[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3807-3812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01354]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82538; File No. SR-CboeBZX-2018-005]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the Cboe 
Vest S&P 500[supreg] Premium Income ETF Under Rule 14.11(c)(5)

January 19, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 3808]]

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 10, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 Cboe 
Vest S&P 500[supreg] Premium Income ETF (formerly known as the Cboe 
Vest S&P 500[supreg] Market-Neutral Option Income ETF), a series of ETF 
Series Solutions (the ``Trust''), under Rule 14.11(c)(5) (``Index Fund 
Shares'').
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of Cboe 
Vest S&P 500[supreg] Premium Income ETF (the ``Fund'') under Rule 
14.11(c)(5), which governs the listing and trading of Index Fund Shares 
based on equity and fixed income securities indexes on the Exchange. 
The Fund will be an index-based exchange traded fund (``ETF''). The 
Fund will track the Cboe S&P 500[supreg] Volatility Risk Premia Index 
(the ``Index'').\3\
---------------------------------------------------------------------------

    \3\ This filing was originally submitted on January 10, 2018 as 
SR-CboeBZX-2018-004. SR-CboeBZX-2018-004 was subsequently withdrawn 
on January 10, 2018 and replaced by this filing.
---------------------------------------------------------------------------

    The Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on February 9, 2012. The Trust is registered 
with the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\4\ The Fund's 
adviser, Cboe Vest Financial, LLC (the ``Adviser''), and index 
provider, Cboe Exchange, Inc. (``Cboe Options'' or the ``Index 
Provider''), are affiliates and have implemented and will maintain a 
``fire wall'' with respect to their respective personnel regarding 
access to information concerning the composition and/or changes to the 
underlying index or portfolio, as applicable. The Adviser and the Index 
Provider are not registered as broker-dealers, but are affiliated with 
a broker-dealer. The Index Provider has implemented and will maintain a 
``fire wall'' with respect to such broker-dealer and its personnel 
regarding access to information concerning the composition and/or 
changes to the Index. In addition, Index Provider personnel who make 
decisions regarding the Index composition or methodology are subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the Index, pursuant to Rule 
14.11(c)(5)(A)(iii). The Adviser has also implemented and will maintain 
a ``fire wall'' with respect to such broker-dealer and its personnel 
regarding access to information concerning the composition and/or 
changes to the portfolio. In addition, Adviser personnel who make 
decisions regarding 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 registered as a broker-dealer or newly affiliated with 
another broker-dealer; or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer; it 
will implement a fire wall with respect to its relevant personnel or 
such broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio. The Exchange also notes that the Adviser is a BZX Affiliate 
as defined in Rule 14.3(e)(1)(A),\5\ but the Fund is not an Affiliate 
Security, as defined in Rule 14.11(e)(1)(B),\6\ and is therefore not 
subject to the additional requirements applicable to Affiliate 
Securities because such definition explicitly excludes Index Fund 
Shares. The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
---------------------------------------------------------------------------

    \4\ See Registration Statement on Form N-1A for the Trust, dated 
September 28, 2017 (File Nos. 333-179562 and 811-22668). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement. The 
Commission has not yet issued an order granting exemptive relief to 
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1) 
applicable to the activities of the Fund, but the Fund will not be 
listed on the Exchange until such an order is issued and any 
conditions contained therein are satisfied.
    \5\ As defined in Rule 14.3(e)(1)(A), the term ``BZX Affiliate'' 
means the Exchange and any entity that directly or indirectly, 
through one or more intermediaries, controls, is controlled by, or 
is under common control with the Exchange, where ``control'' means 
that one entity possesses, directly or indirectly, voting control of 
the other entity either through ownership of capital stock or other 
equity securities or through majority representation on the board of 
directors or other management body of such entity.
    \6\ As defined in Rule 14.3(e)(1)(B), the term ``Affiliate 
Security'' means any security issued by a BZX Affiliate or any 
Exchange-listed option on any such security, with the exception of 
Portfolio Depository Receipts as defined in Rule 14.11(b) and Index 
Fund Shares as defined in Rule 14.11(c).
---------------------------------------------------------------------------

