Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Proposing To List and Trade Shares of the First Trust Morningstar Futures Strategy Fund Under NYSE Arca Equities Rule 8.600, 32503-32510 [2013-12846]

Download as PDF Federal Register / Vol. 78, No. 104 / Thursday, May 30, 2013 / Notices available publicly. All submissions should refer to File Number SR–Phlx– 2013–56 and should be submitted on or before June 20, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–12794 Filed 5–29–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69636; File No. SR–NYSEArca–2013–52] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Proposing To List and Trade Shares of the First Trust Morningstar Futures Strategy Fund Under NYSE Arca Equities Rule 8.600 May 24, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on May 15, 2013, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘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. TKELLEY on DSK3SPTVN1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the following under NYSE Arca Equities Rule 8.600 (‘‘Managed Fund Shares’’): First Trust Morningstar Futures Strategy Fund. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 16:25 May 29, 2013 Jkt 229001 on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade the shares (‘‘Shares’’) of the following under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares on the Exchange: 3 First Trust Morningstar Futures Strategy Fund (the ‘‘Fund’’).4 The Shares will be offered by First Trust Exchange-Traded Fund V (the ‘‘Trust’’), a statutory trust organized under the laws of the State of Massachusetts and registered with the Commission as an open-end management investment company.5 The investment adviser to 3 A Managed Fund Share is a security that represents an interest in an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized as an open-end investment company or similar entity that invests in a portfolio of securities selected by its investment adviser consistent with its investment objectives and policies. In contrast, an open-end investment company that issues Investment Company Units, listed and traded on the Exchange under NYSE Arca Equities Rule 5.2(j)(3), seeks to provide investment results that correspond generally to the price and yield performance of a specific foreign or domestic stock index, fixed income securities index or combination thereof. 4 The Commission approved NYSE Arca Equities Rule 8.600 and the listing and trading of certain funds of the PowerShares Actively Managed Exchange-Traded Fund Trust on the Exchange pursuant to Rule 8.600 in Securities Exchange Act Release No. 57619 (April 4, 2008), 73 FR 19544 (April 10, 2008) (SR–NYSEArca–2008–25). The Commission also previously approved listing and trading on the Exchange of a number of actively managed funds under Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 62502 (July 15, 2010), 75 FR 42471 (July 21, 2010) (SR– NYSEArca–2010–57) (order approving listing and trading of AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF); 63598 (December 22, 2010), 75 FR 82106 (December 29, 2010) (SR– NYSEArca–2010–98) (order approving listing and trading of WisdomTree Managed Futures Strategy Fund); and 66343 (February 7, 2012), 77 FR 7647 (February 13, 2012) (SR–NYSEArca–2011–85) (order approving listing and trading of five SPDR SSgA ETFs). 5 The Trust is registered under the 1940 Act. On May 18, 2012, the Trust filed with the Commission an initial registration statement on Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) (the ‘‘1933 Act’’) and under the 1940 Act relating to the Fund (File Nos. 333–181507 and 811–22709) (‘‘Registration Statement’’). The description of the operation of the Trust and the Fund herein is based, in part, on the Registration Statement. In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. See Investment Company Act Release No. PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 32503 the Fund is First Trust Advisors L.P. (the ‘‘Adviser’’). First Trust Portfolios L.P. (the ‘‘Distributor’’) will be the principal underwriter and distributor of the Fund Shares. The Bank of New York Mellon Corporation (the ‘‘Administrator,’’ ‘‘Transfer Agent’’ or ‘‘Custodian’’) will serve as administrator, custodian and transfer agent for the Fund. Commentary .06 to Rule 8.600 provides that, if the investment adviser to the investment company issuing Managed Fund Shares is affiliated with a broker-dealer, such investment adviser shall erect a ‘‘fire wall’’ between the investment adviser and the brokerdealer with respect to access to information concerning the composition and/or changes to such investment company portfolio. In addition, Commentary .06 further requires that personnel who make decisions on the open-end fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the open-end fund’s portfolio.6 Commentary .06 to Rule 8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the establishment of a ‘‘fire wall’’ between the investment adviser and the broker-dealer reflects the applicable open-end fund’s portfolio, not an underlying benchmark index, as is the case with index-based funds. The Adviser is not a brokerdealer but is affiliated with a brokerdealer and has implemented a fire wall with respect to its broker-dealer affiliate 30029 (April 10, 2012) (File No. 812–13795) (the ‘‘Exemptive Order’’). 6 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). As a result, the Adviser and its 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. E:\FR\FM\30MYN1.SGM 30MYN1 32504 Federal Register / Vol. 78, No. 104 / Thursday, May 30, 2013 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES regarding access to information concerning the composition and/or changes to the portfolio. In the event (a) the Adviser becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a broker-dealer, it will implement a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. The Commodity Futures Trading Commission (‘‘CFTC’’) has recently adopted substantial amendments to CFTC Rule 4.5 relating to the permissible exemptions and conditions for reliance on exemptions from registration as a commodity pool operator. As a result of the instruments that will be held by the Fund, the Adviser has registered as a Commodity Pool Operator (‘‘CPO’’) and is also a member of the National Futures Association (‘‘NFA’’). The Fund and the Subsidiary (as defined herein) will be subject to regulation by the CFTC and NFA and additional disclosure, reporting and recordkeeping rules imposed upon commodity pools. According to the Registration Statement, the Fund will be an actively managed exchange-traded fund that will seek to provide investors with positive returns. Fund Investments According to the Registration Statement, the Fund will seek to provide investors with positive returns. The Fund will seek to achieve positive total returns that are not directly correlated to broad market equity or fixed income returns. The Fund will seek to track the performance of the Morningstar(R) Diversified Futures Index(SM) (the ‘‘Benchmark’’), which is developed, maintained and sponsored by Morningstar, Inc. (‘‘Morningstar’’).7 The Fund is not sponsored, endorsed, sold or promoted by Morningstar. Morningstar’s only relationship to the Fund is the licensing of certain service marks and service names of Morningstar and of the Benchmark, which is determined, composed and calculated by Morningstar without regard to the Adviser or the Fund. Morningstar has 7 Morningstar is not a broker-dealer but is affiliated with a broker-dealer and, with respect to such broker-dealer affiliate, has implemented a fire wall and procedures designed to prevent the illicit use and dissemination of material, non-public information regarding the Benchmark. VerDate Mar<15>2010 16:25 May 29, 2013 Jkt 229001 no obligation to take the needs of the Adviser or the Fund into consideration in determining, composing or calculating the Benchmark. The Benchmark seeks to reflect trends (in either direction) in the commodity futures, currencies futures and financial futures markets. The Benchmark is a fully collateralized futures index that offers diversified exposure to global markets through highly-liquid, exchange listed futures contracts in commodities, currencies and equity indexes. The Fund will generally seek to hold similar instruments to those included in the Benchmark. In addition, the Fund will generally only seek exposure to commodities included in the Benchmark. However, the Fund is not obligated to invest in the same instruments included in the Benchmark. There can be no assurance that the Fund’s performance will track the Benchmark at all times. Under normal market conditions,8 the Fund, through FT Cayman Subsidiary, a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (the ‘‘Subsidiary’’), will invest in a diversified portfolio of exchange-listed commodity futures, currency futures and equity index futures (collectively, ‘‘Futures Instruments’’) with an aggregate notional value substantially equal to the Fund’s net assets. The Fund will not invest directly in Futures Instruments. The Fund expects to exclusively gain exposure to these investments by investing in the Subsidiary. The Subsidiary will be advised by the Adviser.9 The Fund’s investment in the Subsidiary is intended to provide the Fund with 8 The term ‘‘under normal market conditions’’ includes, but is not limited to, the absence of extreme volatility or trading halts in the fixed income markets, futures 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. 9 The Subsidiary is not registered under the 1940 Act and is not directly subject to its investor protections, except as noted in the Registration Statement. However, the Subsidiary is whollyowned and controlled by the Fund and is advised by the Adviser. Therefore, because of the Fund’s ownership and control of the Subsidiary, the Subsidiary would not take action contrary to the interests of the Fund or its shareholders. The Fund’s Board of Trustees (‘‘Board’’) has oversight responsibility for the investment activities of the Fund, including its expected investment in the Subsidiary, and the Fund’s role as the sole shareholder of the Subsidiary. The Adviser receives no additional compensation for managing the assets of the Subsidiary. The Subsidiary will also enter into separate contracts for the provision of custody, transfer agency, and accounting agent services with the same or with affiliates of the same service providers that provide those services to the Fund. PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 exposure to commodity markets within the limits of current federal income tax laws applicable to investment companies such as the Fund, which limit the ability of investment companies to invest directly in the Futures Instruments. The Subsidiary will have the same investment objective as the Fund, but unlike the Fund, it may invest without limitation in Futures Instruments. Except as otherwise noted, references to the Fund’s investments may also be deemed to include the Fund’s indirect investments through the Subsidiary. The Fund will invest up to 25% of its total assets in the Subsidiary. Each of the Subsidiary’s investments will generally be positioned long, short or flat based on its price relative to its average price over a recent period, with the ability to change positions as frequently as daily if the Benchmark is so adjusted. The Subsidiary’s investments will provide the Fund with exposure to domestic and international markets. According to the Registration Statement, the Fund will invest a substantial portion of its assets in fixed income securities that include U.S. government and agency securities, money market instruments,10 overnight and fixed-term repurchase agreements, cash and other cash equivalents. The Fund will use the fixed-income securities as investments and to meet asset coverage tests resulting from the Subsidiary’s derivative exposure on a day-to-day basis. The Fund may also invest directly in exchange-traded funds (‘‘ETFs’’) 11 and other investment companies that provide exposure to commodities, equity securities and fixed income securities, to the extent permitted under the 1940 Act. Under the 1940 Act, the Fund’s investment in investment companies is limited to, subject to certain exceptions: (i) 3% of the total outstanding voting stock of any one investment company, (ii) 5% of the Fund’s total assets with respect to any one investment company and (iii) 10% of the Fund’s total assets of investment companies in the aggregate. As a whole, the Fund’s investments are meant to track the investment returns of the Benchmark within the limitations of the federal tax requirements applicable to regulated investment companies. 