Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to the Listing and Trading of Shares of the PIMCO Low Duration Investment Grade Corporate Bond Active Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600, 78533-78540 [2014-30444]
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Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Notices
trade to a separate, stand-alone rule
protects investors by eliminating
confusion and making the provision
more clear. Because options trades are
used to hedge transactions in other
markets, including securities and
futures, many market participants
would rather adjust prices of executions
rather than nullify the transactions and,
thus, lose a hedge altogether. As such,
the Exchange believes it is in the best
interest of investors to allow for price
adjustments as well as nullifications. In
addition, the Exchange believes it is in
the nature of a fair and orderly market
to allow for price adjustments rather
than only cancellations because an
adjustment would result in the least
amount of disruption to the overall
market. Further, the Exchange believes
that, harmonizing its nullification and
adjustment rules with other options
markets would promote just and
equitable principles of trade by better
allowing the market participants to be
treated similarly across exchanges. The
Exchange also believes that the other
administrative changes would remove
impediments to and perfect the
mechanism of a fair and orderly market
as they are merely trying to create more
transparency in the Exchange’s rules.
Finally, the Exchange does not believe
that the proposed changes are unfairly
discriminatory because they will be
applied to all ATP Holders equally.
mstockstill on DSK4VPTVN1PROD with NOTICES
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 not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is not designed to
address any aspect of competition,
whether between the Exchange and its
competitors, or among market
participants. Instead, the proposed rule
change is designed to adopt the
nullification and adjustment of trades
on similar terms to that of other options
exchanges.14
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 15 and Rule 19b–
4(f)(6) thereunder.16
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEMKT–2014–102 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2014–102. 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 (https://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.,
15 15
14 See
note 7 supra.
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16 17
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
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78533
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
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–
NYSEMKT–2014–102, and should be
submitted on or before January 20, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Brent J. Fields,
Secretary.
[FR Doc. 2014–30441 Filed 12–29–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73908; File No. SR–
NYSEArca–2014–85]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Relating to the
Listing and Trading of Shares of the
PIMCO Low Duration Investment Grade
Corporate Bond Active ExchangeTraded Fund Under NYSE Arca
Equities Rule 8.600
December 22, 2014.
I. Introduction
On October 23, 2014, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
PIMCO Low Duration Investment Grade
Corporate Bond Active ExchangeTraded Fund (‘‘Fund’’) under NYSE
Arca Equities Rule 8.600. The proposed
rule change was published for comment
in the Federal Register on November 14,
2014.3 The Commission received no
comments on the proposal. This order
grants approval of the proposed rule
change.
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 73556
(Nov. 7, 2014), 79 FR 68330 (‘‘Notice’’).
1 15
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II. Description of the Proposal
A. Principal Investments of the Fund
NYSE Arca proposes to list and trade
Shares of the Fund under NYSE Arca
Equities 8.600, which governs the listing
and trading of Managed Fund Shares on
the Exchange. The Shares will be
offered by PIMCO ETF Trust (‘‘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.4 Pacific Investment
Management Company LLC will be the
investment manager to the Fund
(‘‘PIMCO’’ or ‘‘Adviser),5 and PIMCO
Investments LLC will serve as the
distributor for the Fund. State Street
Bank & Trust Co. will serve as the
custodian and transfer agent for the
Fund.
The Exchange has made the following
representations and statements in
describing the Fund and its investment
strategy, including other portfolio
holdings and investment restrictions.6
The Fund will seek to maximize total
return, consistent with prudent
investment management, by investing
under normal circumstances 7 at least
80% of its assets in a diversified
portfolio of investment grade corporate
‘‘Fixed Income Instruments’’ (as
described in more detail below) of
varying maturities, which may be
represented by certain derivative
instruments, as described in more detail
below (‘‘80% Policy’’). Corporate Fixed
Income Instruments will be: Corporate
debt securities of U.S. and non-U.S.
issuers, including convertible securities
and corporate commercial paper; 8
inflation-indexed bonds; 9 bank capital
securities; 10 trust preferred securities;
and loan participations and
assignments.11
The average portfolio duration of the
Fund normally will vary from zero to 4
years based on PIMCO’s forecast for
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4 The
Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). The Exchange
represents that, on June 17, 2014, the Trust filed an
amendment to its registration statement on Form N–
1A under the Securities Act of 1933 (‘‘1933 Act’’)
and the 1940 Act relating to the Fund (File Nos.
333–155395 and 811–22250) (‘‘Registration
Statement’’). In addition, the Exchange represents
that the Trust has obtained from the Commission
certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 28993
(November 10, 2009) (File No. 812–13571).
5 The Exchange represents that the Adviser is not
registered as a broker-dealer, but is affiliated with
a broker-dealer, and will implement a ‘‘fire wall’’
with respect to its broker-dealer affiliate regarding
access to information concerning the composition
or changes to the Fund’s portfolio. The Exchange
further represents that, if PIMCO elects to hire a
sub-adviser for the Fund that is registered as a
broker-dealer or is affiliated with a broker-dealer,
such sub-adviser will implement a fire wall with
respect to its relevant personnel or its broker-dealer
affiliate, as applicable, regarding access to
information concerning the composition 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. In the event (a) the Adviser becomes
registered as a broker-dealer or newly affiliated with
a broker-dealer, or (b) any new adviser or subadviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, the Adviser or any
new adviser or sub-adviser, as the case may be, will
implement a fire wall with respect to its relevant
personnel or broker-dealer affiliate, as applicable,
regarding access to information concerning the
composition or changes to the portfolio, and will be
subject to procedures designed to prevent the use
and dissemination of material, non-public
information regarding the portfolio.
6 The Commission notes that additional
information regarding the Fund, the Trust, and the
Shares, including investment strategies, risks,
creation and redemption procedures, fees, portfolio
holdings disclosure policies, calculation of net asset
value (‘‘NAV’’), distributions, and taxes, among
other things, can be found in the Notice and the
Registration Statement, as applicable. See Notice
and Registration Statement, supra notes 3 and 4,
respectively.
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7 With respect to the Fund, the term ‘‘under
normal circumstances’’ includes, but is not limited
to, the absence of extreme volatility or trading halts
in the fixed income markets or the financial markets
generally; operational issues causing dissemination
of inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar
intervening circumstance.
8 The Exchange represents that, with respect to
the Fund, while non-emerging markets corporate
debt securities (excluding commercial paper)
generally must have $100 million or more par
amount outstanding and significant par value
traded to be considered as an eligible investment for
the Fund, at least 80% of issues of such securities
held by the Fund must have $100 million or more
par amount outstanding at the time of investment.
See also infra note 30 (regarding emerging market
corporate debt securities).
9 Inflation-indexed bonds (other than municipal
inflation-indexed bonds and certain corporate
inflation-indexed bonds) are fixed income securities
whose principal value is periodically adjusted
according to the rate of inflation (e.g., Treasury
Inflation Protected Securities). Municipal inflationindexed securities are municipal bonds that pay
coupons based on a fixed rate plus the Consumer
Price Index for All Urban Consumers. With regard
to municipal inflation-indexed bonds and certain
corporate inflation-indexed bonds, the inflation
adjustment is reflected in the semi-annual coupon
payment.
10 There are two common types of bank capital:
Tier I and Tier II. Bank capital is generally, but not
always, of investment grade quality. Tier I securities
are typically exchange-traded and often take the
form of trust preferred securities. Tier II securities
are commonly thought of as hybrids of debt and
preferred stock. Tier II securities are typically
traded over-the-counter, are often perpetual (with
no maturity date), callable and, under certain
conditions, allow for the issuer bank to withhold
payment of interest until a later date. However,
such deferred interest payments generally earn
interest.
11 According to the Exchange, the Fund may
invest in fixed- and floating-rate loans, which
investments generally will be in the form of loan
participations and assignments of portions of such
loans.
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interest rates.12 In furtherance of the
Fund’s 80% Policy, or with respect to
the Fund’s other investments, the
Exchange represents that the Fund may
invest in derivative instruments, subject
to applicable law and any other
restrictions described herein.
According to the Exchange, the Fund
may purchase or sell securities on a
when-issued, delayed delivery or
forward commitment basis and may
engage in short sales.13 The Fund may,
without limitation, seek to obtain
market exposure to the securities in
which it primarily invests by entering
into a series of purchase and sale
contracts or by using other investment
techniques (such as buy backs or dollar
rolls).14
In selecting investments for the Fund,
PIMCO will develop an outlook for
interest rates, currency exchange rates,
and the economy; analyze credit and
call risks; and use other investment
selection techniques. The proportion of
the Fund’s assets committed to
investments in securities with particular
characteristics (such as quality, sector,
interest rate, or maturity) will vary
based on PIMCO’s outlook for the U.S.
economy and the economies of other
countries in the world, the financial
markets, and other factors.
According to the Exchange, in seeking
to identify undervalued currencies,
PIMCO may consider many factors, with
respect to the Fund, including but not
limited to, longer-term analysis of
relative interest rates, inflation rates,
real exchange rates, purchasing power
parity, trade account balances, and
current account balances, as well as
other factors that influence exchange
rates such as flows, market technical
trends, and government policies. With
respect to fixed income investing,
PIMCO will attempt to identify areas of
the bond market that are undervalued
relative to the rest of the market. PIMCO
will identify these areas by grouping
fixed income investments into sectors
such as money markets, governments,
corporates, mortgages, asset-backed, and
international. Sophisticated proprietary
software will then assist in evaluating
sectors and pricing specific investments.
Once investment opportunities are
12 Duration is a measure used to determine the
sensitivity of a security’s price to changes in
interest rates. The longer a security’s duration, the
more sensitive it will be to changes in interest rates.
13 The Fund may make short sales of securities to
offset potential declines in long positions in similar
securities and increase the flexibility of the Fund,
as well as for investment return, and as part of a
risk arbitrage strategy.
14 A dollar roll is similar except that the
counterparty is not obligated to return the same
securities as those originally sold by the Fund but
only securities that are ‘‘substantially identical.’’
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Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Notices
identified, PIMCO will shift assets
among sectors depending upon changes
in relative valuations, credit spreads,
and other factors.
B. Other (Non-Principal) Investments of
the Fund
mstockstill on DSK4VPTVN1PROD with NOTICES
The Exchange represents that the nonprincipal investments listed below
would consist of investments that are
not included in the Fund’s 80% Policy.
Such assets may be invested in the
Fixed Income Instruments and other
instruments, as described below.
According to the Exchange, with
respect to the Fund’s investments, Fixed
Income Instruments will include any
one or more of the following: securities
issued or guaranteed by the U.S.