    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet the listing requirements of Rule 
14.11(c)(5) applicable to an index that consists of both equity 
securities and Fixed Income Securities,\7\ which requires that the 
equity and fixed income component securities in an index or portfolio 
separately meet the criteria set forth in Rules 14.11(c)(3) and 
14.11(c)(4), respectively. As further described below, the Index 
consists of options on an index that consists of ``U.S. Component 
Stocks'' as defined in Rule 14.11(c)(1)(D),\8\ and Fixed Income 
Securities. The Fixed Income Security component of the Index, which 
consists of only Treasury bills, meets the ``generic'' listing 
requirements of Rule 14.11(c)(4). However, because the Index consists 
partially of options based on an index of U.S. Component Stocks (the

[[Page 3809]]

S&P 500 Index) and Rule 14.11(c)(3)(A)(i) applies only to U.S. 
Component Stocks (that is, the rule provides criteria for an index 
composed of equity securities and not for an index that includes 
options on an index of equity securities), it does not meet the 
criteria set forth in Rule 14.11(c)(3) and, thus, does not meet Rule 
14.11(c)(5).
---------------------------------------------------------------------------

    \7\ As defined in Rule 14.11(c)(4), the term ``Fixed Income 
Security'' shall mean debt securities that are notes, bonds, 
debentures or evidence of indebtedness that include, but are not 
limited to, Treasury bills, government-sponsored entity securities 
(``GSE Securities''), municipal securities, trust preferred 
securities, supranational debt and debt of a foreign country or 
subdivision thereof.
    \8\ As defined in Rule 14.11(c)(1)(D), the term ``U.S. Component 
Stock'' shall mean an equity security that is registered under 
Sections 12(b) or 12(g) of the Act, or an American Depositary 
receipt, the underlying equity security of which is registered under 
Sections 12(b) or 12(g) of the Act.
---------------------------------------------------------------------------

Cboe S&P 500[supreg] Volatility Risk Premia Index
    The Index is a rules-based options index created by the Index 
Provider, an affiliate of the Adviser, and designed to capture the 
``volatility risk premium'' in standardized options on the S&P 500 
Index (``S&P 500 Index Options'') by writing one-month call and put S&P 
500 Index Options (``Sold SPX Options'') and buying an identical number 
of one-month call and put S&P 500 Index Options (together, the ``Bought 
SPX Options'') with a lesser market value (i.e., buying call options 
with a higher strike price and put options with a lower strike 
price).\9\ The ``volatility risk premium'' in S&P 500 Index Options is 
based on the premise that the expected level of volatility of the S&P 
500 Index priced into such options (the options' ``implied 
volatility'') is, on average, higher than the volatility actually 
experienced by the S&P 500 Index (the ``realized volatility''). The 
Index will only include S&P 500 Index Options and Treasury bills.
---------------------------------------------------------------------------

    \9\ For purposes of this filing, when describing the Index, the 
terms ``buy,'' ``sell,'' ``write,'' ``hold,'' or any other term 
related to the acquisition, disposition, or issuance of an asset are 
intended to describe a theoretical transaction conducted by the 
Index that will be reflected in the Index constituents, rather than 
to imply that the Index is actually transacting.
---------------------------------------------------------------------------