10 The Fund may invest in shares of money market funds to the extent permitted by the 1940 Act. 11 For purposes of this proposed rule change, ETFs include securities such as those listed and traded under NYSE Arca Equities Rule 5.2(j)(3) (‘‘Investment Company Units’’), 8.100 (‘‘Portfolio Depositary Receipts’’) and 8.600 (‘‘Managed Fund Shares’’). E:\FR\FM\30MYN1.SGM 30MYN1 32505 Federal Register / Vol. 78, No. 104 / Thursday, May 30, 2013 / Notices The Benchmark and the Subsidiary’s holdings in futures contracts will consist of futures contracts providing long, short and flat exposure, which include, but are not limited to, commodities, equity indexes and currencies (Euro, Japanese Yen, British Pound, Canadian Dollar, Australian Dollar and Swiss Franc). The Subsidiary’s exposure will generally be weighted 50% in commodity futures, 25% in equity futures and 25% in currency futures. The base weights typically will be rebalanced quarterly to maintain the 50%/25%/25% allocation. Exchange code TKELLEY on DSK3SPTVN1PROD with NOTICES Commodity: Wheat/No. 2 Hard Winter .............................. Soybean Meal/48% Protein ........................... Cotton/1–1/16‘‘ .............................................. Soybean Oil/Crude ........................................ Wheat/No. 2 Soft Red ................................... Coffee ‘C’/Colombian .................................... Hogs, Lean/Average Iowa/S Minn ................ Copper High Grade/Scrap No. 2 Wir ............ Cattle, Live/Choice Average .......................... Sugar #11/World Raw ................................... Silver .............................................................. Gasoline, Blendstock ..................................... Soybeans/No. 2 Yellow ................................. Corn/No. 2 Yellow ......................................... Heating Oil #2/Fuel Oil .................................. Natural Gas, Henry Hub ................................ Gas-Oil-Petroleum ......................................... Gold ............................................................... Crude Oil, Brent/Global Spot ........................ Crude Oil, WTI/Global Spot .......................... Currency: Swiss Franc/U.S. Dollar ................................ Australian Dollar/U.S. Dollar ......................... Canadian Dollar/U.S. Dollar .......................... Japanese Yen/U.S. Dollar ............................. British Pound/U.S. Dollar .............................. Euro FX ......................................................... Equity Index: Australia 200 S .............................................. MIB SP .......................................................... S&P/TSX 60 .................................................. IBEX 35 Index ............................................... FTSE 100 ...................................................... CAC–40 Index ............................................... DAX ............................................................... Nikkei 225 ...................................................... S&P 500 ........................................................ According to the Registration Statement, the Fund, through the Subsidiary, will attempt to capture the economic benefit derived from rising and declining trends based on the ‘‘moving average’’ price changes of commodity futures, currency futures and equity index futures. In an attempt to capture these trends, the Fund’s investments, through the Subsidiary, will generally be positioned as either VerDate Mar<15>2010 16:25 May 29, 2013 Jkt 229001 a counterparty at an agreed-upon date or upon demand and at a price reflecting a market rate of interest unrelated to the coupon rate or maturity of the purchased obligations. The following table describes each of the commodities, currencies and equity indexes underlying the futures contracts included in the Benchmark as of April 30, 2013. This table is subject to change and the Subsidiary will not in all cases invest in the futures contracts included in the Benchmark. The table also provides each instrument’s trading hours (Eastern time (‘‘E.T.’’), exchange and ticker symbol. The Subsidiary’s commodity- and currency-linked investments generally will be limited to investments in listed futures contracts that provide exposure to commodity and non-U.S. currency returns. The Subsidiary will also invest in exchange-listed equity index futures. The Fund and the Subsidiary also may enter into repurchase agreements with counterparties that are deemed to present acceptable credit risks. A repurchase agreement is a transaction in which the Fund and the Subsidiary purchase securities or other obligations from a bank or securities dealer and simultaneously commit to resell them to Exchange name Trading hours Contract ticker (generic) KCB CBT NYB CBT CBT NYB CME CMX CME NYB CMX NYM CBT CBT NYM NYM ICE CMX ICE NYM Kansas City Board of Trade ................................. Chicago Board of Trade ....................................... ICE Futures U.S. .................................................. Chicago Board of Trade ....................................... Chicago Board of Trade ....................................... ICE Futures U.S. .................................................. Chicago Mercantile Exchange ............................. COMEX ................................................................ Chicago Mercantile Exchange ............................. ICE Futures U.S. .................................................. COMEX ................................................................ New York Mercantile Exchange ........................... Chicago Board of Trade ....................................... Chicago Board of Trade ....................................... New York Mercantile Exchange ........................... New York Mercantile Exchange ........................... ICE Futures U.K. .................................................. COMEX ................................................................ ICE Futures U.K. .................................................. New York Mercantile Exchange ........................... 17:00–14:00 17:00–14:00 20:00–13:30 17:00–14:00 17:00–14:00 02:30–13:00 17:00–16:00 17:00–16:15 17:00–16:00 01:30–13:00 17:00–16:15 17:00–16:15 17:00–14:00 17:00–14:00 17:00–16:15 17:00–16:15 19:00–17:00 17:00–16:15 19:00–17:00 17:00–16:15 KW. SM. CT. BO. W. KC. LH. HG. LC. SB. SI. XB. S. C. HO. NG. QS. GC. CO. CL. CME CME CME CME CME CME Chicago Chicago Chicago Chicago Chicago Chicago ............................. ............................. ............................. ............................. ............................. ............................. 17:00–16:00 17:00–16:00 17:00–16:00 17:00–16:00 17:00–16:00 17:00–16:00 MSS. CRD. MCD. JE. CRP. EE. ASX MIL MSE MFM LIF EOP EUX OSE CME Australian Stock Exchange .................................. Borsa Italiana ....................................................... Montreal Exchange .............................................. Meff Renta Variable (MEFF-Madrid) .................... NYSE LIFFE ......................................................... NYSE LIFFE Paris ............................................... Eurex .................................................................... Osaka Securities Exchange ................................. Chicago Mercantile Exchange ............................. 02:30–05:00 02:00–10:40 05:00–15:15 02:00–13:00 19:00–01:50 01:00–15:00 00:50–15:00 02:30–13:00 17:00–15:15 KF. SW. MPT. ID. Z. CF. GX. NO. ES. Mercantile Mercantile Mercantile Mercantile Mercantile Mercantile Exchange Exchange Exchange Exchange Exchange Exchange ‘‘long,’’ ‘‘short’’ or ‘‘flat.’’ To be ‘‘long’’ means to hold or be exposed to a security or instrument with the expectation that its value will increase over time. To be ‘‘short’’ means to sell or be exposed to a security or instrument with the expectation that it will fall in value. To be ‘‘flat’’ means to move a position to cash if a short signal is triggered in a security or instrument. The Fund, through the Subsidiary, will PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 benefit if it has a long position in a security or instrument that increases in value or a short position in a security or instrument that decreases in value. Conversely, the Fund, through the Subsidiary, will be adversely impacted if it holds a long position in a security or instrument that declines in value and a short position in a security or instrument that increases in value. Although the Fund will seek returns E:\FR\FM\30MYN1.SGM 30MYN1 32506 Federal Register / Vol. 78, No. 104 / Thursday, May 30, 2013 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES that track the returns of the Benchmark, the Fund, through the Subsidiary, may have a higher or lower exposure to any sector or component within the Benchmark at any time. The Subsidiary’s shares will be offered only to the Fund and the Fund will not sell shares of the Subsidiary to other investors. The Fund will not invest in any non-U.S. equity securities (other than shares of the Subsidiary), and the Subsidiary will not invest in any non-U.S. equity securities. The Fund’s investment in the Subsidiary will be designed to help the Fund achieve exposure to commodity returns in a manner consistent with the federal tax requirements applicable to the Fund and other regulated investment companies. Other Investments According to the Registration Statement, the Fund may from time to time purchase securities on a ‘‘whenissued’’ or other delayed-delivery basis. The price of securities purchased in such transactions is fixed at the time the commitment to purchase is made, but delivery and payment for the securities take place at a later date. The Fund may invest in certificates of deposit issued against funds deposited in a bank or savings and loan association. In addition, the Fund may invest in bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions. The Fund may invest in bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest. In addition, the Fund may invest in commercial paper, which are short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. The Fund may invest in commercial paper only if it has received the highest rating from at least one nationally recognized statistical rating organization or, if unrated, judged by First Trust to be of comparable quality. The Fund may also invest a portion of its assets in exchange-traded pooled investment vehicles (‘‘Underlying ETPs’’) other than registered investment companies that invest principally in commodities.12 12 The term ‘‘Underlying ETPs’’ includes Trust Issued Receipts (as described in NYSE Arca Equities Rule 8.200); and Commodity-Based Trust Shares (as described in NYSE Arca Equities Rule 8.201); Commodity Index Trust Shares (as described in NYSE Arca Equities Rule 8.203); and Trust Units VerDate Mar<15>2010 16:25 May 29, 2013 Jkt 229001 The Fund or the Subsidiary will not invest in options on commodity futures, structured notes, equity-linked derivatives, forwards or swaps contracts. Investment Restrictions While the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2X and 3X) of the Fund’s Benchmark. According to the Registration Statement, the Fund may not invest more than 25% of the value of its total assets in securities of issuers in any one industry or group of industries.13 This restriction does not apply to obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund will not purchase securities of open-end or closed-end investment companies except in compliance with the 1940 Act. