Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade Shares of the First Trust Morningstar Managed Futures Strategy Fund Under NYSE Arca Equities Rule 8.600, 47037-47041 [2013-18594]

Download as PDF Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices advisory fees charged under such contract are based on services provided that will be in addition to, rather than duplicative of, the services provided under the advisory contract(s) of any Fund in which the Investing Management Company may invest. These findings and their basis will be fully recorded in the minute books of the appropriate Investing Management Company. 11. Any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830. 12. No Fund will acquire securities of an investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the extent the Fund acquires securities of another investment company pursuant to exemptive relief from the Commission permitting the Fund to acquire securities of one or more investment companies for shortterm cash management purposes. For the Commission, by the Division of Investment Management, under delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–18595 Filed 8–1–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70055; File No. SR– NYSEArca–2013–52] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade Shares of the First Trust Morningstar Managed Futures Strategy Fund Under NYSE Arca Equities Rule 8.600 sroberts on DSK5SPTVN1PROD with NOTICES July 29, 2013. I. Introduction On May 15, 2013, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the First Trust Morningstar Futures Strategy 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 Fund (‘‘Fund’’) 3 under NYSE Arca Equities Rule 8.600. The proposed rule change was published for comment in the Federal Register on May 30, 2013.4 The Commission received no comments on the proposal. On July 24, 2013, the Exchange filed Amendment No. 1 to the proposed rule change.5 The Commission is publishing this notice to solicit comments on Amendment No. 1 to the proposed rule change from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposal The Exchange proposes to list and trade the Shares under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares. The Shares will be offered by First Trust Exchange-Traded Fund V (‘‘Trust’’),6 a statutory trust organized under the laws of the State of Massachusetts and registered with the Commission as an open-end management investment company. The investment adviser to the Fund is First Trust Advisors L.P. (‘‘Adviser’’). First Trust Portfolios L.P. will be the principal underwriter and distributor of the Shares. The Bank of New York Mellon Corporation will serve as administrator, custodian, and transfer agent for the Fund. The Exchange states that the Adviser is not a broker-dealer 3 See infra note 5 (noting the change in the name of the Fund in Amendment No. 1). 4 See Securities Exchange Act Release No. 69636 (May 24, 2013), 78 FR 32503 (‘‘Notice’’). 5 In Amendment No. 1, the Exchange: (i) Changed the name of the Fund to the First Trust Morningstar Futures Managed Strategy Fund; (ii) clarified that the Fund will seek to exceed, rather than track, the performance of its benchmark (as described below); and (iii) made conforming changes to reflect the clarification in (ii). The Exchange explained that the changes in Amendment No. 1 are intended to ensure that the representations in the Exchange’s 19b–4 filing correspond to the representations made by the Trust in its application for certain exemptive relief under the 1940 Act applicable to the Fund and other actively-managed funds of the Trust. See Investment Company Act Release No. 30029 (April 20, 2012) (File No. 812–13795). According to the Exchange, the changes contained in Amendment No. 1 do not represent a change in the manner in which the Fund would be operated as described in the Exchange’s original 19b–4 filing. In addition, the revised language conforms to language included in an amendment to the Trust’s registration statement filed with the Commission on July 18, 2013. See infra note 6 and accompanying text. 6 The Trust is registered under the Investment Company Act of 1940 (‘‘1940 Act’’). On July 18, 2013, the Trust filed with the Commission an amendment to its 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’’). In addition, the Commission 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). PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 47037 but is affiliated with a broker-dealer and has implemented a fire wall between it and its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio.7 The Exchange states that 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 (‘‘CPO’’). As a result of the instruments that will be held by the Fund, the Adviser has registered as a CPO and is also a member of the National Futures Association. Investments The Fund will seek to achieve positive total returns that are not directly correlated to broad market equity or fixed income returns. The Fund uses as a benchmark the Morningstar(R) Diversified Futures Index(SM) (the ‘‘Benchmark’’), which is developed, maintained and sponsored by Morningstar, Inc. (‘‘Morningstar’’) 8 and seeks to exceed the performance of the Benchmark. The Fund is not an ‘‘index tracking’’ ETF. However, the Fund will generally seek to hold similar instruments to those included in the Benchmark and seek exposure to commodities, currencies, and equity indexes included in the Benchmark. The Benchmark seeks to reflect trends (in either direction) in the commodity futures, currency 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 on commodities, currencies, and equity indexes. However, the Fund is not obligated to invest in the same instruments included in the Benchmark. The Exchange states that there can be no assurance that the Fund’s performance 7 See NYSE Arca Equities Rule 8.600, Commentary .06. 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 brokerdealer, 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. 8 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. E:\FR\FM\02AUN1.SGM 02AUN1 47038 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES will exceed the performance of the Benchmark at any time. 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. Under normal market conditions,9 the Fund, through FT Cayman Subsidiary, a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (‘‘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.10 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 9 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. 