    On the last trading day of each month, the Index writes (sells) and 
buys call and put S&P 500 Index Options with an expiration date of the 
last trading day of the following month. The strike prices for the Sold 
SPX Options will be ``out-of-the-money'' (i.e., the strike price of the 
sold put options will be less than the level of S&P 500 Index and the 
strike price of the sold call options will be more than the level of 
the S&P 500 Index). The strike prices for the Bought SPX Options will 
be higher and lower, respectively, than the strike price for the Sold 
SPX Options, which offsets some of the Index's risk from the Sold SPX 
Options. The difference between the strike prices of the Sold SPX 
Options and the Bought SPX Options represents the net liability for the 
Index, and the Index maintains an allocation to one- and three-month 
Treasury bills at least equal to such net liability. The Index receives 
premiums from the sale of the Sold SPX Options and pays premiums to buy 
the Bought SPX Options. The Index invests the net premium difference 
between the Sold SPX Options and the Bought SPX Options in one- and 
three-month Treasury bills. The Index holds each option until its 
expiration.
    If the value of the S&P 500 Index rises above the strike price of 
the put S&P 500 Index Options (the ``SPX Puts'') or falls below the 
strike price of the call S&P 500 Index Options (the ``SPX Calls'') sold 
by the Index, the Sold SPX Options will not be exercised and will 
expire worthless, resulting in a gain to the Index equal to the 
premiums received from the Sold SPX Options. If the value of the S&P 
500 Index falls below the strike price of the SPX Puts or rises above 
the strike price of the SPX Calls sold by the Index, the Sold SPX 
Options will finish ``in-the-money'' and the Index incurs a loss equal 
to the difference between the Sold SPX Options' strike price and the 
value of the S&P 500 Index, less the value of the premiums received 
from the Sold SPX Options.
    If the value of the S&P 500 Index rises above the strike price of 
the SPX Puts or falls below the strike price of the SPX Calls bought by 
the Index, the Bought SPX Options will not be exercised and will expire 
worthless, resulting in a loss to the Index equal to the premiums paid 
for the Bought SPX Options. If the value of the S&P 500 Index falls 
below the strike price of the SPX Puts or rises above the strike price 
of the SPX Calls sold by the Index, the Bought SPX Options will finish 
``in-the-money'' and the Index receives a gain equal to the difference 
between the Bought SPX Options' strike price and the value of the S&P 
500 Index, less the value of the premiums paid for the Bought SPX 
Options.
    The strike prices of the SPX Puts and SPX Calls are calculated such 
that the Index is equity-market-neutral, meaning that it seeks to earn 
a total return in most equity market conditions regardless of general 
market direction as measured by the move in value of the S&P 500 Index. 
The cash and net option premium proceeds will be invested in short-term 
Treasury bills which will be rolled at maturity. This makes the Index 
bond-market-neutral, meaning that as interest rates and the yield for 
Treasury bills go up or down, the short duration of the Treasury bills 
will result in minimal effect on the Index.
Fund Holdings
    Under Normal Market Conditions,\10\ the Fund will invest all, or 
substantially all, of its assets in the S&P 500 Index Options that make 
up the Index, as well as the Treasury bills included in the Index. 
Under Normal Market Conditions, at least 80% of the Fund's total assets 
(exclusive of any collateral held from securities lending) will be 
invested in the S&P 500 Index Options or Treasury bills that make up 
the Index. In addition to the S&P 500 Index Options and Treasury bills 
that make up the Index, the Fund may invest up to 20% of its total 
assets in U.S. exchange-listed options based on one or more ETFs that 
track the performance of the S&P 500 Index (``Comparable ETF 
Options''). The Fund will hold only S&P 500 Index Options, Comparable 
ETF Options, Treasury bills included in the Index, and other cash and 
cash equivalents.\11\
---------------------------------------------------------------------------

    \10\ The term ``Normal Market Conditions'' includes, but is not 
limited to, the absence of trading halts in the applicable financial 
markets generally; operational issues causing dissemination of 
inaccurate market information or system failures; or force majeure 
type events such as natural or man-made disaster, act of God, armed 
conflict, act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
    \11\ For purposes of this filing, cash equivalents are short-
term instruments with maturities of less than three months, 
including: (i) U.S. Government securities, including bills, notes, 
and bonds differing as to maturity and rates of interest, which are 
either issued or guaranteed by the U.S. Treasury or by U.S. 
Government agencies or instrumentalities; (ii) certificates of 
deposit issued against funds deposited in a bank or savings and loan 
association; (iii) bankers acceptances, which are short-term credit 
instruments used to finance commercial transactions; (iv) repurchase 
agreements and reverse repurchase agreements; (v) bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; (vi) commercial paper, which are short-term unsecured 
promissory notes; and (vii) money market funds.
---------------------------------------------------------------------------

Additional Discussion
    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Fund's Shares and S&P 500 
Index Options and Comparable ETF Options for the following reasons: (i) 
The diversity, liquidity, and market cap of the securities underlying 
the S&P 500 Index; \12\ (ii) the liquidity of the S&P 500 Index 
Options; \13\ and (iii) surveillance

[[Page 3810]]

by the Exchange, Cboe Options and the Financial Industry Regulatory 
Authority (``FINRA'') designed to detect violations of the federal 
securities laws and self-regulatory organization (``SRO'') rules.
---------------------------------------------------------------------------

