Correspondence 0001999371-24-013109 from NEOS ETF Trust (CIK 0001848758)
NEOS ETF Trust (CIK 0001848758)
Date: Oct. 8, 2024 · CIK: 0001848758 · Accession: 0001999371-24-013109
AI Filing Summary & Sentiment
File numbers found in text: 333-253997, 811-23645
Letter
Division of Investment Management Disclosure Review and Accounting Office F Street NE Washington, D.C. 20549 Re: NEOS ETF Trust (the "Trust" or the "Registrant") File Nos. 811-23645, 333-253997
Dear Mr. Greenspan:
On May 23, 2023, NEOS ETF Trust (the “Trust” or the “Registrant”), on behalf of one of its series, NEOS Bitcoin High Income ETF (the “Fund”), filed post-effective amendment number 35 to the Trust's registration statement (the "Amendment"). The Amendment was filed pursuant to Rule 485(a)(2) under the Securities Act of 1933, as amended, to register shares of the Fund. On May 2, 2024, August 23, 2024 and September 25, 2024, you provided comments and follow-up comments, respectively, to the Amendment by phone to Bibb Strench and Daniel Moler.
Set forth below are your comments, as we understand them, followed by responses to those comments, which the Fund has authorized Thompson Hine LLP to make on its behalf. Where applicable, revisions indicated in responses to your comments will be reflected in an amendment to the registration statement to be filed subsequently to or concurrently with this letter. All capitalized terms not defined herein have the meaning given to them in the registration statement. A marked copy of the prospectus or relevant sections of the prospectus and statement of additional information (“SAI”) is attached to aid in your review.
COMMENTS (May 2, 2024)
Prospectus
PRINCIPAL INVESTMENT STRATEGIES
Comment 1. Noting the recently amended Rule 35d-1 (the “Names Rule”), including the fact that the compliance date of the amendments will not be until 2025 and in some cases 2026, please clarify, to the extent practicable, what percent of net assets will be invested in Spot Bitcoin ETPs as compared to its options strategy.
Response. Under normal circumstances, the Fund will invest at least 80% between 50% to 100% of its the Fund’s net assets, plus borrowings for investment purposes, will be invested in Spot Bitcoin ETPs through a controlled foreign corporation and/or options on Bitcoin Futures ETFs. For purposes of the fund name policy, the value of such derivative instruments shall be determined on a daily mark to market basis valued at their notional value. Although the fund name policy sets forth the Fund’s minimum exposure to Spot Bitcoin ETPs and/or options on Bitcoin Futures ETFs, the Fund anticipates that up to 100% of its net assets will be invested in Spot Bitcoin ETPs, and the options overlay strategy may be up to 100% of the notional value of the Spot Bitcoin ETPs that are held as collateral for the options.
Comment 2. Please reflect in the prospectus that the Fund is not seeking leveraged returns or inverse returns.
Response. The Registrant has added “Leverage Risk” that includes the requested disclosure:
Leverage Risk. While the Fund does not seek leveraged exposure to the Bitcoin Futures ETF, the Fund seeks to achieve and maintain the exposure to the price of the Bitcoin Futures ETF by using the leverage inherent in options contracts. Therefore, the Fund is subject to leverage risk. When the Fund purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction, it creates leverage, which can result in the Fund losing more than it originally invested. As a result, these investments may magnify losses to the Fund, and even a small market movement may result in significant losses to the Fund. Leverage may also cause the Fund to be more volatile because it may exaggerate the effect of any increase or decrease in the value of the Fund’s portfolio securities. Options trading involves a degree of leverage and as a result, a relatively small price movement in futures instruments may result in immediate and substantial losses to the Fund.
Comment 3. Supplementally, discuss whether the Fund anticipates any potential capacity constraints in the Bitcoin Futures ETF and options markets that would limit the potential exposure to Bitcoin futures through the Fund call option strategy and ETFs.