Government, its agencies or
government-sponsored enterprises
(‘‘U.S. Government Securities’’);
mortgage-backed and other asset-backed
securities; 15 structured notes, including
hybrid or ‘‘indexed’’ securities and
event-linked bonds; 16 delayed funding
loans and revolving credit facilities;
bank certificates of deposit, fixed time
deposits and bankers’ acceptances;
repurchase agreements on Fixed Income
Instruments and reverse repurchase
agreements on Fixed Income
Instruments; debt securities issued by
states or local governments and their
agencies, authorities, and other
government-sponsored enterprises;
obligations of non-U.S. governments or
their subdivisions, agencies, and
government-sponsored enterprises;
obligations of international agencies or
supranational entities.
According to the Exchange, the Fund
may gain exposure to the real estate
sector by investing in over-the-counter
15 According to the Exchange, mortgage-related
and other asset-backed securities include
collateralized mortgage obligations (‘‘CMOs’’),
commercial mortgage-backed securities, mortgage
dollar rolls, CMO residuals, stripped mortgagebacked securities, and other securities that directly
or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on
real property. A to-be-announced (‘‘TBA’’)
transaction is a method of trading mortgage-backed
securities. In a TBA transaction, the buyer and
seller agree upon general trade parameters such as
agency, settlement date, par amount, and price. The
actual pools delivered generally are determined two
days prior to the settlement date.
16 The Exchange represents that the Fund may
obtain event-linked exposure by investing in
‘‘event-linked bonds’’ or ‘‘event-linked swaps’’ or
by implementing ‘‘event-linked strategies.’’ Eventlinked exposure results in gains or losses that
typically are contingent, or formulaically related to
defined trigger events, which include hurricanes,
earthquakes, weather-related phenomena, or
statistics relating to such events. Some event-linked
bonds are commonly referred to as ‘‘catastrophe
bonds.’’ If a trigger event occurs, the Fund may lose
a portion or its entire principal invested in the bond
or notional amount on a swap.
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Jkt 235001
(‘‘OTC’’) real estate-linked derivatives,17
exchange-traded and OTC real estate
investment trusts (‘‘REITs’’), and
exchange traded common, exchangetraded and OTC preferred, and
exchange-traded and OTC convertible
securities of issuers in real estate-related
industries.18
The Fund may invest in variable and
floating rate securities that are not
corporate Fixed Income Instruments.
The Fund may invest in floaters and
inverse floaters that are not corporate
Fixed Income Instruments.
The Fund may invest in trade
claims,19 privately placed and
unregistered securities, and exchangetraded and OTC-traded structured
products,20 including credit-linked
securities 21 and commodity-linked
notes. The Fund also may invest in
Brady Bonds.
The Exchange represents that the
Fund may enter into repurchase
agreements on instruments other than
corporate Fixed Income Instruments, in
addition to repurchase agreements on
corporate Fixed Income Instruments
17 Real estate-linked derivatives are derivative
instruments that are tied to real estate, such as
derivatives (e.g., swaps or options) on real-estate
related indices or specific real-estate related
companies. The value and risks associated with real
estate-linked derivative instruments are generally
similar to those associated with direct ownership of
real estate.
18 See infra note 23 and accompanying text.
19 Trade claims are non-securitized rights of
payment arising from obligations that typically arise
when vendors and suppliers extend credit to a
company by offering payment terms for products
and services. If the company files for bankruptcy,
payments on these trade claims stop and the claims
are subject to compromise along with the other
debts of the company. Trade claims may be
purchased directly from the creditor or through
brokers.
20 The Fund invest in structured products,
including instruments such as credit-linked
securities. For example, a structured product may
combine a traditional stock, bond, or commodity
with an option or forward contract. Generally, the
principal amount, amount payable upon maturity or
redemption, or interest rate of a structured product
is tied (positively or negatively) to the price of some
commodity, currency, or securities index or another
interest rate or some other economic factor. The
interest rate or (unlike most fixed income securities)
the principal amount payable at maturity of a
structured product may be increased or decreased,
depending on changes in the value of the
benchmark. An example of exchange-traded
structured products would be exchange-traded
notes or ETNs, such as those listed and traded
under NYSE Arca Equities Rule 5.2(j)(6).
21 Credit-linked securities are generally a basket
of derivative instruments, such as credit default
swaps or interest rate swaps. Like an investment in
a bond, investments in credit-linked securities
represent the right to receive periodic income
payments (in the form of distributions) and
payment of principal at the end of the term of the
security. However, these payments are conditioned
on the trust’s receipt of payments from, and the
trust’s potential obligations to, the counterparties to
the derivative instruments and other securities in
which the trust invests.
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78535
mentioned above, in which the Fund
purchases a security from a bank or
broker-dealer, which agrees to purchase
the security at the Fund’s cost plus
interest within a specified time.
Repurchase agreements maturing in
more than seven days and which may
not be terminated within seven days at
approximately the amount at which the
Fund has valued the agreements will be
considered illiquid securities. The Fund
may enter into reverse repurchase
agreements on instruments other than
corporate Fixed Income Instruments, in
addition to reverse repurchase
agreements on corporate Fixed Income
Instruments mentioned above, subject to
the Fund’s limitations on borrowings.22
The Fund will segregate or ‘‘earmark’’
assets determined to be liquid by
PIMCO in accordance with procedures
established by the Board to cover its
obligations under reverse repurchase
agreements.
The Exchange represents that the
Fund may invest only up to 10% of its
total assets in preferred stocks,
convertible securities, common stocks,
and other equity-related securities, and
that this limitation will not include real
estate-related investments, such as
REITs or investments in common,
preferred, or convertible securities of
issuers in real estate-related
industries.23
The Exchange represents that the
Fund may invest up to 20% of its total
assets in structured notes, including
hybrid or ‘‘indexed’’ securities and
22 With respect to the Fund, a reverse repurchase
agreement involves the sale of a security by the
Fund and its agreement to repurchase the
instrument at a specified time and price.
23 Convertible securities are generally preferred
stocks and other securities (including fixed income
securities and warrants) that are convertible into or
exercisable for common stock at a stated price or
rate. Equity-related investments may include
investments in small-capitalization (‘‘small-cap’’),
mid-capitalization (‘‘mid-cap’’) and largecapitalization (‘‘large-cap’’) companies. According
to the Exchange, with respect to the Fund, a smallcap company will be defined as a company with a
market capitalization of up to $1.5 billion, a midcap company will be defined as a company with a
market capitalization of between $1.5 billion and
$10 billion and a large-cap company will be defined
as a company with a market capitalization above
$10 billion. Not more than 10% of the net assets
of the Fund in the aggregate invested in equity
securities (other than non-exchange-traded
investment company securities) shall consist of
equity securities, including stocks into which a
convertible security is converted, whose principal
market is not a member of the Intermarket
Surveillance Group (‘‘ISG’’) or is a market with
which the Exchange does not have a comprehensive
surveillance sharing agreement (‘‘CSSA’’).
Furthermore, not more than 10% of the net assets
of the Fund in the aggregate invested in futures
contracts or exchange-traded options contracts shall
consist of futures contracts or exchange-traded
options contracts whose principal market is not a
member of ISG or is a market with which the
Exchange does not have a CSSA.
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event-linked bonds. Additionally, the
Fund may invest up to 15% of its total
assets in high yield securities (‘‘junk
bonds’’) rated below BBB¥ (with a
minimum level of B¥ at purchase) by
Standard & Poor’s Ratings Services
(‘‘S&P’’), or equivalently rated by
Moody’s Investors Service, Inc.
(‘‘Moody’s’’) or Fitch, Inc. (‘‘Fitch’’), or,
if unrated, determined by PIMCO to be
of comparable quality (except that
within such limitation, the Fund may
invest in mortgage-related securities
rated below B¥).24
C. Investments in Derivative Instruments
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With respect to the Fund, the
Exchange represents that derivative
instruments will include forwards; 25
exchange-traded and OTC options
contracts; exchange-traded futures
contracts; exchange-traded and OTC
swap agreements; exchange-traded
options on futures contracts; and OTC
options on swap agreements.26 The
Fund may, but is not required to, use
derivative instruments for risk
management purposes or as part of its
investment strategies.27
24 With respect to the Fund, securities rated Ba or
lower by Moody’s, or equivalently rated by S&P or
Fitch, are sometimes referred to as ‘‘high yield
securities’’ or ‘‘junk bonds,’’ while securities rated
Baa or higher are referred to as ‘‘investment grade.’’
Unrated securities may be less liquid than
comparable rated securities and involve the risk
that the Fund’s portfolio manager may not
accurately evaluate the security’s comparative
credit rating. To the extent that the Fund invests in
unrated securities, the Fund’s success in achieving
its investment objective may depend more heavily
on the portfolio manager’s creditworthiness
analysis than if the Fund invested exclusively in
rated securities. In determining whether a security
is of comparable quality, the Adviser will consider,
for example, whether the issuer of the security has
issued other rated securities; whether the
obligations under the security are guaranteed by
another entity and the rating of such guarantor (if
any); whether and (if applicable) how the security
is collateralized; other forms of credit enhancement
(if any); the security’s maturity date; liquidity
features (if any); relevant cash flow(s); valuation
features; other structural analysis; macroeconomic
analysis; and sector or industry analysis.
25 Forwards are contracts to purchase or sell
securities for a fixed price at a future date beyond
normal settlement time (forward commitments).
26 The Exchange represents that in the future, in
the event that there are exchange-traded options on
swaps, the Fund may invest in these instruments.
27 According to the Exchange, the Fund will seek,
where possible, to use counterparties whose
financial status is such that the risk of default is
reduced; however, the risk of losses resulting from
default is still possible. PIMCO’s Counterparty Risk
Committee evaluates the creditworthiness of
counterparties on an ongoing basis. In addition to
information provided by credit agencies, PIMCO
credit analysts evaluate each approved counterparty
using various methods of analysis, including
company visits, earnings updates, the brokerdealer’s reputation, PIMCO’s past experience with
the broker-dealer, market levels for the
counterparty’s debt and equity, the counterparty’s
liquidity, and its share of market participation.
