index dissemination,\33\ 
suspension of trading or removal,\34\ trading halts,\35\ 
surveillance,\36\ minimum price variation for quoting and order 
entry,\37\ and the information circular.\38\ The Issuer is required to 
comply with Rule 10A-3 under the Act for the initial and continued 
listing of each Series of Notes. Moreover, all of the options contracts 
included in the Indexes 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.
---------------------------------------------------------------------------

    \33\ See Rule 14.11(d)(2)(G).
    \34\ See Rule 14.11(d)(2)(K)(i)(b).
    \35\ See Rule 14.11(d)(2)(H).
    \36\ See Rule 14.11(d)(2)(I).
    \37\ See Rule 11.11(a).
    \38\ See Rule 14.11(h)(1)(F).
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    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of several 
additional types of exchange-traded products 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 Exchange 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-CboeBZX-2019-015 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-CboeBZX-2019-015. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for

[[Page 10869]]

inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CboeBZX-2019-015, and should 
be submitted on or before April 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05459 Filed 3-21-19; 8:45 am]
 BILLING CODE 8011-01-P