[Federal Register Volume 84, Number 56 (Friday, March 22, 2019)]
[Notices]
[Pages 10863-10869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05459]
[[Page 10863]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85347; File No. SR-CboeBZX-2019-015]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Units of Each of (i)
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy ETNs;
(ii) Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETNs; (iii)
Cboe Vest S&P 500[supreg] Accelerated Return Strategy ETNs; and (iv)
Cboe Vest S&P 500[supreg] Power Buffer Strategy ETNs Under Rule
14.11(d), Equity Index-Linked Securities
March 18, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 4, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes a rule change to list and trade units of each
of (i) the Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect
Strategy ETNs; (ii) the Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy ETNs; (iii) the Cboe Vest S&P 500[supreg] Accelerated Return
Strategy ETNs; and (iv) the Cboe Vest S&P 500[supreg] Power Buffer
Strategy ETNs under Rule 14.11(d), which governs the listing and
trading of Equity Index-Linked Securities on the Exchange.
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade units (``Units'') of up to
twelve monthly series of each of the following under Rule 14.11(d),
which governs the listing and trading of Linked Securities \3\ on the
Exchange: \4\ Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect
Strategy ETNs (the ``Buffer Notes''), Cboe Vest S&P 500[supreg]
Enhanced Growth Strategy ETNs (the ``Enhanced Growth Notes''), Cboe
Vest S&P 500[supreg] Accelerated Return Strategy ETNs (the
``Accelerated Return Notes''), and Cboe Vest S&P 500[supreg] Power
Buffer Strategy ETNs (the ``Power Buffer Notes'') (each a ``Series of
Notes'' and, collectively, the ``Notes'' or the ``Target Outcome
Notes'').
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\3\ As defined in Rule 14.11(d), ``Linked Securities'' includes
Multifactor Index-Linked Securities, Equity Index-Linked Securities,
Commodity-Linked Securities, Fixed Income Index-Linked Securities,
and Futures-Linked Securities.
\4\ The Commission originally approved BZX Rule 14.11(d) in
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR
55148 (September 6, 2011) (SR-BATS-2011-018).
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The Exchange is submitting this proposal because the indexes
underlying the Notes (the ``Indexes'') do not meet the listing
requirements of Rule 14.11(d)(2)(K)(i)(a) applicable to a series of
Equity Index-Linked Securities,\5\ which requires that the equity
securities in the underlying index meet the criteria set forth in Rule
14.11(d)(2)(K)(i)(a)(1) \6\ or 14.11(d)(2)(K)(i)(a)(2).\7\
Specifically, the Notes do not meet all of the ``generic'' listing
requirements of Rule 14.11(d)(2)(K)(i)(a)(2), applicable to the listing
of Equity Index-Linked Securities. Rule 14.11(d)(2)(K)(i)(a)(2) sets
forth the requirements to be met by components of an index of equity
securities. Because the Indexes consist exclusively of standardized
and/or FLexible EXchange Options (``FLEX Options'') on the S&P
500[supreg] Index (together, ``SPX Options''), rather than equity
securities, the Indexes do not satisfy the requirements of Rule
14.11(d)(2)(K)(i)(a)(2).\8\ However, the Notes and the Issuer, as
defined below, will conform to all other initial and continued listing
criteria applicable to Equity Index-Linked Securities under Rule
14.11(d).
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\5\ As defined in Rule 14.11(d), ``Equity Index-Linked
Securities'' are securities that provide for the payment at maturity
of a cash amount based on the performance of an underlying equity
index or indexes (an ``Equity Reference Asset'').
\6\ Rule 14.11(d)(2)(K)(i)(a)(1) requires that the index or
indexes to which the security is linked shall have been reviewed and
approved for the trading of Index Fund Shares or options or other
derivatives by the Commission under Section 19(b)(2) of the Act and
rules thereunder and the conditions set forth in the Commission's
approval order, including comprehensive surveillance sharing
agreements for non-U.S. stocks, continue to be satisfied. The
Indexes have not been reviewed and approved by the Commission under
Section 19(b)(2) of the Act.
\7\ Rule 14.11(d)(2)(K)(i)(a)(2) provides certain quantitative
standards applicable to an underlying index or indexes and
constituent securities.