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21:42 Dec 29, 2014
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According to the Exchange, the Fund
will typically use derivative instruments
as a substitute for taking a position in
the underlying asset and as part of a
strategy designed to reduce exposure to
other risks, such as interest rate or
currency risk. The Fund may also use
derivative instruments to enhance
returns. To limit the potential risk
associated with such transactions, the
Fund will segregate or ‘‘earmark’’ assets
determined to be liquid by PIMCO in
accordance with procedures established
by the Trust’s Board of Trustees
(‘‘Board’’) and in accordance with the
1940 Act (or, as permitted by applicable
regulation, enter into certain offsetting
positions) to cover its obligations under
derivative instruments. In addition, the
Exchange represents that the Fund will
include appropriate risk disclosure in
its offering documents, including
leveraging risk. Leveraging risk is the
risk that certain transactions of the
Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.28
According to the Exchange, the Fund
also can use derivatives to increase or
decrease credit exposure. Index credit
default swaps (CDX) can be used to gain
exposure to a basket of credit risk by
‘‘selling protection’’ against default or
other credit events, or to hedge broad
market credit risk by ‘‘buying
protection.’’ Single name credit default
swaps (CDS) can be used to allow the
Fund to increase or decrease exposure
to specific issuers, saving investor
capital through lower trading costs. The
Fund can use total return swap
contracts to obtain the total return of a
reference asset or index in exchange for
paying a financing cost. A total return
swap may be much more efficient than
buying underlying securities of an
index, potentially lowering transaction
costs.
above, the Fund may invest without
limit, for temporary or defensive
purposes, in such instruments if PIMCO
deems it appropriate to do so.
The Exchange represents that the
Fund may invest in, to the extent
permitted by Section 12(d)(1)(A) of the
1940 Act, other affiliated and
unaffiliated funds, such as open-end or
closed-end management investment
companies, including other exchangetraded funds, provided that the Fund’s
investment in units or shares of
investment companies and other openend collective investment vehicles will
not exceed 10% of the Fund’s total
assets. The Fund may invest its
securities lending collateral in one or
more money market funds to the extent
permitted by Rule 12d1–1 under the
1940 Act, including series of PIMCO
Funds.
The Exchange represents that the
Fund may invest up to 20% of its total
assets in mortgage-related and other
asset backed securities, although this
20% limitation will not apply to
securities issued or guaranteed by
Federal agencies and/or U.S.
government sponsored
instrumentalities. The Fund may invest
up to 20% of its total assets in securities
denominated in foreign currencies, and
may invest beyond this limit in U.S.
dollar denominated securities of foreign
issuers. The Fund will normally limit its
foreign currency exposure (from nonU.S. dollar-denominated securities or
currencies) to 10% of its total assets.29
The Fund may engage in foreign
currency transactions either on a spot
(cash) basis at the rate prevailing in the
currency exchange market at the time or
through forward currency contracts. The
Exchange represents that the Fund may
invest up to 20% of its total assets in
securities and instruments of issuers
economically tied to emerging market
countries.30
D. Investment Restrictions
29 The Exchange represents that the Fund will
limit its investments in currencies to those
currencies with a minimum average daily foreign
exchange turnover of USD $1 billion as determined
by the Bank for International Settlements (‘‘BIS’’)
Triennial Central Bank Survey. As of the most
recent BIS Triennial Central Bank Survey, at least
52 separate currencies had minimum average daily
foreign exchange turnover of USD $1 billion. For a
list of eligible currencies, see www.bis.org.
30 According to the Exchange, PIMCO will
generally consider an instrument to be
economically tied to an emerging market country if
the security’s ‘‘country of exposure’’ is an emerging
market country, as determined by the criteria set
forth in the Registration Statement. Alternatively,
such as when a ‘‘country of exposure’’ is not
available or when PIMCO believes the following
tests more accurately reflect which country the
security is economically tied to, PIMCO may
consider an instrument to be economically tied to
an emerging market country if the issuer or
guarantor is a government of an emerging market
According to the Exchange, if PIMCO
believes that economic or market
conditions are unfavorable to investors
or that market conditions are not
normal, PIMCO may temporarily invest
up to 100% of the Fund’s assets in
certain defensive strategies, including
holding a substantial portion of the
Fund’s assets in cash, cash equivalents,
or other highly rated, short-term
securities, including securities issued or
guaranteed by the U.S. government, its
agencies, or instrumentalities. As noted
28 To mitigate leveraging risk, the Adviser will
segregate or ‘‘earmark’’ liquid assets or otherwise
cover the transactions that may give rise to such
risk.
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The Exchange represents that the
Fund’s investments, including
investments in derivative instruments,
will be subject to all of the restrictions
under the 1940 Act, including
restrictions with respect to illiquid
assets. The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment), including Rule
144A securities deemed illiquid by the
Adviser, consistent with Commission
guidance.31 The Exchange represents
that the Fund will monitor its respective
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 the Fund’s net assets are held 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.
The Exchange represents that the
Fund will be diversified within the
meaning of the 1940 Act. In addition,
the Fund intends to qualify annually
and elect to be treated as a regulated
investment company under Subchapter
M of the Internal Revenue Code. The
Fund will not concentrate its
investments in a particular industry, as
that term is used in the 1940 Act, and
as interpreted, modified, or otherwise
country (or any political subdivision, agency,
authority or instrumentality of such government), if
the issuer or guarantor is organized under the laws
of an emerging market country, or if the currency
of settlement of the security is a currency of an
emerging market country. With respect to derivative
instruments, PIMCO will generally consider such
instruments to be economically tied to emerging
market countries if the underlying assets are
currencies of emerging market countries (or baskets
or indices of such currencies), or instruments or
securities that are issued or guaranteed by
governments of emerging market countries or by
entities organized under the laws of emerging
market countries. While emerging markets
corporate debt securities (excluding commercial
paper) generally must have $200 million or more
par amount outstanding and significant par value
traded to be considered as an eligible investment for
the Fund, at least 80% of issues of such securities
held by the Fund must have $200 million or more
par amount outstanding at the time of investment.
31 According to the Exchange, in reaching
liquidity decisions, the Adviser may consider the
following factors: the frequency of trades and
quotes for the security; the number of dealers
willing 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 trades (e.g., the time needed to dispose
of the security, the method of soliciting offers, and
the mechanics of transfer).
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21:42 Dec 29, 2014
Jkt 235001
permitted by a regulatory authority
having jurisdiction from time to time.
The Exchange further represents that
the Fund’s investments, including
derivatives, will be consistent with the
Fund’s investment objective and the
Fund’s use of derivatives may be used
to enhance leverage. However, the
Fund’s investments will not be used to
seek performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
the Fund’s broad-based securities
market index (as defined in Form N–
1A).
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the Exchange’s proposal to list
and trade the Shares is consistent with
the Exchange Act and the rules and
regulations thereunder applicable to a
national securities exchange.32 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Exchange
Act,33 which requires, among other
things, that the Exchange’s rules be
designed 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.
The Commission finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Exchange Act,34
which sets forth Congress’ finding that
it is in the public interest and
appropriate for the protection of
investors and the maintenance of fair
and orderly markets to assure the
availability to brokers, dealers, and
investors of information with respect to
quotations for and transactions in
securities. Quotation and last-sale
information for the Shares will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line. In
addition, the Portfolio Indicative Value
of the Fund, as defined in NYSE Arca
Equities Rule 8.600(c)(3), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Core Trading
Session.35 On each business day, before
commencement of trading in Shares in
32 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
33 15 U.S.C. 78f(b)(5).
34 15 U.S.C. 78k–1(a)(1)(C)(iii).
35 The Exchange states that several major market
data vendors display or make widely available
Portfolio Indicative Values taken from the CTA or
other data feeds.
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Frm 00157
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Sfmt 4703
78537
the Core Trading Session on the
Exchange, the Fund will disclose on the
Trust’s Web site the Disclosed Portfolio
(as defined in NYSE Arca Equities Rule
8.600(c)(2)) that will form the basis for
the Fund’s calculation of NAV at the
end of the business day.36 In addition,
a basket composition file, which
includes the security names and share
quantities (as applicable) required to be
delivered in exchange for the Fund’s
Shares, together with estimates and
actual cash components, will be
publicly disseminated daily prior to the
opening of the Exchange via the
National Securities Clearing
Corporation. The NAV of the Fund’s
Shares will normally be determined as
of the close of the regular trading
session on the Exchange (ordinarily 4:00
p.m. Eastern time) on each business
day.37 Information regarding market
36 On a daily basis, the Fund will disclose the
following information regarding each portfolio
holding, as applicable to the type of holding: Ticker
symbol, CUSIP number or other identifier, if any;
a description of the holding (including the type of
holding, such as the type of swap); the identity of
the security, commodity, index or other asset or
instrument underlying the holding, if any; for
options, the option strike price; quantity held (as
measured by, for example, par value, notional value
or number of shares, contracts or units); maturity
date, if any; coupon rate, if any; effective date, if
any; market value of the holding; and the
percentage weighting of the holding in the Fund’s
portfolio. The Web site information will be publicly
available at no charge.
37 The NAV per Share of the Fund will be
determined by dividing the total value of the Fund’s
portfolio investments and other assets, less any
liabilities, by the total number of Shares
outstanding. According to the Exchange, portfolio
securities and other assets for which market quotes
are readily available will be valued at market value.
Market value will generally be determined on the
basis of last reported sales prices, or if no sales are
reported, based on quotes obtained from a quotation
reporting system, established market makers, or
pricing services. Fixed Income Instruments,
including those to be purchased under firm
commitment agreements/delayed delivery basis,
will generally be valued on the basis of quotes
obtained from brokers and dealers or independent
pricing services. Domestic and foreign fixed income
securities will generally be valued on the basis of
quotes obtained from brokers and dealers or pricing
services using data reflecting the earlier closing of
the principal markets for those assets. Short-term
debt instruments having a remaining maturity of 60
days or less will generally be valued at amortized
cost. Derivatives will generally be valued on the
basis of quotes obtained from brokers and dealers
or pricing services using data reflecting the earlier
closing of the principal markets for those assets.
Local closing prices will be used for all instrument
valuation purposes. Foreign currency-denominated
derivatives will generally be valued as of the
respective local region’s market close. With respect
to specific derivatives: Currency spot and forward
rates from major market data vendors will generally
be determined as of the NYSE Close; exchangetraded futures will generally be valued at the
settlement price of the relevant exchange; a total
return swap on an index will be valued at the
publicly available index price; equity total return
swaps will generally be valued using the actual
underlying equity at local market closing, while
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price and trading volume of the Shares
will be continually available on a realtime 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.
