[Federal Register Volume 82, Number 116 (Monday, June 19, 2017)]
[Notices]
[Pages 27925-27938]
[FR Doc No: 2017-12583]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80911; File No. SR-BatsBZX-2017-30]

Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Permit the Listing and Trading of
Managed Portfolio Shares; and To List and Trade Shares of the Following
Under Proposed Rule 14.11(k): ClearBridge Appreciation ETF; ClearBridge
Large Cap ETF; ClearBridge MidCap Growth ETF; ClearBridge Select ETF;
and ClearBridge All Cap Value ETF

June 13, 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 June 1, 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 is proposing to adopt new Rule 14.11(k) to permit the
listing and trading of Managed Portfolio Shares, which are shares of
actively managed exchange-traded funds for which the portfolio is
disclosed in accordance with standard mutual fund disclosure rules. In
addition, the Exchange proposes to list and trade shares of the
following under proposed Rule 14.11(k): ClearBridge Appreciation ETF;
ClearBridge Large Cap ETF; ClearBridge MidCap Growth ETF; ClearBridge
Select ETF; and ClearBridge All Cap Value ETF.
    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 add new Rule 14.11(k) for the purpose of
permitting the listing and trading, or trading pursuant to unlisted
trading privileges (``UTP''), of Managed Portfolio Shares, which are
securities issued by an actively managed open-end investment management
company.\3\ In addition, the Exchange proposes to list and trade shares
(``Shares'') of the following under proposed Rule 14.11(k): ClearBridge
Appreciation ETF; ClearBridge Large Cap ETF; ClearBridge MidCap Growth
ETF; ClearBridge Select ETF; and ClearBridge All Cap Value ETF (each, a
``Fund'' and, collectively, the ``Funds'').
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    \3\ A Managed Portfolio Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Index Fund Shares, listed
and traded on the Exchange under Rule 14.11(c) (``Index ETFs''),
seeks to provide investment results that correspond generally to the
price and yield performance of a specific foreign or domestic stock
index, fixed income securities index or combination thereof.
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Proposed Listing Rules
    Proposed Rule 14.11(k)(1) provides that the Exchange will consider
for trading, whether by listing or pursuant to UTP, Managed Portfolio
Shares that meet the criteria of Rule 14.11(k).
    Proposed Rule 14.11(k)(2) provides that Rule 14.11(k) is applicable
only to Managed Portfolio Shares and that, except to the extent
inconsistent with Rule 14.11(k), or unless the context otherwise
requires, the rules and procedures of the Exchange's Board of Directors
shall be applicable to the trading on the Exchange of such securities.
Proposed Rule 14.11(k)(2) provides further that Managed Portfolio
Shares are included within the definition of ``security'' or
``securities'' as such terms are used in the Rules of the Exchange.
    Proposed Rule 14.11(k)(2)(A) provides that the Exchange will file
separate proposals under Section 19(b) of the Act before the listing
and trading of Managed Portfolio Shares. All statements or
representations contained in such rule filing regarding (a) the
description of the portfolio or reference asset, (b) limitations on
portfolio holdings or reference assets, or (c) the applicability of
Exchange listing rules specified in such rule filing will constitute
continued listing requirements. An issuer of such securities must
notify the Exchange of any failure to comply with such continued
listing requirements.
    Proposed Rule 14.11(k)(2)(B) provides that transactions in Managed
Portfolio Shares will occur only during Regular Trading Hours.\4\
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    \4\ As defined in Rule 1.5(w), the term ``Regular Trading
Hours'' means the time between 9:30 a.m. and 4:00 p.m. Eastern Time.
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    Proposed Rule 14.11(k)(2)(C) provides that the Exchange will
implement written surveillance procedures for Managed Portfolio Shares.
    Proposed Rule 14.11(k)(2)(D) provides that Authorized Participants
(as defined in the Investment Company's Form N-1A filed with the SEC)
redeeming Managed Portfolio Shares will sign an agreement with an agent
(``Trusted Agent'') to establish a confidential account for the benefit
of such Authorized Participant that will receive all consideration from
the issuer in a redemption. A Trusted Agent may not disclose the
consideration received in a redemption except as required by law or as
provided in the Investment Company's Form N-1A, as applicable.
    Proposed Rule 14.11(k)(2)(E) provides that, if the investment
adviser to the

Investment Company issuing Managed Portfolio Shares is affiliated with
a broker-dealer, or if any Trusted Agent is registered as a broker-
dealer or is affiliated with a broker-dealer, such investment adviser
or Trusted Agent will erect and maintain a ``fire wall'' between the
investment adviser or Trusted Agent and (i) personnel of the broker-
dealer or broker-dealer affiliate, as applicable, or (ii) the
Authorized Participant or non-Authorized Participant market maker, as
applicable, with respect to access to information concerning the
composition and/or changes to such Investment Company portfolio.
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.
    Proposed Rule 14.11(k)(3)(A) defines the term ``Managed Portfolio
Share'' as a security that (a) is issued by a registered investment
company (``Investment Company'') organized as an open-end management
investment company or similar entity, that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies; and (b) when aggregated in a number of shares equal to a
Redemption Unit or multiples thereof, may be redeemed at the request of
an Authorized Participant (as defined in the Investment Company's Form
N-1A filed with the SEC), which Authorized Participant will be paid,
through its own separate confidential account established for its
benefit, a portfolio of securities and/or cash with a value equal to
the next determined net asset value (``NAV'').
    Proposed Rule 14.11(k)(3)(B) defines the term ``Verified Intraday
Indicative Value (``VIIV'') as the estimated indicative value of a
Managed Portfolio Share based on all of the issuer's holdings as of the
close of business on the prior business day, priced and disseminated in
at least one second intervals, and subject to validation by a pricing
verification agent of the Investment Company that is responsible for
comparing multiple independent pricing sources to establish the
accuracy of the VIIV.
    Proposed Rule 14.11(k)(3)(C) defines the term ``Redemption Unit''
as a specified number of Managed Portfolio Shares.
    Proposed Rule 14.11(k)(3)(D) defines the term ``Reporting
Authority'' in respect of a particular series of Managed Portfolio
Shares as a reporting service designated by the issuer as the official
source for calculating and reporting information relating to such
series, including, but not limited to, the VIIV, NAV, or other
information relating to the issuance, redemption or trading of Managed
Portfolio Shares. A series of Managed Portfolio Shares may have more
than one Reporting Authority, each having different functions.
    Proposed Rule 14.11(k)(4) sets forth initial and continued listing
criteria applicable to Managed Portfolio Shares. Proposed Rule
14.11(k)(4)(A)(i) provides that, for each series of Managed Portfolio
Shares, the Exchange will establish a minimum number of Managed
Portfolio Shares required to be outstanding at the time of commencement
of trading on the Exchange. In addition, proposed Rule
14.11(k)(4)(A)(ii) provides that the Exchange will obtain a
representation from the issuer of each series of Managed Portfolio
Shares that the NAV per share for the series will be calculated daily
and that the NAV will be made available to all market participants at
the same time.\5\
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    \5\ Proposed Rule 14.11(k)(4) provides that if the Exchange
becomes aware that the net asset value with respect to a series of
Managed Portfolio Shares is not disseminated to all market
participants at the same time, it will halt trading in such series
until such time as the net asset value is available to all market
participants.
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    Proposed Rule 14.11(k)(4)(B) provides that each series of Managed
Portfolio Shares will be listed and traded subject to application of
the following continued listing criteria. Proposed Rule
14.11(k)(4)(B)(i) provides that the VIIV for Managed Portfolio Shares
will be widely disseminated by one or more major market data vendors at
least every second during Regular Trading Hours. Proposed Rule
14.11(k)(4)(B)(ii) provides that the Exchange will maintain
surveillance procedures for securities listed under Rule 14.11(k) and
will consider the suspension of trading in, and will commence delisting
proceedings under Rule 14.12 of, a series of Managed Portfolio Shares
under any of the following circumstances: (a) If, following the initial
twelve-month period after commencement of trading on the Exchange of a
series of Managed Portfolio Shares, there are fewer than 50 beneficial
holders of the series of Managed Portfolio Shares; (b) if the value of
the VIIV is no longer calculated or made available to all market
participants at the same time; (c) if the Investment Company issuing
the Managed Portfolio Shares has failed to file any filings required by
the Commission or if the Exchange is aware that the Investment Company
is not in compliance with the conditions of any exemptive order or no-
action relief granted by the Securities and Exchange Commission to the
Investment Company with respect to the series of Managed Portfolio
Shares; (d) if any of the continued listing requirements set forth in
Rule 14.11(k) are not continuously maintained; (e) if any of the
statements or representations in the rule filing submitted by the
Exchange pursuant to Section 19(b) of the Act to permit the listing and
trading of a series of Managed Portfolio Shares regarding (i) the
description of the portfolio or reference asset, (ii) limitations on
portfolio holdings or reference assets, or (iii) the applicability of
Exchange listing rules specified in such rule filing are not
continuously maintained; or (f) if such other event shall occur or
condition exists which, in the opinion of the Exchange, makes further
dealings on the Exchange inadvisable.
    Proposed Rule 14.11(k)(4)(B)(iii) provides that, upon notification
to the Exchange by the Investment Company or its agent that (i) the
prices from the multiple independent pricing sources to be validated by
the Investment Company's pricing verification agent differ by more than
25 basis points for 60 seconds in connection with pricing of the VIIV,
or (ii) that the VIIV of a series of Managed Portfolio Shares is not
being priced and disseminated in at least one-second intervals, as
required, the Exchange shall halt trading in the Managed Portfolio
Shares as soon as practicable. Such halt in trading shall continue
until the Investment Company or its agent notifies the Exchange that
the prices from the independent pricing sources no longer differ by
more than 25 basis points for 60 seconds or that the VIIV is being
priced and disseminated as required. The Investment Company or its
agent shall be responsible for monitoring that the VIIV is being priced
and disseminated as required and whether the prices to be validated
from multiple independent pricing sources differ by more than 25 basis
points for 60 seconds. With respect to series of Managed Portfolio
Shares trading on the Exchange pursuant to unlisted trading privileges,
if a temporary interruption occurs in the pricing or dissemination of
the applicable Verified Intraday Indicative Value and the listing
market halts trading in such series, the Exchange, upon notification by
the listing market of such halt due to such temporary interruption,
will halt trading in such series. In addition, if the Exchange becomes
aware that the NAV