\8\ The Exchange notes that the Commission has approved the
listing and trading of several series of funds, including both Index
Fund Shares and Managed Fund Shares, that employ similar target
outcome strategies as those of the Notes, as further discussed
below. See Securities Exchange Act Release No. 83679 (July 26,
2018), 83 FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72); and 83796
(August 8, 2018), 83 FR 40361 (August 14, 2018) (SR-CboeBZX-2017-
005) (the ``Approval Order''). While such products are different
product types than the Notes, the Exchange believes that many of the
issues contemplated both in that proposal and in the Approval Order
are either very similar or identical to those applicable to the
Notes, specifically related to the susceptibility to manipulation of
the underlying instruments, which include FLEX Options and certain
other instruments based on the S&P 500[supreg] Index.
Rule 14.11(d)(2)(K)(i)(a)(2)(E) provides that all U.S. listed
equity securities in the applicable index shall be, among other
things, an NMS Stock as defined in Rule 600 under Regulation NMS of
the Act. Options are excluded from the definition of NMS Stock,
meaning that the Indexes do not meet this requirement because they
are composed exclusively of SPX Options. The Exchange, however,
notes that each component stock of the S&P 500[supreg] Index is an
NMS Stock and that the S&P 500[supreg] Index meets the requirements
of Rule 14.11(d)(2)(K)(i)(a)(2)(A)-(E).
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The Notes will be offered by Bank of Montreal. Bank of Montreal
(the ``Issuer'') is a company listed on NYSE.\9\ The Notes will be the
non-convertible debt of the Issuer. The Issuer is currently and will
continue to be in compliance with Rule 10A-3 under the Act prior to
initial listing and on a continual basis.\10\ Each Series of Notes
will: Have a term not less than one year and not greater than thirty
years, which the Issuer expects will consist of a twenty year term with
two five-year extensions at the discretion of the Issuer; \11\ have a
minimum public market value at the time of issuance of at least $4
million; \12\ be redeemable at the option of holders thereof on at
least
[[Page 10864]]
a weekly basis; \13\ and will not have a loss (negative payment) at
maturity accelerated by a multiple that exceeds three times the
performance of the applicable Index.\14\
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\9\ The Exchange notes that the Issuer will meet the
requirements applicable under Rules 14.8(b)(2)(A)(1),
14.11(d)(2)(E), 14.11(h)(1)(A), and 14.11(h)(1)(E) on both an
initial and continual basis.
\10\ See Rule 14.11(d)(2)(F).
\11\ See Rule 14.11(d)(2)(B).
\12\ See Rule 14.11(h)(1)(D).
\13\ See Rule 14.11(d)(2)(A). Rule 14.11(d)(2)(A) provides that
both the issue and the issuer of a security must meet the criteria
applicable under Rule 14.11(h); however, where a security is
redeemable at the option of holders thereof on at least a weekly
basis, then no minimum number of holders and no minimum public
distribution of trading units shall be required. Because the Notes
will be redeemable at the option of a holder on at least a weekly
basis, the Issuer and the Notes will not be required to meet such
requirements under Rule 14.11(h). The public distribution and
trading unit requirements under Rule 14.11(h) require a minimum of
400 holders and a minimum public distribution of 1,000,000 trading
units. See Rule 14.11(h)(1)(B) and (C).
\14\ See Rule 14.11(d)(2)(D).
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Rule 14.11(d)(2)(G)(i) requires that if the index is maintained by
a broker-dealer, the broker-dealer shall erect and maintain a
``firewall'' around the personnel who have access to information
concerning changes and adjustments to the index, and the index shall be
calculated by a third party who is not a broker-dealer. The Indexes are
maintained by Cboe Exchange, Inc. (the ``Index Provider'' or ``Cboe
Options''), which is not a broker-dealer.
Cboe Vest Target Outcome Notes
The investment objective of each Series of Notes is to track,
before fees and expenses, the performance of its respective Index. The
value of each Index is calculated daily by the Index Provider utilizing
an options valuation methodology. Each Index is a rules-based options
index that consists exclusively of SPX Options and that is designed to
provide a targeted outcome based on the performance of the S&P
500[supreg] Index over a period of one year, as further described
below.
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy ETNs
The Exchange is proposing to list and trade each monthly series of
the Buffer Notes,\15\ each of which is based on its respective Cboe S&P
500[supreg] Buffer Enhanced Growth Protect Index. Each Index is a
rules-based options index that consists exclusively of SPX Options. The
Indexes are designed to provide exposure to the large capitalization
U.S. equity market, with lower volatility and downside risk than
traditional equity indices, except in environments of rapid
appreciation in the U.S. equity market over the course of one year. On
a specified day of the applicable month for each Index, the SPX Options
expire (the ``Expiry Date'') and on the following trading day
(typically the last trading day of that month, subject to postponement;
the applicable Index implements a new portfolio of SPX Options (the
``Roll Date,'' and the time period from and including the Expiry Date
to and including the Roll Date, is the ``Roll Period''),\16\ with
expirations on the next Expiry Date that, if held to such Expiry Date,
seeks to ``buffer protect'' against the first 10% decline in the value
of the S&P 500[supreg] Index, while providing 200% participation up to
a maximum capped gain in the value of the S&P 500[supreg] Index (the
``Capped Level'').