Intra-day and closing price
information regarding exchange-traded
equity securities, including common
stocks, preferred stocks, securities
convertible into stocks, closed-end
funds, exchange-traded funds,
exchange-traded structured products
(including ETNs), exchange-traded
REITs, and other equity-related
securities, will be available from the
exchange on which such securities are
traded. Intra-day and closing price
information regarding exchange-traded
options (including options on futures)
and futures will be available from the
exchange on which such instruments
are traded. Intra-day and closing price
information regarding Fixed Income
Instruments and other forms of debt
securities also will be available from
major market data vendors. Pricing
information relating to forwards, spot
currency, OTC options and swaps will
be available from major market data
vendors. Pricing information regarding
money market instruments, OTC REITs,
bank loan total return swaps will generally be
valued using the evaluated underlying bank loan
price minus the strike price of the loan; exchangetraded non-equity options, index options, and
options on futures will generally be valued at the
official settlement price determined by the relevant
exchange, if available; OTC and exchange-traded
equity options will generally be valued on a basis
of quotes obtained from a quotation reporting
system, established market makers, or pricing
services or at the settlement price of the applicable
exchange; OTC FX options will generally be valued
by pricing vendors; all other swaps such as interest
rate swaps, inflation swaps, swaptions, credit
default swaps, and CDX/CDS will generally be
valued by pricing services. Investment company
securities that are not exchange-traded will be
valued at NAV. Equity securities traded OTC will
be valued based on price quotations obtained from
a broker-dealer who makes markets in such
securities or other equivalent indications of value
provided by a third-party pricing service. Money
market instruments, trade claims, OTC REITs,
privately placed and unregistered securities, OTC
structured products, OTC real-estate linked
derivatives, credit-linked securities, commoditylinked notes, Brady Bonds, variable and floating
rate securities that are not corporate Fixed Income
Instruments; floaters and inverse floaters that are
not corporate Fixed Income Instruments and other
types of debt securities will generally be valued on
the basis of independent pricing services or quotes
obtained from brokers and dealers. Securities and
other assets for which market quotes are not readily
available will be valued at fair value as determined
in good faith by the Board or persons acting at their
direction. The Board has adopted methods for
valuing securities and other assets in circumstances
where market quotes are not readily available, and
has delegated to PIMCO the responsibility for
applying the valuation methods.
VerDate Sep<11>2014
21:42 Dec 29, 2014
Jkt 235001
private activity bonds, trade claims,
privately placed and unregistered
securities, OTC real estate-linked
derivatives, OTC structured products,
credit-linked securities, commoditylinked notes, Brady Bonds, variable and
floating rate securities that are not
corporate Fixed Income Instruments and
floaters and inverse floaters that are not
corporate Fixed Income Instruments
will be available from major market data
vendors. Pricing information regarding
other investment company securities
will be available from on-line
information services and from the Web
site for the applicable investment
company security. Exchange-traded
options quotation and last-sale
information for options cleared via the
Options Clearing Corporation is
available via the Options Price
Reporting Authority. Pricing
information relating to equity securities
traded OTC will be available from major
market data vendors. The Trust’s Web
site will include a form of the
prospectus for the Fund and additional
data relating to NAV and other
applicable quantitative information.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Exchange will obtain a representation
from the issuer of the Shares of the
Fund that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time. Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule
7.12 have been reached. In addition,
trading in the Shares of the Fund may
be halted because of other market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable.38 Trading in the
Shares also will be subject to NYSE
Arca Equities Rule 8.600(d)(2)(D), which
sets forth additional circumstances
under which trading in Shares of the
Fund may be halted.
The Exchange represents that it has a
general policy prohibiting the
distribution of material, non-public
38 These reasons may include: (1) The extent to
which trading is not occurring in the securities and
financial instruments comprising the Disclosed
Portfolio of the Fund; or (2) whether other unusual
conditions or circumstances detrimental to the
maintenance of a fair and orderly market are
present. 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 Fund.
PO 00000
Frm 00158
Fmt 4703
Sfmt 4703
information by its employees.
Consistent with NYSE Arca Equities
Rule 8.600(d)(2)(B)(ii), the Fund’s
‘‘Reporting Authority’’ must implement
and maintain, or be subject to,
procedures designed to prevent the use
and dissemination of material, nonpublic information regarding the actual
components of the Fund’s portfolio. The
Exchange represents that the Adviser is
not registered as a broker-dealer, but is
affiliated with a broker-dealer, and will
implement a ‘‘fire wall’’ with respect to
such broker-dealer affiliate regarding
access to information concerning the
composition or changes to the Fund’s
portfolio.39 Prior to the commencement
of trading, the Exchange states that it
will inform its Equity Trading Permit
Holders in an Information Bulletin of
the special characteristics and risks
associated with trading the Shares. The
Exchange further represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws.40
The Exchange represents that it deems
the Shares to be equity securities, thus
rendering the trading of the Shares
subject to the Exchange’s existing rules
governing the trading of equity
securities. In support of this proposal,
the Exchange has made representations,
including:
39 See supra note 5. The Exchange states that an
investment adviser to an open-end fund is required
to be registered under the Investment Advisers Act
of 1940 (‘‘Advisers Act’’). As a result, the Adviser
and Sub-Adviser and their related personnel are
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
violation, 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.
40 The Exchange states that FINRA surveils
trading on the Exchange pursuant to a regulatory
services agreement and that the Exchange is
responsible for FINRA’s performance under this
regulatory services agreement.
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(1) The Shares will conform to the
initial and continued listing criteria
under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) Trading in the Shares will be
subject to the existing trading
surveillances, administered by FINRA
on behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws, and that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.
(4) FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the exchange-traded options,
exchange-traded equities (including
common stocks, exchange-traded
investment companies, exchangetraded convertibles and preferred
securities, exchange-traded REITs, and
exchange-traded structured products,
including ETNs), futures, and options
on futures with other markets or other
entities that are members of the ISG, and
FINRA may obtain trading information
regarding trading in the Shares,
exchange-traded options, exchangetraded equities, futures, and options on
futures from such markets or entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, exchange-traded options,
exchange-traded equities, futures, and
options on futures from markets or other
entities that are members of ISG or with
which the Exchange has in place a
CSSA.41 The Exchange states that
FINRA, on behalf of the Exchange, is
able to access, as needed, trade
information for certain fixed income
securities held by the Fund that is
reported to FINRA’s Trade Reporting
and Compliance Engine, and that
FINRA also can access data obtained
from the Municipal Securities
Rulemaking Board relating to municipal
bond trading activity for surveillance
purposes in connection with trading in
the Shares.
(5) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Information Bulletin will discuss the
following: (a) The procedures for
41 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund
may trade on markets that are members of ISG or
with which the Exchange has in place a CSSA.
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21:42 Dec 29, 2014
Jkt 235001
purchases and redemptions of Shares in
creation unit aggregations (and that
Shares are not individually redeemable);
(b) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its Equity Trading Permit Holders to
learn the essential facts relating to every
customer prior to trading the Shares; (c)
the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated Portfolio
Indicative Value will not be calculated
or publicly disseminated; (d) how
information regarding the Portfolio
Indicative Value is disseminated; (e) the
requirement that Equity Trading Permit
Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(6) For initial and continued listing,
the Fund will be in compliance with
Rule 10A–3 under the Exchange Act,42
as provided by NYSE Arca Equities Rule
5.3.
(7) The Fund’s investments will not
be used to seek performance that is the
multiple or inverse multiple (i.e., 2Xs
and 3Xs) of the Fund’s broad-based
securities market index (as defined in
Form N–1A).
(8) The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment), including Rule
144A Securities deemed illiquid by the
Advisor or Sub-Advisor, in accordance
with Commission guidance.
(9) The Fund will seek, where
possible, to use counterparties whose
financial status is such that the risk of
default is reduced. PIMCO’s
Counterparty Risk Committee evaluates
the creditworthiness of counterparties
on an ongoing basis. In addition to
information provided by credit agencies,
PIMCO credit analysts evaluate each
approved counterparty using various
methods of analysis, including company
visits, earnings updates, the brokerdealer’s reputation, PIMCO’s past
experience with the broker-dealer,
market levels for the counterparty’s debt
and equity, the counterparty’s liquidity,
and its share of market participation.
(10) The Fund may invest only up to
10% of its total assets in preferred
stocks, convertible securities, common
stocks, and other equity-related
securities; such limit will not include
real-estate related investments, such as
REITs or investments in common,
preferred, or convertible securities of
issuers in real estate-related industries.
(11) Not more than 10% of the net
assets of the Fund in the aggregate
42 17
PO 00000
CFR 240.10A–3.
Frm 00159
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78539
invested in equity securities (other than
non-exchange-traded investment
company securities) shall consist of
equity securities, including stocks into
which a convertible security is
converted, whose principal market is
not a member of the ISG or is a market
with which the Exchange does not have
a CSSA.
(12) Not more than 10% of the net
assets of the Fund in the aggregate
invested in futures contracts or
exchange-traded options contracts shall
consist of futures contracts or exchangetraded options contracts whose
principal market is not a member of ISG
or is a market with which the Exchange
does not have a CSSA.
(13) The Fund shall invest at least
80% of its assets in corporate debt
securities of U.S. and non-U.S. issuers
(which may be represented by certain
derivatives), including convertible
securities and corporate commercial
paper; inflation-indexed bonds; bank
capital securities; trust preferred
securities; and loan participations and
assignments.
(14) The Fund may invest up to 20%
of its total assets in mortgage-related
and other asset backed securities (not
including securities issued or
guaranteed by Federal agencies and U.S.
government sponsored
instrumentalities).
(15) The Fund may invest up to 20%
of its total assets in structured notes,
including hybrid or ‘‘indexed’’
securities and event-linked bonds.
(16) The Fund may invest up to 15%
of its total assets in high yield securities
rated below BBB¥ (with a minimum
level of B¥ at purchase) by S&P, or
equivalently rated by Moody’s or Fitch,
or, if unrated, determined by PIMCO to
be of comparable quality (except that
within such limitation, the Fund may
invest in mortgage-related securities
rated below B¥).
(17) The Fund may invest up to 20%
of its total assets in securities and
instruments of issuers economically tied
to emerging market countries.
(18) While non-emerging markets
corporate debt securities (excluding
commercial paper) generally must have
$100 million or more par amount
outstanding and significant par value
traded to be considered as an eligible
investment for the Fund, at least 80% of
issues of such securities held by the
Fund must have $100 million or more
par amount outstanding at the time of
investment. In addition, while emerging
markets corporate debt securities
(excluding commercial paper) generally
must have $200 million or more par
amount outstanding and significant par
value traded to be considered as an
E:\FR\FM\30DEN1.SGM
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Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Notices
eligible investment for the Fund, at least
80% of issues of such securities held by
the Fund must have $200 million or
more par amount outstanding at the
time of investment.
(19) To mitigate leveraging risk as
result of certain transactions of the
Fund, including transactions in
derivative instruments, the Adviser will
segregate or ‘‘earmark’’ liquid assets or
otherwise cover the transactions that
may give rise to such risk.
(20) A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice, and the Exchange’s
description of the Fund. The
Commission notes that the Fund and the
Shares must comply with the
requirements of NYSE Arca Equities
Rule 8.600 to be listed and traded on the
Exchange.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 43 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,44
that the proposed rule change (SR–
NYSEArca–2014–85) be, and it hereby
is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
Brent J. Fields,
Secretary.
