Correspondence 0001999371-24-008659 from Tidal Trust II (CIK 0001924868)
Tidal Trust II (CIK 0001924868)
Date: July 16, 2024 · CIK: 0001924868 · Accession: 0001999371-24-008659
AI Filing Summary & Sentiment
File numbers found in text: 333-264478, 811-23793
Letter
VIA EDGAR TRANSMISSION Division of Investment Management, Disclosure Review Office Washington, D.C. 20549 Re: Tidal Trust II (the “Trust”) Post-Effective Amendment No. 217 to the Trust’s Registration Statement on Form N-1A (the “Amendment”) File Nos. 811-23793; 333-264478
Dear Mr. Mathews:
This correspondence responds to comments the Trust received from the staff of the U.S. Securities and Exchange Commission (the “Staff” or the “Commission”) on July 3, 2024, with respect to Post-Effective Amendment No. 217 to the Trust’s Registration Statement on Form N-1A (the “Amendment”) and the Trust’s proposed new twelve series, YieldMax™ BABA Option Income Strategy ETF, YieldMax™ CVNA Option Income Strategy ETF, YieldMax™ DKNG Option Income Strategy ETF, YieldMax™ HOOD Option Income Strategy ETF, YieldMax™ JD Option Income Strategy ETF, YieldMax™ MARA Option Income Strategy ETF, YieldMax™ PDD Option Income Strategy ETF, YieldMax™ PLTR Option Income Strategy ETF, YieldMax™ RBLX Option Income Strategy ETF, YieldMax™ SHOP Option Income Strategy ETF, YieldMax™ SMCI Option Income Strategy ETF, and YieldMax™ TSM Option Income Strategy ETF (each, a “Fund,” and collectively, the “Funds”). For your convenience, the comments have been reproduced with responses following each comment. Capitalized terms not otherwise defined have the same meaning as in the Amendment.
Comments
PROSPECTUS
1. For each series, provide the fee table and example for each Fund pre-effectively. And confirm that there is no fee waiver or reimbursement. If there are, please describe the waivers and/or reimbursements in a footnote.
Response: The Funds’ completed Fees and Expenses table and Expense Example are as shown in the attached Appendix A. The Trust further confirms that there are currently no fee waivers or reimbursements in place.
2. With regard to each Fund’s synthetic covered call strategy, please confirm in correspondence that the strategy will be fully covered or, if not, please describe why calling the strategy “covered” is appropriate.
Response: The Trust confirms that each Fund’s synthetic covered call strategy will be fully covered.
3. In correspondence, please advise as to the commercial or business reasons that the opportunistic covered call spread was added for these Funds as compared to the prior single stock series. Please advise if this strategy will be added to the other single stock series as well.
Response: The Funds' investment adviser and investment sub-adviser now have over a full year's experience managing dozens of YieldMax single stock-focused funds. In their ongoing analysis, it was determined that the addition of the opportunistic strategy could enable the Funds to increase returns without undue additional risks. The investment adviser and investment sub-adviser plan to apply the opportunistic strategy to the existing single stock funds and are currently assessing the timing for this implementation.
Tidal Trust II
West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
4. With respect to the Funds’ opportunistic strategy, the Staff notes that via the strategy, the Fund will “seek greater participation in the potential appreciation of [underlying security’s] share price, while still generating net premium income.” In addition, the strategy notes that “the Fund can potentially offset losses incurred from its short call positions if [the underlying stock’s] share price rises above the strike price.” Please add an explanation or an example describing how these two sentences, taken together, result in greater upside participation. In addition, please provide an example or explanation of the estimated amount or limits on the greater participation in potential appreciation as compared to a standard call option contract.
Response: The Trust confirms that the Prospectus has been supplemented with the addition of an example (in Item 9).
5. The Staff notes that the Sub-Adviser may use the strategy in “other scenarios where it believes the use of credit call spreads may prove more advantageous to the Fund’s total return than the standard strategy.” Please provide examples thereof.
Response: The Trust has revised the Prospectus disclosure to include examples of such other scenarios.
6. With respect to the sub-bullet point on the top of page 5, please clarify if the additional profit resulting from a significant price increase in the underlying security is the result of implementing the opportunistic strategy. In addition, describe what factors determine whether the Fund will gain a large share of any price increase, vs a small or no share.
Response: The Trust confirms that the aforementioned sub-bullet relates to the implementation of the opportunistic strategy. The sub-bullet has been clarified accordingly and a cross-reference has been added to the example added in response to Comment 4 above.
