[Federal Register Volume 84, Number 170 (Tuesday, September 3, 2019)]
[Notices]
[Pages 46051-46057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18869]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86773; File No. SR-CboeBZX-2019-077]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To List 
and Trade Shares of the Innovator S&P 500 Total Buffer ETF Series Under 
the Innovator ETFs Trust, Under Rule 14.11(i)

August 27, 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 August 13, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 shares of the 
Innovator S&P 500 Total Buffer ETF Series under the Innovator ETFs 
Trust (the ``Trust''), under Rule 14.11(i) (``Managed Fund Shares'').
    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

[[Page 46052]]

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 shares (``Shares'') of up 
to thirty-six Innovator S&P 500 Total Buffer ETF Series (each a 
``Fund'' and, collectively, the ``Funds'') under Rule 14.11(i), which 
governs the listing and trading of Managed Fund Shares on the 
Exchange.\5\ Each Fund will be an actively managed exchange traded 
fund.
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    \5\ The Commission originally approved BZX Rule 14.11(i) in 
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 
55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently 
approved generic listing standards for Managed Fund Shares under 
Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22, 
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100).
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    The Exchange submits this proposal in order to allow each Fund to 
hold listed derivatives in a manner that does not comply with Rule 
14.11(i)(4)(C)(iv)(b), as further described below. The Exchange notes 
that this proposal and the statements or representations herein 
regarding 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, or the applicability of Exchange listing rules are 
substantively identical to those statements and representations 
included in a proposal previously approved by the Commission.\6\
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    \6\ See Securities Exchange Act Release No. 83679 (July 26, 
2018), 83 FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72) (the 
``Original Approval''). The only difference between this proposal 
and the Original Approval is that the defined outcome period is 
three years as opposed to one year in the Original Approval and the 
buffer level that the Funds intend to achieve, neither of which the 
Exchange believes to be substantive. The representations related to 
the Funds, each Fund's underlying portfolio, the limitations on 
portfolio holdings, and the applicability of Exchange rules are 
identical to the corresponding funds from the Original Approval (the 
``Corresponding Funds'').
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    The Shares will be offered by Innovator ETFs Trust (formerly 
Academy Funds Trust) (the ``Trust''), which was established as a 
Delaware statutory trust on October 17, 2007. The Trust is registered 
with the Commission as an investment company and has filed, for the 
first Innovator S&P 500 Total Buffer ETF Series, a registration 
statement on Form N-1A (``Registration Statement'') with the 
Commission.\7\ Each Fund intends to qualify each year as a regulated 
investment company (a ``RIC'') under Subchapter M of the Internal 
Revenue Code of 1986, as amended.\8\ Innovator Capital Management, LLC 
(the ``Adviser'') is the investment adviser to the Funds and Milliman 
Financial Risk Management LLC (the ``Sub-Adviser'') is the sub-adviser. 
Rule 14.11(i)(7) provides that, if the investment adviser to the 
investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company portfolio.\9\ In addition, Rule 14.11(i)(7) further 
requires that personnel who make decisions on the investment company's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable investment company portfolio. Neither the Adviser nor 
the Sub-Adviser is a registered broker-dealer, and neither the Adviser 
nor the Sub-Adviser are affiliated with broker-dealers. In addition, 
Adviser and Sub-Adviser personnel who make decisions regarding a 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 or Sub-Adviser becomes 
registered as a broker-dealer or newly affiliated with a 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 and maintain 
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. Similarly, to 
the extent that a Fund is based on a benchmark index, in the event that 
the index provider of the benchmark index (the ``Index Provider'') 
becomes registered as a broker-dealer or newly affiliated with a 
broker-dealer, it will implement and maintain a fire wall with respect 
to its relevant personnel or such broker-dealer affiliate, as 
applicable, regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio.
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    \7\ See Post-Effective Amendment No. 237 to Registration 
Statement on Form N-1A for the Trust, which was filed with the 
Commission on July 12, 2018 (File Nos. 333-146827 and 811-22135). 
The description of the Funds and the Shares contained herein are 
based on information in the Registration Statement. There are no 
permissible holdings for the Funds that are not described in this 
proposal. The Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act'') (the ``Exemptive Order''). See 
Investment Company Act Release No. 32854 (October 6, 2017) (File No. 
812-14781).
    \8\ 26 U.S.C. 851.
    \9\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The investment objective of the Funds is to provide investors with 
returns that match those of the S&P 500 Price Return Index (the ``S&P 
500 Index'') up to an upside cap over a period of approximately three 
years, while providing a buffer from S&P 500 Index losses.
    The Funds are each actively managed funds that employ a ``defined 
outcome strategy'' that seeks to provide investment returns that match 
the gains of the S&P 500 Index, up to a