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\15\ In total, the Exchange is proposing to list and trade
twelve monthly series of the Cboe Vest S&P 500[supreg] Enhanced
Growth Buffer Protect Strategy ETNs. The Buffer Notes will include
the following: Cboe Vest S&P 500[supreg] Buffer Enhanced Growth
Protect Strategy (January) ETN; Cboe Vest S&P 500[supreg] Buffer
Enhanced Growth Protect Strategy (February) ETN; Cboe Vest S&P
500[supreg] Buffer Enhanced Growth Protect Strategy (March) ETN;
Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy
(April) ETN; Cboe Vest S&P 500[supreg] Buffer Enhanced Growth
Protect Strategy (May) ETN; Cboe Vest S&P 500[supreg] Buffer
Enhanced Growth Protect Strategy (June) ETN; Cboe Vest S&P
500[supreg] Buffer Enhanced Growth Protect Strategy (July) ETN; Cboe
Vest S&P 500[supreg] Buffer Enhanced Growth Protect Strategy
(August) ETN; Cboe Vest S&P 500[supreg] Buffer Enhanced Growth
Protect Strategy (September) ETN; Cboe Vest S&P 500[supreg] Buffer
Enhanced Growth Protect Strategy (October) ETN; Cboe Vest S&P
500[supreg] Buffer Enhanced Growth Protect Strategy (November) ETN;
and Cboe Vest S&P 500[supreg] Buffer Enhanced Growth Protect
Strategy (December) ETN. Each Note will be based on the Cboe S&P
500[supreg] Buffer Enhanced Growth Protect Index (Month) Series,
where ``Month'' is the corresponding month associated with the Roll
Date as defined below, of the applicable Series of Notes.
\16\ Each of the twelve Indexes are designed to provide returns
over a defined year long period and, thus, there is an Index
associated with each month. As such, the Roll Date for a specific
Index is dependent on the monthly series for which the Index is
associated. For example, the Roll Date for the Cboe[supreg] S&P
500[supreg] Enhanced Growth Buffer Protect Index January Series is
in January and the Roll Date for the Cboe[supreg] S&P 500[supreg]
Enhanced Growth Buffer Protect Index February Series is in February,
a pattern which continues through the rest of the calendar year.
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Each Index is designed to provide the following outcomes between
Roll Dates:
If the S&P 500[supreg] Index declines more than 10%: The
Index declines 10% less than the S&P 500[supreg] Index (e.g., if the
S&P 500[supreg] Index returns -35%, the Index is designed to return -
25%);
If the S&P 500[supreg] Index declines between 0% and 10%:
The Index provides a total return of zero (0%);
If the S&P 500[supreg] Index appreciates between 0% and
the Capped Level: The Index appreciates by an amount that equals 200%
of the gain in the level of the S&P 500[supreg] Index; and
If the S&P 500[supreg] Index appreciates more than the
Capped Level: The Index appreciates by the amount equal to the Capped
Level.
Each Index includes a mix of purchased and written (sold) SPX
Options structured to achieve the results described above. Such results
are only applicable for each full 12-month period from one Roll Date to
the next Roll Date, and the Index may not return such results for
shorter or longer periods. The value of each Index is calculated daily
by Cboe Options utilizing a rules-based options valuation methodology,
which utilizes the prices at which the component SPX Options that
comprise the Index trade on that day or prices that are derived from a
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETN
The Exchange is proposing to list and trade each monthly series of
the Enhanced Growth Notes,\17\ each of which is based on its respective
Cboe S&P 500[supreg] Enhanced Growth Index. Each Index is a rules-based
options index that consists exclusively of SPX Options. The Indexes are
designed to provide exposure to the large capitalization U.S. equity
market with similar volatility and downside risk, but higher upside
potential in market environments with modest gains in the U.S. equity
market over the course of one year. On a specified day of the
applicable month for each Index the SPX Options expire (the ``Expiry
Date'') and on the following trading day (typically the last trading
day of that month, subject to postponement, the applicable Index
implements a new portfolio of SPX Options (the ``Roll Date,'' and the
time period from and including the Expiry Date to and including the
Roll Date, is the ``Roll Period''),\18\ with expirations
[[Page 10865]]
on the next Expiry Date that, if held to such Expiry Date, seeks to
provide 200% participation up to a maximum capped gain in the value of
the S&P 500[supreg] Index (the ``Capped Level'') and 100% participation
in losses in the value of the S&P 500[supreg] Index.