7. The Staff notes that in the Trust’s May 2023 PEA that added nine new substantially similar single stock ETFs, the target maturities were 6-months to 1-year. In contrast, for these Funds, the target maturities are reduced to one- to six-months. In correspondence, please explain why the target maturities are now shorter.
Response: During the process of managing other YieldMax single stock ETFs, the adviser and the sub-adviser determined that shorter target maturities better enabled the Funds to comply with applicable Internal Revenue Code requirements. The Trust respectfully notes that the target maturity ranges were reduced for the then-current YieldMax single-stock ETFs in their most recent annual update filing.
8. In the Trust’s July 2023 response letter to the Staff regarding its May 2023 post-effective amendment adding 9 single stock funds, the Trust made representations in regards to those series as to how their intended strategy and disclosures are or will be consistent with Rule 140 under the 1933 Act and the May 1996 Morgan Stanley no-action letter. Please confirm in correspondence that those responses are applicable to each of the securities in this filing, including whether each underlying security is eligible to file registration statements on S-3, or if an ADR on Form F-3. If the response doesn’t apply or may be different, identify the representations that may be different, explain how these securities are consistent with Rule 140 and the Morgan Stanley no-action letter.
Response: The Trust confirms that the Trust’s response with respect to both Rule 140 and the Morgan Stanley letter apply equally to each of the securities in the Amendment.
Tidal Trust II
West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
9. With respect to the three underlying securities that have Chinese issuers (i.e., BABA, JD, and PDD), please consider adding risk disclosure regarding the Holding Foreign Companies Accountable Act, and potential forced or voluntary de-listing of China-based companies.
Response: The Trust confirms that the Prospectus has been supplemented with the additional aforementioned risk disclosure.
10. Please confirm in correspondence, that the Trust’s explanation in July 2023 regarding compliance with the leverage requirements of Rule 18f-4 is equally applicable to the twelve new series being added by this filing. Or, if not, explain the differences and how they will comply with Rule 18f-4. Also, in correspondence, please describe which designated reference portfolio each Fund intends to use for compliance with Rule 18f-4 and how the derivatives risk manager determined each was appropriate for a Fund gaining exposure to its associated underlying security.
Response: The Trust confirms that the Trust’s explanation in its July 2023 response letter regarding compliance with the leverage requirements of Rule 18f-4 is equally applicable to the twelve new series being added by this filing.
The Registrant supplementally provides the following information to the Staff in response to the Staff’s comment regarding the determination by the Derivatives Risk Manager (the “DRM”) regarding each Fund’s designated reference portfolio and Rule 18f-4 compliance.
Underlying Security Fund Ticker Reference Portfolio
BABA BABO CSI China Internet
CVNA CVNY NYSE FAANG+
DKNG DRAY NYSE FAANG+
HOOD HOOY NYSE FAANG+
JD JDY CSI China Internet
MARA MARO S&P CME Bitcoin Futures
PDD PDDY CSI China Internet
PLTR PLTY NYSE FAANG+
RBLX RBLY NYSE FAANG+
SHOP SHOY NYSE FAANG+
SMCI SMCY NYSE FAANG+
TSM TSMY NYSE FAANG+
The DRM has determined that the above referenced indexes are the appropriate Reference Portfolios to ensure compliance with the requirements of Rule 18f-4. In all instances, the expected risk of the respective funds would fall within the bounds set by the rule (i.e., VaR of each Fund is less than 200% of the reference VaR).
The Reference Portfolios were chosen based on the type of risk expressed by the underlying security. We believe this is appropriate because we believe this aligns with the investment objectives of each Fund in question. More specifically, we have assigned the CSI China Internet index where the underlying security is present in that index and highly correlated to the index more broadly, the S&P CME Bitcoin Futures index where the underlying security is highly correlated to the price of Bitcoin, and finally, we have assigned the NYSE FAANG+ Index as the reference portfolio for Funds whose underlying security exhibits high price dispersion characteristics similar to the high growth-focused securities in that index.
Tidal Trust II
West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
11. The Staff notes that the section “cybersecurity risk” that applied in prior Trust filings for similar funds was removed as a principal risk for these Funds, and now appears only in the SAI. Please explain in correspondence why risks related to cybersecurity are no longer deemed to be principal risks of the Funds.