with respect to a series of Managed Portfolio Shares is not
disseminated to all market participants at the same time, it will halt
trading in such series until such time as the NAV is available to all
market participants.
    Proposed Rule 14.11(k)(4)(B)(iv) provides that, upon termination of
an Investment Company, the Exchange requires that Managed Portfolio
Shares issued in connection with such entity be removed from listing on
the Exchange.
    Proposed Rule 14.11(k)(4)(B)(v) provides that voting rights shall
be as set forth in the applicable Investment Company prospectus.
    Proposed Rule 14.11(k)(4)(B)(vi), which relates to limitation of
Exchange liability, provides that neither the Exchange, the Reporting
Authority, nor any agent of the Exchange shall have any liability for
damages, claims, losses or expenses caused by any errors, omissions, or
delays in calculating or disseminating any current portfolio value; the
VIIV; the current value of the portfolio of securities required to be
deposited to the open-end management investment company in connection
with issuance of Managed Portfolio Shares; the amount of any dividend
equivalent payment or cash distribution to holders of Managed Portfolio
Shares; NAV; or other information relating to the purchase, redemption,
or trading of Managed Portfolio Shares, resulting from any negligent
act or omission by the Exchange, the Reporting Authority or any agent
of the Exchange, or any act, condition, or cause beyond the reasonable
control of the Exchange, its agent, or the Reporting Authority,
including, but not limited to, an act of God; fire; flood;
extraordinary weather conditions; war; insurrection; riot; strike;
accident; action of government; communications or power failure;
equipment or software malfunction; or any error, omission, or delay in
the reports of transactions in one or more underlying securities.
Key Features of Managed Portfolio Shares
    While funds issuing Managed Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares,
Managed Portfolio Shares differ from Managed Fund Shares in the
following important respects. First, in contrast to Managed Fund
Shares, which are actively-managed funds listed and traded under Rule
14.11(i) \6\ and for which a ``Disclosed Portfolio'' is required to be
disseminated at least once daily,\7\ the portfolio for an issue of
Managed Portfolio Shares will be disclosed quarterly in accordance with
normal disclosure requirements otherwise applicable to open-end
investment companies registered under the 1940 Act.\8\ Second, in
connection with the redemption of shares in ``Redemption Unit'' size
(as described below), the delivery of any portfolio securities in kind
will generally be effected through a ``Confidential Account'' (as
described below) for the benefit of the redeeming ``Authorized
Participant'' (as described below in ``Creation and Redemption of
Shares'') without disclosing the identity of such securities to the
Authorized Participant.
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    \6\ The Commission has previously approved listing and trading
on the Exchange of a number of issues of Managed Fund Shares under
Rule 14.11(i). See, e.g., Securities Exchange Act Release Nos. 74193
(February 3, 2015), 80 FR 7066 (February 9, 2015) (SR-BATS-2014-054)
(order approving the listing and trading of the iShares Short
Maturity Municipal Bond Fund); 74297 (February 18, 2015), 80 FR 9788
(February 24, 2015) (SR-BATS-2014-056) (order approving the listing
and trading of iShares U.S. Fixed Income Balanced Risk Fund). More
recently, the Commission approved a proposed rule change to adopt
generic listing standards for Managed Fund Shares. See Securities
Exchange Act Release No. 78396 (July 22, 2016), 81 FR 49698 (July
28, 2016 (SR-BATS-2015-100) (order approving proposed rule change to
amend Rule 14.11(i) to adopt generic listing standards for Managed
Fund Shares).
    \7\ BZX Rule 14.11(i)(3)(B) defines the term ``Disclosed
Portfolio'' as the identities and quantities of the securities and
other assets held by the Investment Company that will form the basis
for the Investment Company's calculation of net asset value at the
end of the business day. Rule 14.11(i)(4)(B)(ii)(a) requires that
the Disclosed Portfolio will be disseminated at least once daily and
will be made available to all market participants at the same time.
    \8\ A mutual fund is required to file with the Commission its
complete portfolio schedules for the second and fourth fiscal
quarters on Form N-CSR under the 1940 Act, and is required to file
its complete portfolio schedules for the first and third fiscal
quarters on Form N-Q under the 1940 Act, within 60 days of the end
of the quarter. Form N-Q requires funds to file the same schedules
of investments that are required in annual and semi-annual reports
to shareholders. These forms are available to the public on the
Commission's Web site at www.sec.gov.
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    For each series of Managed Portfolio Shares, an estimated value--
the VIIV--that reflects an estimated intraday value of a fund's
portfolio will be disseminated.
    With respect to the Funds, the VIIV will be based upon all of a
Fund's holdings as of the close of the prior business day and will be
widely disseminated by one or more major market data vendors at least
every second during Regular Trading Hours. The dissemination of the
VIIV will allow investors to determine the estimated intra- day value
of the underlying portfolio of a series of Managed Portfolio Shares and
will provide a close estimate of that value throughout the trading day.
The VIIV should not be viewed as a ``real-time'' update of the NAV per
Share of each Fund because the VIIV may not be calculated in the same
manner as the NAV, which will be computed once a day, generally at the
end of the business day. Unlike the VIIV, which will be based on
consolidated midpoint of the bid ask spread, the NAV per Share will be
based on the closing price on the primary market for each portfolio
security. If there is no closing price for a particular portfolio
security, such as when it is the subject of a trading halt, a Fund will
use fair value pricing. That fair value pricing will be carried over to
the next day's VIIV until the first trade in that stock is reported
unless the ``Adviser'' (defined below) deems a particular portfolio
security to be illiquid and/or the available ongoing pricing
information unlikely to be reliable. In such case, that fact will be
immediately disclosed on each Fund's Web site, including the identity
and weighting of that security in a Fund's portfolio, and the impact of
that security on VIIV calculation, including the fair value price for
that security being used for the calculation of that day's VIIV.
    The Exchange, after consulting with various Lead Market Makers that
trade exchange-traded funds (``ETFs'') on the Exchange, believes that
market makers will be able to make efficient and liquid markets priced
near the VIIV as long as a VIIV is disseminated at least every second,
market makers have knowledge of a Fund's means of achieving its
investment objective, and market makers are permitted to engage in
``Bona Fide Arbitrage,'' as described below. The Exchange believes that
market makers will employ Bona Fide Arbitrage in addition to risk-
management techniques such as ``statistical arbitrage,'' which is
currently used throughout the financial services industry, to make
efficient markets in exchange-traded products.\9\ This ability should
permit market makers to make