[[Page 46053]]

maximized return (the ``Cap Level''), while guarding against a decline 
in the S&P 500 Index, before fees and expenses (the ``Total Buffer 
Strategy''). Pursuant to this strategy, each Fund will invest primarily 
in exchange-traded options contracts that reference either the S&P 500 
Index or ETFs that track the S&P 500 Index. Defined outcome strategies 
are designed to participate in market gains and losses within pre-
determined ranges over a specified period (i.e. point to point). These 
outcomes are predicated on the assumption that an investment vehicle 
employing the strategy is held for the designated outcome periods. The 
designated outcome period for the Funds is three years. As such, the 
Exchange is proposing to list up to thirty-six monthly series of the 
Funds.
    The Exchange submits this proposal in order to allow each Fund to 
hold listed derivatives, in particular FLexible EXchange Options 
(``FLEX Options'') on the S&P 500 Index, in a manner that does not 
comply with Rule 14.11(i)(4)(C)(iv)(b).\10\ Otherwise, the Funds will 
comply with all other listing requirements of the Generic Listing 
Standards \11\ for Managed Fund Shares on an initial and continued 
listing basis under Rule 14.11(i).
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    \10\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate 
gross notional value of listed derivatives based on any five or 
fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight 
of the portfolio (including gross notional exposures).'' The Funds 
do not meet the generic listing standards because they fail to meet 
the requirement of Rule 14.11(i)(4)(C)(iv)(b) that prevents the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset from exceeding 30% of the weight 
of the portfolio (including gross notional exposures) and the 
requirement that the aggregate gross notional value of listed 
derivatives based on any five or fewer underlying reference assets 
shall not exceed 65% of the weight of the portfolio (including gross 
notional exposures).
    \11\ For purposes of this proposal, the term ``Generic Listing 
Standards'' shall mean the generic listing rules for Managed Fund 
Shares under Rule 14.11(i)(4)(C).
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Innovator S&P 500 Total Buffer ETFs
    Under Normal Market Conditions,\12\ each Fund will attempt to 
achieve its investment objective by employing a Total Buffer Strategy 
that will seek to provide investment returns during the outcome period 
that match the gains of the S&P 500 Index, up to the Cap Level, while 
shielding investors from S&P 500 Index losses, before fees and 
expenses. Pursuant to the Total Buffer Strategy, each Fund will invest 
primarily in FLEX Options or standardized options contracts listed on a 
U.S. exchange that reference either the S&P 500 Index or exchange 
traded funds (``ETFs'') that track the S&P 500 Index.
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    \12\ As defined in Rule 14.11(i)(3)(E), 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.
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    The portfolio managers will invest in a portfolio of FLEX Options 
linked to an underlying asset, the S&P 500 Index, that, when held for 
the specified period, seeks to produce returns that, over the outcome 
period, match the positive returns of the S&P 500 Index up to the Cap 
Level. Pursuant to the Total Buffer Strategy, each Fund's portfolio 
managers will seek to produce the following outcomes during the outcome 
period:
     If the S&P 500 Index appreciates over the outcome period: 
The Fund will seek to provide shareholders with a return that increases 
by the percentage increase of the S&P 500 Index over the outcome 
period, up to the Cap Level before fees and expenses; and
     If the S&P 500 Index decreases by any amount over the 
outcome period: The Fund will seek to provide a total return of zero 
before fees and expenses.
    The Funds will produce these outcomes by layering purchased and 
written FLEX Options. The customizable nature of FLEX Options allows 
for the creation of a strategy that sets desired target outcome 
parameters. The FLEX Options comprising a Fund's portfolio have terms 
that, when layered upon each other, are designed to buffer against 
losses or match the gains of the S&P 500 Index. However, another effect 
of the layering of FLEX Options with these terms is a cap on the level 
of possible gains.
    Any FLEX Options that are written by a Fund that create an 
obligation to sell or buy an asset will be offset with a position in 
FLEX Options purchased by the Fund to create the right to buy or sell 
the same asset such that the Fund will always be in a net long 
position. That is, any obligations of a Fund created by its writing of 
FLEX Options will be covered by offsetting positions in other purchased 
FLEX Options. As the FLEX Options mature at the end of each outcome 
period, they are replaced. By replacing FLEX Options at the end of an 
outcome period, each Fund seeks to ensure that investments made at the 
commencement of any given outcome period will buffer against negative 
returns of the S&P 500 Index, before fees and expenses.
    The FLEX Options owned by each of the Funds will have the same 
terms (i.e. same strike price and expiration) for all investors of a 
Fund within an outcome period. The Cap Level will be determined with 
respect to each Fund on the inception date of the Fund and at the 
beginning of each outcome period and is determined based on the price 
of the FLEX Options acquired by the Fund at that time.
Investment Methodology for the Funds
    Under Normal Market Conditions, each Fund will invest primarily in 
U.S. exchange-listed FLEX Options on the S&P 500 Index. Each of the 
Funds may invest its net assets (in the aggregate) in other investments 
which the Adviser or Sub-Adviser believes will help each Fund to meet 
its investment objective and that will be disclosed at the end of each 
trading day (``Other Assets''). Other Assets include only the 
following: Cash or cash equivalents, as defined in Rule 
14.11(i)(4)(C)(iii) \13\ and standardized options contracts listed on a 
U.S. securities exchange that reference either the S&P 500 Index or 
that reference ETFs that track the S&P 500 Index (``Reference ETFs'').
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    \13\ As defined in Rule 14.11(i)(4)(C)(iii), cash equivalents 
include 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.
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S&P 500 Index FLEX Options
    The market for options contracts on the S&P 500 Index traded on 
Cboe Exchange, Inc. (``Cboe Options'') is among the most liquid markets 
in the world. In 2018, more than 1.48 million options contracts on the 
S&P 500 Index were traded per day on Cboe Options, 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 an 
exchange 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