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities and master demand notes. The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund’s net assets are held in illiquid securities. Illiquid securities 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.14 (as described in NYSE Arca Equities Rule 8.500). The Underlying ETPs all will be listed and traded in the U.S. on registered exchanges. 13 See Form N–1A, Item 9. The Commission has taken the position that a fund is concentrated if it invests more than 25% of the value of its total assets in any one industry. See, e.g., Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 (November 21, 1975). 14 The Commission has stated that long-standing Commission guidelines have required open-end funds to hold no more than 15% of their net assets in illiquid securities and other illiquid assets. See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008), footnote 34. See also, Investment Company Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement Regarding ‘‘Restricted Securities’’); Investment Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions of Guidelines to Form N–1A). A fund’s portfolio security is illiquid if it cannot be disposed of in the ordinary course of business within seven days at approximately the value ascribed to it by the fund. See Investment Company PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 The Fund intends to qualify for and to elect to be treated as a separate regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code.15 The Shares will conform to the initial listing criteria under NYSE Arca Equities Rule 8.600. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 16 under the Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares that the net asset value (‘‘NAV’’) per Share will be calculated daily, and that the NAV and the Disclosed Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) will be made available at the same time to all market participants. The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. Net Asset Value According to the Registration Statement, the Fund’s NAV will be determined as of the close of trading (normally 4:00 p.m., E.T.) on each day the New York Stock Exchange is open for business. NAV will be calculated for the Fund by taking the market price of the Fund’s total assets, including interest or dividends accrued but not yet collected, less all liabilities, and dividing such amount by the total number of Shares outstanding. The result, rounded to the nearest cent, will be the NAV per Share. All valuations will be subject to review by the Fund’s Board or its delegate. The Fund’s and the Subsidiary’s investments will be valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value in accordance with valuation procedures adopted by the Trust’s Board and in accordance with the 1940 Act. Portfolio securities traded on more than one securities exchange will be valued at the last sale price or official closing price, as applicable, on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio Act Release No. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a–7 under the 1940 Act); Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the 1933 Act). 15 26 U.S.C. 851. 16 17 CFR 240.10A–3. E:\FR\FM\30MYN1.SGM 30MYN1 Federal Register / Vol. 78, No. 104 / Thursday, May 30, 2013 / Notices securities traded in the over-the-counter market, will be valued at the closing bid prices. Short-term investments that mature in less than 60 days when purchased will be valued at amortized cost. Exchange-traded futures contracts will be valued at the closing price in the market where such contracts are principally traded. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board or its delegate at fair value. The use of fair value pricing by the Fund will be governed by valuation procedures adopted by the Board and in accordance with the provisions of the 1940 Act. TKELLEY on DSK3SPTVN1PROD with NOTICES Creation and Redemption of Shares Creation and redemption of Shares will occur in large specified blocks of Shares, referred to as ‘‘Creation Units.’’ A Creation Unit of the Fund currently will be comprised of 50,000 Shares of the Fund. The number of Shares comprising a Creation Unit may change over time. According to the Registration Statement, to purchase or redeem Creation Units directly from the Fund, an investor must be an Authorized Participant, or an investor must purchase the Shares through a financial institution that is an Authorized Participant. An ‘‘Authorized Participant’’ is a participant in the Continuous Net Settlement System of the National Securities Clearing Corporation (‘‘NSCC’’) or the Depository Trust Company that has executed a participant agreement with the Distributor that has been accepted by the Trust’s Custodian. Authorized Participants may purchase Creation Units of a Fund and sell individual Shares on the NYSE Arca. Similarly, Shares can only be redeemed in Creation Units. The process at which creations and redemptions occur will be based on the next calculation of the NAV after an order in proper form is received by the Distributor on any day that the Fund is open for business. Generally, a Creation Unit will be purchased or redeemed from the Fund for a designated portfolio of securities along with cash payment (‘‘Deposit Securities,’’ in the case of purchases, and ‘‘Redemption Securities,’’ in the case of redemption). Generally, the Deposit Securities and the Redemption Securities will correspond pro rata to the portfolio of securities of the Fund. Purchases and redemptions of Creation Units may be made in whole or in part on a cash basis, rather than in-kind, under circumstances set forth in the Registration Statement. VerDate Mar<15>2010 16:25 May 29, 2013 Jkt 229001 Additional information regarding the Trust and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings, disclosure policies, distributions, and taxes is included in the Registration Statement. All terms relating to the Fund that are referred to, but not defined in, this proposed rule change are defined in the Registration Statement. Availability of Information The Fund’s Web site (www.ftportfolios.com) will include a form of the prospectus for the Fund that may be downloaded. The Fund’s Web site will include additional quantitative information updated on a daily basis, including, for the Fund, (1) daily trading volume, the prior business day’s reported closing price, NAV and midpoint of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/ Ask Price’’),17 and a calculation of the premium and discount of the Bid/Ask Price against the NAV, and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. On each business day, before commencement of trading in Shares in the Core Trading Session (normally 9:30 a.m. to 4:00 p.m., E.T.) on the Exchange, the Fund will disclose on its 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.18 On a daily basis, the Fund will disclose for each portfolio security and other financial instrument of the Fund and of the holdings of the Subsidiary the following information on the Fund’s Web site: ticker symbol (if applicable), name of security, futures contract, and/ or financial instrument, number of shares, if applicable, and dollar value of each security, futures contract, and/or financial instrument held, and percentage weighting of each security, futures contract, and/or financial instrument held. The Web site 17 The Bid/Ask Price of the Fund will be determined using the mid-point of the highest bid and the lowest offer on the Exchange as of the time of calculation of the Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Fund and its service providers. 18 Under accounting procedures followed by the Fund, trades made on the prior business day (‘‘T’’) will be booked and reflected in NAV on the current business day (‘‘T+1’’). Accordingly, the Fund will be able to disclose at the beginning of the business day the portfolio that will form the basis for the NAV calculation at the end of the business day. PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 32507 information will be publicly available at no charge. In addition, for in-kind creations, a basket composition file, which includes the security names to deliver in exchange for Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the Exchange via the NSCC. The basket will represent one Creation Unit of the Fund. Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and the Trust’s Form N–CSR and Form N–SAR, filed twice a year. The Trust’s SAI and Shareholder Reports will be available free upon request from the Trust, and those documents and the Form N–CSR and Form N–SAR may be viewed on-screen or downloaded from the Commission’s Web site at www.sec.gov. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. Information regarding the previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. 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, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated at least every 15 seconds during the Core Trading Session by one or more major market data vendors.19 The dissemination of the Portfolio Indicative Value, together with the Disclosed Portfolio, will allow investors to determine the value of the underlying portfolio of the Fund on a daily basis and to provide a close estimate of that value throughout the trading day. The intra-day, closing and settlement prices of the portfolio investments (e.g., Futures Instruments, ETFs, Underlying ETPs and fixed income securities) are also readily available from the national securities and futures exchanges trading such securities and futures, as applicable, automated quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. Additional information regarding the Trust and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio 19 Currently, it is the Exchange’s understanding that several major market data vendors widely disseminate Portfolio Indicative Values taken from CTA or other data feeds. E:\FR\FM\30MYN1.SGM 30MYN1 32508 Federal Register / Vol. 78, No. 104 / Thursday, May 30, 2013 / Notices holdings disclosure policies, distributions and taxes is included in the Registration Statement. All terms relating to the Fund that are referred to, but not defined in, this proposed rule change are defined in the Registration Statement. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund.20 Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached. Trading also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the 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. Trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. TKELLEY on DSK3SPTVN1PROD with NOTICES Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Shares will trade on the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading Sessions). The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price variation (‘‘MPV’’) for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is $0.0001. Surveillance The Exchange 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 20 See NYSE Arca Equities Rule 7.12, Commentary .04. VerDate Mar<15>2010 16:25 May 29, 2013 Jkt 229001 securities laws.21 The Exchange represents 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 applicable federal securities laws. The surveillances referred to above generally focus on detecting securities trading outside their normal patterns, which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares with other markets that are members of the Intermarket Surveillance Group (‘‘ISG’’), or with which the Exchange has in place a comprehensive surveillance sharing agreement.22 The Chicago Mercantile Exchange (‘‘CME’’), the Chicago Board of Trade, the New York Mercantile Exchange (‘‘NYMEX’’), and ICE Futures U.S. are members of ISG, and the Exchange may obtain market surveillance information with respect to transactions occurring on the COMEX pursuant to the ISG memberships of CME and NYMEX. The Exchange has in place a comprehensive surveillance sharing agreement with the Kansas City Board of Trade and ICE Futures U.K. relating to trading of applicable components of the Benchmark. In addition, with respect to futures contracts in which the Subsidiary invests, not more than 10% of the weight of such futures contracts in the aggregate shall consist of futures contracts whose principal trading market (a) is not a member of ISG or (b) is a market with which the Exchange does not have a comprehensive surveillance sharing agreement, provided that, so long as the Exchange may obtain market surveillance information with respect to transactions occurring on the COMEX pursuant to the ISG memberships of CME and NYMEX, futures contracts whose principal trading market is COMEX shall not be subject to the prohibition in (a), above. 