efficient markets in an issue of Managed Portfolio Shares without
precise knowledge of a Fund's underlying portfolio.\10\
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    \9\ Statistical arbitrage enables a trader to construct an
accurate proxy for another instrument, allowing it to hedge the
other instrument or buy or sell the instrument when it is cheap or
expensive in relation to the proxy. Statistical analysis permits
traders to discover correlations based purely on trading data
without regard to other fundamental drivers. These correlations are
a function of differentials, over time, between one instrument or
group of instruments and one or more other instruments. Once the
nature of these price deviations have been quantified, a universe of
securities is searched in an effort to, in the case of a hedging
strategy, minimize the differential. Once a suitable hedging proxy
has been identified, a trader can minimize portfolio risk by
executing the hedging basket. The trader then can monitor the
performance of this hedge throughout the trade period making
correction where warranted.
    \10\ Authorized Participants and other broker-dealers that enter
into their own separate Confidential Accounts shall have enough
information to ensure that they are able to comply with applicable
regulatory requirements. For example, for purposes of net capital
requirements, the maximum Securities Haircut applicable to the
securities in a Creation Basket, as determined under Rule 15c3-1,
will be disclosed daily on each Fund's Web site.
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    To enable market makers to engage in Bona Fide Arbitrage, on each
``Business Day'' (as defined below), before commencement of trading in
Shares on the Exchange, the Funds will provide to a ``Trusted Agent''
(as described below) of each Authorized Participant or ``Non-Authorized
Participant Market Maker'' \11\ the identities and quantities of
portfolio securities that will form the basis for a Fund's calculation
of NAV per Share at the end of the Business Day, as well as the names
and quantities of the instruments comprising a ``Creation Basket'' and
the estimated ``Balancing Amount'' (if any) (as described below), for
that day. This information will permit Authorized Participants to
purchase ``Creation Units'' through an in-kind transaction with a Fund,
as described below.
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    \11\ A Non-Authorized Participant Market Maker is a market
participant that makes a market in Shares, but is not an Authorized
Participant.
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    In addition, Authorized Participants will be able to instruct the
Trusted Agent to buy or sell portfolio securities during the day and
thereby engage in Bona Fide Arbitrage throughout the trading day. For
example, if an Authorized Participant believes that Shares of a Fund
are trading at a price that is higher than the value of its underlying
portfolio based on the VIIV, the Authorized Participant may sell Shares
short and instruct the Trusted Agent to buy portfolio securities for
its Confidential Account. When the market price of a Fund's Shares
falls in line with the value of the portfolio, the Authorized
Participant can then close out its positions in both the Shares and the
portfolio securities. The Authorized Participant's purchase of the
portfolio securities into its Confidential Account, combined with the
sale of Shares, may also create downward pressure on the price of
Shares and/or upward pressure on the price of the portfolio securities,
bringing the market price of Shares and the value of a Fund's portfolio
securities closer together. Similarly, an Authorized Participant could
buy Shares and instruct the Trusted Agent to sell the underlying
portfolio securities from its Confidential Account in an attempt to
profit when a Fund's Shares are trading at a discount to its portfolio.
The Authorized Participant's purchase of a Fund's Shares in the
secondary market, combined with the sale of the portfolio securities
from its Confidential Account, may also create upward pressure on the
price of Shares and/or downward pressure on the price of portfolio
securities, driving the market price of Shares and the value of a
Fund's portfolio securities closer together. The Adviser represents
that it understands that, other than the confidential nature of the
account, this process is identical to how many Authorized Participants
currently arbitrage existing traditional ETFs.
    Because other market participants can also engage in arbitrage
activity without using the creation or redemption processes described
above, the Confidential Account structure will be made available to any
Non-Authorized Participant Market Maker that is willing to establish a
Confidential Account. In that case, if a market participant believes
that a Fund is overvalued relative to its underlying assets, the market
participant may sell short Shares and instruct its Trusted Agent to buy
portfolio securities in its Confidential Account, wait for the trading
prices to move toward parity, and then close out the positions in both
the Shares and the portfolio securities to realize a profit from the
relative movement of their trading prices. Similarly, a market
participant could buy Shares and instruct the Trusted Agent to sell the
underlying portfolio securities in an attempt to profit when a Fund's
Shares are trading at a discount to a Fund's underlying or reference
assets. Any investor that is willing to transact through a broker-
dealer that has established a Confidential Account with a Trusted Agent
will have the same opportunity to engage in arbitrage activity. As
discussed above, the trading of a Fund's Shares and the Fund's
portfolio securities may bring the prices of a Fund's Shares and its
portfolio assets closer together through market pressure. This type of
arbitrage is referred to herein as ``Bona Fide Arbitrage.''
    The Exchange understands that traders use statistical analysis to
derive correlations between different sets of instruments to identify
opportunities to buy or sell one set of instruments when it is
mispriced relative to the others. For Managed Portfolio Shares, market
makers, in addition to employing Bona Fide Arbitrage, may use the
knowledge of a Fund's means of achieving its investment objective, as
described in the applicable Fund registration statement, to construct a
hedging proxy for a Fund to manage a market maker's quoting risk in
connection with trading Fund Shares. Market makers can then conduct
statistical arbitrage between their hedging proxy (for example, the
Russell 1000 Index) and Shares of a Fund, buying and selling one
against the other over the course of the trading day. They will
evaluate how their proxy performed in comparison to the price of a
Fund's Shares, and use that analysis as well as knowledge of risk
metrics, such as volatility and turnover, to enhance their proxy
calculation to make it a more efficient hedge.
    Market makers not intending to utilize Bona Fide Arbitrage have
indicated to the Exchange that there will be sufficient data to run a
statistical analysis which will lead to spreads being tightened
substantially around the VIIV. This is similar to certain other
existing exchange traded products (for example, ETFs that invest in
foreign securities that do not trade during U.S. trading hours), in
which spreads may be generally wider in the early days of trading and
then narrow as market makers gain more confidence in their real-time
hedges.
Description of the Funds and the Trust
    The Shares of each Fund will be issued by Precidian ETF Trust II
(``Trust''), a statutory trust organized under the laws of the State of
Delaware and registered with the Commission as an open-end management
investment company.\12\ The investment adviser to the Trust will be
Precidian Funds LLC (the ``Adviser''). The Sub-Adviser to each of the
Funds will be ClearBridge Investments, LLC (the ``Sub-Adviser'' or
``ClearBridge'') Legg Mason Investor Services, LLC (the
``Distributor'') will serve as the distributor of each of the Fund's
Shares. All statements and representations made in this filing
regarding (a) the description of the portfolio or reference asset, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules shall constitute continued
listing requirements for listing the Shares on the Exchange.
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    \12\ The Trust will be registered under the 1940 Act. On April
4, 2017, the Trust filed a registration statement on Form N-1A
relating to the Funds (File No. 811-23246) (the ``Registration
Statement''). The Shares will not be listed on the Exchange until an
order (``Exemptive Order'') under the 1940 Act has been issued by
the Commission with respect to the Exemptive Application.
Investments made by the Funds will comply with the conditions set
forth in the Exemptive Order. The description of the operation of
the Trust and the Funds herein is based, in part, on the
Registration Statement.
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    As noted above, proposed Rule 14.11(k)(2)(E) provides that, if the

