CHICAGO STOCK EXCHANGE, INC. MARKET REGULATION DEPARTMENT INFORMATION CIRCULAR

Transcription

1 April 29, 2015 ETF CHICAGO STOCK EXCHANGE, INC. MARKET REGULATION DEPARTMENT INFORMATION CIRCULAR RE: RECON CAPITAL FTSE 100 ETF TO BEGIN TRADING ON CHX Pursuant to Information Circular MR 08-16, the Chicago Stock Exchange, Inc. ( CHX or the Exchange ) is issuing this Information Circular to advise that the following securities have been approved for trading on the Exchange as a UTP derivative securities product pursuant to Exchange Article 22, Rule 6: Security Symbol Security: (the Shares ) Recon Capital FTSE 100 ETF UK Commencement of Trading: April 30, 2015 Issuer: ETF Series Trust ( Trust ) Website: Primary Listing Exchange: Nasdaq Primary Exchange Circular: Issuer Registration Statement: and The purpose of this information circular is to outline various rules and policies that will be applicable to trading in this new product pursuant to the Exchange s unlisted trading privileges, as well as to provide certain characteristics and features of the Shares. For a more complete description of the Issuer, the Shares and the underlying market instruments or indexes, visit the Issuer Website, consult the Prospectus available on the Issuer Website, examine the Issuer Registration Statement or review the most current information bulletin issued by the Primary Listing Exchange (which as of the date hereof is set forth above as the Primary Exchange Circular ). The Issuer Website, the Prospectus, the Issuer Registration Statement and the Primary Exchange Circular are hereafter collectively referred to as the Issuer Disclosure Materials. The Primary Exchange Circular cited above contains the following information: Background Information on the Fund The Fund seeks to provide investment results that will closely correspond, before fees and expenses, generally to the price and yield performance of the FTSE 100 Index ( Index ).

2 Using a passive or indexing investment approach, the Fund seeks to achieve its investment objective to track the performance of the Index. The Index is a free-float adjusted, market capitalization-weighted index, consisting of the common stock of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The Fund will invest at least 80% of its total assets in the common stock of companies included in its benchmark index ( 80% Policy ). The Fund employs a replication strategy to track the Index, which means it invests in the common stock included in the Index generally in proportion to its weighting in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those securities in those weightings. In these circumstances, the Fund may purchase a sample of securities in the Index. There also may be instances in which Recon Capital Advisors, LLC ( Adviser ) may choose to underweight or overweight a security in the Fund s Index, purchase securities not in the Fund s Index that the Adviser believes are appropriate to substitute for certain securities in the Index or utilize various combinations of other available investment techniques in seeking to replicate as closely as possible, before fees and expenses, the price and yield performance of the Fund s Index. As of July 31, 2014, the Index included 101 companies with a market capitalization range of between approximately $204 billion and $6 billion and an average market capitalization of $31 billion. These amounts are subject to change. The Fund s 80% Policy may be changed without shareholder approval upon 60 days prior written notice to shareholders. The Fund may concentrate its investments in a particular industry or group of industries to the extent that the Index concentrates in an industry or group of industries. The Fund is classified as a non-diversified investment company under the Investment Company Act of 1940, as amended ( 1940 Act ). Therefore, the Fund may invest a relatively high percentage of its assets in a smaller number of issuers or may invest a larger proportion of its assets in a single issuer. For more information regarding the Fund s investment strategy, please read the prospectus for the Fund. As described more fully in the Trust s prospectus and Statement of Additional Information, the Fund will issue and redeem Shares on a continuous basis at their net asset value ( NAV ) only in large blocks of 50,000 Shares (each, a Creation Unit ). Creation Units will be issued and redeemed principally in-kind for securities included in the underlying index. Except when aggregated in Creation Units, the Shares may not be redeemed with the Fund. Shares are held in book-entry form, which means that no Share certificates are issued. The Depository Trust Company or its nominee is the record owner of all outstanding Shares of the Funds and is recognized as the owner of all Shares for all purposes. The NAV per Share for the Fund is computed by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total liabilities) by the total number of Shares outstanding. Expenses and fees are accrued daily and taken into account for purposes of determining NAV. The NAV of each Fund is determined each business day after the close of trading (ordinarily 4:00 p.m., Eastern Time or ET ) of the New York Stock Exchange. Any

