[Federal Register Volume 81, Number 55 (Tuesday, March 22, 2016)]
[Notices]
[Pages 15387-15394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06339]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77379; File No. SR-BATS-2016-16]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
Pointbreak Diversified Commodity Fund of the Pointbreak ETF Trust Under 
BATS Rule 14.11(i), Managed Fund Shares

March 16, 2016.
    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 7, 2016, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') 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 filed a proposal to list and trade shares of the 
Pointbreak Diversified Commodity Fund (the ``Fund'') of the Pointbreak 
ETF Trust (the ``Trust'') under BATS 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.

[[Page 15388]]

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares under BATS Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Fund will be an actively managed fund that 
seeks to provide long term capital appreciation, primarily through 
exposure to the commodity futures markets.
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    \3\ The Commission approved BATS 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 organized as a 
Delaware statutory trust on June 18, 2015. 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.\4\ 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, prior to listing on the Exchange, the Adviser will be registered 
as a Commodity Pool Operator (``CPO'') and will become 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 
commodity markets via investments in the Subsidiary. These investments 
are intended to provide the Fund with exposure to commodity 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 investment 
in the Subsidiary.
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    \4\ See Registration Statement on Form N-1A for the Trust, dated 
December 4, 2015 [sic] (File Nos. 333-205324 and 811-23068). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information 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) [sic].
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Description of the Shares and the Fund
    Pointbreak Advisers LLC is the investment adviser (``Adviser'') to 
the Fund. Brown Brothers Harriman & Co. (``BBH'') is the administrator, 
custodian and transfer agent for the Trust. ALPS Distributors, Inc. 
(``Distributor'') serves as the distributor for the Trust. The Adviser 
is not affiliated with either BBH or the Distributor.
    BATS 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.\5\ In addition, Rule 14.11(i)(7) further 
requires that personnel who make decisions on the investment company's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable investment company portfolio. Rule 14.11(i)(7) is 
similar to BATS 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 
and is not affiliated with a broker-dealer. 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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    \5\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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Pointbreak Diversified Commodity Fund
    According to the Registration Statement, the Fund is an actively 
managed exchange-traded fund (``ETF'') that seeks to provide total 
return that exceeds that of a benchmark, the Solactive Diversified 
Commodity Index (the ``Benchmark'') over time. The Fund is not an index 
tracking exchange-traded fund and is not required to invest in the 
specific components of the Benchmark. However, the Fund will generally 
seek to maintain a portfolio of instruments similar to those included 
in the Benchmark and will seek exposure to commodities included in the 
Benchmark. The Benchmark is a rules-based index composed of futures 
contracts on 16 heavily traded commodities across the energy, precious 
metals, industrial metals and agriculture sectors: Aluminum, Brent 
crude oil, cocoa, copper, corn, gold, heating oil, live cattle, natural 
gas, Reformulated Gasoline Blendstock for Oxygen Blending (``RBOB'') 
gasoline, silver, soybeans, sugar #11, wheat, WTI light crude oil, and 
zinc. The allocation among the Fund's investments generally 
approximates the allocation among the components of the Benchmark. The 
Benchmark will further seek to select the contract month, for each 
specific commodity, among the next 13 months that display the most 
backwardation, or the least contango, and does not attempt to always 
own those contracts that are closest to expiration. Although the Fund 
seeks returns comparable to the returns of the Benchmark, the Fund can 
have a higher or lower exposure to any component within the Benchmark 
at any time and may invest in other commodity-linked instruments as 
well, as described below.
Principal Holdings
    According to the Registration Statement, under normal

[[Page 15389]]