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\17\ In total, the Exchange is proposing to list and trade
twelve monthly series of the Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy ETNs. The Enhanced Growth Notes will include the
following: Cboe Vest S&P 500[supreg] Enhanced Growth Strategy ETN.
Each Note will be an index-based exchange traded note (``ETN''). The
Notes will be the following: Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (January) ETN; Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (February) ETN; Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (March) ETN; Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (April) ETN; Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (May) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (June) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (July) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (August) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (September) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (October) ETN; Cboe Vest S&P 500[supreg] Enhanced Growth
Strategy (November) ETN; and Cboe Vest S&P 500[supreg] Enhanced
Growth Strategy (December) ETN. Each Note will be based on the Cboe
S&P 500 Enhanced Growth Index (Month) Series, where ``Month'' is the
corresponding month associated with the Roll Date of the applicable
Series of Notes.
\18\ Each of the twelve Indexes are designed to provide returns
over a defined year long period and, thus, there is an Index
associated with each month. As such, the Roll Date for a specific
Index is dependent on the monthly series for which the Index is
associated. For example, the Roll Date for the Cboe[supreg] S&P
500[supreg] Enhanced Growth Index January Series is in January and
the Roll Date for the Cboe[supreg] S&P 500[supreg] Enhanced Growth
Index February Series is in February, a pattern which continues
through the rest of the calendar year.
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Each Index is designed to provide the following outcomes between
Roll Dates:
If the S&P 500[supreg] Index declines: The Index declines
by the same amount as the S&P 500[supreg] Index (e.g., if the S&P
500[supreg] Index returns -35%, the Index is designed to return -35%);
If the S&P 500[supreg] Index appreciates between 0% and
the Capped Level: The Index appreciates by an amount that equals 200%
of the gain in the price of the S&P 500[supreg] Index; and
If the S&P 500[supreg] Index appreciates more than the
Capped Level: The Index appreciates by the amount equal to the Capped
Level.
Each Index includes a mix of purchased and written (sold) SPX
Options structured to achieve the results described above. Such results
are only applicable for each full 12-month period from one Roll Date to
the next Roll Date, and the Index may not return such results for
shorter or longer periods. The value of each Index is calculated daily
by Cboe Options utilizing a rules-based options valuation methodology,
which utilizes the prices at which the component SPX Options that
comprise the Index trade on that day or prices that are derived from a
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Accelerated Return Strategy ETN
The Exchange is proposing to list and trade each monthly series of
the Accelerated Return Notes,\19\ each of which is based on its
respective Cboe S&P 500[supreg] Accelerated Return Index. Each Index is
a rules-based options index that consists exclusively of SPX Options.
The Indexes are designed to provide exposure to the large
capitalization U.S. equity market with similar volatility and downside
risk, but higher upside potential in market environments with modest
gains in the U.S. equity market over the course of one year. On a
specified day of the applicable month for each Index the SPX Options
expire (the ``Expiry Date'') and on the following trading day
(typically the last trading day of that month, subject to postponement,
the applicable Index implements a new portfolio of SPX Options (the
``Roll Date,'' and the time period from and including the Expiry Date
to and including the Roll Date, is the ``Roll Period''),\20\ with
expirations on the next Expiry Date that, if held to such Expiry Date,
seeks to provide 300% participation up to a maximum capped gain in the
value of the S&P 500[supreg] Index (the ``Capped Level'') and 100%
participation in losses in the value of the S&P 500[supreg] Index.
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\19\ In total, the Exchange is proposing to list and trade
twelve monthly series of the Cboe Vest S&P 500[supreg] Accelerated
Return Strategy ETNs. The Accelerated Return Notes will include the
following: Cboe Vest S&P 500[supreg] Accelerated Return Strategy
ETN. Each Note will be an index-based exchange traded note
(``ETN''). The Notes will be the following: Cboe Vest S&P
500[supreg] Accelerated Return Strategy (January) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (February) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (March) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (April) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (May) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (June) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (July) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (August) ETN; Cboe Vest S&P
500[supreg] Accelerated Return Strategy (September) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (October) ETN; Cboe Vest
S&P 500[supreg] Accelerated Return Strategy (November) ETN; and Cboe
Vest S&P 500[supreg] Accelerated Return Strategy (December) ETN.
