[Federal Register Volume 82, Number 43 (Tuesday, March 7, 2017)]
[Notices]
[Pages 12860-12862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04351]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80136; File No. SR-BatsBZX-2017-14]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
Amplify YieldShares Oil Hedged MLP Fund, a Series of the Amplify ETF
Trust, Under Rule 14.11(i), Managed Fund Shares
March 1, 2017.
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 February 17, 2017, Bats BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to list and trade shares of the
Amplify YieldShares Oil Hedged MLP Fund (the ``Fund''), a series of the
Amplify ETF Trust (the ``Trust''), under Rule 14.11(i) (``Managed Fund
Shares''). The shares of the Fund are referred to herein as the
``Shares.''
The text of the proposed rule change is available at the Exchange's
Web site at www.bats.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under Rule
14.11(i), which governs the listing and trading of Managed Fund Shares
on the Exchange.\3\ The Fund will be an actively managed exchange-
traded fund that invests in equity securities of energy master limited
partnerships (``MLPs'') and will selectively hedge these positions to
limit the correlation of its performance to the price of West Texas
Intermediate Crude Oil (``WTI Crude Oil'').\4\ The Exchange submits
this proposal in order to allow the Fund to hold listed derivatives, in
particular WTI Crude Oil futures, in a manner that does not comply with
Rule 14.11(i)(4)(C)(iv)(b).\5\
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\3\ 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).
\4\ The Trust plans to list the Fund on the Exchange pursuant to
the generic listing rules for Managed Fund Shares under Rule
14.11(i)(4)(C) (the ``Generic Listing Rules'') regardless of the
timing and posture of this proposal. As noted further below, the
Fund can achieve its investment objective by meeting the Generic
Listing Rules, but the Exchange is submitting this proposal in order
to allow the Fund to hold listed derivatives in a manner that does
not comply with Rule 14.11(i)(4)(C).
\5\ 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).''
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The Shares are offered by the Trust, which was established as a
Massachusetts business trust on January 6, 2015.\6\ The Trust is
registered with the Commission as an investment company and has filed a
registration statement on Form N-1A (``Registration Statement'') with
the Commission.\7\ The Fund is a series of the Trust.
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\6\ The Commission has issued an order, upon which the Trust may
rely, granting certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 31582 (April 28, 2015) (File No.
812-14423) (the ``Exemptive Relief'').
\7\ See Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A for the Trust, dated January 6, 2017 (File
Nos. 333-207937 and 811-23108). The descriptions of the Fund and the
Shares contained herein are based, in part, on information in the
Registration Statement.
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The Commodity Futures Trading Commission (``CFTC'') has recently
adopted substantial amendments to CFTC Rule 4.5 relating to the
permissible exemptions and conditions for reliance on exemptions from
registration as a commodity pool operator. The Trust, on behalf of the
Fund, has filed a notice of eligibility for exclusion from the
definition of the term ``commodity pool operator'' in accordance with
CFTC Rule 4.5, and, therefore, the Fund would not be subject to
registration or regulation as a commodity pool operator under the
Commodity Exchange Act (``CEA'') to the extent that it complies with
the requirements of the rule. To the extent that the Fund makes
investments regulated by the CFTC, it will do so in accordance with
Rule 4.5 under the CEA.
The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as
amended.
[[Page 12861]]
Amplify YieldShares Oil Hedged MLP Fund
According to the Registration Statement, the Fund will be an
actively managed exchange-traded fund that invests in equity securities
of MLPs and will selectively hedge these positions to limit the
correlation of its performance to the price of WTI Crude Oil. WTI Crude
Oil, also known as Texas light sweet, is a grade of crude oil used as a
benchmark in oil futures contracts pricing. The Fund will use a
benchmark, the Oil Hedged MLP Index (the ``Benchmark''), which is
developed, maintained and sponsored by ETP Ventures LLC. The Fund will
seek to exceed the performance of the Benchmark by actively selecting
investments for the Fund from the underlying components of the
Benchmark. The Fund is not an index tracking exchange-traded fund and
is not required to invest in all of the components of the Benchmark.
However, the Fund will generally seek to hold similar instruments to
those included in the Benchmark with investments in MLPs and short
exposure oil futures contracts included in the Benchmark.