    \12\ The Exchange notes that the diversity, liquidity, and 
market cap of the components of the S&P 500 Index are such that the 
S&P 500 Index would meet the generic listing standards applicable to 
an index composed of U.S. Component Stocks in Rule 
14.11(c)(3)(A)(i).
    \13\ The market for S&P 500 Index Options traded on Cboe Options 
is among the most liquid markets in the world. In 2016, 1,023,623 
options contracts on the S&P 500 Index were traded per day on Cboe 
Options, which is more than $200 billion in notional volume traded 
on a daily basis.
---------------------------------------------------------------------------

    Trading in the Shares and the underlying investments will be 
subject to the federal securities laws and Exchange, Cboe Options, 
FINRA, and, with respect to the Comparable ETF Options, other U.S. 
options exchanges' rules and surveillance programs.\14\
---------------------------------------------------------------------------

    \14\ 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 has in place a surveillance program for transactions 
in ETFs to ensure the availability of information necessary to detect 
and deter potential manipulations and other trading abuses, thereby 
making the Shares less readily susceptible to manipulation. Further, 
the Exchange believes that because the assets in the Fund's portfolio, 
which are comprised primarily of S&P 500 Index Options, will be 
acquired in extremely liquid and highly regulated markets,\15\ the 
Shares are less readily susceptible to manipulation.
---------------------------------------------------------------------------

    \15\ All exchange-listed securities that the Fund may hold will 
trade on a market that is a member of the Intermarket Surveillance 
Group (``ISG'') and the Fund will not hold any non-exchange-listed 
options, however, not all of the components of the portfolio for the 
Fund may trade on exchanges that are members of the ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement. For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Index Fund Shares. 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.
    All statements and representations made in this filing regarding 
the index composition, the description of the portfolio or reference 
assets, limitations on portfolio holdings or reference assets, 
dissemination and availability of index, reference asset, and intraday 
indicative values (as applicable), or the applicability of Exchange 
listing rules shall constitute continued listing requirements for 
listing the Shares on the Exchange. The issuer has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund or 
Shares to comply with the continued listing requirements, and, pursuant 
to its obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If the 
Fund or Shares are not in compliance with the applicable listing 
requirements, then, with respect to such Fund or Shares, the Exchange 
will commence delisting procedures under Exchange Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares and exchange-traded options 
contracts with other markets and other entities that are members of the 
ISG and may obtain trading information regarding trading in the Shares 
and exchange-traded options contracts from such markets and other 
entities. The Exchange is also able to access, as needed, trade 
information for certain fixed income instruments reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE''). In addition, the 
Exchange may obtain information regarding trading in the Shares and 
exchange-traded options contracts from markets and other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. In addition, the Exchange 
also has a general policy prohibiting the distribution of material, 
non-public information by its employees.
    As noted above, S&P 500 Index Options are among the most liquid 
options in the world and derive their value from the actively traded 
S&P 500 Index components. The contracts are cash-settled with no 
delivery of stocks or ETFs, and trade in competitive auction markets 
with price and quote transparency. The Exchange believes the highly 
regulated options markets and the broad base and scope of the S&P 500 
Index make securities that derive their value from that index less 
susceptible to market manipulation in view of market capitalization and 
liquidity of the S&P 500 Index components, price and quote 
transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 500 
Index securities, S&P 500 Index Options, and other related derivatives 
is sufficiently great to deter fraudulent or manipulative acts 
associated with the price of the Shares. The Exchange also believes 
that such liquidity are [sic] sufficient to support the creation and 
redemption mechanism. Coupled with the surveillance programs of the 
SROs described above, the Exchange does not believe that trading in the 
Fund's Shares would present manipulation concerns. The Fund's 
investments will be consistent with the Fund's investment objective and 
will not be used to enhance leverage (although certain derivatives and 
other investments may result in leverage).\16\ The Fund's investments 
will not be used to seek performance that is the multiple or inverse 
multiple (i.e. 2x or -2x) of the Index. The Fund's use of derivative 
instruments will be collateralized.
---------------------------------------------------------------------------

    \16\ The Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of a fund, including a fund's use 
of derivatives, may give rise to leverage, causing a fund to be more 
volatile than if it had not been leveraged. To mitigate leveraging 
risk, the Adviser will segregate or earmark liquid assets or 
otherwise cover the transactions that give rise to such risk. See 15 
U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18, 
1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, 
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset 
Management, L.P., Commission No-Action Letter (July 2, 1996).
---------------------------------------------------------------------------