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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 the applicable listing exchange which means that customer 
transactions are effected according to the principles of a fair and 
orderly market following trading procedures and policies developed by 
the applicable self-regulatory organization.
    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and S&P 500 
FLEX Options for several reasons: (i) The diversity, liquidity, and 
market cap of the securities underlying the S&P 500 Index; (ii) the 
competitive quoting process for FLEX Options; (iii) the significant 
liquidity in the market for options on the S&P 500 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, other U.S. options exchanges, 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 
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 
each Fund's portfolio, which are comprised primarily of S&P 500 FLEX 
Options, will be acquired in extremely liquid and highly regulated 
markets,\14\ the Shares are less readily susceptible to manipulation.
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    \14\ All exchange-listed securities that the Funds may hold will 
trade on a market that is a member of the Intermarket Surveillance 
Group (``ISG'') and the Funds will not hold any non-exchange-listed 
equities or options, however, not all of the components of the 
portfolio for the Funds 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.
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    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. 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 Shares on the Exchange. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related 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 a Fund or the related 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 a 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. 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, options on the S&P 500 Index 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, options on the S&P 500 Index, and other related 
derivatives is sufficiently great to deter fraudulent or manipulative 
acts associated with the Funds' Shares price. 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 Funds' Shares would present manipulation concerns.
    The Exchange represents that, except for the limitations on listed 
derivatives in BZX Rule 14.11(i)(4)(C)(iv)(b), the Funds' proposed 
investments will satisfy, on an initial and continued listing basis, 
all of the generic listing standards under BZX Rule 14.11(i)(4)(C) and 
all other applicable requirements for Managed Fund Shares under Rule 
14.11(i). The Trust is required to comply with Rule 10A-3 under the Act 
for the initial and continued listing of the Shares of the Funds. 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 Funds will comply with all other requirements applicable 
to Managed Fund Shares, which includes the dissemination of key 
information such as the Disclosed Portfolio,\15\ Net Asset Value,\16\ 
and the Intraday Indicative Value,\17\ suspension of trading or 
removal,\18\ trading halts,\19\ surveillance,\20\ minimum price 
variation for quoting and order entry,\21\ and the information 
circular,\22\ as set forth in Exchange rules applicable to Managed Fund 
Shares. Further, all statements or representations regarding the 
description of the portfolio or reference