investment adviser to the Investment Company issuing Managed Portfolio
Shares is affiliated with a broker-dealer, or if any Trusted Agent is
registered as a broker-dealer or is affiliated with a broker-dealer,
such investment adviser or Trusted Agent will erect and maintain a
``fire wall'' between the investment adviser or Trusted Agent and (i)
personnel of the broker-dealer or broker-dealer affiliate, as
applicable, or (ii) the Authorized Participant or non-Authorized
Participant market maker, as applicable, with respect to access to
information concerning the composition and/or changes to such
Investment Company portfolio. 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.\13\ In addition, proposed Rule 14.11(k)(2)(E) 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 open-end fund's portfolio. Proposed Rule 14.11(k)(2)(E) is nearly
identical to Rule 14.11(i)(7), related to Managed Fund Shares, and
similar to Rule 14.11(c)(5)(A)(i), related to Index Fund Shares, except
that proposed Rule 14.11(k)(2)(E) relates to the establishment of a
``fire wall'' between the investment adviser and the broker-dealer as
applicable to an Investment Company's portfolio, not an underlying
benchmark index, as is the case with index-based funds. The Adviser is
not registered as a broker-dealer or affiliated with a broker-dealer.
The Sub-Adviser is not registered as a broker-dealer, but is affiliated
with a broker-dealer and has implemented a ``fire wall'' with respect
to such broker-dealer regarding access to information concerning the
composition and/or changes to a Fund's portfolio.
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    \13\ 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 the Sub-Adviser and their
respective related personnel will be 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 violations, 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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    In the event (a) the Adviser or Sub-Adviser becomes registered as a
broker-dealer or becomes 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 a fire wall with
respect to its relevant personnel or its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
    The portfolio for each Fund will consist primarily of long and/or
short positions in U.S. exchange-listed securities and shares issued by
other U.S. exchange-listed ETFs.\14\ All exchange-listed equity
securities in which the Funds will invest will be listed and traded on
U.S. national securities exchanges.
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    \14\ For purposes of describing the holdings of the Funds, ETFs
include Portfolio Depository Receipts (as described in Rule
14.11(b)); Index Fund Shares (as described in Rule 14.11(c)); and
Managed Fund Shares (as described in Rule 14.11(i)). The ETFs in
which a Fund will invest all will be listed and traded on national
securities exchanges. While the Funds may invest in inverse ETFs,
the Funds will not invest in leveraged (e.g., 2X, -2X, 3X or -3X)
ETFs
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Description of the Funds
ClearBridge Appreciation ETF
    The ClearBridge Appreciation ETF will seek to provide long-term
appreciation of shareholders' capital. The Fund will seek to achieve
its investment objective by investing primarily in U.S. exchange-listed
equity securities. The fund will typically invest in medium and large
capitalization companies, but may also invest in small capitalization
companies.
ClearBridge Large Cap ETF
    The ClearBridge Large Cap ETF will seek long-term capital
appreciation. The Fund will seek to achieve its investment objective by
taking long and possibly short positions in equity securities or groups
of equities that the portfolio managers believe will provide long term
capital appreciation. The Fund normally invests at least 80% of its net
assets (plus borrowings for investment purposes) in stocks included in
the Russell 1000 Index and ETFs that primarily invest in stocks in the
Russell 1000 Index. The Fund purchases securities that the Sub-Adviser
believes are undervalued, and sells short securities that it believes
are overvalued.
ClearBridge Mid Cap Growth ETF
    The ClearBridge Mid Cap Growth ETF will seek long-term growth of
capital. The Fund will seek to achieve its investment objective by
investing primarily in U.S. exchange-listed, publicly traded equity and
equity-related securities of U.S. companies or other instruments with
similar economic characteristics. The fund may invest in securities of
issuers of any market capitalization.
ClearBridge Select ETF
    The ClearBridge Select ETF will seek to provide long-term growth of
capital. The Fund will seek to achieve its investment objective by
investing primarily in U.S. exchange-listed, publicly traded equity and
equity-related securities of U.S. companies or other instruments with
similar economic characteristics. The fund may invest in securities of
issuers of any market capitalization.
ClearBridge All Cap Value ETF
    The ClearBridge All Cap Value ETF will seeks long-term capital
growth with current income as a secondary consideration. The Fund will
seek to achieve its investment objective by investing primarily in
common stocks and common stock equivalents, such as preferred stocks
and securities convertible into common stocks, of companies the Sub-
Adviser believes are undervalued in the marketplace. The Fund may
invest up to 25% of its net assets in equity securities of foreign
issuers through U.S. exchange-listed depositary receipts.
Other Investments
    While each Fund, under normal market conditions, will invest
primarily in U.S. exchange-listed securities, as described above, each
Fund may invest its remaining assets in other securities and financial
instruments, as described below.
    According to the Registration Statement, each Fund may enter into
repurchase agreements. It will be the policy of the Trust to enter into
repurchase agreements only with recognized securities dealers, banks
and Fixed Income Clearing Corporation, a securities clearing agency
registered with the Commission.

    Each Fund may invest up to 5% of its total assets in warrants,
rights and options.
    Each Fund may invest a portion of its assets in cash or cash
equivalents.\15\
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    \15\ For purposes of this filing, cash equivalents include
short-term instruments (instruments with maturities of less than 3
months) of the following types: (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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    Each Fund may invest in the securities of other investment
companies (including money market funds) to the extent allowed by law.
Investment Restrictions
    Each Fund may invest up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),\16\
consistent with Commission guidance. Each Fund will monitor its
portfolio liquidity on an ongoing basis to determine whether, in light
of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of a Fund's net assets are
invested in illiquid assets. Illiquid assets include securities subject
to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with
Commission staff guidance.\17\
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    \16\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer).
    \17\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act of 1933). The
Commission recently codified this long standing position in Rule
22e-4. See Investment Company Act Release No. 32315 (October 13,
2016), 81 FR 82142 (November 18, 2016) (adopting requirements for
investment company liquidity risk management programs).
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    According to the Registration Statement, each Fund will seek to
qualify for treatment as a Regulated Investment Company (``RIC'') under
the Internal Revenue Code.\18\
---------------------------------------------------------------------------

    \18\ 26 U.S.C. 851.
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    The Funds will not invest in securities listed on non-U.S.
exchanges.
    The Shares of each Fund will conform to the initial and continued
listing criteria under proposed Rule 14.11(k). The Funds will not
invest in futures, forwards or swaps.
    Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage. While a Fund may
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X,
-2X, 3X or -3X) ETFs.
Creations and Redemptions of Shares
    In connection with the creation and redemption of Creation Units
(defined below), the delivery or receipt of any portfolio securities
in-kind will be required to be effected through a separate confidential
brokerage account (i.e., a Confidential Account) with a Trusted
Agent,\19\ which will be a bank or broker-dealer such as JP Morgan
Chase, State Street Bank and Trust, or Bank of New York Mellon, for the
benefit of an Authorized Participant.\20\ An Authorized Participant
will generally be a Depository Trust Company (``DTC'') Participant that
has executed a ``Participant Agreement'' with the Distributor with
respect to the creation and redemption of Creation Units and formed a
Confidential Account for its benefit in accordance with the terms of
the Participant Agreement. For purposes of creations or redemptions,
all transactions will be effected through the respective Authorized
Participant's Confidential Account, for the benefit of the Authorized
Participant without disclosing the identity of such securities to the
Authorized Participant.
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    \19\ Each Authorized Participant shall enter into its own
separate Confidential Account with a Trusted Agent.
    \20\ In the event that a Trusted Agent is a bank, the bank will
be required to have an affiliated broker-dealer to accommodate the
execution of hedging transactions on behalf of the holder of a
Confidential Account.
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    Each Trusted Agent will be given, before the commencement of
trading each Business Day (defined below), both the holdings of a Fund
and their relative weightings for that day. This information will
permit an Authorized Participant, or other market participant that has
established a Confidential Account with a Trusted Agent, to instruct
the Trusted Agent to buy and sell positions in the portfolio securities
to permit Bona Fide Arbitrage, as defined above.
    Shares of each Fund will be issued in Creation Units of 25,000 or
more Shares. The Funds will offer and sell Creation Units through the
Distributor on a continuous basis at the NAV per Share next determined
after receipt of an order in proper form. The NAV per Share of each
Fund will be determined as of the close of regular trading on the New
York Stock Exchange (``NYSE'') on each day that the NYSE is open. A
``Business Day'' is defined as any day that the Trust is open for
business. The Funds will sell and redeem Creation Units only on
Business Days. Applicants anticipate that the initial price of a Share
will range from $20 to $30, and that the price of a Creation Unit will
initially range from $1,000,000 to $5,000,000.
    In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Accordingly, except where the
purchase or redemption will include cash under the circumstances
described in the Registration Statement, purchasers will be required to
purchase Creation Units by making an in-kind deposit of specified
instruments (``Deposit Instruments''), and shareholders redeeming their
Shares will receive an in-kind transfer of specified instruments
(``Redemption Instruments'').\21\ On any given Business Day, the names
and quantities of the instruments that constitute the Deposit
Instruments and the names and quantities of the instruments that
constitute the Redemption Instruments will be identical, and these
instruments may be referred to, in the case of either a purchase or a
redemption, as the ``Creation Basket.'' \22\
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    \21\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the 1933 Act.
    \22\ In determining whether a particular Fund will sell or
redeem Creation Units entirely on a cash or in-kind basis, whether
for a given day or a given order, the key consideration will be the
benefit that would accrue to a Fund and its investors. The Adviser
represents that the Funds do not currently anticipate the need to
sell or redeem Creation Units entirely on a cash basis.

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    As noted above, each Authorized Participant will be required to
establish a Confidential Account with a Trusted Agent and transact with
each Fund through that Confidential Account.\23\
---------------------------------------------------------------------------