21 FINRA surveils trading on the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 22 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 comprehensive surveillance sharing agreement. PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Information Bulletin Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) 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; (3) 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; (4) how information regarding the Portfolio Indicative Value will be disseminated; (5) 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 (6) trading information. In addition, the Bulletin will reference that the Fund is subject to various fees and expenses described in the Registration Statement. The Bulletin will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. The Bulletin will also disclose that the NAV for the Shares will be calculated after 4:00 p.m. E.T. each trading day. 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5) 23 that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in NYSE Arca Equities Rule 8.600. The Exchange has in place 23 15 E:\FR\FM\30MYN1.SGM U.S.C. 78f(b)(5). 30MYN1 TKELLEY on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 104 / Thursday, May 30, 2013 / Notices surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares with other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the Benchmark Components are traded, or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Adviser is not a brokerdealer but is affiliated with a brokerdealer, and has implemented a fire wall with respect to its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio. The Fund will invest up to 25% of its total assets in the Subsidiary. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares with other markets that are members of the ISG, or with which the Exchange has in place a comprehensive surveillance sharing agreement. The CME, the Chicago Board of Trade, the NYMEX, and ICE Futures U.S. are members of ISG, and the Exchange may obtain market surveillance information with respect to transactions occurring on the COMEX pursuant to the ISG memberships of CME and NYMEX. The Exchange has in place a comprehensive surveillance sharing agreement with the Kansas City Board of Trade and ICE Futures U.K. relating to trading of applicable components of the Benchmark. In addition, with respect to futures contracts in which the Subsidiary invests, not more than 10% of the weight of such futures contracts in the aggregate shall consist of futures contracts whose principal trading market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement, as described above under ‘‘Surveillance.’’ The Fund will limit its investments in illiquid securities, including Rule 144A securities and master demand notes, to 15% of its net assets. The Fund will not invest directly in Futures Instruments and the Fund expects to exclusively gain exposure to these futures investments by investing in the Subsidiary. The Fund will not invest in any non-U.S. equity securities (other than shares of the Subsidiary). The Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2X and 3X) of the Fund’s Benchmark. The Fund’s investments will be consistent with the VerDate Mar<15>2010 16:25 May 29, 2013 Jkt 229001 Fund’s investment objective and will not be used to enhance leverage. The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation from the issuer of the Shares 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. In addition, a large amount of information will be publicly available regarding the Fund and the Shares, thereby promoting market transparency. Moreover, the Portfolio Indicative Value will be widely disseminated through the facilities of the CTA or by one or more major market data vendors at least every 15 seconds during the Exchange’s Core Trading Session. On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Fund will disclose on its Web site the Disclosed Portfolio that will form the basis for the Fund’s calculation of NAV at the end of the business day. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information will be available via the CTA high-speed line. The Web site for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in a Bulletin of the special characteristics and risks associated with trading the Shares. Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable, and trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which trading in Shares of the Fund may be halted. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the Portfolio Indicative Value, the Disclosed Portfolio, and quotation and last sale information for the Shares. The intraday, closing and settlement prices of the portfolio investments (e.g., Futures Instruments, ETFs, Underlying ETPs and fixed income securities) are also readily available from the national PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 32509 securities and futures exchanges trading such securities and futures, as applicable, automated quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. The Fund will not invest in any non-U.S. equity securities (other than shares of the Subsidiary), and the Subsidiary will not invest in any non-U.S. equity securities. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an additional type of activelymanaged exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the Portfolio Indicative Value, the Disclosed Portfolio, and quotation and last sale information for the Shares. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The proposed rule change will facilitate the listing and trading of an additional type of activelymanaged exchange-traded product that invests in exchange-listed futures contracts and that will enhance competition among market participants, to the benefit of investors and the marketplace. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory E:\FR\FM\30MYN1.SGM 30MYN1 32510 Federal Register / Vol. 78, No. 104 / Thursday, May 30, 2013 / Notices organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: TKELLEY on DSK3SPTVN1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml ); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2013–52 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2013–52. 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., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– VerDate Mar<15>2010 18:28 May 29, 2013 Jkt 229001 NYSEArca–2013–52 and should be submitted on or before June 20, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Jill M. Peterson, Assistant Secretary. [FR Doc. 2013–12846 Filed 5–29–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69622; File No. SR–NYSE– 2013–07] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings To Determine Whether To Disapprove Proposed Rule Change Amending NYSE Rules 451 and 465, and the Related Provisions of Section 402.10 of the NYSE Listed Company Manual, Which Provide a Schedule for the Reimbursement of Expenses by Issuers to NYSE Member Organizations for the Processing of Proxy Materials and Other Issuer Communications Provided to Investors Holding Securities in Street Name, and To Establish a Five-Year Fee for the Development of an Enhanced Brokers Internet Platform May 23, 2013. I. Introduction On February 1, 2013, New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend the fees set forth in NYSE Rules 451 and 465, and the related provisions of Section 402.10 of the NYSE Listed Company Manual, for the reimbursement of expenses by issuers to NYSE member organizations for the processing of proxy materials and other issuer communications provided to investors holding securities in street name, and to establish a five-year fee for the development of an enhanced brokers internet platform. The proposed rule change was published for comment in the Federal Register on February 22, 2013.3 The Commission received 28 comments on the proposal.4 On April 3, 24 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. 68936 (February 15, 2013), 78 FR 12381 (‘‘Notice’’). 4 See letters to Elizabeth M. Murphy, Secretary, Commission from: Charles V. Rossi, President, The 1 15 PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 2013, the Commission designated a longer period for Commission action on the proposed rule change, until May 23, 2013.5 The Exchange submitted a response to the comments on May 17, 2013.6 This order institutes proceedings under Section 19(b)(2)(B) of the Act to determine whether to disapprove the proposed rule change. II. Background NYSE member organizations that hold securities for beneficial owners in street Securities Transfer Association, dated February 20, 2013 (‘‘STA Letter’’) and March 4, 2013 (‘‘STA Letter II’’); Karen V. Danielson, President, Shareholder Services Association, dated March 4, 2013 (‘‘SSA Letter’’); Jeanne M. Shafer, dated March 6, 2013 (‘‘Schafer Letter’’); David W. Lovatt, dated March 6, 2013 (‘‘Lovatt Letter’’); Stephen Norman, Chair, The Independent Steering Committee of Broadridge, dated March 7, 2013 (‘‘Steering Committee Letter’’); Jeffrey D. Morgan, President & CEO, National Investor Relations Institute, dated March 7, 2013 (‘‘NIRI Letter’’); Kenneth Bertsch, President and CEO, Society of Corporate Secretaries & Governance Professionals, dated March 7, 2013 (‘‘SCSGP Letter’’); Niels Holch, Executive Director, Shareholder Communications Coalition, dated March 12, 2013 (‘‘SCC Letter’’); Geoffrey M. Dugan, General Counsel, iStar Financial Inc., dated March 13, 2013 (‘‘iStar Letter’’); Paul E. Martin, Chief Financial Officer, Perficient, Inc., dated March 13, 2013 (‘‘Perficient Letter’’); John Harrington, President, Harrington Investments, Inc., dated March 14, 2013 (‘‘Harrington Letter’’); James McRitchie, Shareowner, Corporate Governance, dated March 14, 2013 (‘‘CG Letter’’); Clare A. Kretzman, General Counsel, Gartner, Inc., dated March 15, 2013 (‘‘Gartner Letter’’); Tom Quaadman, Vice President, Center for Capital Markets Competitiveness, dated March 15, 2013 (‘‘CCMC Letter’’); Dennis E. Nixon, President, International Bancshares Corporation, dated March 15, 2013 (‘‘IBC Letter’’); Argus I. Cunningham, Chief Executive Officer, Sharegate Inc., dated March 15, 2013 (‘‘Sharegate Letter’’); Laura Berry, Executive Director, Interfaith Center on Corporate Responsibility, dated March 15, 2013 (‘‘ICC Letter’’); Dorothy M. Donohue, Deputy General Counsel—Securities Regulation, Investment Company Institute, dated March 15, 2013 (‘‘ICI Letter’’); Charles V. Callan, Senior Vice President— Regulatory Affairs, Broadridge Financial Solutions, Inc., dated March 15, 2013 (‘‘Broadridge Letter’’); Brad Philips, Treasurer, Darling International Inc., dated March 15, 2013 (‘‘Darling Letter’’); John Endean, President, American Business Conference, dated March 18, 2013 (‘‘ABC Letter’); Tom Price, Managing Director, The Securities Industry and Financial Markets Association, dated March 18, 2013 (‘‘SIFMA Letter’’); Michael S. O’Brien, Vice President—Corporate Governance Officer, BNY Mellon, dated March 28, 2013 (‘‘BNY Letter’’); Jeff Mahoney, General Counsel, Council of Institutional Investors, dated April 5, 2013 (‘‘CII Letter’’); Paul Torre, Executive Vice President, AST Fund Solutions, LLC, dated May 16, 2013 (‘‘AST Letter’’); and John M. Payne, Chief Executive Officer, Zumbox, Inc., dated May 20, 2013 (‘‘Zumbox Letter’’); see also letter to the Honorable Mary Jo White, Chair, Commission from Dieter Waizenegger, Executive Director, CtW Investment Goup, dated May 17, 2013 (‘‘CtW Letter’’). 5 See Securities Exchange Act Release No. 69286 (April 3, 2013), 78 FR 21481 (April 10, 2013). 6 See Letter to Elizabeth M. Murphy, Secretary, Commission from Janet McGinnis, EVP & Corporate Secretary, NYSE Euronext, dated May 17, 2013 (‘‘NYSE Letter’’). E:\FR\FM\30MYN1.SGM 30MYN1