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assets, limitations on portfolio holdings or reference assets, 
dissemination and availability of index, reference asset, and intraday 
indicative values, or the applicability of Exchange listing rules shall 
constitute continued listing requirements for the Funds. Moreover, all 
of the options contracts held by the Funds 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 the applicable options 
exchange. 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 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.
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    \15\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \16\ See Rule 14.11(i)(4)(A)(ii).
    \17\ See Rule 14.11(i)(4)(B)(i).
    \18\ See Rule 14.11(i)(4)(B)(iii).
    \19\ See Rule 14.11(i)(4)(B)(iv).
    \20\ See Rule 14.11(i)(2)(C).
    \21\ See Rule 14.11(i)(2)(B).
    \22\ See Rule 14.11(i)(6).
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    Lastly, the issuer represents that it will provide and maintain a 
publicly available web tool for each of the Funds on its website that 
provides existing and prospective shareholders with important 
information to help inform investment decisions. The information 
provided includes the start and end dates of the current outcome 
period, the time remaining in the outcome period, the Fund's current 
net asset value, the Fund's cap for the outcome period and the maximum 
investment gain available up to the cap for a shareholder purchasing 
Shares at the current net asset value. For each of the Funds, the web 
tool also provides information regarding each Fund's buffer. This 
information includes the remaining buffer available for a shareholder 
purchasing Shares at the current net asset value or the amount of 
losses that a shareholder purchasing Shares at the current net asset 
value would incur before benefitting from the protection of the buffer. 
The cover of each Fund's prospectus, as well as the disclosure 
contained in ``Principal Investment Strategies,'' provides the specific 
web address for each Fund's web tool.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ 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, because, as noted above, the Shares will meet each of 
the initial and continued listing criteria in BZX Rule 14.11(i) with 
the exception of Rule 14.11(i)(4)(C)(iv)(b), which requires that the 
aggregate gross notional value of listed derivatives based on any five 
or fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight of 
the portfolio (including gross notional exposures).\25\ Rule 
14.11(i)(4)(C)(iv)(b) is intended to ensure that a fund is not subject 
to manipulation by virtue of significant exposure to a manipulable 
underlying reference asset by establishing concentration limits among 
the underlying reference assets for listed derivatives held by a 
particular fund.
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    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(5).
    \25\ As noted above, the Exchange is submitting this proposal 
because the Funds would not meet the requirements of Rule 
14.11(i)(4)(C)(iv)(b) which prevents the aggregate gross notional 
value of listed derivatives based on any single underlying reference 
asset from exceeding 30% of the weight of the portfolio (including 
gross notional exposures) and the aggregate gross notional value of 
listed derivatives based on any five or fewer underlying reference 
assets from exceeding 65% of the weight of the portfolio (including 
gross notional exposures).
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    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and S&P 500 
FLEX Options for several reasons: (i) The diversity, liquidity, and 
market cap of the securities underlying the S&P 500 Index; (ii) the 
competitive quoting process for FLEX Options; (iii) the significant 
liquidity in the market for options on the S&P 500 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, other U.S. options exchanges, 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 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 
each Fund's portfolio, which are comprised primarily of S&P 500 FLEX 
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 Managed Fund Shares. 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 Shares on the Exchange. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related 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 a Fund or the related 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 a 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. In addition, the Exchange may obtain information regarding 
trading in the Shares and