    \23\ The Adviser represents that transacting through a
Confidential Account is similar to transacting through any broker-
dealer account, except that the Trusted Agent will be bound to keep
the names and weights of the portfolio securities confidential. To
comply with certain recordkeeping requirements applicable to
Authorized Participants, the Trusted Agent will maintain and
preserve, and make available to the Commission, certain required
records related to the securities held in the Confidential Account.
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    Therefore, before the commencement of trading on each Business Day,
the Trusted Agent of each Authorized Participant will be provided, on a
confidential basis, with a list of the names and quantities of the
instruments comprising a Creation Basket, as well as the estimated
Balancing Amount (if any), for that day. The published Creation Basket
will apply until a new Creation Basket is announced on the following
Business Day, and there will be no intra-day changes to the Creation
Basket except to correct errors in the published Creation Basket. The
instruments and cash that the purchaser is required to deliver in
exchange for the Creation Units it is purchasing are referred to as the
``Portfolio Deposit.''
Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous
basis at NAV. The Exchange represents that the issuance of Shares will
operate in a manner substantially similar to that of other ETFs.
    Each Fund will issue Shares only at the NAV per Share next
determined after an order in proper form is received. The Trust will
sell and redeem Shares on each such day and will not suspend the right
of redemption or postpone the date of payment or satisfaction upon
redemption for more than seven days, other than as provided by Section
22(d) of the 1940 Act.
    Shares may be purchased from a Fund by an Authorized Participant
for its own account or for the benefit of a customer. The Distributor
will furnish acknowledgements to those placing such orders that the
orders have been accepted, but the Distributor may reject any order
which is not submitted in proper form, as described in a Fund's
prospectus or Statement of Additional Information (``SAI''). Purchases
of Shares will be settled in-kind or cash for an amount equal to the
applicable NAV per Share purchased plus applicable ``Transaction
Fees,'' as discussed below.
    The NAV of each Fund is expected to be determined once each
Business Day at a time determined by the Trust's Board of Directors
(``Board''), currently anticipated to be as of the close of the regular
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the
``Valuation Time''). Each Fund will establish a cut-off time (``Order
Cut-Off Time'') for purchase orders in proper form. To initiate a
purchase of Shares, an Authorized Participant must submit to the
Distributor an irrevocable order to purchase such Shares after the most
recent prior Valuation Time but not later than the Order Cut-Off Time.
The Order Cut-Off Time for a Fund may be its Valuation Time, or may be
prior to the Valuation Time if the Board determines that an earlier
Order Cut-Off Time for purchase of Shares is necessary and is in the
best interests of Fund shareholders.
    All orders to purchase Creation Units must be received by the
Distributor no later than the scheduled closing time of the regular
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) in each case on
the date such order is placed (``Transmittal Date'') in order for the
purchaser to receive the NAV per Share determined on the Transmittal
Date. In the case of custom orders, the order must be received by the
Distributor, no later than 3:00 p.m. E.T., or such earlier time as may
be designated by the Funds and disclosed to Authorized
Participants.\24\ The Distributor will maintain a record of Creation
Unit purchases and will send out confirmations of such purchases.\25\
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    \24\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis, as provided in the
Registration Statement.
    \25\ A Trusted Agent will provide information related to
creations and redemption of Creation Units to the Financial Industry
Regulatory Authority (``FINRA'') upon request.
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Transaction Fees
    The Trust may impose purchase or redemption transaction fees
(``Transaction Fees'') in connection with the purchase or redemption of
Shares from the Funds. The exact amounts of any such Transaction Fees
will be determined by the Adviser. The purpose of the Transaction Fees
is to protect the continuing shareholders against possible dilutive
transactional expenses, including operational processing and brokerage
costs, associated with establishing and liquidating portfolio
positions, including short positions, in connection with the purchase
and redemption of Shares.
Purchases of Shares--Secondary Market
    Only Authorized Participants and their customers will be able to
acquire Shares at NAV directly from a Fund through the Distributor. The
required payment must be transferred in the manner set forth in a
Fund's SAI by the specified time on the third DTC settlement day
following the day it is transmitted (the ``Transmittal Date''). These
investors and others will also be able to purchase Shares in secondary
market transactions at prevailing market prices. Each Fund will reserve
the right to reject any purchase order at any time.
Redemption
    Beneficial Owners may sell their Shares in the secondary market.
Alternatively, investors that own enough Shares to constitute a
Redemption Unit (currently, 25,000 Shares) or multiples thereof may
redeem those Shares through the Distributor, which will act as the
Trust's representative for redemption. The size of a Redemption Unit
will be subject to change. Redemption orders for Redemption Units or
multiples thereof must be placed by or through an Authorized
Participant.
Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or
multiples thereof as described below. Redemption orders of Redemption
Units must be placed by or through an Authorized Participant (``AP
Redemption Order''). Each Fund will establish an Order Cut-Off Time for
redemption orders of Redemption Units in proper form. Redemption Units
of the Fund will be redeemable at their NAV per Share next determined
after receipt of a request for redemption by the Trust in the manner
specified below before the Order Cut-Off Time. To initiate an AP
Redemption Order, an Authorized Participant must submit to the
Distributor an irrevocable order to redeem such Redemption Unit after
the most recent prior Valuation Time but not later than the Order Cut-
Off Time. The Order Cut-Off Time for a Fund may be its Valuation Time,
or may be prior to the Valuation Time if the Board determines that an
earlier Order Cut-Off Time for redemption of Redemption Units is
necessary and is in the best interests of Fund shareholders.
    Consistent with the provisions of Section 22(e) of the 1940 Act and
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor
payment upon redemption delayed, except for: (1) Any period during
which the NYSE is closed other than customary weekend

and holiday closings, (2) any period during which trading on the NYSE
is restricted, (3) any period during which an emergency exists as a
result of which disposal by a Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for a Fund
to determine its NAV, and (4) for such other periods as the Commission
may by order permit for the protection of shareholders.
    Redemptions will occur primarily in-kind, although redemption
payments may also be made partly or wholly in cash.\26\ The Participant
Agreement signed by each Authorized Participant will require
establishment of a Confidential Account to receive distributions of
securities in-kind upon redemption.\27\ Each Authorized Participant
will be required to open a Confidential Account with a Trusted Agent in
order to facilitate orderly processing of redemptions. While a Fund
will generally distribute securities in-kind, the Adviser may determine
from time to time that it is not in a Fund's best interests to
distribute securities in-kind, but rather to sell securities and/or
distribute cash. For example, the Adviser may distribute cash to
facilitate orderly portfolio management in connection with rebalancing
or transitioning a portfolio in line with its investment objective, or
if there is substantially more creation than redemption activity during
the period immediately preceding a redemption request, or as necessary
or appropriate in accordance with applicable laws and regulations. In
this manner, a Fund can use in-kind redemptions to reduce the
unrealized capital gains that may, at times, exist in a Fund by
distributing low cost lots of each security that a Fund needs to
dispose of to maintain its desired portfolio exposures. Shareholders of
a Fund would benefit from the in-kind redemptions through the reduction
of the unrealized capital gains in a Fund that would otherwise have to
be realized and, eventually, distributed to shareholders.
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    \26\ It is anticipated that any portion of a Fund's NAV
attributable to appreciated short positions will be paid in cash, as
securities sold short are not susceptible to in-kind settlement. The
value of other positions not susceptible to in-kind settlement may
also be paid in cash.
    \27\ The terms of each Confidential Account will be set forth as
an exhibit to the applicable Participant Agreement, which will be
signed by each Authorized Participant. The terms of the Confidential
Account will provide that the trust be formed under applicable state
laws; the Custodian may act as Trusted Agent of the Confidential
Account; and the Trusted Agent will be paid by the Authorized
Participant a fee negotiated directly between the Authorized
Participants and the Trusted Agent(s).
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    The redemption basket will consist of the same securities for all
Authorized Participants on any given day subject to the Adviser's
ability to make minor adjustments to address odd lots, fractional
shares, tradeable sizes or other situations.
    After receipt of a Redemption Order, a Fund's custodian
(``Custodian'') will typically deliver securities to the Confidential
Account on a pro rata basis (which securities are determined by the
Adviser) with a value approximately equal to the value of the Shares
\28\ tendered for redemption at the Cut-Off time. The Custodian will
make delivery of the securities by appropriate entries on its books and
records transferring ownership of the securities to the Authorized
Participant's Confidential Account, subject to delivery of the Shares
redeemed. The Trusted Agent of the Confidential Account will in turn
liquidate, hedge or otherwise manage the securities based on
instructions from the Authorized Participant.\29\ If the Trusted Agent
is instructed to sell all securities received at the close on the
redemption date, the Trusted Agent will pay the liquidation proceeds
net of expenses plus or minus any cash balancing amount to the
Authorized Participant through DTC.\30\ The redemption securities that
the Confidential Account receives is expected to mirror the portfolio
holdings of a Fund pro rata. To the extent a Fund distributes portfolio
securities through an in-kind distribution to more than one
Confidential Account for the benefit of that account's Authorized
Participant, each Fund expects to distribute a pro rata portion of the
portfolio securities selected for distribution to each redeeming
Authorized Participant.
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    \28\ If the NAV of the Shares redeemed differs from the value of
the securities delivered to the applicable Confidential Account, the
Fund will pay a cash balancing amount to compensate for the
difference between the value of the securities delivered and the
NAV.
    \29\ An Authorized Participant will issue execution instructions
to the Trusted Agent and be responsible for all associated profit or
losses. Like a traditional ETF, the Authorized Participant has the
ability to sell the basket securities at any point during normal
trading hours.
    \30\ Under applicable provisions of the Internal Revenue Code,
the Authorized Participant is expected to be deemed a ``substantial
owner'' of the Confidential Account because it receives
distributions from the Confidential Account. As a result, all
income, gain or loss realized by the Confidential Account will be
directly attributed to the Authorized Participant. In a redemption,
the Authorized Participant will have a basis in the distributed
securities equal to the fair market value at the time of the
distribution and any gain or loss realized on the sale of those
Shares will be taxable income to the Authorized Participant.
---------------------------------------------------------------------------