Response. The following disclosure has been added to the Prospectus:
Bitcoin Futures Capacity Risk. If the Bitcoin Futures ETF’s ability to obtain exposure to Bitcoin futures contracts consistent with its investment objective is disrupted for any reason including, for example, limited liquidity in the Bitcoin futures market, a disruption to the Bitcoin futures market, or as a result of margin requirements, position limits, accountability levels, or other limitations imposed by the Bitcoin Futures ETF’s futures commission merchants (“FCMs”), the listing exchanges, or the CFTC, the Bitcoin Futures ETF may not be able to achieve its investment objective and may experience significant losses. Any disruption in the Bitcoin Futures ETF’s ability to obtain exposure to Bitcoin futures contracts will cause the fund’s performance to deviate from the performance of Bitcoin futures contracts, and consequently, Bitcoin. Additionally, the ability of the Bitcoin Futures ETF to obtain exposure to Bitcoin futures contracts is limited by certain tax rules that limit the amount the Bitcoin Futures ETF can invest in its wholly-owned subsidiary as of the end of each tax quarter.
The Registrant has also revised the “Bitcoin Futures ETF Options Risk” to clarify factors that may limit the Fund’s potential exposure to options on the Bitcoin Futures ETF:
Bitcoin Futures ETF Options Risk. There are risks associated with the sale and purchase of options on the Bitcoin Futures ETF. Due to the limited operating history of the trading of Bitcoin Futures ETF options, adverse performance of the Bitcoin Futures ETF options or adverse legislative or regulatory developments regarding Bitcoin options could significantly harm the value of the Fund. If the Fund’s ability to obtain exposure to Bitcoin ETF options contracts consistent with its investment objective is disrupted for any reason including, for example, limited liquidity in the Bitcoin options market, limitations imposed by a listing exchange, interruption to the normal operations on an exchange or the facilities of an exchange, the Fund may not be able to achieve its investment objective and may experience significant losses. Any disruption in the Fund’s ability to obtain exposure to options on Bitcoin Futures ETFs may cause the Fund’s performance to deviate from the performance of Bitcoin. Bitcoin option transaction risks are subject to the risks of investment in Bitcoin (see “Bitcoin Risk”) and options risk (see “Options Risk”).
Comment 4. Provide an overview of the operation and principal investment strategy of Bitcoin Futures ETF in which the Fund will invest including how it will maintain disclosure to Bitcoin, and, if applicable, how it will roll options positions.
Response. The Registrant has added the following disclosure in the statutory prospectus:
Additional Information About the Bitcoin Futures ETF
The Bitcoin Futures ETF seeks to provide investment results that correspond to the performance of Bitcoin and seeks to achieve this objective through investments in Bitcoin futures contracts. The Bitcoin Futures ETF does not invest directly in Bitcoin. The Bitcoin futures contracts held by the Bitcoin Futures ETF are standardized, cash-settled Bitcoin futures contracts traded on commodity exchanges registered with the CFTC. While the Bitcoin Futures ETF seeks to invest in cash-settled, front-month bitcoin futures, it may also invest in back-month, cash-settled Bitcoin futures contracts. Front-month Bitcoin futures contracts are those contracts with the shortest time to maturity. Back-month Bitcoin futures contracts are those with longer times to maturity. In order to maintain its exposure to Bitcoin futures contracts, the Bitcoin Futures ETF must sell its futures contracts as they near expiration and replace them with new futures contracts with a later expiration date. This is often referred to as “rolling” a futures contract. Futures contracts with a longer term to expiration may be priced higher than futures contracts with a shorter term to expiration, a relationship called “contango.” When rolling futures contracts that are in contango, the Bitcoin Futures ETF will sell the expiring contract at a relatively lower price and buy a longer-dated contract at a relatively higher price. Conversely, futures contracts with a longer term to expiration may be priced lower than futures contracts with a shorter term to expiration, a relationship called “backwardation.” When rolling futures contracts that are in backwardation, the Bitcoin Futures ETF will sell the expiring contract at a relatively higher price and buy a longer-dated contract at a relatively lower price.
The Bitcoin Futures ETF may also invest in money market instruments and U.S. government to provide liquidity, serve as margin or collateralize the Bitcoin Future ETF’s investments in Bitcoin futures contracts. Due to the high margin requirements that are unique to Bitcoin futures contracts and certain tests that must be met in order to qualify as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986 (the “Code”), the Bitcoin Futures ETF may also utilize reverse repurchase agreements during certain times of the year to help maintain the desired level of exposure to Bitcoin futures contracts.