Each Note will be based on the Cboe S&P 500[supreg] Accelerated
Return Index (Month) Series, where ``Month'' is the corresponding
month associated with the Roll Date of the applicable Series of
Notes.
\20\ Each of the twelve Indexes are designed to provide returns
over a defined year long period and, thus, there is an Index
associated with each month. As such, the Roll Date for a specific
Index is dependent on the monthly series for which the Index is
associated. For example, the Roll Date for the Cboe[supreg] S&P
500[supreg] Accelerated Return Index January Series is in January
and the Roll Date for the Cboe[supreg] S&P 500[supreg] Accelerated
Return Index February Series is in February, a pattern which
continues through the rest of the calendar year.
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Each Index is designed to provide the following outcomes between
Roll Dates:
If the S&P 500[supreg] Index declines: The Index declines
by the same amount as the S&P 500[supreg] Index (e.g., if the S&P
500[supreg] Index returns -35%, the Index is designed to return -35%);
If the S&P 500[supreg] Index appreciates between 0% and
the Capped Level: The Index appreciates by an amount that equals 300%
of the gain in the price of the S&P 500[supreg] Index; and
If the S&P 500[supreg] Index appreciates more than the
Capped Level: The Index appreciates by the amount equal to the Capped
Level.
Each Index includes a mix of purchased and written (sold) SPX
Options structured to achieve the results described above. Such results
are only applicable for each full 12-month period from one Roll Date to
the next Roll Date, and the Index may not return such results for
shorter or longer periods. The value of each Index is calculated daily
by Cboe Options utilizing a rules-based options valuation methodology,
which utilizes the prices at which the component SPX Options that
comprise the Index trade on that day or prices that are derived from a
valuation model when a traded price is not available or appropriate.
Cboe Vest S&P 500[supreg] Power Buffer Strategy ETN
The Exchange is proposing to list and trade each monthly series of
the Power Buffer Notes,\21\ each of which is based on its respective
Cboe S&P 500[supreg] Power Buffer Index. Each Index is a rules-based
options index that consists exclusively of SPX Options. The Indexes are
designed to provide exposure to the large capitalization U.S. equity
market with lower volatility and downside risks than traditional equity
indices, except in environments of rapid appreciation in the U.S.
equity market over the course of one year. On a specified day of the
applicable month for each Index the SPX Options expire (the ``Expiry
Date'') and on the following trading day (typically the last trading
day of that month, subject to postponement, the applicable Index
implements a new portfolio of SPX Options (the ``Roll Date,'' and the
time period from and including the Expiry Date to and including the
Roll Date, is the ``Roll Period''),\22\ with expirations on the next
Expiry Date that, if held to such Expiry Date, seeks to ``buffer
[[Page 10866]]
protect'' against the first 15% decline in the value of the S&P
500[supreg] Index, while providing 100% participation up to a maximum
capped gain in the value of the S&P 500[supreg] Index (the ``Capped
Level'').
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\21\ In total, the Exchange is proposing to list and trade
twelve monthly series of the Cboe Vest S&P 500[supreg] Power Buffer
Strategy ETNs. The Power Buffer Notes will include the following:
Cboe Vest S&P 500[supreg] Power Buffer Strategy (January) ETN; Cboe
Vest S&P 500[supreg] Power Buffer Strategy (February) ETN; Cboe Vest
S&P 500[supreg] Power Buffer Strategy (March) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (April) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (May) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (June) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (July) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (August) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (September) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (October) ETN; Cboe Vest S&P
500[supreg] Power Buffer Strategy (November) ETN; and Cboe Vest S&P
500[supreg] Power Buffer Strategy (December) ETN. Each Note will be
based on the Cboe S&P 500[supreg] Power Buffer Index (Month) Series,
where ``Month'' is the corresponding month associated with the Roll
Date of the applicable Series of Notes.
\22\ Each of the twelve Indexes are designed to provide returns
over a defined year long period and, thus, there is an Index
associated with each month. As such, the Roll Date for a specific
Index is dependent on the monthly series for which the Index is
associated. For example, the Roll Date for the Cboe[supreg] S&P
500[supreg] Power Buffer Index January Series is in January and the
Roll Date for the Cboe[supreg] S&P 500[supreg] Power Buffer Index
February Series is in February, a pattern which continues through
the rest of the calendar year.