Agencies

[Federal Register Volume 78, Number 104 (Thursday, May 30, 2013)]
[Notices]
[Pages 32503-32510]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12846]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69636; File No. SR-NYSEArca-2013-52]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Proposing To List and Trade Shares of the First 
Trust Morningstar Futures Strategy Fund Under NYSE Arca Equities Rule 
8.600

May 24, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that, on May 15, 2013, NYSE Arca, Inc. (``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission 
(``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following 
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): First 
Trust Morningstar Futures Strategy Fund. The text of the proposed rule 
change is available on the Exchange's Web site at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the shares (``Shares'') of 
the following under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares on the Exchange: \3\ First 
Trust Morningstar Futures Strategy Fund (the ``Fund'').\4\ The Shares 
will be offered by First Trust Exchange-Traded Fund V (the ``Trust''), 
a statutory trust organized under the laws of the State of 
Massachusetts and registered with the Commission as an open-end 
management investment company.\5\ The investment adviser to the Fund is 
First Trust Advisors L.P. (the ``Adviser''). First Trust Portfolios 
L.P. (the ``Distributor'') will be the principal underwriter and 
distributor of the Fund Shares. The Bank of New York Mellon Corporation 
(the ``Administrator,'' ``Transfer Agent'' or ``Custodian'') will serve 
as administrator, custodian and transfer agent for the Fund.
---------------------------------------------------------------------------

    \3\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized 
as an open-end investment company or similar entity that invests in 
a portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \4\ The Commission approved NYSE Arca Equities Rule 8.600 and 
the listing and trading of certain funds of the PowerShares Actively 
Managed Exchange-Traded Fund Trust on the Exchange pursuant to Rule 
8.600 in Securities Exchange Act Release No. 57619 (April 4, 2008), 
73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission 
also previously approved listing and trading on the Exchange of a 
number of actively managed funds under Rule 8.600. See, e.g., 
Securities Exchange Act Release Nos. 62502 (July 15, 2010), 75 FR 
42471 (July 21, 2010) (SR-NYSEArca-2010-57) (order approving listing 
and trading of AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF); 
63598 (December 22, 2010), 75 FR 82106 (December 29, 2010) (SR-
NYSEArca-2010-98) (order approving listing and trading of WisdomTree 
Managed Futures Strategy Fund); and 66343 (February 7, 2012), 77 FR 
7647 (February 13, 2012) (SR-NYSEArca-2011-85) (order approving 
listing and trading of five SPDR SSgA ETFs).
    \5\ The Trust is registered under the 1940 Act. On May 18, 2012, 
the Trust filed with the Commission an initial registration 
statement on Form N-1A under the Securities Act of 1933 (15 U.S.C. 
77a) (the ``1933 Act'') and under the 1940 Act relating to the Fund 
(File Nos. 333-181507 and 811-22709) (``Registration Statement''). 
The description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
30029 (April 10, 2012) (File No. 812-13795) (the ``Exemptive 
Order'').
---------------------------------------------------------------------------

    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio. In addition, Commentary 
.06 further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the open-end fund's portfolio.\6\ Commentary .06 to Rule 
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca 
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer reflects the applicable open-end fund's portfolio, not an 
underlying benchmark index, as is the case with index-based funds. The 
Adviser is not a broker-dealer but is affiliated with a broker-dealer 
and has implemented a fire wall with respect to its broker-dealer 
affiliate

[[Page 32504]]

regarding access to information concerning the composition and/or 
changes to the portfolio. In the event (a) the Adviser becomes newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-adviser 
is a registered broker-dealer or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its relevant 
personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its 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.
---------------------------------------------------------------------------

    The Commodity Futures Trading Commission (``CFTC'') has recently 
adopted substantial amendments to CFTC Rule 4.5 relating to the 
permissible exemptions and conditions for reliance on exemptions from 
registration as a commodity pool operator. As a result of the 
instruments that will be held by the Fund, the Adviser has registered 
as a Commodity Pool Operator (``CPO'') and is also a member of the 
National Futures Association (``NFA''). The Fund and the Subsidiary (as 
defined herein) will be subject to regulation by the CFTC and NFA and 
additional disclosure, reporting and recordkeeping rules imposed upon 
commodity pools.
    According to the Registration Statement, the Fund will be an 
actively managed exchange-traded fund that will seek to provide 
investors with positive returns.
Fund Investments
    According to the Registration Statement, the Fund will seek to 
provide investors with positive returns. The Fund will seek to achieve 
positive total returns that are not directly correlated to broad market 
equity or fixed income returns. The Fund will seek to track the 
performance of the Morningstar\(R)\ Diversified Futures Index\(SM)\ 
(the ``Benchmark''), which is developed, maintained and sponsored by 
Morningstar, Inc. (``Morningstar'').\7\ The Fund is not sponsored, 
endorsed, sold or promoted by Morningstar. Morningstar's only 
relationship to the Fund is the licensing of certain service marks and 
service names of Morningstar and of the Benchmark, which is determined, 
composed and calculated by Morningstar without regard to the Adviser or 
the Fund. Morningstar has no obligation to take the needs of the 
Adviser or the Fund into consideration in determining, composing or 
calculating the Benchmark. The Benchmark seeks to reflect trends (in 
either direction) in the commodity futures, currencies futures and 
financial futures markets. The Benchmark is a fully collateralized 
futures index that offers diversified exposure to global markets 
through highly-liquid, exchange listed futures contracts in 
commodities, currencies and equity indexes. The Fund will generally 
seek to hold similar instruments to those included in the Benchmark. In 
addition, the Fund will generally only seek exposure to commodities 
included in the Benchmark. However, the Fund is not obligated to invest 
in the same instruments included in the Benchmark. There can be no 
assurance that the Fund's performance will track the Benchmark at all 
times.
---------------------------------------------------------------------------