The Bitcoin Futures ETF gains exposure to Bitcoin by investing in bitcoin futures contracts through a wholly-owned subsidiary of the fund organized under the laws of the Cayman Islands. Because the Bitcoin Futures ETF intends to qualify for treatment as a RIC under Subchapter M of the Code, the Bitcoin Futures ETF invests no more than 25% of its total assets in the subsidiary at each quarter end of the fund’s tax year.
Comment 5. State that the Bitcoin Futures ETFs in which the Fund invests will invest in standardized cash settled Bitcoin contracts that are only traded on commodities exchanges registered with the CFTC (e.g., the CME).
Response. Please see the revised disclosure in response to Comment #4.
Comment 6. Please describe Bitcoin and Bitcoin blockchain and the relationship of bitcoin to the Bitcoin blockchain.
Response. The Registrant has added the following disclosure in the statutory prospectus:
Additional Information on Bitcoin
Bitcoin is a digital asset, commonly referred to as a “cryptocurrency” that is created and transmitted through the operations of the Bitcoin Network. The ownership of Bitcoin is determined by participants in the Bitcoin network. The Bitcoin network connects computers that run publicly accessible, or “open source,” software that follows the rules and procedures governing the Bitcoin network. This is commonly referred to as the Bitcoin Protocol. Bitcoin, the asset, plays a key role in the operation of the Bitcoin network, as the computers (or “miners”) that process transactions on the network and maintain the network’s security are compensated through the issuance of new Bitcoin and through transaction fees paid by users in Bitcoin.
No single entity owns or operates the Bitcoin network. Bitcoin is not issued by any government, by banks or similar organizations. The infrastructure of the Bitcoin network is collectively maintained by a decentralized user base. The Bitcoin network is accessed through software, and software governs the creation, movement, and ownership of “Bitcoin,” the unit of account on the Bitcoin network ledger. The value of Bitcoin is determined, in part, by the supply of, and demand for, Bitcoin in the global markets for trading Bitcoin, market expectations for the adoption of Bitcoin as a decentralized store of value, the number of merchants and/or institutions that accept Bitcoin as a form of payment and the volume of private end-user-to-end-user transactions.
Bitcoin transaction and ownership records are reflected on the “Bitcoin blockchain,”
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CORRESP
1
filename1.htm
October 4, 2024
Daniel Greenspan, Esq.
Senior
Counsel
U.S.
Securities and Exchange Commission
Division
of Investment Management
Disclosure
Review and Accounting Office
100
F Street NE
Washington,
D.C. 20549
Re: NEOS ETF Trust (the "Trust" or the "Registrant") File Nos. 811-23645, 333-253997
Dear Mr. Greenspan:
On May 23, 2023, NEOS ETF Trust (the “Trust”
or the “Registrant”), on behalf of one of its series, NEOS Bitcoin High Income ETF (the “Fund”), filed post-effective
amendment number 35 to the Trust's registration statement (the "Amendment"). The Amendment was filed pursuant to Rule 485(a)(2)
under the Securities Act of 1933, as amended, to register shares of the Fund. On May 2, 2024, August 23, 2024 and September 25, 2024,
you provided comments and follow-up comments, respectively, to the Amendment by phone to Bibb Strench and Daniel Moler.
Set forth below are your comments, as we
understand them, followed by responses to those comments, which the Fund has authorized Thompson Hine LLP to make on its behalf. Where
applicable, revisions indicated in responses to your comments will be reflected in an amendment to the registration statement to be filed
subsequently to or concurrently with this letter. All capitalized terms not defined herein have the meaning given to them in the registration
statement. A marked copy of the prospectus or relevant sections of the prospectus and statement of additional information (“SAI”)
is attached to aid in your review.
COMMENTS (May 2, 2024)
Prospectus
PRINCIPAL INVESTMENT STRATEGIES
Comment 1. Noting the recently amended Rule 35d-1
(the “Names Rule”), including the fact that the compliance date of the amendments will not be until 2025 and in some cases
2026, please clarify, to the extent practicable, what percent of net assets will be invested in Spot Bitcoin ETPs as compared to its options
strategy.