Response: The Trust, after consultation with Trust counsel, determined that cybersecurity risks are not related to the Funds' principal investment strategies. Therefore, these risks are not considered principal investment risks. Consequently, the Trust has been removing cybersecurity risk disclosures as principal investment risks from all of the Trust's registration statements during the annual update process.
12. For each series with an underlying security that is an ADR, please also provide recent data regarding global aggregate market value of stock held by non-affiliates, if available, similar to data provided for domestic listed issuers.
Response: The Trust respectfully declines to provide such additional information. The data provided for domestic issuers is based on information contained in their respective Form 10-K filings. In contrast, Form 20-F, the analogous form used for ADRs, does not mandate the disclosure of such information. Consequently, the Trust does not have access to the same level of detail for ADRs as it does for domestic issuers, making it infeasible to accurately furnish the requested additional information.
13. With respect to the YieldMax™ CVNA Option Income Strategy ETF only, the Staff notes that the risk factor automotive industry risk appears to be focused on risks for automotive manufacturers, while Carvana is the automotive retail industry, which would presumably relates to consumer demand, inventory, and/or auto lending and finance. Please revise as necessary.
Response: The Trust confirms that the automotive industry risk has been revised accordingly.
14. With respect to the YieldMax™ HOOD Option Income Strategy ETF, the Staff notes that subsequent to the filing of the Amendment, Robinhood Markets, Inc. announced plans to significantly expand its cryptocurrency business by acquisition of global crypto exchange Bitstamp expected to close in the first half of 2025. Given this event, please expand the existing risk discussion to address potential cryptocurrency exchange related risks for Robinhood.
Response: The Trust confirms that existing risk discussion has been bolstered address potential cryptocurrency exchange related risks for Robinhood.
15. For the YieldMax™ MARA Option Income Strategy ETF, please consider moving the section “Information About Bitcoin” to after the description of MARA as a bitcoin miner. In addition, please confirm to the Staff in correspondence that MARA is an actual operating company, and not a commodity pool.
Response: The Trust confirms that the section entitled “Information About Bitcoin” h
Show Raw Text
CORRESP
1
filename1.htm
Tidal
Trust II
234
West Florida Street, Suite 203
Milwaukee,
Wisconsin 53204
VIA
EDGAR TRANSMISSION
July
16, 2024
Mr.
David Mathews
Division
of Investment Management, Disclosure Review Office
U.S.
Securities and Exchange Commission
100
F Street, N.E.
Washington,
D.C. 20549
Re: Tidal
Trust II (the “Trust”)
Post-Effective
Amendment No. 217 to the Trust’s Registration Statement on Form N-1A (the “Amendment”)
File
Nos. 811-23793; 333-264478
Dear
Mr. Mathews:
This
correspondence responds to comments the Trust received from the staff of the U.S. Securities and Exchange Commission (the “Staff”
or the “Commission”) on July 3, 2024, with respect to Post-Effective Amendment No. 217 to the Trust’s Registration
Statement on Form N-1A (the “Amendment”) and the Trust’s proposed new twelve series, YieldMax™ BABA Option Income
Strategy ETF, YieldMax™ CVNA Option Income Strategy ETF, YieldMax™ DKNG Option Income Strategy ETF, YieldMax™ HOOD
Option Income Strategy ETF, YieldMax™ JD Option Income Strategy ETF, YieldMax™ MARA Option Income Strategy ETF, YieldMax™
PDD Option Income Strategy ETF, YieldMax™ PLTR Option Income Strategy ETF, YieldMax™ RBLX Option Income Strategy ETF, YieldMax™
SHOP Option Income Strategy ETF, YieldMax™ SMCI Option Income Strategy ETF, and YieldMax™ TSM Option Income Strategy ETF
(each, a “Fund,” and collectively, the “Funds”). For your convenience, the comments have been reproduced with
responses following each comment. Capitalized terms not otherwise defined have the same meaning as in the Amendment.
Comments
PROSPECTUS
1. For
each series, provide the fee table and example for each Fund pre-effectively. And confirm
that there is no fee waiver or reimbursement. If there are, please describe the waivers and/or
reimbursements in a footnote.
Response:
The Funds’ completed Fees and Expenses table and Expense Example are as shown in the attached Appendix A. The Trust further confirms
that there are currently no fee waivers or reimbursements in place.
2. With
regard to each Fund’s synthetic covered call strategy, please confirm in correspondence
that the strategy will be fully covered or, if not, please describe why calling the strategy
“covered” is appropriate.
Response:
The Trust confirms that each Fund’s synthetic covered call strategy will be fully covered.