[FR Doc. 2014–30444 Filed 12–29–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
mstockstill on DSK4VPTVN1PROD with NOTICES
[Release No. 34–73912; File No. SR–
NASDAQ–2014–102]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change to
Require That a Company Publicly
Disclose the Denial of a Listing
Application
December 22, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
45 17 CFR 200.30–3(a)(12).
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
11, 2014, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to require that
companies publicly disclose the denial
of a listing application.
The text of the proposed rule change
is below; proposed new language is in
italics. There are no proposed deletions.
*
*
*
*
*
5205. The Applications and
Qualifications Process
(a)—(h) No change.
(i) (1) A Company may withdraw its
application for initial listing at any
time.
(2) A Company that receives a written
determination denying its application
for listing must, within four business
days, make a public announcement in a
press release or other Regulation FD
compliant manner about the receipt of
the determination and the Rule(s) upon
which the determination is based,
describing each specific basis and
concern identified by Nasdaq in
reaching its determination. If the public
announcement is not made by the
Company within the time allotted or
does not include all of the required
information, Nasdaq will make a public
announcement with the required
information and, if the Company
appeals the determination as set forth in
Rule 5815, the Hearings Panel will
consider the Company’s failure to make
the public announcement in considering
whether to list the Company.
*
*
*
*
*
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
43 15
44 15
VerDate Sep<11>2014
21:42 Dec 29, 2014
1 15
2 17
Jkt 235001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00160
Fmt 4703
Sfmt 4703
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq processes between 200 and
300 applications each year from
companies seeking to list securities on
Nasdaq. While most applicants meet the
listing requirements, or are prepared to
take action to meet those requirements
before listing, in some cases a company
does not meet the requirements and is
not willing, or able, to comply. In other,
rare instances, Nasdaq may determine to
deny an application based on public
interest concerns even though the
company meets all initial listing
requirements.3 In either of these cases,
the company is informed of the outcome
and can withdraw its application before
the application is formally denied.4 If
the company does not withdraw the
application, the Nasdaq Listing
Qualifications Department will issue a
written denial, which the company can
appeal to a Listing Qualifications
Hearings Panel.5
The procedures for such an appeal are
similar to an appeal from a delisting
determination. However, while the rules
provide transparency to a delisting
event by requiring the company to
disclose a delisting determination, there
is no comparable requirement for
disclosure of an initial listing denial.
Just as a delisting determination may
be considered a material event to the
investing public, Nasdaq believes that a
denial of initial listing is equally so,
particularly in the context of a company
that previously publicly announced its
intention to seek a listing, which is
often the case. Investors view such an
announcement to list as a positive
development and such announcements
often attract investor interest. Nasdaq
believes that the public is therefore
equally interested in the outcome of
such an application and proposes to
adopt a rule that would require a listing
applicant that has been denied listing to
publicly disclose the receipt of the
determination and the circumstances on
3 See
Listing Rule 5101 and IM–5101–1.
Nasdaq has always allowed a company to
withdraw its application at any time, the proposed
rule change will add this to the rules.
5 Listing Rule 5815(a)(1). A Company that has
appealed a written denial may also withdraw its
application (and appeal) while the appeal is
pending.
4 While
E:\FR\FM\30DEN1.SGM
30DEN1
]]>Agencies
[Federal Register Volume 79, Number 249 (Tuesday, December 30, 2014)]
[Notices]
[Pages 78533-78540]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30444]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73908; File No. SR-NYSEArca-2014-85]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to the Listing and Trading of
Shares of the PIMCO Low Duration Investment Grade Corporate Bond Active
Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600
December 22, 2014.
I. Introduction
On October 23, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the PIMCO Low Duration Investment Grade Corporate Bond
Active Exchange-Traded Fund (``Fund'') under NYSE Arca Equities Rule
8.600. The proposed rule change was published for comment in the
Federal Register on November 14, 2014.\3\ The Commission received no
comments on the proposal. This order grants approval of the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 73556 (Nov. 7,
2014), 79 FR 68330 (``Notice'').
---------------------------------------------------------------------------
[[Page 78534]]
II. Description of the Proposal
NYSE Arca proposes to list and trade Shares of the Fund under NYSE
Arca Equities 8.600, which governs the listing and trading of Managed
Fund Shares on the Exchange. The Shares will be offered by PIMCO ETF
Trust (``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.\4\ Pacific Investment Management Company
LLC will be the investment manager to the Fund (``PIMCO'' or
``Adviser),\5\ and PIMCO Investments LLC will serve as the distributor
for the Fund. State Street Bank & Trust Co. will serve as the custodian
and transfer agent for the Fund.
---------------------------------------------------------------------------
\4\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). The Exchange represents that, on June 17, 2014,
the Trust filed an amendment to its registration statement on Form
N-1A under the Securities Act of 1933 (``1933 Act'') and the 1940
Act relating to the Fund (File Nos. 333-155395 and 811-22250)
(``Registration Statement''). In addition, the Exchange represents
that the Trust has obtained from the Commission certain exemptive
relief under the 1940 Act. See Investment Company Act Release No.
28993 (November 10, 2009) (File No. 812-13571).
\5\ The Exchange represents that the Adviser is not registered
as a broker-dealer, but is affiliated with a broker-dealer, and will
implement a ``fire wall'' with respect to its broker-dealer
affiliate regarding access to information concerning the composition
or changes to the Fund's portfolio. The Exchange further represents
that, if PIMCO elects to hire a sub-adviser for the Fund that is
registered as a broker-dealer or is affiliated with a broker-dealer,
such sub-adviser will implement a fire wall with respect to its
relevant personnel or its broker-dealer affiliate, as applicable,
regarding access to information concerning the composition 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. In the event (a) the Adviser
becomes registered as a broker-dealer or 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, the
Adviser or any new adviser or sub-adviser, as the case may be, will
implement a fire wall with respect to its relevant personnel or
broker-dealer affiliate, as applicable, regarding access to
information concerning the composition or changes to the portfolio,
and will be subject to procedures designed to prevent the use and
dissemination of material, non-public information regarding the
portfolio.
---------------------------------------------------------------------------
The Exchange has made the following representations and statements
in describing the Fund and its investment strategy, including other
portfolio holdings and investment restrictions.\6\
---------------------------------------------------------------------------
\6\ The Commission notes that additional information regarding
the Fund, the Trust, and the Shares, including investment
strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, calculation of net asset
value (``NAV''), distributions, and taxes, among other things, can
be found in the Notice and the Registration Statement, as
applicable. See Notice and Registration Statement, supra notes 3 and
4, respectively.
---------------------------------------------------------------------------
A. Principal Investments of the Fund
The Fund will seek to maximize total return, consistent with
prudent investment management, by investing under normal circumstances
\7\ at least 80% of its assets in a diversified portfolio of investment
grade corporate ``Fixed Income Instruments'' (as described in more
detail below) of varying maturities, which may be represented by
certain derivative instruments, as described in more detail below
(``80% Policy''). Corporate Fixed Income Instruments will be: Corporate
debt securities of U.S. and non-U.S. issuers, including convertible
securities and corporate commercial paper; \8\ inflation-indexed bonds;
\9\ bank capital securities; \10\ trust preferred securities; and loan
participations and assignments.\11\
---------------------------------------------------------------------------
\7\ With respect to the Fund, the term ``under normal
circumstances'' includes, but is not limited to, the absence of
extreme volatility or trading halts in the fixed income markets or
the financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption, or any similar intervening circumstance.
\8\ The Exchange represents that, with respect to the Fund,
while non-emerging markets corporate debt securities (excluding
commercial paper) generally must have $100 million or more par
amount outstanding and significant par value traded to be considered
as an eligible investment for the Fund, at least 80% of issues of
such securities held by the Fund must have $100 million or more par
amount outstanding at the time of investment. See also infra note 30
(regarding emerging market corporate debt securities).
\9\ Inflation-indexed bonds (other than municipal inflation-
indexed bonds and certain corporate inflation-indexed bonds) are
fixed income securities whose principal value is periodically
adjusted according to the rate of inflation (e.g., Treasury
Inflation Protected Securities). Municipal inflation-indexed
securities are municipal bonds that pay coupons based on a fixed
rate plus the Consumer Price Index for All Urban Consumers. With
regard to municipal inflation-indexed bonds and certain corporate
inflation-indexed bonds, the inflation adjustment is reflected in
the semi-annual coupon payment.
\10\ There are two common types of bank capital: Tier I and Tier
II. Bank capital is generally, but not always, of investment grade
quality. Tier I securities are typically exchange-traded and often
take the form of trust preferred securities. Tier II securities are
commonly thought of as hybrids of debt and preferred stock. Tier II
securities are typically traded over-the-counter, are often
perpetual (with no maturity date), callable and, under certain
conditions, allow for the issuer bank to withhold payment of
interest until a later date. However, such deferred interest
payments generally earn interest.
\11\ According to the Exchange, the Fund may invest in fixed-
and floating-rate loans, which investments generally will be in the
form of loan participations and assignments of portions of such
loans.
---------------------------------------------------------------------------
The average portfolio duration of the Fund normally will vary from
zero to 4 years based on PIMCO's forecast for interest rates.\12\ In
furtherance of the Fund's 80% Policy, or with respect to the Fund's
other investments, the Exchange represents that the Fund may invest in
derivative instruments, subject to applicable law and any other
restrictions described herein.
---------------------------------------------------------------------------
\12\ Duration is a measure used to determine the sensitivity of
a security's price to changes in interest rates. The longer a
security's duration, the more sensitive it will be to changes in
interest rates.
---------------------------------------------------------------------------
According to the Exchange, the Fund may purchase or sell securities
on a when-issued, delayed delivery or forward commitment basis and may
engage in short sales.\13\ The Fund may, without limitation, seek to
obtain market exposure to the securities in which it primarily invests
by entering into a series of purchase and sale contracts or by using
other investment techniques (such as buy backs or dollar rolls).\14\
---------------------------------------------------------------------------
\13\ The Fund may make short sales of securities to offset
potential declines in long positions in similar securities and
increase the flexibility of the Fund, as well as for investment
return, and as part of a risk arbitrage strategy.
\14\ A dollar roll is similar except that the counterparty is
not obligated to return the same securities as those originally sold
by the Fund but only securities that are ``substantially
identical.''
---------------------------------------------------------------------------
In selecting investments for the Fund, PIMCO will develop an
outlook for interest rates, currency exchange rates, and the economy;
analyze credit and call risks; and use other investment selection
techniques. The proportion of the Fund's assets committed to
investments in securities with particular characteristics (such as
quality, sector, interest rate, or maturity) will vary based on PIMCO's
outlook for the U.S. economy and the economies of other countries in
the world, the financial markets, and other factors.