    \7\ Morningstar is not a broker-dealer but is affiliated with a 
broker-dealer and, with respect to such broker-dealer affiliate, has 
implemented a fire wall and procedures designed to prevent the 
illicit use and dissemination of material, non-public information 
regarding the Benchmark.
---------------------------------------------------------------------------

    Under normal market conditions,\8\ the Fund, through FT Cayman 
Subsidiary, a wholly-owned subsidiary of the Fund organized under the 
laws of the Cayman Islands (the ``Subsidiary''), will invest in a 
diversified portfolio of exchange-listed commodity futures, currency 
futures and equity index futures (collectively, ``Futures 
Instruments'') with an aggregate notional value substantially equal to 
the Fund's net assets.
---------------------------------------------------------------------------

    \8\ The term ``under normal market conditions'' includes, but is 
not limited to, the absence of extreme volatility or trading halts 
in the fixed income markets, futures 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.
---------------------------------------------------------------------------

    The Fund will not invest directly in Futures Instruments. The Fund 
expects to exclusively gain exposure to these investments by investing 
in the Subsidiary. The Subsidiary will be advised by the Adviser.\9\ 
The Fund's investment in the Subsidiary is intended to provide the Fund 
with exposure to commodity markets within the limits of current federal 
income tax laws applicable to investment companies such as the Fund, 
which limit the ability of investment companies to invest directly in 
the Futures Instruments. The Subsidiary will have the same investment 
objective as the Fund, but unlike the Fund, it may invest without 
limitation in Futures Instruments. Except as otherwise noted, 
references to the Fund's investments may also be deemed to include the 
Fund's indirect investments through the Subsidiary. The Fund will 
invest up to 25% of its total assets in the Subsidiary. Each of the 
Subsidiary's investments will generally be positioned long, short or 
flat based on its price relative to its average price over a recent 
period, with the ability to change positions as frequently as daily if 
the Benchmark is so adjusted. The Subsidiary's investments will provide 
the Fund with exposure to domestic and international markets.
---------------------------------------------------------------------------

    \9\ The Subsidiary is not registered under the 1940 Act and is 
not directly subject to its investor protections, except as noted in 
the Registration Statement. However, the Subsidiary is wholly-owned 
and controlled by the Fund and is advised by the Adviser. Therefore, 
because of the Fund's ownership and control of the Subsidiary, the 
Subsidiary would not take action contrary to the interests of the 
Fund or its shareholders. The Fund's Board of Trustees (``Board'') 
has oversight responsibility for the investment activities of the 
Fund, including its expected investment in the Subsidiary, and the 
Fund's role as the sole shareholder of the Subsidiary. The Adviser 
receives no additional compensation for managing the assets of the 
Subsidiary. The Subsidiary will also enter into separate contracts 
for the provision of custody, transfer agency, and accounting agent 
services with the same or with affiliates of the same service 
providers that provide those services to the Fund.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund will invest a 
substantial portion of its assets in fixed income securities that 
include U.S. government and agency securities, money market 
instruments,\10\ overnight and fixed-term repurchase agreements, cash 
and other cash equivalents. The Fund will use the fixed-income 
securities as investments and to meet asset coverage tests resulting 
from the Subsidiary's derivative exposure on a day-to-day basis. The 
Fund may also invest directly in exchange-traded funds (``ETFs'') \11\ 
and other investment companies that provide exposure to commodities, 
equity securities and fixed income securities, to the extent permitted 
under the 1940 Act. Under the 1940 Act, the Fund's investment in 
investment companies is limited to, subject to certain exceptions: (i) 
3% of the total outstanding voting stock of any one investment company, 
(ii) 5% of the Fund's total assets with respect to any one investment 
company and (iii) 10% of the Fund's total assets of investment 
companies in the aggregate. As a whole, the Fund's investments are 
meant to track the investment returns of the Benchmark within the 
limitations of the federal tax requirements applicable to regulated 
investment companies.
---------------------------------------------------------------------------

    \10\ The Fund may invest in shares of money market funds to the 
extent permitted by the 1940 Act.
    \11\ For purposes of this proposed rule change, ETFs include 
securities such as those listed and traded under NYSE Arca Equities 
Rule 5.2(j)(3) (``Investment Company Units''), 8.100 (``Portfolio 
Depositary Receipts'') and 8.600 (``Managed Fund Shares'').

---------------------------------------------------------------------------

[[Page 32505]]

    The Benchmark and the Subsidiary's holdings in futures contracts 
will consist of futures contracts providing long, short and flat 
exposure, which include, but are not limited to, commodities, equity 
indexes and currencies (Euro, Japanese Yen, British Pound, Canadian 
Dollar, Australian Dollar and Swiss Franc). The Subsidiary's exposure 
will generally be weighted 50% in commodity futures, 25% in equity 
futures and 25% in currency futures. The base weights typically will be 
rebalanced quarterly to maintain the 50%/25%/25% allocation.
    The Subsidiary's commodity- and currency-linked investments 
generally will be limited to investments in listed futures contracts 
that provide exposure to commodity and non-U.S. currency returns. The 
Subsidiary will also invest in exchange-listed equity index futures. 
The Fund and the Subsidiary also may enter into repurchase agreements 
with counterparties that are deemed to present acceptable credit risks. 
A repurchase agreement is a transaction in which the Fund and the 
Subsidiary purchase securities or other obligations from a bank or 
securities dealer and simultaneously commit to resell them to a 
counterparty at an agreed-upon date or upon demand and at a price 
reflecting a market rate of interest unrelated to the coupon rate or 
maturity of the purchased obligations.
    The following table describes each of the commodities, currencies 
and equity indexes underlying the futures contracts included in the 
Benchmark as of April 30, 2013. This table is subject to change and the 
Subsidiary will not in all cases invest in the futures contracts 
included in the Benchmark. The table also provides each instrument's 
trading hours (Eastern time (``E.T.''), exchange and ticker symbol.

----------------------------------------------------------------------------------------------------------------
                                                                                                Contract ticker
                                       Exchange code        Exchange name      Trading hours       (generic)
----------------------------------------------------------------------------------------------------------------
Commodity:
    Wheat/No. 2 Hard Winter.......  KCB                 Kansas City Board of      17:00-14:00  KW.
                                                         Trade.
    Soybean Meal/48% Protein......  CBT                 Chicago Board of          17:00-14:00  SM.
                                                         Trade.
    Cotton/1-1/16``...............  NYB                 ICE Futures U.S.....      20:00-13:30  CT.
    Soybean Oil/Crude.............  CBT                 Chicago Board of          17:00-14:00  BO.
                                                         Trade.
    Wheat/No. 2 Soft Red..........  CBT                 Chicago Board of          17:00-14:00  W.
                                                         Trade.
    Coffee `C'/Colombian..........  NYB                 ICE Futures U.S.....      02:30-13:00  KC.
    Hogs, Lean/Average Iowa/S Minn  CME                 Chicago Mercantile        17:00-16:00  LH.
                                                         Exchange.
    Copper High Grade/Scrap No. 2   CMX                 COMEX...............      17:00-16:15  HG.
     Wir.
    Cattle, Live/Choice Average...  CME                 Chicago Mercantile        17:00-16:00  LC.
                                                         Exchange.
    Sugar 11/World Raw...  NYB                 ICE Futures U.S.....      01:30-13:00  SB.
    Silver........................  CMX                 COMEX...............      17:00-16:15  SI.
    Gasoline, Blendstock..........  NYM                 New York Mercantile       17:00-16:15  XB.
                                                         Exchange.
    Soybeans/No. 2 Yellow.........  CBT                 Chicago Board of          17:00-14:00  S.
                                                         Trade.
    Corn/No. 2 Yellow.............  CBT                 Chicago Board of          17:00-14:00  C.
                                                         Trade.
    Heating Oil 2/Fuel     NYM                 New York Mercantile       17:00-16:15  HO.
     Oil.                                                Exchange.
    Natural Gas, Henry Hub........  NYM                 New York Mercantile       17:00-16:15  NG.
                                                         Exchange.
    Gas-Oil-Petroleum.............  ICE                 ICE Futures U.K.....      19:00-17:00  QS.
    Gold..........................  CMX                 COMEX...............      17:00-16:15  GC.
    Crude Oil, Brent/Global Spot..  ICE                 ICE Futures U.K.....      19:00-17:00  CO.
    Crude Oil, WTI/Global Spot....  NYM                 New York Mercantile       17:00-16:15  CL.
                                                         Exchange.
Currency:
    Swiss Franc/U.S. Dollar.......  CME                 Chicago Mercantile        17:00-16:00  MSS.
                                                         Exchange.
    Australian Dollar/U.S. Dollar.  CME                 Chicago Mercantile        17:00-16:00  CRD.
                                                         Exchange.
    Canadian Dollar/U.S. Dollar...  CME                 Chicago Mercantile        17:00-16:00  MCD.
                                                         Exchange.
    Japanese Yen/U.S. Dollar......  CME                 Chicago Mercantile        17:00-16:00  JE.
                                                         Exchange.
    British Pound/U.S. Dollar.....  CME                 Chicago Mercantile        17:00-16:00  CRP.
                                                         Exchange.
    Euro FX.......................  CME                 Chicago Mercantile        17:00-16:00  EE.
                                                         Exchange.
Equity Index:
    Australia 200 S...............  ASX                 Australian Stock          02:30-05:00  KF.
                                                         Exchange.
    MIB SP........................  MIL                 Borsa Italiana......      02:00-10:40  SW.
    S&P/TSX 60....................  MSE                 Montreal Exchange...      05:00-15:15  MPT.
    IBEX 35 Index.................  MFM                 Meff Renta Variable       02:00-13:00  ID.
                                                         (MEFF-Madrid).
    FTSE 100......................  LIF                 NYSE LIFFE..........      19:00-01:50  Z.
    CAC-40 Index..................  EOP                 NYSE LIFFE Paris....      01:00-15:00  CF.
    DAX...........................  EUX                 Eurex...............      00:50-15:00  GX.
    Nikkei 225....................  OSE                 Osaka Securities          02:30-13:00  NO.
                                                         Exchange.
    S&P 500.......................  CME                 Chicago Mercantile        17:00-15:15  ES.
                                                         Exchange.
----------------------------------------------------------------------------------------------------------------