circumstances,\6\ the Fund will invest, either directly or through the 
Subsidiary, in a combination of Commodity Futures, as defined below, 
and cash and cash-like instruments (``Cash Instruments''). Commodity 
Futures include only the following instruments: Exchange-traded futures 
on commodities; and exchange-traded futures contracts on commodity 
indices. These instruments provide exposure to the investment returns 
of the commodities markets, without investing directly in physical 
commodities.
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    \6\ 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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    Under normal circumstances, in addition to investing in Commodity 
Futures through the Subsidiary, the Fund will invest its remaining 
assets in Cash Instruments, including cash, cash-like instruments or 
high-quality collateral securities that provide liquidity, serve as 
margin, or collateralize the Subsidiary's investments in Commodity 
Futures. Such Cash Instruments include only the following instruments: 
(i) Short-term obligations issued by the U.S. Government; (ii) cash and 
cash-like instruments; (iii) money market mutual funds, including 
affiliated money market mutual funds; and (iv) repurchase 
agreements.\7\ The Fund will not invest in Cash Instruments that are 
below investment grade.
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    \7\ The Fund follows certain procedures designed to minimize the 
risks inherent in repurchase agreements. Such procedures include 
effecting repurchase transactions only with large, well-capitalized, 
and well-established financial institutions whose condition will be 
continually monitored by the Sub-Adviser [sic]. It is the current 
policy of the Fund not to invest in repurchase agreements that do 
not mature within seven days if any such investment, together with 
any other illiquid assets held by the Fund, amount to more than 15% 
of the Fund's net assets. The investments of the Fund in repurchase 
agreements, at times, may be substantial when, in the view of the 
Sub-Adviser [sic], liquidity or other considerations so warrant.
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    The Fund generally will not invest directly in Commodity Futures. 
The Fund expects to gain exposure to Commodity Futures by investing a 
portion of its assets in the Subsidiary, which will invest in Commodity 
Futures.\8\ The Subsidiary is also 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 commodity markets in accordance with 
applicable rules and regulations. The Subsidiary has the same 
investment objective and investment restrictions as the Fund. The Fund 
will generally invest up to 25% of its total assets in the Subsidiary.
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    \8\ 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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    During times of adverse market, economic, political or other 
conditions, the Fund may depart temporarily from its principal 
investment strategies (such as by maintaining a significant uninvested 
cash position) for defensive purposes. Doing so could help the Fund 
avoid losses, but may mean lost investment opportunities. During these 
periods, the Fund may not achieve its investment objective.
    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
    The Fund 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 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. Aside from the Fund's 
investments in the Subsidiary, neither the Fund nor the Subsidiary will 
invest in non-U.S. equity securities or options.
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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 in which it 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 (e.g. 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 4:00 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.
    Securities and other assets held by both the Fund and the 
Subsidiary are generally 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. 
Commodity

[[Page 15390]]

Futures are generally valued at their settlement price as determined by 
the relevant exchange. Repurchase agreements will generally be valued 
at bid prices received from independent pricing services as of the 
announced closing time for trading in such instruments. Cash and cash 
equivalents (other than money market mutual funds) also may be valued 
on the basis of information furnished by an independent pricing service 
that uses a valuation matrix which incorporates both dealer-supplied 
valuations and electronic data processing techniques. Short-term debt 
securities with remaining maturities of sixty days or less for which 
market quotations and information furnished by an independent pricing 
service are not readily available will be valued at amortized cost. 
Shares of money market mutual funds will be valued at their current Net 
Asset Value per share.
    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 
50,000 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 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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    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 10:30 a.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.
    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. 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, in an amount disclosed in 
the current prospectus for the Fund, 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 10:30 a.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.pointbreakETFs.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 site will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior

[[Page 15391]]

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 for the Fund 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 Commodity 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 BATS 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 U.S. government securities, debt 
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. 
For 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.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. 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 BATS 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 of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in BATS 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 
Commodity 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. BATS 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 BATS Rule 14.11(i)(2)(C), 
the minimum price variation for quoting and entry of orders in Managed 
Fund Shares traded on the Exchange is $0.01.
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, including futures contracts held by the Subsidiary, 
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

[[Page 15392]]

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. The Exchange 
also notes that all of the futures contracts in the Disclosed 
Portfolio for the Fund will trade on markets that are a member of 
ISG or affiliate 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) BATS Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and Disclosed Portfolio are 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 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 BATS 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 and is not affiliated with a 
broker-dealer. The Exchange may obtain information regarding trading in 
the Shares and the underlying futures, including those held by the 
Subsidiary, 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 21, supra.
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    Under normal circumstances, the Fund will invest, either directly 
or through the Subsidiary, in a combination of Commodity Futures and 
Cash Instruments. Commodity Futures provide exposure to the investment 
returns of the commodities markets, without investing directly in 
physical commodities. The Fund generally will not invest directly in 
Commodity Futures. The Fund expects to gain exposure to these 
investments by investing a portion of its assets in the Subsidiary. 
Cash Instruments include only the following instruments: (i) Short-term 
obligations issued by the U.S. Government; (ii) cash and cash-like 
instruments; and (iii) money market mutual funds, including affiliated 
money market mutual funds. The Fund will not invest in Cash Instruments 
that are below investment grade.
    During times of adverse market, economic, political or other 
conditions, the Fund may depart temporarily from its principal 
investment strategies (such as by maintaining a significant uninvested 
cash position) for defensive purposes. Doing so could help the Fund 
avoid losses, but may mean lost investment opportunities. During these 
periods, the Fund may not achieve its investment objective.
    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

[[Page 15393]]

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 closing market price or 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 
BATS 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 BATS 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, debt 
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. 
For 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.
    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. 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 (i) as the Commission may 
designate up to 90 days of such date 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 [email protected]. Please include 
File Number SR-BATS-2016-16 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-BATS-2016-16. 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-BATS-2016-16 and should be 
submitted on or before April 12, 2016.


[[Page 15394]]


    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. 2016-06339 Filed 3-21-16; 8:45 am]
 BILLING CODE 8011-01-P