    If the Authorized Participant would receive a security that it is
restricted from receiving, a Fund will deliver cash equal to the value
of that security.
    To address odd lots, fractional shares, tradeable sizes or other
situations where dividing securities is not practical or possible, the
Adviser may make minor adjustments to the pro rata portion of portfolio
securities selected for distribution to each redeeming Authorized
Participant on such Business Day.
    The Trust will accept a Redemption Order in proper form. A
Redemption Order is subject to acceptance by the Trust and must be
preceded or accompanied by an irrevocable commitment to deliver the
requisite number of Shares. At the time of settlement, an Authorized
Participant will initiate a delivery of the Shares versus subsequent
payment against the proceeds, if any, of the sale of portfolio
securities distributed to the applicable Confidential Account plus or
minus any cash balancing amounts, and less the expenses of liquidation.
Net Asset Value
    The NAV per Share of a Fund will be computed by dividing the value
of the net assets of a Fund (i.e. the value of its total assets less
total liabilities) by the total number of Shares of a Fund outstanding,
rounded to the nearest cent. Expenses and fees, including, without
limitation, the management, administration and distribution fees, will
be accrued daily and taken into account for purposes of determining
NAV. Interest and investment income on the Trust's assets accrue daily
and will be included in the Fund's total assets. The NAV per Share for
a Fund will be calculated by a Fund's administrator (``Administrator'')
and determined as of the close of the regular trading session on the
NYSE (ordinarily 4:00 p.m., E.T.) on each day that the NYSE is open.
    Shares of exchange-listed equity securities and exchange listed
options will be valued at market value, which will generally be
determined using the last reported official closing or last trading
price on the exchange or market on which the securities are primarily
traded at the time of valuation. Repurchase agreements will be valued
based on price quotations or other equivalent indications of value
provided by a third-party pricing service. Money market funds will be
valued based on price quotations or other equivalent indications of
value provided by a third-party pricing service. Cash equivalents

will generally be valued on the basis of independent pricing services
or quotes obtained from brokers and dealers. Options not listed on an
exchange, rights and warrants will be valued based on price quotations
or other equivalent indications of value provided by a third-party
pricing service.
    When last sale prices and market quotations are not readily
available, are deemed unreliable or do not reflect material events
occurring between the close of local markets and the time of valuation,
investments will be valued using fair value pricing as determined in
good faith by the Adviser under procedures established by and under the
general supervision and responsibility of the Trust's Board of
Trustees. Investments that may be valued using fair value pricing
include, but are not limited to: (1) Securities that are not actively
traded; (2) securities of an issuer that becomes bankrupt or enters
into a restructuring; and (3) securities whose trading has been halted
or suspended.
    The frequency with which each Fund's investments will be valued
using fair value pricing will primarily be a function of the types of
securities and other assets in which the respective Fund will invest
pursuant to its investment objective, strategies and limitations. If
the Funds invest in open-end management investment companies registered
under the 1940 Act (other than ETFs), they may rely on the NAVs of
those companies to value the shares they hold of them.
    Valuing the Funds' investments using fair value pricing involves
the consideration of a number of subjective factors and thus the prices
for those investments may differ from current market valuations.
Accordingly, fair value pricing could result in a difference between
the prices used to calculate NAV and the prices used to determine a
Fund's VIIV, which could result in the market prices for Shares
deviating from NAV. In cases where the fair value price of the security
is materially different from the pricing data provided by the
independent pricing sources and the Adviser determined that the ongoing
pricing information is not likely to be reliable, the fair value will
be used for calculation of the VIIV, and a Fund's Custodian will be
instructed to disclose the identity and weight of the fair valued
securities, as well as the fair value price being used for the
security.
Availability of Information
    The Funds' Web site (www.precidianfunds.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the prospectus for each Fund that may be downloaded. The
Funds' Web site will include additional quantitative information
updated on a daily basis, including, for each Fund, (1) daily trading
volume, the prior Business Day's reported closing price, NAV and mid-
point of the bid/ask spread at the time of calculation of such NAV (the
``Bid/Ask Price''),\31\ and a calculation of the premium and discount
of the Bid/Ask Price against the NAV, and (2) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid/Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters. The Web site and
information will be publicly available at no charge.
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    \31\ The Bid/Ask Price of a Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of a Fund's NAV. The records relating to
Bid/Ask Prices will be retained by each Fund and its service
providers.
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    As noted above, a mutual fund is required to file with the
Commission its complete portfolio schedules for the second and fourth
fiscal quarters on Form N-CSR under the 1940 Act, and is required to
file its complete portfolio schedules for the first and third fiscal
quarters on Form N-Q under the 1940 Act, within 60 days of the end of
the quarter. Form N-Q requires funds to file the same schedules of
investments that are required in annual and semi-annual reports to
shareholders. The Trust's SAI and each Fund's shareholder reports will
be available free upon request from the Trust. These documents and
forms may be viewed on-screen or downloaded from the Commission's Web
site at www.sec.gov.
    Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Updated price information for U.S. exchange-
listed equity securities is available through major market data vendors
or securities exchanges trading such securities. The intraday, closing
and settlement prices of money market funds, repurchase agreements,
reverse repurchase agreements and cash equivalents will be readily
available from published or other public sources, or major market data
vendors such as Bloomberg and Thomson Reuters. The NAV of any
investment company security investment will be readily available on the
Web site of the relevant investment company and from major market data
vendors. Quotation and last sale information for the Shares will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. In addition, the VIIV, as defined in proposed Rule 14.11(k)(3)(B)
and as described further below, will be widely disseminated by one or
more major market data vendors at least every second during Regular
Trading Hours.
Dissemination of the Verified Intraday Indicative Value
    The VIIV, which is approximate value of each Fund's investments on
a per Share basis, will be disseminated at least every second during
Regular Trading Hours. The VIIV should not be viewed as a ``real-time''
update of NAV because the VIIV may not be calculated in the same manner
as NAV, which is computed once per day.
    The Exchange will disseminate the VIIV for each Fund in at least
one-second intervals during Regular Trading Hours, through the
facilities of the CTA. The VIIV is essentially an intraday NAV
calculation at least every second during Regular Trading Hours. Each
Fund will adopt procedures governing the calculation of the VIIV and
will bear responsibility for the accuracy of its calculation. Pursuant
to those procedures, the VIIV will include all accrued income and
expenses of a Fund and will assure that any extraordinary expenses
booked during the day that would be taken into account in calculating a
Fund's NAV for that day are also taken into account in calculating the
VIIV. For purposes of the VIIV, securities held by a Fund will be
valued throughout the day based on the mid-point between the
disseminated current national best bid and offer. The Adviser
represents that, by utilizing the mid-point pricing for purposes of
VIIV calculation, stale prices are eliminated and more accurate
representation of the real time value of the underlying securities is
provided to the market. Specifically, quotations based on the mid-point
of bid/ask spreads more accurately reflect current market sentiment by
providing real time information on where market participants are
willing to buy or sell securities at that point in time. Using
quotations rather than last sale information addresses concerns
regarding the staleness of pricing information of less actively traded
securities. Because quotations are updated more frequently than last
sale information especially for inactive securities, the VIIV will be
based on more current and accurate information.

The use of quotations will also dampen the impact of any momentary
spikes in the price of a portfolio security.
    Each Fund will utilize two independent pricing sources to provide
two independent sources of pricing information. Each Fund will also
utilize a ``Pricing Verification Agent'' and establish a computer-based
protocol that will permit the Pricing Verification Agent to
continuously compare the two data streams from the independent pricing
agents sources on a real time basis.\32\ A single VIIV will be
disseminated publicly for each Fund; however, the Pricing Verification
Agent will continuously compare the public VIIV against a non-public
alternative intra-day indicative value to which the Pricing
Verification Agent has access. If it becomes apparent that there is a
material discrepancy between the two data streams, the Exchange will be
notified and have the ability to halt trading in a Fund until the
discrepancy is resolved. Each Fund's Board will review the procedures
used to calculate the VIIV and maintain its accuracy as appropriate,
but not less than annually. The specific methodology for calculating
the VIIV will be disclosed on each Fund's Web site.
---------------------------------------------------------------------------

    \32\ A Fund's Custodian will provide, on a daily basis, the
constituent basket file comprised of all securities plus any cash to
the independent pricing agent(s) for purposes of pricing.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Funds. The Exchange will halt trading in
the Shares under the conditions specified in BZX Rule 11.18. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable, including
whether unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Trading in the
Shares also will be subject to proposed Rule 14.11(k)(4)(B)(iii), which
sets forth circumstances under which Shares of the Funds may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the Exchange only during Regular Trading Hours as provided in proposed
Rule 14.11(k)(2)(B). As provided in BZX Rule 11.11(a), the minimum
price variation for quoting and entry of orders in securities traded on
the Exchange is $0.01, with the exception of securities that are priced
less than $1.00, for which the minimum price variation for order entry
is $0.0001.
    The Shares will conform to the initial and continued listing
criteria under Rule 14.11(k). The Exchange represents that, for initial
and/or continued listing, each Fund will be in compliance with Rule
10A-3 under the Act.\33\ A minimum of 100,000 Shares of each Fund will
be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
each Fund that the NAV per Share of each Fund will be calculated daily
and will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \33\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Managed Portfolio Shares.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by a Fund to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If a Fund is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under Exchange Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, underlying
stocks, ETFs, and exchange-listed options with other markets and other
entities that are members of the Intermarket Surveillance Group
(``ISG''), and the Exchange or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading such securities
from such markets and other entities. In addition, the Exchange may
obtain information regarding trading in the Shares, underlying stocks,
ETFs, and exchange-listed options from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\34\
---------------------------------------------------------------------------