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Each Index is designed to provide the following outcomes between
Roll Dates:
If the S&P 500[supreg] Index declines more than 15%: The
Index declines 15% less than the S&P 500[supreg] Index (e.g., if the
S&P 500[supreg] Index returns -35%, the Index is designed to return -
20%);
If the S&P 500[supreg] Index declines between 0% and 15%:
The Index provides a total return of zero (0%);
If the S&P 500[supreg] Index appreciates between 0% and
the Capped Level: The Index appreciates by an amount that equals the
gain in the price of the S&P 500[supreg] Index; and
If the S&P 500[supreg] Index appreciates more than the
Capped Level: The Index appreciates by the amount equal to the Capped
Level.
Each Index includes a mix of purchased and written (sold) SPX
Options structured to achieve the results described above. Such results
are only applicable for each full 12-month period from one Roll Date to
the next Roll Date, and the Index may not return such results for
shorter or longer periods. The value of each Index is calculated daily
by Cboe Options utilizing a rules-based options valuation methodology,
which utilizes the prices at which the component SPX Options that
comprise the Index trade on that day or prices that are derived from a
valuation model when a traded price is not available or appropriate.
S&P 500[supreg] Options
The market for options contracts on the S&P 500[supreg] Index
traded on Cboe Options is among the most liquid markets in the world.
According to publicly available data, more than 1.48 million options
contracts on the S&P 500[supreg] Index were traded per day on Cboe
Options in 2018, which is more than $350 billion in notional volume
traded on a daily basis. While FLEX Options are traded differently than
standardized options contracts, the Exchange believes that this
liquidity bolsters the market for FLEX Options, as described below.
Every FLEX Option order submitted to Cboe Options is exposed to a
competitive auction process for price discovery. The process begins
with a request for quote (``RFQ'') in which the interested party
establishes the terms of the FLEX Options contract. The RFQ solicits
interested market participants, including on-floor market makers,
remote market makers trading electronically, and member firm traders,
to respond to the RFQ with bids or offers through a competitive
process. This solicitation contains all of the contract specifications-
underlying, size, type of option, expiration date, strike price,
exercise style and settlement basis. During a specified amount of time,
responses to the RFQ are received and at the end of that time period,
the initiator can decide whether to accept the best bid or offer. The
process occurs under the rules of Cboe Options, which means that
customer transactions are effected according to the principles of a
fair and orderly market following trading procedures and policies
developed by Cboe Options.
The Exchange believes that sufficient protections are in place to
protect against market manipulation of the Notes and SPX Options for
several reasons: (i) The diversity, liquidity, and market cap of the
securities underlying the S&P 500[supreg] Index; (ii) the significant
liquidity in the market for options on the S&P 500[supreg] Index; (iii)
the competitive quoting process for FLEX Options combined with the
significant liquidity in the market for options on the S&P 500[supreg]
Index results in a well-established price discovery process that
provides meaningful guideposts for FLEX Option pricing; and (iv)
surveillance by the Exchange, Cboe Options \23\ and the Financial
Industry Regulatory Authority (``FINRA'') designed to detect violations
of the federal securities laws and self-regulatory organization
(``SRO'') rules. The Exchange has in place a surveillance program for
derivative products, including Linked Securities, to ensure the
availability of information necessary to detect and deter potential
manipulations and other trading abuses, thereby making the Notes less
readily susceptible to manipulation. Further, the Exchange believes
that because the Indexes will consist only of SPX Options, which trade
in extremely liquid and highly regulated markets, the Notes are less
readily susceptible to manipulation.
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\23\ The Exchange notes that Cboe Options is a member of the
Option Price Regulatory Surveillance Authority, which was
established in 2006, to provide efficiencies in looking for insider
trading and serves as a central organization to facilitate
collaboration in insider trading and investigations for the U.S.
options exchanges. For more information, see http://www.cboe.com/aboutcboe/legal/departments/orsareg.aspx.
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The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Notes on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. Trading of the Notes
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Linked Securities. All
statements and representations made in this filing regarding (a) the
description of the portfolio, reference assets, and index, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules shall constitute continued listing
requirements for listing the Notes on the Exchange. The Issuer has
represented to the Exchange that it will advise the Exchange of any
failure by a Series of Notes to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Act, the Exchange will surveil for compliance with the continued
listing requirements. If a Series of Notes is not in compliance with
the applicable listing requirements, then, with respect to such Series
of Notes, the Exchange will commence delisting procedures under
Exchange Rule 14.12. FINRA conducts certain cross-market surveillances
on behalf of the Exchange pursuant to a regulatory services agreement.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange or FINRA, on behalf of the Exchange, will communicate
as needed regarding trading in the Units and exchange-traded options
contracts with other markets and other entities that are members of the
Intermarket Surveillance Group (``ISG'') \24\ and may obtain trading
information regarding trading in the Units and exchange-traded options
contracts from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Units and SPX
Options from Cboe Options. In addition, the Exchange also has a general
policy prohibiting the distribution of material, non-public information
by its employees.