3 assets or liabilities denominated in currencies other than the U.S. dollar are converted into U.S. dollars at the current market rates on the date of valuation as quoted by one or more sources. The registration statement for the Fund describes the various fees and expenses for the Fund s Shares. For a more complete description of the Fund and the underlying Index, visit the Fund s website at Risk Factor Information Interested persons are referred to the discussion in the prospectus for the Fund of the principal risks of an investment in the Fund. These include tracking error risk (factors causing the Fund s performance to not match the performance of the underlying index), market trading risk (for example, trading halts, trading above or below net asset value), investment style risk, sector risk, investment approach risk, non-diversification risk, equity securities risk and foreign securities risk. BECAUSE WHAT FOLLOWS IS ONLY A SUMMARY OF THE RELIEF OUTLINED IN THE NO-ACTION LETTER(S) REFERENCED ABOVE, THE EXCHANGE ADVISES INTERESTED PARTIES TO CONSULT THE NO-ACTION LETTER(S) FOR MORE COMPLETE INFORMATION REGARDING THE MATTERS COVERED THEREIN AND THE APPLICABILITY OF THE RELIEF GRANTED IN RESPECT OF TRADING IN THE SHARES. INTERESTED PARTIES SHOULD ALSO CONSULT THEIR PROFESSIONAL ADVISORS. Exchange Rules Applicable to Trading in the Shares The Shares are considered equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. The Shares are also a UTP Derivative Securities as specified in Exchange Article 22, Rule 6, and as such are subject to the additional provisions specific to that Rule. In particular, Participants are reminded of their obligations under the following CHX Rules: Trading Hours The shares will trade during the Exchange s Early Session (6:00 a.m. to 8:30 a.m. CT); the Regular Trading Session (8:30 a.m. to 3:00 p.m. CT) and the Late Trading Session (commences immediately after the Regular Trading Session and ends at 3:15 p.m. CT). Please note that trading in the Shares during the Exchange s various trading sessions may result in additional trading risks which include: (1) lower liquidity which may impact pricing, (2) higher volatility (3) wider spreads and (4) other risks including among other things, the lack of calculation or dissemination of the intra-day indicative value or a similar value. The minimum trading increment is $.01. Customer Dealings Suitability Exchange Article 8, Rule 11 provides that prior to the execution of a transaction recommended to a customer, a Participant shall make reasonable efforts to obtain information concerning: (1) the customer s financial status, (2) the customer s tax status, (3) the customer s investment objectives, and (4) such other information used or considered to be reasonable by such Participant in making recommendations to the

4 customer. Based on this information, the Participant must have reasonable grounds to believe that the recommendation is suitable for such customer. Prospectus Delivery/Product Description Participants are subject to the prospectus delivery requirements under the Securities Act of 1933, unless the new derivative securities product is the subject of an order by the Securities and Exchange Commission exempting the product from certain prospectus delivery requirements under Section 24(d) of the Investment Company Act of 1940 and the product is not otherwise subject to prospectus delivery requirements under the Securities Act of The Exchange shall inform its Participants regarding the application of the provisions of this subparagraph to a particular derivative securities product by means of a Regulatory Information Circular: The Exchange requires that Participants provide to all purchasers of a derivative securities product a written description of the terms and characteristics of those securities, in a form approved by the Exchange or prepared by the open-ended management company issuing such securities, not later than the time a confirmation of the first transaction in such series is delivered to such purchaser. In addition, Participants shall include a written description with any sales material relating to a derivative securities product that is provided to customers or the public. Any other written materials provided by a Participant to customers or the public making specific reference to the derivative securities product as an investment vehicle must include a statement substantially in the following form: "A circular describing the terms and characteristics of [the derivative securities product] has been prepared by the [open-ended management investment company name] and is available from your broker. It is recommended that you obtain and review such circular before purchasing [the derivative securities product]." A Participant carrying an omnibus account for a non-participant is required to inform such non-participant that execution of an order to purchase a derivative securities product for such omnibus account will be deemed to constitute an agreement by the non-participant to make such written description available to its customers on the same terms as are directly applicable to the Participant under this rule. Upon request of a customer, a Participant shall also provide a prospectus for the particular derivative securities product. Upon request of a customer, a Participant shall also provide a prospectus for the particular derivative securities product. Trading Halts Exchange Article 22, Rule 6(a)(iii) provides that, in addition to the Exchange s authority to suspend or halt trading under Article 20, Rule 1(d) (Trading Suspensions or Halts) and Article 20, Rule 2 (Trading Halts Due To Extraordinary Market Volatility), if a temporary interruption occurs in the calculation or wide dissemination of the intraday indicative value (or similar value) or the value of the underlying index or instrument and the listing market halts trading in the product, the Exchange, upon notification by the listing market of such halt due to such temporary interruption, also shall immediately halt

5 trading in that product on the Exchange. The Shares will be traded following a trading halt in accordance with Interpretations and Policies.02 of Exchange Article 20, Rule 1. In addition, for a UTP Derivative Securities product where a net asset value is disseminated, if the primary listing exchange notifies the Exchange that the net asset value is not being disseminated to all market participants at the same time, the Exchange will immediately halt trading in such security. The Exchange may resume trading in the UTP Derivative Security only when the net asset value is disseminated to all market participants at the same time or trading in the UTP Derivative Security resumes on the listing market. THIS INFORMATION CIRCULAR IS NOT A STATUTORY PROSPECTUS. MEMBERS AND MEMBER ORGANIZATIONS SHOULD CONSULT THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR ALL RELEVANT INFORMATION RELATING TO SHARES OF THE FUND. * * * * Inquiries regarding this Information Memo should be directed to Peter D. Santori, Executive Vice President and Chief Regulatory Officer, at (312)