    The Exchange represents that, except as described above, the Fund 
will meet each of the initial and continued listing criteria in BZX 
Rule 14.11(c)(5) with the exception of meeting the requirements of Rule 
14.11(c)(3)(A)(i), applicable to the listing of Index Fund Shares based 
upon an index of ``U.S. Component Stocks,'' as required under Rule 
14.11(c)(5). Further to this point, the three-month Treasury bills that 
compose the entirety of the fixed income portion of the Index will 
satisfy all requirements of Rule 14.11(c)(4). The Trust is required to 
comply with Rule 10A-3 under the Act for the initial and continued 
listing of the Shares of the Fund. A minimum of 100,000 Shares will be 
outstanding at the commencement of trading on the Exchange. In 
addition, the Exchange represents that the Shares of the Fund will 
comply with all other requirements applicable to Index Fund Shares, 
which includes requirements relating to the dissemination of key 
information such as the Net Asset Value, Index value, and the Intraday 
Indicative Value, rules governing the trading of equity securities, 
trading hours, trading halts, firewalls for the Index Provider and 
Adviser, surveillance, and the information circular, as set forth in 
Exchange rules applicable to Index Fund Shares and the orders approving 
such rules.

[[Page 3811]]

    Quotation and last sale information for S&P 500 Index Options will 
be available via the Options Price Reporting Authority. The intra-day, 
closing and settlement prices of exchange-traded options will be 
readily available from the options exchanges, automated quotation 
systems, published or other public sources, or online information 
services such as Bloomberg or Reuters. Price information on Treasury 
bills and other cash equivalents is available from major broker-dealer 
firms or market data vendors, as well as from automated quotation 
systems, published or other public sources, or online information 
services.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \17\ in general and Section 6(b)(5) of the Act \18\ 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f.
    \18\ 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 Shares of the 
Fund will meet each of the initial and continued listing criteria 
required by BZX Rule 14.11(c)(5), which includes the listing 
requirements for an index that is composed of both equity securities 
and fixed income securities, with the exception of the requirement that 
the equity portion of the Index meets the criteria set forth in Rule 
14.11(c)(3). Specifically, the Index does not meet the requirements of 
Rule 14.11(c)(3) because the equity portion of the Index consists of 
options on U.S. Component Stocks and Rule 14.11(c)(3)(A)(i) applies 
only to U.S. Component Stocks (that is, the rule provides criteria for 
an index composed of equity securities and not for an index that 
includes options on an index of equity securities), it does not meet 
the criteria set forth in Rule 14.11(c)(3) and, thus, does not meet 
Rule 14.11(c)(5).\19\ The Exchange believes that the concerns that Rule 
14.11(c)(3)(A)(i) are intended to address are mitigated and that 
sufficient protections are in place to protect against market 
manipulation of the Fund's Shares and S&P 500 Index Options and 
Comparable ETF Options for the following reasons: (i) The diversity, 
liquidity, and market cap of the securities underlying the S&P 500 
Index; \20\ (ii) the liquidity of the S&P 500 Index Options; \21\ and 
(iii) surveillance by the Exchange, Cboe Options and FINRA designed to 
detect violations of the federal securities laws and self-regulatory 
organization (``SRO'') rules.
---------------------------------------------------------------------------

    \19\ Rule 14.11(c)(3)(A)(i)(e) provides that all securities in 
the applicable index or portfolio shall be U.S. Component Stocks 
listed on a national securities exchange and shall be NMS Stocks as 
defined in Rule 600 under Regulation NMS of the Act. Each component 
stock of the S&P 500 Index is a U.S. Component Stock that is listed 
on a national securities exchange and is an NMS Stock. Options are 
excluded from the definition of NMS Stock. The Fund and the Index 
meet all of the requirements of the listing standards for Index Fund 
Shares in Rule 14.11(c)(3), except the requirements in Rule 
14.11(c)(3)(A)(i)(a)-(e), as the Index consists of options on the 
S&P 500 Index. The S&P 500 Index consists of U.S. Component Stocks 
and satisfies the requirements of Rule 14.11(c)(3)(A)(i)(a)-(e).
    \20\ The Exchange notes that the diversity, liquidity, and 
market cap of the components of the S&P 500 Index are such that the 
S&P 500 Index would meet the generic listing standards applicable to 
an index composed of U.S. Component Stocks in Rule 
14.11(c)(3)(A)(i).
    \21\ The market for S&P 500 Index Options traded on Cboe Options 
is among the most liquid markets in the world. In 2016, 1,023,623 
options contracts on the S&P 500 Index were traded per day on Cboe 
Options, which is more than $200 billion in notional volume traded 
on a daily basis.
---------------------------------------------------------------------------