    \34\ For a list of the current members of ISG, see
www.isgportal.org.
---------------------------------------------------------------------------

    The Funds' Adviser will make available daily to FINRA and the
Exchange the portfolio holdings of each Fund in order to facilitate the
performance of the surveillances referred to above.
    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular (``Circular'') of the special
characteristics and risks associated with trading the Shares.
Specifically, the Circular will discuss the following: (1) The
procedures for purchases and redemptions of Shares; (2) BZX Rule 3.7,
which imposes suitability obligations on Exchange members with respect
to recommending transactions in the Shares to customers; (3) how
information regarding the VIIV is disseminated; (4) the requirement
that members deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (5) trading information.
    In addition, the Circular will reference that the Funds are subject
to various fees and expenses described in the Registration Statement.
The Circular will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Circular will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act \35\ in general and Section 6(b)(5) of the Act \36\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, 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.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f.
    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.11(k) is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading of

Managed Portfolio Shares provide specific initial and continued listing
criteria required to be met by such securities. Proposed Rule
14.11(k)(4) sets forth initial and continued listing criteria
applicable to Managed Portfolio Shares. Proposed Rule 14.11(k)(A)
provides that, for each series of Managed Portfolio Shares, the
Exchange will establish a minimum number of Managed Portfolio Shares
required to be outstanding at the time of commencement of trading. In
addition, the Exchange will obtain a representation from the issuer of
each series of Managed Portfolio Shares that the NAV per share for the
series will be calculated daily and that the NAV will be made available
to all market participants at the same time. Proposed Rule
14.11(k)(4)(B) provides that each series of Managed Portfolio Shares
will be listed and traded subject to application of the specified
continued listing criteria, as described above. Proposed Rule
14.11(k)(4)(B)(i) provides that the VIIV for Managed Portfolio Shares
will be widely disseminated by one or more major market data vendors at
least every second during Regular Trading Hours. Proposed Rule
14.11(k)(4)(B)(iii) provides that, upon notification to the Exchange by
the Investment Company or its agent that (i) the prices from the
multiple independent pricing sources to be validated by the Investment
Company's pricing verification agent differ by more than 25 basis
points for 60 seconds in connection with pricing of the VIIV, or (ii)
that the VIIV of a series of Managed Portfolio Shares is not being
priced and disseminated in at least one-second intervals, as required,
the Exchange shall halt trading in the Managed Portfolio Shares as soon
as practicable. Such halt in trading shall continue until the
Investment Company or its agent notifies the Exchange that the prices
from the independent pricing sources no longer differ by more than 25
basis points for 60 seconds or that the VIIV is being priced and
disseminated as required. Proposed Rule 14.11(k)(2)(E) provides that,
if the investment adviser to the Investment Company issuing Managed
Portfolio Shares is affiliated with a broker-dealer, or if any Trusted
Agent is registered as a broker-dealer or is affiliated with a broker-
dealer, such investment adviser or Trusted Agent will erect and
maintain a ``fire wall'' between the investment adviser or Trusted
Agent and (i) personnel of the broker-dealer or broker-dealer
affiliate, as applicable, or (ii) the Authorized Participant or non-
Authorized Participant market maker, as applicable, with respect to
access to information concerning the composition and/or changes to such
Investment Company portfolio. 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 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.
    With respect to the proposed listing and trading of Shares of the
Funds, the Exchange believes that the proposed rule change is designed
to prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Rule 14.11(k). Price
information for the exchange-listed equity securities held by the Funds
will be available through major market data vendors or securities
exchanges listing and trading such securities. All exchange-listed
equity securities held by the Funds will be listed on U.S. national
securities exchanges. The listing and trading of such securities is
subject to rules of the exchanges on which they are listed and traded,
as approved by the Commission. The Funds will primarily hold U.S.
exchange-listed securities or ETFs. Further, the Funds will not invest
in futures or swaps. A Fund's investments will be consistent with its
respective investment objective and will not be used to enhance
leverage. The Funds will not invest in securities listed on non-U.S.
exchanges. The Exchange or FINRA, on behalf of the Exchange, or both,
will communicate as needed regarding trading in the Shares, underlying
stocks, ETFs, and exchange-listed options with other markets and other
entities that are members of the ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading such securities from such markets and other entities.
In addition, the Exchange may obtain information regarding trading in
the Shares, underlying stocks, ETFs, and exchange-listed options from
markets and other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement. A
Trusted Agent will provide information related to creations and
redemption of Creation Units to FINRA upon request. The Funds' Adviser
will make available daily to FINRA and the Exchange the portfolio
holdings of each Fund in order to facilitate the performance of the
surveillances referred to above.
    The Exchange, after consulting with various Lead Market Makers that
trade exchange-traded funds (``ETFs'') on the Exchange, believes that
market makers will be able to make efficient and liquid markets priced
near the VIIV as long as a VIIV is disseminated at least every second,
market makers have knowledge of a Fund's means of achieving its
investment objective, and market makers are permitted to engage in
``Bona Fide Arbitrage,'' as described below. The Exchange believes that
market makers will employ Bona Fide Arbitrage in addition to risk-
management techniques such as ``statistical arbitrage,'' which is
currently used throughout the financial services industry, to make
efficient markets in exchange-traded products.\37\ This ability should
permit market makers to make efficient markets in shares without
precise knowledge of a fund's underlying portfolio.
---------------------------------------------------------------------------

    \37\ See note 9, supra.
---------------------------------------------------------------------------

    The Exchange understands that traders, in addition to employing
Bona Fide Arbitrage, use statistical analysis to derive correlations
between different sets of instruments to identify opportunities to buy
or sell one set of instruments when it is mispriced relative to the
others. For Managed Portfolio Shares, market makers utilizing
statistical arbitrage use the knowledge of a fund's means of achieving
its investment objective, as described in the applicable fund
registration statement, to construct a hedging proxy for a fund to
manage a market maker's quoting risk in connection with trading fund
shares. Market makers will then conduct statistical arbitrage between
their hedging proxy (for example, the Russell 1000 Index) and shares of
a fund, buying and selling one against the other over the course of the
trading day. Eventually, at the end of each day, they will evaluate how
their proxy performed in comparison to the price of a fund's shares,
and use that analysis as well as knowledge of risk metrics, such as
volatility and turnover, to enhance their proxy calculation to make it
a more efficient hedge.
    Market makers not intending to utilize Bona Fide Arbitrage have
indicated to the Exchange that there will be sufficient data to run a
statistical analysis which will lead to spreads

being tightened substantially around the VIIV. This is similar to
certain other existing exchange traded products (for example, ETFs that
invest in foreign securities that do not trade during U.S. trading
hours), in which spreads may be generally wider in the early days of
trading and then narrow as market makers gain more confidence in their
real-time hedges.
    The Lead Market Makers also indicated that, as with some other new
exchange- traded products, spreads may be generally wider in the early
days of trading and would tend to narrow as market makers gain more
confidence in the accuracy of their hedges and their ability to adjust
these hedges in real-time relative to the published VIIV and gain an
understanding of the applicable market risk metrics such as volatility
and turnover, and as natural buyers and sellers enter the market. Other
relevant factors cited by Lead Market Makers were that a fund's
investment objectives are clearly disclosed in the applicable
prospectus, the existence of quarterly portfolio disclosure, the
capacity to engage in Bona Fide Arbitrage and the ability to create
shares in creation unit size.
    The Commission's concept release regarding ``Actively Managed
Exchange- Traded Funds'' highlighted several issues that could impact
the Commission's willingness to authorize the operation of an actively-
managed ETF, including whether effective arbitrage of the ETF shares
exists.\38\ The Concept Release identifies the transparency of a fund's
portfolio and the liquidity of the securities in a fund's portfolio as
central to effective arbitrage. With respect to the Funds, the Funds'
use of U.S. exchange-listed securities and the ability of market makers
to engage in Bona Fide Arbitrage provide adequate liquidity as well as
the ability to engage in riskless arbitrage. Additionally, certain
existing ETFs with portfolios of foreign securities have shown their
ability to trade efficiently in the secondary market at approximately
their NAV even though they do not provide opportunities for riskless
arbitrage transactions during much of the trading day.\39\ Such ETFs
have been shown to have pricing characteristics very similar to ETFs
that can be arbitraged in this manner. For example, Index ETFs
containing securities that trade during different trading hours than
the ETF, such as Index ETFs that hold Asian stocks, have demonstrated
efficient pricing characteristics notwithstanding the inability of
market professionals to engage in ``riskless arbitrage'' with respect
to the underlying portfolio for most, or even all, of the U.S. trading
day when Asian markets are closed. Pricing for shares of such ETFs is
efficient because market professionals are still able to hedge their
positions with offsetting, correlated positions in derivative
instruments during the entire trading day.
---------------------------------------------------------------------------