    According to the Registration Statement, the Fund, through the 
Subsidiary, will attempt to capture the economic benefit derived from 
rising and declining trends based on the ``moving average'' price 
changes of commodity futures, currency futures and equity index 
futures. In an attempt to capture these trends, the Fund's investments, 
through the Subsidiary, will generally be positioned as either 
``long,'' ``short'' or ``flat.'' To be ``long'' means to hold or be 
exposed to a security or instrument with the expectation that its value 
will increase over time. To be ``short'' means to sell or be exposed to 
a security or instrument with the expectation that it will fall in 
value. To be ``flat'' means to move a position to cash if a short 
signal is triggered in a security or instrument. The Fund, through the 
Subsidiary, will benefit if it has a long position in a security or 
instrument that increases in value or a short position in a security or 
instrument that decreases in value. Conversely, the Fund, through the 
Subsidiary, will be adversely impacted if it holds a long position in a 
security or instrument that declines in value and a short position in a 
security or instrument that increases in value. Although the Fund will 
seek returns

[[Page 32506]]

that track the returns of the Benchmark, the Fund, through the 
Subsidiary, may have a higher or lower exposure to any sector or 
component within the Benchmark at any time.
    The Subsidiary's shares will be offered only to the Fund and the 
Fund will not sell shares of the Subsidiary to other investors. The 
Fund will not invest in any non-U.S. equity securities (other than 
shares of the Subsidiary), and the Subsidiary will not invest in any 
non-U.S. equity securities.
    The Fund's investment in the Subsidiary will be designed to help 
the Fund achieve exposure to commodity returns in a manner consistent 
with the federal tax requirements applicable to the Fund and other 
regulated investment companies.
Other Investments
    According to the Registration Statement, the Fund may from time to 
time purchase securities on a ``when-issued'' or other delayed-delivery 
basis. The price of securities purchased in such transactions is fixed 
at the time the commitment to purchase is made, but delivery and 
payment for the securities take place at a later date.
    The Fund may invest in certificates of deposit issued against funds 
deposited in a bank or savings and loan association. In addition, the 
Fund may invest in bankers' acceptances, which are short-term credit 
instruments used to finance commercial transactions.
    The Fund may invest in bank time deposits, which are monies kept on 
deposit with banks or savings and loan associations for a stated period 
of time at a fixed rate of interest. In addition, the Fund may invest 
in commercial paper, which are short-term unsecured promissory notes, 
including variable rate master demand notes issued by corporations to 
finance their current operations. Master demand notes are direct 
lending arrangements between the Fund and a corporation. The Fund may 
invest in commercial paper only if it has received the highest rating 
from at least one nationally recognized statistical rating organization 
or, if unrated, judged by First Trust to be of comparable quality.
    The Fund may also invest a portion of its assets in exchange-traded 
pooled investment vehicles (``Underlying ETPs'') other than registered 
investment companies that invest principally in commodities.\12\
---------------------------------------------------------------------------

    \12\ The term ``Underlying ETPs'' includes Trust Issued Receipts 
(as described in NYSE Arca Equities Rule 8.200); and Commodity-Based 
Trust Shares (as described in NYSE Arca Equities Rule 8.201); 
Commodity Index Trust Shares (as described in NYSE Arca Equities 
Rule 8.203); and Trust Units (as described in NYSE Arca Equities 
Rule 8.500). The Underlying ETPs all will be listed and traded in 
the U.S. on registered exchanges.
---------------------------------------------------------------------------

    The Fund or the Subsidiary will not invest in options on commodity 
futures, structured notes, equity-linked derivatives, forwards or swaps 
contracts.
Investment Restrictions
    While the Fund will be permitted to borrow as permitted under the 
1940 Act, the Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (i.e., 2X and 3X) of the 
Fund's Benchmark.
    According to the Registration Statement, the Fund may not invest 
more than 25% of the value of its total assets in securities of issuers 
in any one industry or group of industries.\13\ This restriction does 
not apply to obligations issued or guaranteed by the U.S. Government, 
its agencies or instrumentalities.
---------------------------------------------------------------------------

    \13\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
---------------------------------------------------------------------------

    The Fund will not purchase securities of open-end or closed-end 
investment companies except in compliance with the 1940 Act.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities and master demand notes. The Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid securities. Illiquid securities 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.\14\
---------------------------------------------------------------------------

    \14\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the 1933 Act).
---------------------------------------------------------------------------

    The Fund intends to qualify for and to elect to be treated as a 
separate regulated investment company (a ``RIC'') under Subchapter M of 
the Internal Revenue Code.\15\
---------------------------------------------------------------------------

    \15\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    The Shares will conform to the initial listing criteria under NYSE 
Arca Equities Rule 8.600. The Exchange represents that, for initial 
and/or continued listing, the Fund will be in compliance with Rule 10A-
3 \16\ under the Act, as provided by NYSE Arca Equities Rule 5.3. A 
minimum of 100,000 Shares of the Fund will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the net asset value 
(``NAV'') per Share will be calculated daily, and that the NAV and the 
Disclosed Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) 
will be made available at the same time to all market participants.
---------------------------------------------------------------------------

    \16\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.
Net Asset Value
    According to the Registration Statement, the Fund's NAV will be 
determined as of the close of trading (normally 4:00 p.m., E.T.) on 
each day the New York Stock Exchange is open for business. NAV will be 
calculated for the Fund by taking the market price of the Fund's total 
assets, including interest or dividends accrued but not yet collected, 
less all liabilities, and dividing such amount by the total number of 
Shares outstanding. The result, rounded to the nearest cent, will be 
the NAV per Share. All valuations will be subject to review by the 
Fund's Board or its delegate.
    The Fund's and the Subsidiary's investments will be valued at 
market value or, in the absence of market value with respect to any 
portfolio securities, at fair value in accordance with valuation 
procedures adopted by the Trust's Board and in accordance with the 1940 
Act. Portfolio securities traded on more than one securities exchange 
will be valued at the last sale price or official closing price, as 
applicable, on the business day as of which such value is being 
determined at the close of the exchange representing the principal 
market for such securities. Portfolio

[[Page 32507]]

securities traded in the over-the-counter market, will be valued at the 
closing bid prices. Short-term investments that mature in less than 60 
days when purchased will be valued at amortized cost. Exchange-traded 
futures contracts will be valued at the closing price in the market 
where such contracts are principally traded.
    Certain securities may not be able to be priced by pre-established 
pricing methods. Such securities may be valued by the Board or its 
delegate at fair value. The use of fair value pricing by the Fund will 
be governed by valuation procedures adopted by the Board and in 
accordance with the provisions of the 1940 Act.
Creation and Redemption of Shares
    Creation and redemption of Shares will occur in large specified 
blocks of Shares, referred to as ``Creation Units.'' A Creation Unit of 
the Fund currently will be comprised of 50,000 Shares of the Fund. The 
number of Shares comprising a Creation Unit may change over time. 
According to the Registration Statement, to purchase or redeem Creation 
Units directly from the Fund, an investor must be an Authorized 
Participant, or an investor must purchase the Shares through a 
financial institution that is an Authorized Participant. An 
``Authorized Participant'' is a participant in the Continuous Net 
Settlement System of the National Securities Clearing Corporation 
(``NSCC'') or the Depository Trust Company that has executed a 
participant agreement with the Distributor that has been accepted by 
the Trust's Custodian. Authorized Participants may purchase Creation 
Units of a Fund and sell individual Shares on the NYSE Arca. Similarly, 
Shares can only be redeemed in Creation Units. The process at which 
creations and redemptions occur will be based on the next calculation 
of the NAV after an order in proper form is received by the Distributor 
on any day that the Fund is open for business. Generally, a Creation 
Unit will be purchased or redeemed from the Fund for a designated 
portfolio of securities along with cash payment (``Deposit 
Securities,'' in the case of purchases, and ``Redemption Securities,'' 
in the case of redemption). Generally, the Deposit Securities and the 
Redemption Securities will correspond pro rata to the portfolio of 
securities of the Fund. Purchases and redemptions of Creation Units may 
be made in whole or in part on a cash basis, rather than in-kind, under 
circumstances set forth in the Registration Statement.
    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings, disclosure policies, 
distributions, and taxes is included in the Registration Statement. All 
terms relating to the Fund that are referred to, but not defined in, 
this proposed rule change are defined in the Registration Statement.
Availability of Information
    The Fund's Web site (www.ftportfolios.com) will include a form of 
the prospectus for the Fund that may be downloaded. The Fund's Web site 
will include additional quantitative information updated on a daily 
basis, including, for the Fund, (1) daily trading volume, the prior 
business day's reported closing price, NAV and mid-point of the bid/ask 
spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\17\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session (normally 9:30 a.m. to 
4:00 p.m., E.T.) on the Exchange, the Fund will disclose on its 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.\18\
---------------------------------------------------------------------------