    The Exchange has in place a surveillance program for transactions 
in ETFs to ensure the availability of information necessary to detect 
and deter potential manipulations and other trading abuses, thereby 
making the Shares less readily susceptible to manipulation. Further, 
the Exchange believes that because the assets in the Fund's portfolio, 
which are comprised primarily of S&P 500 Index Options, will be 
acquired in extremely liquid and highly regulated markets, the Shares 
are less readily susceptible to manipulation.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Index Fund Shares. All 
statements and representations made in this filing regarding the index 
composition, the description of the portfolio or reference assets, 
limitations on portfolio holdings or reference assets, dissemination 
and availability of index, reference asset, and intraday indicative 
values (as applicable), or the applicability of Exchange listing rules 
shall constitute continued listing requirements for listing the Shares 
on the Exchange. . [sic] The issuer has represented to the Exchange 
that it will advise the Exchange of any failure by the Fund or Shares 
to comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If the 
Fund or Shares are not in compliance with the applicable listing 
requirements, then, with respect to such Fund or Shares, the Exchange 
will commence delisting procedures under Exchange Rule 14.12. FINRA 
conducts certain cross-market surveillances on behalf of the Exchange 
pursuant to a regulatory services agreement. The Exchange is 
responsible for FINRA's performance under this regulatory services 
agreement. If the Fund is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures with 
respect to such Fund under Exchange Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares and exchange-traded options 
contracts with other markets and other entities that are members of the 
ISG and may obtain trading information regarding trading in the Shares 
and exchange-traded options contracts from such markets and other 
entities. The Exchange is also able to access, as needed, trade 
information for certain fixed income instruments reported to TRACE. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and exchange-traded options contracts from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. In addition, the 
Exchange also has a general policy prohibiting the distribution of 
material, non-public information by its employees.
    As noted above, S&P 500 Index Options are among the most liquid 
options in the world and derive their value from the actively traded 
S&P 500 Index components. The contracts are cash-settled with no 
delivery of stocks or ETFs, and trade in competitive

[[Page 3812]]

auction markets with price and quote transparency. The Exchange 
believes the highly regulated options markets and the broad base and 
scope of the S&P 500 Index make securities that derive their value from 
that index less susceptible to market manipulation in view of market 
capitalization and liquidity of the S&P 500 Index components, price and 
quote transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 500 
Index securities, S&P 500 Index Options, and other related derivatives 
is sufficiently great to deter fraudulent or manipulative acts 
associated with the price of the Shares. The Exchange also believes 
that such efficiency and liquidity are sufficient to support the 
creation and redemption mechanism. Coupled with the extensive 
surveillance programs of the SROs described above, the Exchange does 
not believe that trading in the Fund's Shares would present 
manipulation concerns.
    The Exchange represents that, except as it relates to the options 
portion of the Index and the index dissemination requirements described 
above, the Fund will meet and be subject to all other requirements of 
Rule 14.11(c)(5) related to generic listing standards of the Index and 
other applicable requirements for such a series of Index Fund Shares 
under Rule 14.11(c) on an initial and continued listing basis, 
including those requirements regarding the dissemination of key 
information such as the Net Asset Value, and the Intraday Indicative 
Value, rules governing the trading of equity securities, trading hours, 
trading halts, surveillance, and the information circular, as set forth 
in Exchange rules applicable to Index Fund Shares and the orders 
approving such rules. The Trust is required to comply with Rule 10A-3 
under the Act for the initial and continued listing of the Shares of 
the Fund. Moreover, all of the options contracts held by the Fund will 
trade on markets that are a member of ISG or affiliated with a member 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of Index Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the 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-CboeBZX-2018-005 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeBZX-2018-005. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet 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 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-2018-005 and should be submitted 
on or before February 16, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01354 Filed 1-25-18; 8:45 am]
BILLING CODE 8011-01-P