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\24\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
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As noted above, options on the S&P 500[supreg] Index are among the
most liquid options in the world and derive their value from the
actively traded S&P 500[supreg] Index components. The contracts are
cash-settled with no delivery of stocks or ETFs, and trade in
competitive auction markets with price and quote transparency. The
Exchange believes the highly regulated options markets and the broad
base and scope of the S&P
[[Page 10867]]
500[supreg] Index make securities that derive their value from that
index less susceptible to market manipulation in view of the market
capitalization and liquidity of the S&P 500[supreg] Index components,
price and quote transparency, and arbitrage opportunities.
The Exchange believes that the liquidity of the markets for S&P
500[supreg] Index securities, options on the S&P 500[supreg] Index, and
other related derivatives is sufficiently great to deter fraudulent or
manipulative acts associated with the price of the Units. The Exchange
also believes that such liquidity is sufficient to support the creation
and redemption mechanism. Coupled with the extensive surveillance
programs of the SROs described above, the Exchange does not believe
that trading in the Notes would present manipulation concerns.
The Exchange represents that, except for the exception to Rule
14.11(d)(2)(K)(i)(a), the Indexes will satisfy, on an initial and
continued listing basis, all of the listing standards under BZX Rule
14.11(d)(K)(i) and all other requirements under Rule 14.11(d) that are
applicable to Equity Index-Linked Securities. The Issuer is required to
comply with Rule 10A-3 under the Act for the initial and continued
listing of the Notes. In addition, the Exchange represents that the
Notes will comply with all other requirements applicable to Equity
Index-Linked Securities, which includes index dissemination,\25\
suspension of trading or removal,\26\ trading halts,\27\
surveillance,\28\ minimum price variation for quoting and order
entry,\29\ and the information circular,\30\ as set forth in Exchange
rules applicable Equity Index-Linked Securities. Further, all
statements or representations regarding the description of the
portfolio or reference assets, limitations on portfolio holdings or
reference assets, dissemination and availability of the index,
reference asset, and intraday indicative values, or the applicability
of Exchange listing rules shall constitute continued listing
requirements for the Notes. Moreover, all of the options contracts
included in the Indexes will trade on markets that are a member of ISG
or affiliated with a member of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. Quotation and
last sale information for U.S. exchange-listed options contracts
cleared by The Options Clearing Corporation will be available via the
Options Price Reporting Authority. RFQ information for FLEX Options
will be available directly from Cboe Options. The intra-day, closing
and settlement prices of exchange-traded options will be readily
available from the options exchanges, automated quotation systems,
published or other public sources, or online information services such
as Bloomberg or Reuters.
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\25\ See Rule 14.11(d)(2)(G).
\26\ See Rule 14.11(d)(2)(K)(i)(b).
\27\ See Rule 14.11(d)(2)(H).
\28\ See Rule 14.11(d)(2)(I).
\29\ See Rule 11.11(a).
\30\ See Rule 14.11(h)(1)(F).
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Lastly, the Issuer represents that there will be a publicly
available web tool for each Series of Notes on a website that provides
existing and prospective investors with important information to help
inform investment decisions. The information provided will include the
start and end dates of the current outcome period, the time remaining
in the outcome period, the Index's current value, the applicable cap
for the outcome period and the maximum investment gain available up to
the cap for an investor purchasing Notes at the current Index value.
For each of the Series of Notes, the web tool will also provide
information regarding its buffer. This information will include the
remaining buffer available for an investor purchasing Notes at the
current Index value or the amount of losses that an investor purchasing
Notes at the Index value would incur before benefitting from the
protection of the buffer.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \31\ in general and Section 6(b)(5) of the Act \32\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\31\ 15 U.S.C. 78f.
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest in that the Notes will meet
each of the initial and continued listing criteria in BZX Rule 14.11(d)
with the exception of Rule 14.11(d)(2)(K)(i)(a)(2), because the Indexes
consist exclusively of SPX Options, rather than equity securities. Rule
14.11(d)(2)(K)(i)(a)(2) is intended to ensure that a series of Equity
Index-Linked Securities is not subject to manipulation by requiring
that the underlying reference index is composed of equity securities
that are sufficiently large, liquid, and diverse to mitigate
manipulation concerns. The Exchange believes that these manipulation
concerns are otherwise mitigated.