    \17\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \18\ Under accounting procedures followed by the Fund, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Fund 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business day.
---------------------------------------------------------------------------

    On a daily basis, the Fund will disclose for each portfolio 
security and other financial instrument of the Fund and of the holdings 
of the Subsidiary the following information on the Fund's Web site: 
ticker symbol (if applicable), name of security, futures contract, and/
or financial instrument, number of shares, if applicable, and dollar 
value of each security, futures contract, and/or financial instrument 
held, and percentage weighting of each security, futures contract, and/
or financial instrument held. The Web site information will be publicly 
available at no charge.
    In addition, for in-kind creations, a basket composition file, 
which includes the security names to deliver in exchange for Shares, 
together with estimates and actual cash components, will be publicly 
disseminated daily prior to the opening of the Exchange via the NSCC. 
The basket will represent one Creation Unit of the Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's 
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and 
Shareholder Reports will be available free upon request from the Trust, 
and those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov. 
Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. 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, 
as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely 
disseminated at least every 15 seconds during the Core Trading Session 
by one or more major market data vendors.\19\ The dissemination of the 
Portfolio Indicative Value, together with the Disclosed Portfolio, will 
allow investors to determine the value of the underlying portfolio of 
the Fund on a daily basis and to provide a close estimate of that value 
throughout the trading day. The intra-day, closing and settlement 
prices of the portfolio investments (e.g., Futures Instruments, ETFs, 
Underlying ETPs and fixed income securities) are also readily available 
from the national securities and futures exchanges trading such 
securities and futures, as applicable, automated quotation systems, 
published or other public sources, or on-line information services such 
as Bloomberg or Reuters.
---------------------------------------------------------------------------

    \19\ Currently, it is the Exchange's understanding that several 
major market data vendors widely disseminate Portfolio Indicative 
Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio

[[Page 32508]]

holdings disclosure policies, distributions and taxes is included in 
the Registration Statement. All terms relating to the Fund that are 
referred to, but not defined in, this proposed rule change are defined 
in the Registration Statement.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\20\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
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. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of the Fund may be 
halted.
---------------------------------------------------------------------------

    \20\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
Surveillance
    The Exchange 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.\21\ The Exchange represents 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 applicable federal securities laws.
---------------------------------------------------------------------------

    \21\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations. FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
the Shares with other markets that are members of the Intermarket 
Surveillance Group (``ISG''), or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\22\ The Chicago 
Mercantile Exchange (``CME''), the Chicago Board of Trade, the New York 
Mercantile Exchange (``NYMEX''), and ICE Futures U.S. are members of 
ISG, and the Exchange may obtain market surveillance information with 
respect to transactions occurring on the COMEX pursuant to the ISG 
memberships of CME and NYMEX. The Exchange has in place a comprehensive 
surveillance sharing agreement with the Kansas City Board of Trade and 
ICE Futures U.K. relating to trading of applicable components of the 
Benchmark.
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    \22\ 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 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, with respect to futures contracts in which the 
Subsidiary invests, not more than 10% of the weight of such futures 
contracts in the aggregate shall consist of futures contracts whose 
principal trading market (a) is not a member of ISG or (b) is a market 
with which the Exchange does not have a comprehensive surveillance 
sharing agreement, provided that, so long as the Exchange may obtain 
market surveillance information with respect to transactions occurring 
on the COMEX pursuant to the ISG memberships of CME and NYMEX, futures 
contracts whose principal trading market is COMEX shall not be subject 
to the prohibition in (a), above.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'') 
of the special characteristics and risks associated with trading the 
Shares. Specifically, the Bulletin will discuss the following: (1) The 
procedures for purchases and redemptions of Shares in Creation Units 
(and that Shares are not individually redeemable); (2) 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; (3) 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; (4) how information regarding the Portfolio Indicative 
Value will be disseminated; (5) 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 (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \23\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place

[[Page 32509]]

surveillance procedures that are adequate to properly monitor trading 
in the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws. 
FINRA, on behalf of the Exchange, will communicate as needed regarding 
trading in the Shares with other markets that are members of the ISG, 
including all U.S. securities exchanges and futures exchanges on which 
the Benchmark Components are traded, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Adviser is 
not a broker-dealer but is affiliated with a broker-dealer, and has 
implemented a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the portfolio. The Fund will invest up to 25% of its total 
assets in the Subsidiary. FINRA, on behalf of the Exchange, will 
communicate as needed regarding trading in the Shares with other 
markets that are members of the ISG, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The CME, the 
Chicago Board of Trade, the NYMEX, and ICE Futures U.S. are members of 
ISG, and the Exchange may obtain market surveillance information with 
respect to transactions occurring on the COMEX pursuant to the ISG 
memberships of CME and NYMEX. The Exchange has in place a comprehensive 
surveillance sharing agreement with the Kansas City Board of Trade and 
ICE Futures U.K. relating to trading of applicable components of the 
Benchmark. In addition, with respect to futures contracts in which the 
Subsidiary invests, not more than 10% of the weight of such futures 
contracts in the aggregate shall consist of futures contracts whose 
principal trading market is not a member of ISG or is a market with 
which the Exchange does not have a comprehensive surveillance sharing 
agreement, as described above under ``Surveillance.'' The Fund will 
limit its investments in illiquid securities, including Rule 144A 
securities and master demand notes, to 15% of its net assets. The Fund 
will not invest directly in Futures Instruments and the Fund expects to 
exclusively gain exposure to these futures investments by investing in 
the Subsidiary. The Fund will not invest in any non-U.S. equity 
securities (other than shares of the Subsidiary). The Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (i.e., 2X and 3X) of the Fund's Benchmark. The 
Fund's investments will be consistent with the Fund's investment 
objective and will not be used to enhance leverage.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares 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. In addition, a large amount of 
information will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Moreover, the Portfolio 
Indicative Value will be widely disseminated through the facilities of 
the CTA or by one or more major market data vendors at least every 15 
seconds during the Exchange's Core Trading Session. On each business 
day, before commencement of trading in Shares in the Core Trading 
Session on the Exchange, the Fund will disclose on its Web site the 
Disclosed Portfolio that will form the basis for the Fund's calculation 
of NAV at the end of the business day. Information regarding market 
price and trading volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services, and quotation and last sale information will 
be available via the CTA high-speed line. The Web site for the Fund 
will include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. 
Moreover, prior to the commencement of trading, the Exchange will 
inform its Equity Trading Permit Holders in a Bulletin of the special 
characteristics and risks associated with trading the Shares. Trading 
in Shares of the Fund will be halted if the circuit breaker parameters 
in NYSE Arca Equities Rule 7.12 have been reached or because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable, and trading in the Shares will be 
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
circumstances under which trading in Shares of the Fund may be halted. 
In addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the Portfolio Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares. The intra-day, closing and settlement prices of the 
portfolio investments (e.g., Futures Instruments, ETFs, Underlying ETPs 
and fixed income securities) are also readily available from the 
national securities and futures exchanges trading such securities and 
futures, as applicable, automated quotation systems, published or other 
public sources, or on-line information services such as Bloomberg or 
Reuters. The Fund will not invest in any non-U.S. equity securities 
(other than shares of the Subsidiary), and the Subsidiary will not 
invest in any non-U.S. equity securities.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The proposed rule change will 
facilitate the listing and trading of an additional type of actively-
managed exchange-traded product that invests in exchange-listed futures 
contracts and that will enhance competition among market participants, 
to the benefit of investors and the marketplace.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory

[[Page 32510]]

organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2013-52 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2013-52. 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., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2013-52 and should 
be submitted on or before June 20, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2013-12846 Filed 5-29-13; 8:45 am]
BILLING CODE 8011-01-P