3. In
correspondence, please advise as to the commercial or business reasons that the opportunistic
covered call spread was added for these Funds as compared to the prior single stock series.
Please advise if this strategy will be added to the other single stock series as well.
Response:
The Funds' investment adviser and investment sub-adviser now have over a full year's experience managing dozens of YieldMax single stock-focused
funds. In their ongoing analysis, it was determined that the addition of the opportunistic strategy could enable the Funds to increase
returns without undue additional risks. The investment adviser and investment sub-adviser plan to apply the opportunistic strategy to
the existing single stock funds and are currently assessing the timing for this implementation.
Tidal
Trust II
234
West Florida Street, Suite 203
Milwaukee,
Wisconsin 53204
4. With
respect to the Funds’ opportunistic strategy, the Staff notes that via the strategy,
the Fund will “seek greater participation in the potential appreciation of [underlying
security’s] share price, while still generating net premium income.” In addition,
the strategy notes that “the Fund can potentially offset losses incurred from its short
call positions if [the underlying stock’s] share price rises above the strike price.”
Please add an explanation or an example describing how these two sentences, taken together,
result in greater upside participation. In addition, please provide an example or explanation
of the estimated amount or limits on the greater participation in potential appreciation
as compared to a standard call option contract.
Response:
The Trust confirms that the Prospectus has been supplemented with the addition of an example (in Item 9).
5. The
Staff notes that the Sub-Adviser may use the strategy in “other scenarios where it
believes the use of credit call spreads may prove more advantageous to the Fund’s total
return than the standard strategy.” Please provide examples thereof.
Response:
The Trust has revised the Prospectus disclosure to include examples of such other scenarios.
6. With
respect to the sub-bullet point on the top of page 5, please clarify if the additional profit
resulting from a significant price increase in the underlying security is the result of implementing
the opportunistic strategy. In addition, describe what factors determine whether the Fund
will gain a large share of any price increase, vs a small or no share.
Response:
The Trust confirms that the aforementioned sub-bullet relates to the implementation of the opportunistic strategy. The sub-bullet has
been clarified accordingly and a cross-reference has been added to the example added in response to Comment 4 above.
7. The
Staff notes that in the Trust’s May 2023 PEA that added nine new substantially similar
single stock ETFs, the target maturities were 6-months to 1-year. In contrast, for these
Funds, the target maturities are reduced to one- to six-months. In correspondence, please
explain why the target maturities are now shorter.
Response:
During the process of managing other YieldMax single stock ETFs, the adviser and the sub-adviser determined that shorter target maturities
better enabled the Funds to comply with applicable Internal Revenue Code requirements. The Trust respectfully notes that the target maturity
ranges were reduced for the then-current YieldMax single-stock ETFs in their most recent annual update filing.
8. In
the Trust’s July 2023 response letter to the Staff regarding its May 2023 post-effective
amendment adding 9 single stock funds, the Trust made representations in regards to those
series as to how their intended strategy and disclosures are or will be consistent with Rule
140 under the 1933 Act and the May 1996 Morgan Stanley no-action letter. Please confirm in
correspondence that those responses are applicable to each of the securities in this filing,
including whether each underlying security is eligible to file registration statements on
S-3, or if an ADR on Form F-3. If the response doesn’t apply or may be different, identify
the representations that may be different, explain how these securities are consistent with
Rule 140 and the Morgan Stanley no-action letter.
Response:
The Trust confirms that the Trust’s response with respect to both Rule 140 and the Morgan Stanley letter apply equally to each
of the securities in the Amendment.
Tidal
Trust II
234
West Florida Street, Suite 203
Milwaukee,
Wisconsin 53204
9. With
respect to the three underlying securities that have Chinese issuers (i.e., BABA, JD, and
PDD), please consider adding risk disclosure regarding the Holding Foreign Companies Accountable
Act, and potential forced or voluntary de-listing of China-based companies.
Response:
The Trust confirms that the Prospectus has been supplemented with the additional aforementioned risk disclosure.
10. Please
confirm in correspondence, that the Trust’s explanation in July 2023 regarding compliance
with the leverage requirements of Rule 18f-4 is equally applicable to the twelve new series
being added by this filing. Or, if not, explain the differences and how they will comply
with Rule 18f-4. Also, in correspondence, please describe which designated reference portfolio
each Fund intends to use for compliance with Rule 18f-4 and how the derivatives risk manager
determined each was appropriate for a Fund gaining exposure to its associated underlying
security.