According to the Exchange, in seeking to identify undervalued
currencies, PIMCO may consider many factors, with respect to the Fund,
including but not limited to, longer-term analysis of relative interest
rates, inflation rates, real exchange rates, purchasing power parity,
trade account balances, and current account balances, as well as other
factors that influence exchange rates such as flows, market technical
trends, and government policies. With respect to fixed income
investing, PIMCO will attempt to identify areas of the bond market that
are undervalued relative to the rest of the market. PIMCO will identify
these areas by grouping fixed income investments into sectors such as
money markets, governments, corporates, mortgages, asset-backed, and
international. Sophisticated proprietary software will then assist in
evaluating sectors and pricing specific investments. Once investment
opportunities are
[[Page 78535]]
identified, PIMCO will shift assets among sectors depending upon
changes in relative valuations, credit spreads, and other factors.
B. Other (Non-Principal) Investments of the Fund
The Exchange represents that the non-principal investments listed
below would consist of investments that are not included in the Fund's
80% Policy. Such assets may be invested in the Fixed Income Instruments
and other instruments, as described below.
According to the Exchange, with respect to the Fund's investments,
Fixed Income Instruments will include any one or more of the following:
securities issued or guaranteed by the U.S. Government, its agencies or
government-sponsored enterprises (``U.S. Government Securities'');
mortgage-backed and other asset-backed securities; \15\ structured
notes, including hybrid or ``indexed'' securities and event-linked
bonds; \16\ delayed funding loans and revolving credit facilities; bank
certificates of deposit, fixed time deposits and bankers' acceptances;
repurchase agreements on Fixed Income Instruments and reverse
repurchase agreements on Fixed Income Instruments; debt securities
issued by states or local governments and their agencies, authorities,
and other government-sponsored enterprises; obligations of non-U.S.
governments or their subdivisions, agencies, and government-sponsored
enterprises; obligations of international agencies or supranational
entities.
---------------------------------------------------------------------------
\15\ According to the Exchange, mortgage-related and other
asset-backed securities include collateralized mortgage obligations
(``CMOs''), commercial mortgage-backed securities, mortgage dollar
rolls, CMO residuals, stripped mortgage-backed securities, and other
securities that directly or indirectly represent a participation in,
or are secured by and payable from, mortgage loans on real property.
A to-be-announced (``TBA'') transaction is a method of trading
mortgage-backed securities. In a TBA transaction, the buyer and
seller agree upon general trade parameters such as agency,
settlement date, par amount, and price. The actual pools delivered
generally are determined two days prior to the settlement date.
\16\ The Exchange represents that the Fund may obtain event-
linked exposure by investing in ``event-linked bonds'' or ``event-
linked swaps'' or by implementing ``event-linked strategies.''
Event-linked exposure results in gains or losses that typically are
contingent, or formulaically related to defined trigger events,
which include hurricanes, earthquakes, weather-related phenomena, or
statistics relating to such events. Some event-linked bonds are
commonly referred to as ``catastrophe bonds.'' If a trigger event
occurs, the Fund may lose a portion or its entire principal invested
in the bond or notional amount on a swap.
---------------------------------------------------------------------------
According to the Exchange, the Fund may gain exposure to the real
estate sector by investing in over-the-counter (``OTC'') real estate-
linked derivatives,\17\ exchange-traded and OTC real estate investment
trusts (``REITs''), and exchange traded common, exchange-traded and OTC
preferred, and exchange-traded and OTC convertible securities of
issuers in real estate-related industries.\18\
---------------------------------------------------------------------------
\17\ Real estate-linked derivatives are derivative instruments
that are tied to real estate, such as derivatives (e.g., swaps or
options) on real-estate related indices or specific real-estate
related companies. The value and risks associated with real estate-
linked derivative instruments are generally similar to those
associated with direct ownership of real estate.
\18\ See infra note 23 and accompanying text.
---------------------------------------------------------------------------
The Fund may invest in variable and floating rate securities that
are not corporate Fixed Income Instruments. The Fund may invest in
floaters and inverse floaters that are not corporate Fixed Income
Instruments.
The Fund may invest in trade claims,\19\ privately placed and
unregistered securities, and exchange-traded and OTC-traded structured
products,\20\ including credit-linked securities \21\ and commodity-
linked notes. The Fund also may invest in Brady Bonds.
---------------------------------------------------------------------------
\19\ Trade claims are non-securitized rights of payment arising
from obligations that typically arise when vendors and suppliers
extend credit to a company by offering payment terms for products
and services. If the company files for bankruptcy, payments on these
trade claims stop and the claims are subject to compromise along
with the other debts of the company. Trade claims may be purchased
directly from the creditor or through brokers.
\20\ The Fund invest in structured products, including
instruments such as credit-linked securities. For example, a
structured product may combine a traditional stock, bond, or
commodity with an option or forward contract. Generally, the
principal amount, amount payable upon maturity or redemption, or
interest rate of a structured product is tied (positively or
negatively) to the price of some commodity, currency, or securities
index or another interest rate or some other economic factor. The
interest rate or (unlike most fixed income securities) the principal
amount payable at maturity of a structured product may be increased
or decreased, depending on changes in the value of the benchmark. An
example of exchange-traded structured products would be exchange-
traded notes or ETNs, such as those listed and traded under NYSE
Arca Equities Rule 5.2(j)(6).
\21\ Credit-linked securities are generally a basket of
derivative instruments, such as credit default swaps or interest
rate swaps. Like an investment in a bond, investments in credit-
linked securities represent the right to receive periodic income
payments (in the form of distributions) and payment of principal at
the end of the term of the security. However, these payments are
conditioned on the trust's receipt of payments from, and the trust's
potential obligations to, the counterparties to the derivative
instruments and other securities in which the trust invests.
---------------------------------------------------------------------------
The Exchange represents that the Fund may enter into repurchase
agreements on instruments other than corporate Fixed Income
Instruments, in addition to repurchase agreements on corporate Fixed
Income Instruments mentioned above, in which the Fund purchases a
security from a bank or broker-dealer, which agrees to purchase the
security at the Fund's cost plus interest within a specified time.
Repurchase agreements maturing in more than seven days and which may
not be terminated within seven days at approximately the amount at
which the Fund has valued the agreements will be considered illiquid
securities. The Fund may enter into reverse repurchase agreements on
instruments other than corporate Fixed Income Instruments, in addition
to reverse repurchase agreements on corporate Fixed Income Instruments
mentioned above, subject to the Fund's limitations on borrowings.\22\
The Fund will segregate or ``earmark'' assets determined to be liquid
by PIMCO in accordance with procedures established by the Board to
cover its obligations under reverse repurchase agreements.
---------------------------------------------------------------------------
\22\ With respect to the Fund, a reverse repurchase agreement
involves the sale of a security by the Fund and its agreement to
repurchase the instrument at a specified time and price.
---------------------------------------------------------------------------
The Exchange represents that the Fund may invest only up to 10% of
its total assets in preferred stocks, convertible securities, common
stocks, and other equity-related securities, and that this limitation
will not include real estate-related investments, such as REITs or
investments in common, preferred, or convertible securities of issuers
in real estate-related industries.\23\
---------------------------------------------------------------------------
\23\ Convertible securities are generally preferred stocks and
other securities (including fixed income securities and warrants)
that are convertible into or exercisable for common stock at a
stated price or rate. Equity-related investments may include
investments in small-capitalization (``small-cap''), mid-
capitalization (``mid-cap'') and large-capitalization (``large-
cap'') companies. According to the Exchange, with respect to the
Fund, a small-cap company will be defined as a company with a market
capitalization of up to $1.5 billion, a mid-cap company will be
defined as a company with a market capitalization of between $1.5
billion and $10 billion and a large-cap company will be defined as a
company with a market capitalization above $10 billion. Not more
than 10% of the net assets of the Fund in the aggregate invested in
equity securities (other than non-exchange-traded investment company
securities) shall consist of equity securities, including stocks
into which a convertible security is converted, whose principal
market is not a member of the Intermarket Surveillance Group
(``ISG'') or is a market with which the Exchange does not have a
comprehensive surveillance sharing agreement (``CSSA'').
Furthermore, not more than 10% of the net assets of the Fund in the
aggregate invested in futures contracts or exchange-traded options
contracts shall consist of futures contracts or exchange-traded
options contracts whose principal market is not a member of ISG or
is a market with which the Exchange does not have a CSSA.
---------------------------------------------------------------------------
The Exchange represents that the Fund may invest up to 20% of its
total assets in structured notes, including hybrid or ``indexed''
securities and
[[Page 78536]]
event-linked bonds. Additionally, the Fund may invest up to 15% of its
total assets in high yield securities (``junk bonds'') rated below BBB-
(with a minimum level of B- at purchase) by Standard & Poor's Ratings
Services (``S&P''), or equivalently rated by Moody's Investors Service,
Inc. (``Moody's'') or Fitch, Inc. (``Fitch''), or, if unrated,
determined by PIMCO to be of comparable quality (except that within
such limitation, the Fund may invest in mortgage-related securities
rated below B-).\24\
---------------------------------------------------------------------------
\24\ With respect to the Fund, securities rated Ba or lower by
Moody's, or equivalently rated by S&P or Fitch, are sometimes
referred to as ``high yield securities'' or ``junk bonds,'' while
securities rated Baa or higher are referred to as ``investment
grade.'' Unrated securities may be less liquid than comparable rated
securities and involve the risk that the Fund's portfolio manager
may not accurately evaluate the security's comparative credit
rating. To the extent that the Fund invests in unrated securities,
the Fund's success in achieving its investment objective may depend
more heavily on the portfolio manager's creditworthiness analysis
than if the Fund invested exclusively in rated securities. In
determining whether a security is of comparable quality, the Adviser
will consider, for example, whether the issuer of the security has
issued other rated securities; whether the obligations under the
security are guaranteed by another entity and the rating of such
guarantor (if any); whether and (if applicable) how the security is
collateralized; other forms of credit enhancement (if any); the
security's maturity date; liquidity features (if any); relevant cash
flow(s); valuation features; other structural analysis;
macroeconomic analysis; and sector or industry analysis.
---------------------------------------------------------------------------
C. Investments in Derivative Instruments
With respect to the Fund, the Exchange represents that derivative
instruments will include forwards; \25\ exchange-traded and OTC options
contracts; exchange-traded futures contracts; exchange-traded and OTC
swap agreements; exchange-traded options on futures contracts; and OTC
options on swap agreements.\26\ The Fund may, but is not required to,
use derivative instruments for risk management purposes or as part of
its investment strategies.\27\
---------------------------------------------------------------------------
\25\ Forwards are contracts to purchase or sell securities for a
fixed price at a future date beyond normal settlement time (forward
commitments).