Response. Under normal circumstances,
the Fund will invest at least 80% between 50% to 100% of its the Fund’s net assets, plus
borrowings for investment purposes, will be invested in Spot Bitcoin ETPs through a controlled foreign corporation and/or options
on Bitcoin Futures ETFs. For purposes of the fund name policy, the value of such derivative instruments shall be determined on
a daily mark to market basis valued at their notional value. Although the fund name policy sets forth the Fund’s minimum
exposure to Spot Bitcoin ETPs and/or options on Bitcoin Futures ETFs, the Fund anticipates that up to 100% of its net assets will be invested
in Spot Bitcoin ETPs, and the options overlay strategy may be up to 100% of the notional value of the Spot Bitcoin ETPs that are held
as collateral for the options.
Comment 2. Please reflect in the prospectus that
the Fund is not seeking leveraged returns or inverse returns.
Response. The Registrant has added “Leverage Risk”
that includes the requested disclosure:
Leverage Risk. While the Fund does not seek leveraged exposure to the Bitcoin Futures
ETF, the Fund seeks to achieve and maintain the exposure to the price of the Bitcoin Futures ETF by using the leverage inherent in
options contracts. Therefore, the Fund is subject to leverage risk. When the Fund purchases or sells an instrument or enters into a
transaction without investing an amount equal to the full economic exposure of the instrument or transaction, it creates leverage,
which can result in the Fund losing more than it originally invested. As a result, these investments may magnify losses to the Fund,
and even a small market movement may result in significant losses to the Fund. Leverage may also cause the Fund to be more volatile
because it may exaggerate the effect of any increase or decrease in the value of the Fund’s portfolio securities. Options
trading involves a degree of leverage and as a result, a relatively small price movement in futures instruments may result in
immediate and substantial losses to the Fund.
Comment 3. Supplementally,
discuss whether the Fund anticipates any potential capacity constraints in the Bitcoin Futures ETF and options markets that would limit
the potential exposure to Bitcoin futures through the Fund call option strategy and ETFs.
Response. The following disclosure has been added to the
Prospectus:
Bitcoin Futures Capacity
Risk. If the Bitcoin Futures ETF’s ability to obtain exposure to Bitcoin futures
contracts consistent with its investment objective is disrupted for any reason including,
for example, limited liquidity in the Bitcoin futures market, a disruption to the Bitcoin
futures market, or as a result of margin requirements, position limits, accountability levels,
or other limitations imposed by the Bitcoin Futures ETF’s futures commission merchants
(“FCMs”), the listing exchanges, or the CFTC, the Bitcoin Futures ETF may not
be able to achieve its investment objective and may experience significant losses. Any disruption
in the Bitcoin Futures ETF’s ability to obtain exposure to Bitcoin futures contracts
will cause the fund’s performance to deviate from the performance of Bitcoin futures
contracts, and consequently, Bitcoin. Additionally, the ability of the Bitcoin Futures ETF
to obtain exposure to Bitcoin futures contracts is limited by certain tax rules that limit
the amount the Bitcoin Futures ETF can invest in its wholly-owned subsidiary as of the end
of each tax quarter.
The Registrant has also revised the “Bitcoin Futures ETF
Options Risk” to clarify factors that may limit the Fund’s potential exposure to options on the Bitcoin Futures ETF:
Bitcoin Futures ETF Options
Risk. There are risks associated with the sale and purchase of options on the Bitcoin
Futures ETF. Due to the limited operating history of the trading of Bitcoin Futures ETF options,
adverse performance of the Bitcoin Futures ETF options or adverse legislative or
regulatory developments regarding Bitcoin options could significantly harm the value
of the Fund. If the Fund’s ability to obtain exposure to Bitcoin ETF options contracts
consistent with its investment objective is disrupted for any reason including, for example,
limited liquidity in the Bitcoin options market, limitations imposed by a listing exchange,
interruption to the normal operations on an exchange or the facilities of an exchange, the
Fund may not be able to achieve its investment objective and may experience significant losses.
Any disruption in the Fund’s ability to obtain exposure to options on Bitcoin Futures
ETFs may cause the Fund’s performance to deviate from the performance of Bitcoin. Bitcoin
option transaction risks are subject to the risks of investment in Bitcoin (see “Bitcoin
Risk”) and options risk (see “Options Risk”).
Comment 4. Provide an overview
of the operation and principal investment strategy of Bitcoin Futures ETF in which the Fund will invest including how it will maintain
disclosure to Bitcoin, and, if applicable, how it will roll options positions.