Response:
The Trust confirms that the Trust’s explanation in its July 2023 response letter regarding compliance with the leverage requirements
of Rule 18f-4 is equally applicable to the twelve new series being added by this filing.
The
Registrant supplementally provides the following information to the Staff in response to the Staff’s comment regarding the determination
by the Derivatives Risk Manager (the “DRM”) regarding each Fund’s designated reference portfolio and Rule 18f-4 compliance.
Underlying
Security
Fund
Ticker
Reference
Portfolio
BABA
BABO
CSI
China Internet
CVNA
CVNY
NYSE
FAANG+
DKNG
DRAY
NYSE
FAANG+
HOOD
HOOY
NYSE
FAANG+
JD
JDY
CSI
China Internet
MARA
MARO
S&P
CME Bitcoin Futures
PDD
PDDY
CSI
China Internet
PLTR
PLTY
NYSE
FAANG+
RBLX
RBLY
NYSE
FAANG+
SHOP
SHOY
NYSE
FAANG+
SMCI
SMCY
NYSE
FAANG+
TSM
TSMY
NYSE
FAANG+
The
DRM has determined that the above referenced indexes are the appropriate Reference Portfolios to ensure compliance with the requirements
of Rule 18f-4. In all instances, the expected risk of the respective funds would fall within the bounds set by the rule (i.e.,
VaR of each Fund is less than 200% of the reference VaR).
The
Reference Portfolios were chosen based on the type of risk expressed by the underlying security. We believe this is appropriate because
we believe this aligns with the investment objectives of each Fund in question. More specifically, we have assigned the CSI China Internet
index where the underlying security is present in that index and highly correlated to the index more broadly, the S&P CME Bitcoin
Futures index where the underlying security is highly correlated to the price of Bitcoin, and finally, we have assigned the NYSE FAANG+
Index as the reference portfolio for Funds whose underlying security exhibits high price dispersion characteristics similar to the high
growth-focused securities in that index.
Tidal
Trust II
234
West Florida Street, Suite 203
Milwaukee,
Wisconsin 53204
11. The
Staff notes that the section “cybersecurity risk” that applied in prior Trust
filings for similar funds was removed as a principal risk for these Funds, and now appears
only in the SAI. Please explain in correspondence why risks related to cybersecurity are
no longer deemed to be principal risks of the Funds.
Response:
The Trust, after consultation with Trust counsel, determined that cybersecurity risks are not related to the Funds' principal investment
strategies. Therefore, these risks are not considered principal investment risks. Consequently, the Trust has been removing cybersecurity
risk disclosures as principal investment risks from all of the Trust's registration statements during the annual update process.
12. For
each series with an underlying security that is an ADR, please also provide recent data regarding
global aggregate market value of stock held by non-affiliates, if available, similar to data
provided for domestic listed issuers.
Response:
The Trust respectfully declines to provide such additional information. The data provided for domestic issuers is based on information
contained in their respective Form 10-K filings. In contrast, Form 20-F, the analogous form used for ADRs, does not mandate the disclosure
of such information. Consequently, the Trust does not have access to the same level of detail for ADRs as it does for domestic issuers,
making it infeasible to accurately furnish the requested additional information.
13. With
respect to the YieldMax™ CVNA Option Income Strategy ETF only, the Staff notes that
the risk factor automotive industry risk appears to be focused on risks for automotive manufacturers,
while Carvana is the automotive retail industry, which would presumably relates to consumer
demand, inventory, and/or auto lending and finance. Please revise as necessary.
Response:
The Trust confirms that the automotive industry risk has been revised accordingly.
14. With
respect to the YieldMax™ HOOD Option Income Strategy ETF, the Staff notes that subsequent
to the filing of the Amendment, Robinhood Markets, Inc. announced plans to significantly
expand its cryptocurrency business by acquisition of global crypto exchange Bitstamp expected
to close in the first half of 2025. Given this event, please expand the existing risk discussion
to address potential cryptocurrency exchange related risks for Robinhood.
Response:
The Trust confirms that existing risk discussion has been bolstered address potential cryptocurrency exchange related risks for Robinhood.
15. For
the YieldMax™ MARA Option Income Strategy ETF, please consider moving the section “Information
About Bitcoin” to after the description of MARA as a bitcoin miner. In addition, please
confirm to the Staff in correspondence that MARA is an actual operating company, and not
a commodity pool.
Response:
The Trust confirms that the section entitled “Information About Bitcoin” h