Specifically, the Exchange believes that sufficient protections are
in place to protect against market manipulation of the Units and SPX
Options for several reasons: (i) The diversity, liquidity, and market
cap of the securities underlying the S&P 500[supreg] Index; (ii) the
significant liquidity in the market for options on the S&P 500[supreg]
Index; (iii) the competitive quoting process for FLEX Options combined
with the significant liquidity in the market for options on the S&P
500[supreg] Index results in a well-established price discovery process
that provides meaningful guideposts for FLEX Option pricing; and (iv)
surveillance by the Exchange, Cboe Options and FINRA designed to detect
violations of the federal securities laws and SRO rules. The Exchange
has in place a surveillance program for transactions in Linked
Securities to ensure the availability of information necessary to
detect and deter potential manipulations and other trading abuses,
thereby making the Notes less readily susceptible to manipulation.
Further, the Exchange believes that because the assets in each Index,
which are comprised entirely of SPX Options on the S&P 500[supreg]
Index, are priced in extremely liquid and highly regulated markets, the
Notes are less readily susceptible to manipulation.
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Notes on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. Trading of the Notes
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Linked Securities. All
statements and representations made in this filing regarding (a) the
description of the portfolio, reference assets, and index, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability
[[Page 10868]]
of Exchange rules shall constitute continued listing requirements for
listing the Notes on the Exchange. The Issuer has represented to the
Exchange that it will advise the Exchange of any failure by a Series of
Notes to comply with the continued listing requirements, and, pursuant
to its obligations under Section 19(g)(1) of the Act, the Exchange will
surveil for compliance with the continued listing requirements. If a
Series of Notes is not in compliance with the applicable listing
requirements, then, with respect to such Notes, the Exchange will
commence delisting procedures under Exchange Rule 14.12. FINRA conducts
certain cross-market surveillances on behalf of the Exchange pursuant
to a regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement. If a
Series of Notes is not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures with
respect to such Series of Notes under Exchange Rule 14.12.
The Exchange or FINRA, on behalf of the Exchange, will communicate
as needed regarding trading in the Notes and exchange-traded options
contracts with other markets and other entities that are members of the
ISG and may obtain trading information regarding trading in the Notes
and exchange-traded options contracts from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Notes and exchange-traded options contracts from markets
and other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. In
addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees. As
noted above, options on the S&P 500[supreg] Index are among the most
liquid options in the world and derive their value from the actively
traded S&P 500[supreg] Index components. The contracts are cash-settled
with no delivery of stocks or ETFs, and trade in competitive auction
markets with price and quote transparency. The Exchange believes the
highly regulated options markets and the broad base and scope of the
S&P 500[supreg] Index make securities that derive their value from that
index less susceptible to market manipulation in view of the market
capitalization and liquidity of the S&P 500[supreg] Index components,
price and quote transparency, and arbitrage opportunities.
The Exchange believes that the liquidity of the markets for S&P
500[supreg] Index securities, options on the S&P 500[supreg] Index, and
other related derivatives is sufficiently great to deter fraudulent or
manipulative acts associated with the price of the Notes. Coupled with
the extensive surveillance programs of the SROs described above, the
Exchange does not believe that trading in the Units would present
manipulation concerns.
The Exchange represents that, except as described above, the Notes
will meet and be subject to all other requirements of the listing
standards and other applicable continued listing requirements for
Equity Index-Linked Securities, including index dissemination,\33\
suspension of trading or removal,\34\ trading halts,\35\
surveillance,\36\ minimum price variation for quoting and order
entry,\37\ and the information circular.\38\ The Issuer is required to
comply with Rule 10A-3 under the Act for the initial and continued
listing of each Series of Notes. Moreover, all of the options contracts
included in the Indexes will trade on markets that are a member of ISG
or affiliated with a member of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
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\33\ See Rule 14.11(d)(2)(G).
\34\ See Rule 14.11(d)(2)(K)(i)(b).
\35\ See Rule 14.11(d)(2)(H).
\36\ See Rule 14.11(d)(2)(I).
\37\ See Rule 11.11(a).
\38\ See Rule 14.11(h)(1)(F).
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For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of several
additional types of exchange-traded products that will enhance
competition among market participants, to the benefit of investors and
the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2019-015 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2019-015. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for
[[Page 10869]]
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CboeBZX-2019-015, and should
be submitted on or before April 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05459 Filed 3-21-19; 8:45 am]
BILLING CODE 8011-01-P