[[Page 46056]]

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 Index 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, options on the S&P 500 Index, and other related 
derivatives is sufficiently great to deter fraudulent or manipulative 
acts associated with the Funds' Shares price. 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 Funds' Shares would present manipulation concerns.
    The Exchange represents that, except as described above, the Funds 
will meet and be subject to all other requirements of the Generic 
Listing Standards and other applicable continued listing requirements 
for Managed Fund Shares under Rule 14.11(i), including those 
requirements regarding the Disclosed Portfolio,\26\ Intraday Indicative 
Value,\27\ suspension of trading or removal,\28\ trading halts,\29\ 
disclosure,\30\ and firewalls.\31\ The Trust is required to comply with 
Rule 10A-3 under the Act for the initial and continued listing of the 
Shares of each Fund. Moreover, all of the options contracts held by the 
Funds 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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    \26\ See Rule 14.11(i)(4)(B)(ii).
    \27\ See Rule 14.11(i)(4)(B)(i).
    \28\ See Rule 14.11(i)(4)(B)(iii).
    \29\ See Rule 14.11(i)(4)(B)(iv).
    \30\ See Rule 14.11(i)(6).
    \31\ See Rule 14.11(i)(7).
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    Finally, this proposal and the statements or representations herein 
regarding the limitations on portfolio holdings or reference assets, 
dissemination and availability of index, reference asset, and intraday 
indicative values, and the applicability of Exchange listing rules are 
substantively identical to those statements and representations 
included in the Original Approval and the descriptions of the portfolio 
or reference assets are substantially similar to those included in the 
Original Approval. The only difference between this proposal and the 
Original Approval is that the defined outcome period is three years as 
opposed to one year in the Original Approval and the buffer level that 
the Funds intend to achieve, neither of which the Exchange believes to 
be substantive because they relate only to the investment objective of 
the Funds. As such, the Exchange believes the proposed rule change will 
not significantly affect the protection of investors or the public 
interest because the proposal contains no new issues that the 
Commission has not previously contemplated.
    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 Managed 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \32\ and Rule 19b-
4(f)(6) thereunder.\33\
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \34\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \35\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange represents that the statements or representations made in the 
proposed rule change regarding the limitations on portfolio holdings or 
reference assets, dissemination and availability of index, reference 
asset, and intraday indicative values, and the applicability of 
Exchange listing rules are substantively identical to the statements 
and representations included in the Original Approval, and the 
descriptions of the portfolio or reference assets are substantially 
similar to those included in the Original Approval. Further, waiver of 
the operative delay would allow the Exchange to facilitate the 
Adviser's ability to list the product on the Exchange as soon as 
possible, which may enhance competition among market participants, to 
the benefit of investors and the marketplace. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\36\
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    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 17 CFR 240.19b-4(f)(6)(iii).
    \36\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the

[[Page 46057]]

Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule change should be 
approved or 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-2019-077 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-2019-077. 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-2019-077, and should be 
submitted on or before September 24, 2019.
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    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18869 Filed 8-30-19; 8:45 am]
 BILLING CODE 8011-01-P