\26\ The Exchange represents that in the future, in the event
that there are exchange-traded options on swaps, the Fund may invest
in these instruments.
\27\ According to the Exchange, the Fund will seek, where
possible, to use counterparties whose financial status is such that
the risk of default is reduced; however, the risk of losses
resulting from default is still possible. PIMCO's Counterparty Risk
Committee evaluates the creditworthiness of counterparties on an
ongoing basis. In addition to information provided by credit
agencies, PIMCO credit analysts evaluate each approved counterparty
using various methods of analysis, including company visits,
earnings updates, the broker-dealer's reputation, PIMCO's past
experience with the broker-dealer, market levels for the
counterparty's debt and equity, the counterparty's liquidity, and
its share of market participation.
---------------------------------------------------------------------------
According to the Exchange, the Fund will typically use derivative
instruments as a substitute for taking a position in the underlying
asset and as part of a strategy designed to reduce exposure to other
risks, such as interest rate or currency risk. The Fund may also use
derivative instruments to enhance returns. To limit the potential risk
associated with such transactions, the Fund will segregate or
``earmark'' assets determined to be liquid by PIMCO in accordance with
procedures established by the Trust's Board of Trustees (``Board'') and
in accordance with the 1940 Act (or, as permitted by applicable
regulation, enter into certain offsetting positions) to cover its
obligations under derivative instruments. In addition, the Exchange
represents that the Fund will include appropriate risk disclosure in
its offering documents, including leveraging risk. Leveraging risk is
the risk that certain transactions of the Fund, including the Fund's
use of derivatives, may give rise to leverage, causing the Fund to be
more volatile than if it had not been leveraged.\28\ According to the
Exchange, the Fund also can use derivatives to increase or decrease
credit exposure. Index credit default swaps (CDX) can be used to gain
exposure to a basket of credit risk by ``selling protection'' against
default or other credit events, or to hedge broad market credit risk by
``buying protection.'' Single name credit default swaps (CDS) can be
used to allow the Fund to increase or decrease exposure to specific
issuers, saving investor capital through lower trading costs. The Fund
can use total return swap contracts to obtain the total return of a
reference asset or index in exchange for paying a financing cost. A
total return swap may be much more efficient than buying underlying
securities of an index, potentially lowering transaction costs.
---------------------------------------------------------------------------
\28\ To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that
may give rise to such risk.
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D. Investment Restrictions
According to the Exchange, if PIMCO believes that economic or
market conditions are unfavorable to investors or that market
conditions are not normal, PIMCO may temporarily invest up to 100% of
the Fund's assets in certain defensive strategies, including holding a
substantial portion of the Fund's assets in cash, cash equivalents, or
other highly rated, short-term securities, including securities issued
or guaranteed by the U.S. government, its agencies, or
instrumentalities. As noted above, the Fund may invest without limit,
for temporary or defensive purposes, in such instruments if PIMCO deems
it appropriate to do so.
The Exchange represents that the Fund may invest in, to the extent
permitted by Section 12(d)(1)(A) of the 1940 Act, other affiliated and
unaffiliated funds, such as open-end or closed-end management
investment companies, including other exchange-traded funds, provided
that the Fund's investment in units or shares of investment companies
and other open-end collective investment vehicles will not exceed 10%
of the Fund's total assets. The Fund may invest its securities lending
collateral in one or more money market funds to the extent permitted by
Rule 12d1-1 under the 1940 Act, including series of PIMCO Funds.
The Exchange represents that the Fund may invest up to 20% of its
total assets in mortgage-related and other asset backed securities,
although this 20% limitation will not apply to securities issued or
guaranteed by Federal agencies and/or U.S. government sponsored
instrumentalities. The Fund may invest up to 20% of its total assets in
securities denominated in foreign currencies, and may invest beyond
this limit in U.S. dollar denominated securities of foreign issuers.
The Fund will normally limit its foreign currency exposure (from non-
U.S. dollar-denominated securities or currencies) to 10% of its total
assets.\29\ The Fund may engage in foreign currency transactions either
on a spot (cash) basis at the rate prevailing in the currency exchange
market at the time or through forward currency contracts. The Exchange
represents that the Fund may invest up to 20% of its total assets in
securities and instruments of issuers economically tied to emerging
market countries.\30\
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\29\ The Exchange represents that the Fund will limit its
investments in currencies to those currencies with a minimum average
daily foreign exchange turnover of USD $1 billion as determined by
the Bank for International Settlements (``BIS'') Triennial Central
Bank Survey. As of the most recent BIS Triennial Central Bank
Survey, at least 52 separate currencies had minimum average daily
foreign exchange turnover of USD $1 billion. For a list of eligible
currencies, see www.bis.org.
\30\ According to the Exchange, PIMCO will generally consider an
instrument to be economically tied to an emerging market country if
the security's ``country of exposure'' is an emerging market
country, as determined by the criteria set forth in the Registration
Statement. Alternatively, such as when a ``country of exposure'' is
not available or when PIMCO believes the following tests more
accurately reflect which country the security is economically tied
to, PIMCO may consider an instrument to be economically tied to an
emerging market country if the issuer or guarantor is a government
of an emerging market country (or any political subdivision, agency,
authority or instrumentality of such government), if the issuer or
guarantor is organized under the laws of an emerging market country,
or if the currency of settlement of the security is a currency of an
emerging market country. With respect to derivative instruments,
PIMCO will generally consider such instruments to be economically
tied to emerging market countries if the underlying assets are
currencies of emerging market countries (or baskets or indices of
such currencies), or instruments or securities that are issued or
guaranteed by governments of emerging market countries or by
entities organized under the laws of emerging market countries.
While emerging markets corporate debt securities (excluding
commercial paper) generally must have $200 million or more par
amount outstanding and significant par value traded to be considered
as an eligible investment for the Fund, at least 80% of issues of
such securities held by the Fund must have $200 million or more par
amount outstanding at the time of investment.
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[[Page 78537]]
The Exchange represents that the Fund's investments, including
investments in derivative instruments, will be subject to all of the
restrictions under the 1940 Act, including restrictions with respect to
illiquid assets. The Fund may hold up to an aggregate amount of 15% of
its net assets in illiquid assets (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser, consistent with Commission guidance.\31\ The Exchange
represents that the Fund will monitor its respective 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 the Fund's net assets are held 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.
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\31\ According to the Exchange, in reaching liquidity decisions,
the Adviser may consider the following factors: the frequency of
trades and quotes for the security; the number of dealers willing 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
trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
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The Exchange represents that the Fund will be diversified within
the meaning of the 1940 Act. In addition, the Fund intends to qualify
annually and elect to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code. The Fund will not
concentrate its investments in a particular industry, as that term is
used in the 1940 Act, and as interpreted, modified, or otherwise
permitted by a regulatory authority having jurisdiction from time to
time.
The Exchange further represents that the Fund's investments,
including derivatives, will be consistent with the Fund's investment
objective and the Fund's use of derivatives may be used to enhance
leverage. However, the Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (i.e., 2Xs and
3Xs) of the Fund's broad-based securities market index (as defined in
Form N-1A).
III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal to list and trade the Shares is consistent with the Exchange
Act and the rules and regulations thereunder applicable to a national
securities exchange.\32\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Exchange
Act,\33\ which requires, among other things, that the Exchange's rules
be designed 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.
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\32\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\33\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Exchange Act,\34\ which sets forth Congress' finding that it is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities. Quotation and last-sale
information for the Shares will be available via the Consolidated Tape
Association (``CTA'') high-speed line. In addition, the Portfolio
Indicative Value of the Fund, as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated by one or more major market
data vendors at least every 15 seconds during the Core Trading
Session.\35\ On each business day, before commencement of trading in
Shares in the Core Trading Session on the Exchange, the Fund will
disclose on the Trust's Web site the Disclosed Portfolio (as defined in
NYSE Arca Equities Rule 8.600(c)(2)) that will form the basis for the
Fund's calculation of NAV at the end of the business day.\36\ In
addition, a basket composition file, which includes the security names
and share quantities (as applicable) required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the National Securities Clearing Corporation. The NAV
of the Fund's Shares will normally be determined as of the close of the
regular trading session on the Exchange (ordinarily 4:00 p.m. Eastern
time) on each business day.\37\ Information regarding market
[[Page 78538]]
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.
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\34\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\35\ The Exchange states that several major market data vendors
display or make widely available Portfolio Indicative Values taken
from the CTA or other data feeds.
\36\ On a daily basis, the Fund will disclose the following
information regarding each portfolio holding, as applicable to the
type of holding: Ticker symbol, CUSIP number or other identifier, if
any; a description of the holding (including the type of holding,
such as the type of swap); the identity of the security, commodity,
index or other asset or instrument underlying the holding, if any;
for options, the option strike price; quantity held (as measured by,
for example, par value, notional value or number of shares,
contracts or units); maturity date, if any; coupon rate, if any;
effective date, if any; market value of the holding; and the
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge.
\37\ The NAV per Share of the Fund will be determined by
dividing the total value of the Fund's portfolio investments and
other assets, less any liabilities, by the total number of Shares
outstanding. According to the Exchange, portfolio securities and
other assets for which market quotes are readily available will be
valued at market value. Market value will generally be determined on
the basis of last reported sales prices, or if no sales are
reported, based on quotes obtained from a quotation reporting
system, established market makers, or pricing services. Fixed Income
Instruments, including those to be purchased under firm commitment
agreements/delayed delivery basis, will generally be valued on the
basis of quotes obtained from brokers and dealers or independent
pricing services. Domestic and foreign fixed income securities will
generally be valued on the basis of quotes obtained from brokers and
dealers or pricing services using data reflecting the earlier
closing of the principal markets for those assets. Short-term debt
instruments having a remaining maturity of 60 days or less will
generally be valued at amortized cost. Derivatives will generally be
valued on the basis of quotes obtained from brokers and dealers or
pricing services using data reflecting the earlier closing of the
principal markets for those assets. Local closing prices will be
used for all instrument valuation purposes. Foreign currency-
denominated derivatives will generally be valued as of the
respective local region's market close. With respect to specific
derivatives: Currency spot and forward rates from major market data
vendors will generally be determined as of the NYSE Close; exchange-
traded futures will generally be valued at the settlement price of
the relevant exchange; a total return swap on an index will be
valued at the publicly available index price; equity total return
swaps will generally be valued using the actual underlying equity at
local market closing, while bank loan total return swaps will
generally be valued using the evaluated underlying bank loan price
minus the strike price of the loan; exchange-traded non-equity
options, index options, and options on futures will generally be
valued at the official settlement price determined by the relevant
exchange, if available; OTC and exchange-traded equity options will
generally be valued on a basis of quotes obtained from a quotation
reporting system, established market makers, or pricing services or
at the settlement price of the applicable exchange; OTC FX options
will generally be valued by pricing vendors; all other swaps such as
interest rate swaps, inflation swaps, swaptions, credit default
swaps, and CDX/CDS will generally be valued by pricing services.