In order to achieve its investment objective, under Normal Market
Conditions,\8\ the Fund will invest at least 80% of its total assets in
equity securities of MLPs.\9\ As noted above, the Fund plans to hedge
its positions in MLPs in order to limit the correlation of its
performance to the price of WTI Crude Oil and achieves this hedge by
holding listed and/or OTC derivative instruments in a manner that
complies with Rule 14.11(i)(4)(C)(4)(iv) and (v). Rule
14.11(i)(4)(C)(4)(iv) prevents the Fund from holding listed derivatives
based on any single underlying reference asset in excess of 30% of the
weight of its portfolio (including gross notional exposures). The
Exchange is proposing to allow the Fund to hold up to 50% of the weight
of its portfolio (including gross notional exposures) in WTI Crude Oil
futures contracts traded on the New York Mercantile Exchange and ICE
Futures Europe (``WTI Crude Oil Futures''). Allowing the Fund to hold a
greater portion of its portfolio in WTI Crude Oil Futures would
mitigate the Fund's dependency on holding OTC instruments, which would
reduce the Fund's operational burden by allowing the Fund to primarily
use listed futures contracts to achieve its investment objective and
would further reduce counter-party risk associated with holding OTC
instruments. The Fund would continue to meet all other requirements of
the Generic Listing Rules and other applicable requirements for Managed
Fund Shares under Rule 14.11(i) including Rule 14.11(i)(4)(C)(iv)(a),
because all of the futures contracts held by the Fund will trade on
markets that are a member of Intermarket Surveillance Group (``ISG'')
or affiliated with a member of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.\10\
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\8\ 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.
\9\ To qualify as an MLP, and not to be taxed as a corporation,
a partnership must receive at least 90% of its income from
qualifying sources as set forth in Section 7704(d) of the Internal
Revenue Code of 1986, as amended (the ``Code''). These qualifying
sources include natural resource-based activities such as the
exploration, development, mining, production, processing, refining,
transportation, storage and marketing of mineral or natural
resources.
\10\ 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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The Exchange notes that the Fund may also hold certain fixed income
securities and cash and cash equivalents in compliance with Rules
14.11(i)(4)(C)(ii) and (iii) in order to collateralize its derivatives
positions.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \11\ in general and Section 6(b)(5) of the Act \12\ 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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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest in that the Shares will meet
each of the initial and continued listing criteria in BZX Rule 14.11(i)
with the exception 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). The Exchange
believes that the liquidity in the WTI Crude Oil Futures markets
mitigates the concerns that Rule 14.11(i)(4)(C)(iv)(b) is intended to
address and that such liquidity would prevent the Shares from being
susceptible to manipulation.\13\ Further, allowing the Fund to hold a
greater portion of its portfolio in WTI Crude Oil Futures would
mitigate the Fund's dependency on holding OTC instruments, which would
reduce the Fund's operational burden by allowing the Fund to primarily
use listed futures contracts to achieve its investment objective and
would further reduce counter-party risk associated with holding OTC
instruments. 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. All of the
futures contracts held by the Fund will trade on markets that are a
member of ISG or affiliated with a member of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
The Exchange may obtain information regarding trading in the Shares and
the underlying futures contracts held by the Fund via the ISG from
other exchanges who are members or affiliates of the ISG or with which
the Exchange has entered into a comprehensive surveillance sharing
agreement.\14\ The Exchange further notes that the Fund will continue
to meet and be subject to all other requirements of the Generic Listing
Rules and other applicable continued listing requirements for Managed
Fund
[[Page 12862]]
Shares under Rule 14.11(i), including those requirements regarding the
Disclosed Portfolio,\15\ Intraday Indicative Value,\16\ suspension of
trading or removal,\17\ trading halts,\18\ disclosure,\19\ and
firewalls.\20\
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\13\ As of 1/31/2017 the average daily contract volume over the
last year was 558,353, 307,289 and 110,208 respectively for the
front, second and third month contracts. For the third month
contract, at today's price levels, that equates to an average daily
traded notional of approximately $5.9 billion.
\14\ See note 9, supra. [sic]
\15\ See Rule 14.11(i)(4)(B)(i).
\16\ See Rule 14.11(i)(4)(B)(ii).
\17\ See Rule 14.11(i)(4)(B)(iii).
\18\ See Rule 14.11(i)(4)(B)(iv).
\19\ See Rule 14.11(i)(6).
\20\ See Rule 14.11(i)(7).
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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, rather will facilitate the listing and trading of
an additional actively-managed exchange-traded product that will
enhance competition among both market participants and listing venues,
to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BatsBZX-2017-14 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-BatsBZX-2017-14. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BatsBZX-2017-14 and should
be submitted on or before March 28, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04351 Filed 3-6-17; 8:45 am]
BILLING CODE 8011-01-P