Response. The Registrant has
added the following disclosure in the statutory prospectus:
Additional Information About the Bitcoin
Futures ETF
The Bitcoin Futures ETF seeks to provide investment results that correspond to the performance of
Bitcoin and seeks to achieve this objective through investments in Bitcoin futures contracts. The Bitcoin Futures ETF
does not invest directly in Bitcoin. The Bitcoin futures contracts held by the Bitcoin Futures ETF are standardized,
cash-settled Bitcoin futures contracts traded on commodity exchanges registered with the CFTC. While the Bitcoin Futures ETF seeks
to invest in cash-settled, front-month bitcoin futures, it may also invest in back-month, cash-settled Bitcoin futures contracts.
Front-month Bitcoin futures contracts are those contracts with the shortest time to maturity. Back-month Bitcoin futures contracts
are those with longer times to maturity. In order to maintain its exposure to Bitcoin futures contracts, the Bitcoin Futures ETF
must sell its futures contracts as they near expiration and replace them with new futures contracts with a later expiration date.
This is often referred to as “rolling” a futures contract. Futures contracts with a longer term to expiration may be
priced higher than futures contracts with a shorter term to expiration, a relationship called “contango.” When rolling
futures contracts that are in contango, the Bitcoin Futures ETF will sell the expiring contract at a relatively lower price and buy
a longer-dated contract at a relatively higher price. Conversely, futures contracts with a longer term to expiration may be priced
lower than futures contracts with a shorter term to expiration, a relationship called “backwardation.” When rolling
futures contracts that are in backwardation, the Bitcoin Futures ETF will sell the expiring contract at a relatively higher price
and buy a longer-dated contract at a relatively lower price.
The Bitcoin Futures ETF may also invest in
money market instruments and U.S. government to provide liquidity, serve as margin or collateralize the Bitcoin Future ETF’s investments
in Bitcoin futures contracts. Due to the high margin requirements that are unique to Bitcoin futures contracts and certain tests that
must be met in order to qualify as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code
of 1986 (the “Code”), the Bitcoin Futures ETF may also utilize reverse repurchase agreements during certain times of the year
to help maintain the desired level of exposure to Bitcoin futures contracts.
The Bitcoin Futures ETF gains exposure to
Bitcoin by investing in bitcoin futures contracts through a wholly-owned subsidiary of the fund organized under the laws of the Cayman
Islands. Because the Bitcoin Futures ETF intends to qualify for treatment as a RIC under Subchapter M of the Code, the Bitcoin Futures
ETF invests no more than 25% of its total assets in the subsidiary at each quarter end of the fund’s tax year.
Comment 5. State that the
Bitcoin Futures ETFs in which the Fund invests will invest in standardized cash settled Bitcoin contracts that are only traded on commodities
exchanges registered with the CFTC (e.g., the CME).
Response. Please see the revised disclosure in
response to Comment #4.
Comment 6. Please describe Bitcoin and Bitcoin
blockchain and the relationship of bitcoin to the Bitcoin blockchain.
Response. The Registrant has added the following
disclosure in the statutory prospectus:
Additional Information on Bitcoin
Bitcoin is a digital asset, commonly referred to as a “cryptocurrency”
that is created and transmitted through the operations of the Bitcoin Network. The ownership of Bitcoin is determined by
participants in the Bitcoin network. The Bitcoin network connects computers that run publicly accessible, or “open
source,” software that follows the rules and procedures governing the Bitcoin network. This is commonly referred to as the
Bitcoin Protocol. Bitcoin, the asset, plays a key role in the operation of the Bitcoin network, as the computers (or
“miners”) that process transactions on the network and maintain the network’s security are compensated through the
issuance of new Bitcoin and through transaction fees paid by users in Bitcoin.
No single entity owns or operates the Bitcoin network. Bitcoin is not issued by any government, by
banks or similar organizations. The infrastructure of the Bitcoin network is collectively maintained by a decentralized user base.
The Bitcoin network is accessed through software, and software governs the creation, movement, and ownership of
“Bitcoin,” the unit of account on the Bitcoin network ledger. The value of Bitcoin is determined, in part, by the supply
of, and demand for, Bitcoin in the global markets for trading Bitcoin, market expectations for the adoption of Bitcoin as a
decentralized store of value, the number of merchants and/or institutions that accept Bitcoin as a form of payment and the volume of
private end-user-to-end-user transactions.
Bitcoin transaction and ownership records are reflected on the “Bitcoin blockchain,”