Investment company securities that are not exchange-traded will be
valued at NAV. Equity securities traded OTC will be valued based on
price quotations obtained from a broker-dealer who makes markets in
such securities or other equivalent indications of value provided by
a third-party pricing service. Money market instruments, trade
claims, OTC REITs, privately placed and unregistered securities, OTC
structured products, OTC real-estate linked derivatives, credit-
linked securities, commodity-linked notes, Brady Bonds, variable and
floating rate securities that are not corporate Fixed Income
Instruments; floaters and inverse floaters that are not corporate
Fixed Income Instruments and other types of debt securities will
generally be valued on the basis of independent pricing services or
quotes obtained from brokers and dealers. Securities and other
assets for which market quotes are not readily available will be
valued at fair value as determined in good faith by the Board or
persons acting at their direction. The Board has adopted methods for
valuing securities and other assets in circumstances where market
quotes are not readily available, and has delegated to PIMCO the
responsibility for applying the valuation methods.
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Intra-day and closing price information regarding exchange-traded
equity securities, including common stocks, preferred stocks,
securities convertible into stocks, closed-end funds, exchange-traded
funds, exchange-traded structured products (including ETNs), exchange-
traded REITs, and other equity-related securities, will be available
from the exchange on which such securities are traded. Intra-day and
closing price information regarding exchange-traded options (including
options on futures) and futures will be available from the exchange on
which such instruments are traded. Intra-day and closing price
information regarding Fixed Income Instruments and other forms of debt
securities also will be available from major market data vendors.
Pricing information relating to forwards, spot currency, OTC options
and swaps will be available from major market data vendors. Pricing
information regarding money market instruments, OTC REITs, private
activity bonds, trade claims, privately placed and unregistered
securities, OTC real estate-linked derivatives, OTC structured
products, credit-linked securities, commodity-linked notes, Brady
Bonds, variable and floating rate securities that are not corporate
Fixed Income Instruments and floaters and inverse floaters that are not
corporate Fixed Income Instruments will be available from major market
data vendors. Pricing information regarding other investment company
securities will be available from on-line information services and from
the Web site for the applicable investment company security. Exchange-
traded options quotation and last-sale information for options cleared
via the Options Clearing Corporation is available via the Options Price
Reporting Authority. Pricing information relating to equity securities
traded OTC will be available from major market data vendors. The
Trust's Web site will include a form of the prospectus for the Fund and
additional data relating to NAV and other applicable quantitative
information.
The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange will obtain a representation from the issuer of
the Shares of the Fund that the NAV per Share will be calculated daily
and that the NAV and the Disclosed Portfolio will be made available to
all market participants at the same time. Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. In addition, trading in the Shares of the
Fund may be halted because of other market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable.\38\ Trading in the Shares also will be subject to NYSE
Arca Equities Rule 8.600(d)(2)(D), which sets forth additional
circumstances under which trading in Shares of the Fund may be halted.
---------------------------------------------------------------------------
\38\ These reasons may include: (1) The extent to which trading
is not occurring in the securities and financial instruments
comprising the Disclosed Portfolio of the Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance
of a fair and orderly market are present. 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 Fund.
---------------------------------------------------------------------------
The Exchange represents that it has a general policy prohibiting
the distribution of material, non-public information by its employees.
Consistent with NYSE Arca Equities Rule 8.600(d)(2)(B)(ii), the Fund's
``Reporting Authority'' must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of the Fund's
portfolio. The Exchange represents that the Adviser is not registered
as a broker-dealer, but is affiliated with a broker-dealer, and will
implement a ``fire wall'' with respect to such broker-dealer affiliate
regarding access to information concerning the composition or changes
to the Fund's portfolio.\39\ Prior to the commencement of trading, the
Exchange states that it will inform its Equity Trading Permit Holders
in an Information Bulletin of the special characteristics and risks
associated with trading the Shares. The Exchange further represents
that trading in the Shares will be subject to the existing trading
surveillances, administered by the Financial Industry Regulatory
Authority (``FINRA'') on behalf of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities
laws.\40\
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\39\ See supra note 5. The Exchange states that an investment
adviser to an open-end fund is required to be registered under the
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the
Adviser and Sub-Adviser and their related personnel are 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
violation, 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.
\40\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement and that the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
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The Exchange represents that it deems the Shares to be equity
securities, thus rendering the trading of the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
[[Page 78539]]
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) Trading in the Shares will be subject to the existing trading
surveillances, administered by FINRA on behalf of the Exchange, which
are designed to detect violations of Exchange rules and applicable
federal securities laws, and that these procedures are adequate to
properly monitor Exchange trading of the Shares in all trading sessions
and to deter and detect violations of Exchange rules and federal
securities laws applicable to trading on the Exchange.
(4) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the exchange-traded options, exchange-traded
equities (including common stocks, exchange-traded investment
companies, exchange- traded convertibles and preferred securities,
exchange-traded REITs, and exchange-traded structured products,
including ETNs), futures, and options on futures with other markets or
other entities that are members of the ISG, and FINRA may obtain
trading information regarding trading in the Shares, exchange-traded
options, exchange-traded equities, futures, and options on futures from
such markets or entities. In addition, the Exchange may obtain
information regarding trading in the Shares, exchange-traded options,
exchange-traded equities, futures, and options on futures from markets
or other entities that are members of ISG or with which the Exchange
has in place a CSSA.\41\ The Exchange states that FINRA, on behalf of
the Exchange, is able to access, as needed, trade information for
certain fixed income securities held by the Fund that is reported to
FINRA's Trade Reporting and Compliance Engine, and that FINRA also can
access data obtained from the Municipal Securities Rulemaking Board
relating to municipal bond trading activity for surveillance purposes
in connection with trading in the Shares.
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\41\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a CSSA.
---------------------------------------------------------------------------
(5) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (a)
The procedures for purchases and redemptions of Shares in creation unit
aggregations (and that Shares are not individually redeemable); (b)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its Equity Trading Permit Holders to learn the essential facts
relating to every customer prior to trading the Shares; (c) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated Portfolio Indicative Value will not be
calculated or publicly disseminated; (d) how information regarding the
Portfolio Indicative Value is disseminated; (e) the requirement that
Equity Trading Permit Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (f) trading information.
(6) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\42\ as provided by
NYSE Arca Equities Rule 5.3.
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\42\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
(7) The Fund's investments will not be used to seek performance
that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the
Fund's broad-based securities market index (as defined in Form N-1A).
(8) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A Securities deemed illiquid by the Advisor or Sub-
Advisor, in accordance with Commission guidance.
(9) The Fund will seek, where possible, to use counterparties whose
financial status is such that the risk of default is reduced. PIMCO's
Counterparty Risk Committee evaluates the creditworthiness of
counterparties on an ongoing basis. In addition to information provided
by credit agencies, PIMCO credit analysts evaluate each approved
counterparty using various methods of analysis, including company
visits, earnings updates, the broker-dealer's reputation, PIMCO's past
experience with the broker-dealer, market levels for the counterparty's
debt and equity, the counterparty's liquidity, and its share of market
participation.
(10) The Fund may invest only up to 10% of its total assets in
preferred stocks, convertible securities, common stocks, and other
equity-related securities; such limit will not include real-estate
related investments, such as REITs or investments in common, preferred,
or convertible securities of issuers in real estate-related industries.
(11) Not more than 10% of the net assets of the Fund in the
aggregate invested in equity securities (other than non-exchange-traded
investment company securities) shall consist of equity securities,
including stocks into which a convertible security is converted, whose
principal market is not a member of the ISG or is a market with which
the Exchange does not have a CSSA.
(12) Not more than 10% of the net assets of the Fund in the
aggregate invested in futures contracts or exchange-traded options
contracts shall consist of futures contracts or exchange-traded options
contracts whose principal market is not a member of ISG or is a market
with which the Exchange does not have a CSSA.
(13) The Fund shall invest at least 80% of its assets in corporate
debt securities of U.S. and non-U.S. issuers (which may be represented
by certain derivatives), including convertible securities and corporate
commercial paper; inflation-indexed bonds; bank capital securities;
trust preferred securities; and loan participations and assignments.
(14) The Fund may invest up to 20% of its total assets in mortgage-
related and other asset backed securities (not including securities
issued or guaranteed by Federal agencies and U.S. government sponsored
instrumentalities).
(15) The Fund may invest up to 20% of its total assets in
structured notes, including hybrid or ``indexed'' securities and event-
linked bonds.
(16) The Fund may invest up to 15% of its total assets in high
yield securities rated below BBB- (with a minimum level of B- at
purchase) by S&P, or equivalently rated by Moody's or Fitch, or, if
unrated, determined by PIMCO to be of comparable quality (except that
within such limitation, the Fund may invest in mortgage-related
securities rated below B-).
(17) The Fund may invest up to 20% of its total assets in
securities and instruments of issuers economically tied to emerging
market countries.
(18) While non-emerging markets corporate debt securities
(excluding commercial paper) generally must have $100 million or more
par amount outstanding and significant par value traded to be
considered as an eligible investment for the Fund, at least 80% of
issues of such securities held by the Fund must have $100 million or
more par amount outstanding at the time of investment. In addition,
while emerging markets corporate debt securities (excluding commercial
paper) generally must have $200 million or more par amount outstanding
and significant par value traded to be considered as an
[[Page 78540]]
eligible investment for the Fund, at least 80% of issues of such
securities held by the Fund must have $200 million or more par amount
outstanding at the time of investment.
(19) To mitigate leveraging risk as result of certain transactions
of the Fund, including transactions in derivative instruments, the
Adviser will segregate or ``earmark'' liquid assets or otherwise cover
the transactions that may give rise to such risk.
(20) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice, and
the Exchange's description of the Fund. The Commission notes that the
Fund and the Shares must comply with the requirements of NYSE Arca
Equities Rule 8.600 to be listed and traded on the Exchange.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \43\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\44\ that the proposed rule change (SR-NYSEArca-2014-85)
be, and it hereby is, approved.
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\44\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30444 Filed 12-29-14; 8:45 am]
BILLING CODE 8011-01-P