    \38\ See Investment Company Act Release No. 25258 (November 8,
2001) (the ``Concept Release'').
    \39\ The Adviser represents that the mechanics of arbitrage and
hedging differ. Prior Rule 10a-1 and Regulation T under the Act both
describe arbitrage as either buying and selling the same security in
two different markets or buying and selling two different
securities, one of which is convertible into the other. This is also
known as a ``riskless arbitrage'' transaction in that the
transaction is risk free since it generally consists of buying an
asset at one price and simultaneously selling that same asset at a
higher price, thereby generating a profit on the difference.
Hedging, on the other hand, involves managing risk by purchasing or
selling a security or instrument that will track or offset the value
of another security or instrument. Arbitrage and hedging are both
used to manage risk; however, they involve different trading
strategies.
---------------------------------------------------------------------------

    The real-time dissemination of a fund's VIIV and the ability for
market makers to engage in riskless arbitrage through the Bona Fide
Arbitrage mechanism together with the right of Authorized Participants
to create and redeem each day at the NAV will be sufficient for market
participants to value and trade shares in a manner that will not lead
to significant deviations between the shares' Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed
Portfolio Shares will generally rest on the ability of market
participants to arbitrage between the shares and a fund's portfolio, in
addition to the ability of market participants to assess a fund's
underlying value accurately enough throughout the trading day in order
to hedge positions in shares effectively. Professional traders not
employing Bona Fide Arbitrage can buy shares that they perceive to be
trading at a price less than that which will be available at a
subsequent time, and sell shares they perceive to be trading at a price
higher than that which will be available at a subsequent time. It is
expected that, as part of their normal day-to-day trading activity,
market makers assigned to shares by the Exchange, off-exchange market
makers, firms that specialize in electronic trading, hedge funds and
other professionals specializing in short-term, non-fundamental trading
strategies will assume the risk of being ``long'' or ``short'' shares
through such trading and will hedge such risk wholly or partly by
simultaneously taking positions in correlated assets \40\ or by netting
the exposure against other, offsetting trading positions--much as such
firms do with existing ETFs and other equities. Disclosure of a fund's
investment objective and principal investment strategies in its
prospectus and SAI, along with the dissemination of the VIIV every
second, should permit professional investors to engage easily in this
type of hedging activity.\41\
---------------------------------------------------------------------------

    \40\ Price correlation trading is used throughout the financial
industry. It is used to discover both trading opportunities to be
exploited, such as currency pairs and statistical arbitrage, as well
as for risk mitigation such as dispersion trading and beta hedging.
These correlations are a function of differentials, over time,
between one or multiple securities pricing. Once the nature of these
price deviations have been quantified, a universe of securities is
searched in an effort to, in the case of a hedging strategy,
minimize the differential. Once a suitable hedging basket has been
identified, a trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the performance of this
hedge throughout the trade period, making corrections where
warranted.
    \41\ With respect to trading in Shares of the Funds, market
participants would manage risk in a variety of ways. In addition to
Bona Fide Arbitrage, it is expected that market participants will be
able to determine how to trade Shares at levels approximating the
VIIV without taking undue risk by gaining experience with how
various market factors (e.g., general market movements, sensitivity
of the VIIV to intraday movements in interest rates or commodity
prices, etc.) affect VIIV, and by finding hedges for their long or
short positions in Shares using instruments correlated with such
factors. The Adviser expects that market participants will initially
determine the VIIV's correlation to a major large capitalization
equity benchmark with active derivative contracts, such as the
Russell 1000 Index, and the degree of sensitivity of the VIIV to
changes in that benchmark. For example, using hypothetical numbers
for illustrative purposes, market participants should be able to
determine quickly that price movements in the Russell 1000 Index
predict movements in a Fund's VIIV 95% of the time (an acceptably
high correlation) but that the VIIV generally moves approximately
half as much as the Russell 1000 Index with each price movement.
This information is sufficient for market participants to construct
a reasonable hedge--buy or sell an amount of futures, swaps or ETFs
that track the Russell 1000 equal to half the opposite exposure
taken with respect to Shares. Market participants will also
continuously compare the intraday performance of their hedge to a
Fund's VIIV. If the intraday performance of the hedge is correlated
with the VIIV to the expected degree, market participants will feel
comfortable they are appropriately hedged and can rely on the VIIV
as appropriately indicative of a Fund's performance.
---------------------------------------------------------------------------

    With respect to trading of Shares of the Funds, the ability of
market participants to buy and sell Shares at prices near the VIIV is
dependent upon their assessment that the VIIV is a reliable, indicative
real-time value for a Fund's underlying holdings. Market participants
are expected to accept the VIIV as a reliable, indicative real-time
value because (1) the VIIV will be calculated and disseminated based on
a Fund's actual portfolio holdings, (2) the securities in which the
Funds plan to invest are generally highly liquid and actively traded
and therefore generally have accurate real time pricing

available, and (3) market participants will have a daily opportunity to
evaluate whether the VIIV at or near the close of trading is indeed
predictive of the actual NAV.
    The real-time dissemination of a Fund's VIIV, the ability for
market makers to engage in riskless arbitrage through the Bona Fide
Arbitrage mechanism, together with the ability of Authorized
Participants to create and redeem each day at the NAV, will be crucial
for market participants to value and trade Shares in a manner that will
not lead to significant deviations between the Shares' Bid/Ask Price
and NAV.\42\
---------------------------------------------------------------------------

    \42\ The statements in the Statutory Basis section of this
filing relating to pricing efficiency, arbitrage, and activities of
market participants, including market makers and Authorized
Participants, are based on representations by the Adviser and review
by the Exchange.
---------------------------------------------------------------------------

    In a typical Index ETF, it is standard for Authorized Participants
to know what securities must be delivered in a creation or will be
received in a redemption. For Managed Portfolio Shares, however,
Authorized Participants do not need to know the securities comprising
the portfolio of a Fund since creations and redemptions are handled
through the Confidential Account mechanism. The Adviser represents that
the in-kind creations and redemptions through a Confidential Account
will preserve the integrity of the active investment strategy and
eliminate the potential for ``free riding'' or ``front-running,'' while
still providing investors with the advantages of the ETF structure.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of an
issue of Managed Portfolio Shares that the NAV per share of a fund will
be calculated daily and that the NAV will be made available to all
market participants at the same time. Investors can also obtain a
fund's SAI, shareholder reports, and its Form N-CSR, Form N-Q and Form
N-SAR. A fund's SAI and shareholder reports will be available free upon
request from the applicable fund, and those documents and the Form N-
CSR, Form N-Q and Form N-SAR may be viewed on-screen or downloaded from
the Commission's Web site. In addition, with respect to the Funds, a
large amount of information will be publicly available regarding the
Funds and the Shares, thereby promoting market transparency. Quotation
and last sale information for the Shares will be available via the CTA
high-speed line. Information regarding the VIIV will be widely
disseminated at least every second throughout Regular Trading Hours by
one or more major market data vendors. The Web site for the Funds will
include a form of the prospectus for the Funds that may be downloaded,
and additional data relating to NAV and other applicable quantitative
information, updated on a daily basis.
    Moreover, prior to the commencement of trading, the Exchange will
inform its members in a Circular of the special characteristics and
risks associated with trading the Shares. The Exchange will halt
trading in the Shares under the conditions specified in BZX Rule 11.18,
market conditions, or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. Trading in the Shares will be
subject to proposed Rule 14.11(k)(4)(B)(iii), which sets forth
circumstances under which Shares of the Funds will be halted. In
addition, as noted above, investors will have ready access to the VIIV,
and quotation and last sale information for the Shares. The Shares will
conform to the initial and continued listing criteria under proposed
Rule 14.11(k). The Funds will not invest in futures, forwards or swaps.
Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage. While a Fund may
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X,
-2X, 3X or -3X) ETFs.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the VIIV and quotation
and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes the
proposed rule change would permit listing and trading of another type
of actively-managed ETF that has characteristics different from
existing actively-managed and Index ETFs, and would introduce
additional competition among various ETF products to the benefit of
investors.

(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 self-regulatory organization 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_ADDRESS>Please include
File Number SR-BatsBZX-2017-30 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-2017-30. 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-2017-30 and should be submitted on or before July 10, 2017.
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    \43\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12583 Filed 6-16-17; 8:45 am]
 BILLING CODE 8011-01-P