10 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. VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 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. The Subsidiary’s investments will provide the Fund with exposure to domestic and international markets. 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,11 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’’) 12 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 seek to exceed the investment returns of the Benchmark within the limitations of the federal tax requirements applicable to regulated investment companies. 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).13 The 11 The Fund may invest in shares of money market funds to the extent permitted by the 1940 Act. 12 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). 13 According to the Exchange, 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 PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 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 the bank or securities dealer 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 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. 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 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 The Fund may from time to time purchase securities on a ‘‘when-issued’’ 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. E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices 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.14 Investment Limitations sroberts on DSK5SPTVN1PROD with NOTICES 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. Further the Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. 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.15 This restriction does not apply to obligations issued or 14 The term ‘‘Underlying ETPs’’ includes Trust Issued Receipts (as described in NYSE Arca Equities Rule 8.200); 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. 15 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). VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 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.16 The Fund or the Subsidiary will not invest in options on commodity futures, structured notes, equity-linked derivatives, forwards, or swap contracts. The Fund intends to qualify, and to elect to be treated as, a separate regulated investment company under Subchapter M of the Internal Revenue Code.17 A more detailed description of the Shares, Fund, Subsidiary, Benchmark, investment strategies and risks, creation and redemption procedures, and fees, among other things, is included in the Notice and the Registration Statement, as applicable.18 III. Discussion and Commission’s Findings After careful review, the Commission finds that the Exchange’s proposal to list and trade the Shares is consistent with 16 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). 17 26 U.S.C. 851. 18 See supra notes 4 and 6, respectively. PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 47039 the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.19 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Exchange Act,20 which requires, among other things, that the Exchange’s rules be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that the Fund and the Shares must comply with the rules of the Exchange, including the requirements of NYSE Arca Equities Rule 8.600, to be listed and traded on the Exchange. The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Exchange Act,21 which sets forth Congress’s finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for, and transactions in, securities. Quotation and last-sale information for the Shares will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line. In addition, the Portfolio Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session.22 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, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for the Fund’s calculation of net asset value (‘‘NAV’’) at the end of the business day.23 The NAV of the 19 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 20 15 U.S.C. 78f(b)(5). 21 15 U.S.C. 78k–1(a)(1)(C)(iii). 22 According to the Exchange, several major market data vendors widely disseminate Portfolio Indicative Values taken from CTA or other data feeds. 23 On a daily basis, for each portfolio security and other financial instrument of the Fund and of the holdings of the Subsidiary, the Fund will disclose 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 E:\FR\FM\02AUN1.SGM Continued 02AUN1 47040 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES Fund will be determined at the close of trading (normally 4:00 p.m. Eastern Time) on each day the New York Stock Exchange is open for business. 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. 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’s Web site will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Commission notes 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.24 In addition, trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares may be halted. The Exchange may halt trading in the Shares if trading is not occurring in the securities and/or the financial instruments comprising the Disclosed Portfolio of the Fund, or if other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present.25 security, futures contract, and/or financial instrument held. The Web site information will be publicly available at no charge. 24 See NYSE Arca Equities Rule 8.600(d)(1)(B). 25 See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing additional considerations for the suspension of trading in or removal from listing of Managed Fund Shares on the Exchange). With respect to trading halts, the Exchange may consider other relevant factors in exercising its discretion to halt or suspend trading in the Shares. Trading in Shares will be halted if the circuit breaker VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 Further, the Financial Industry Regulatory Authority (‘‘FINRA’’), on behalf of the Exchange,26 will communicate as needed regarding trading in the Shares with other markets that are members of the Intermarket Surveillance Group (‘‘ISG’’), including all U.S. securities exchanges and futures exchanges on which futures contracts included in the Benchmark are traded or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees. The Exchange also states that the Adviser is affiliated with a broker-dealer, and the Adviser 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.27 The Exchange represents that the Shares are deemed to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. In support of its proposal to list and trade the Shares, the Exchange has made representations, including: (1) The Shares will conform to the initial listing criteria applicable under NYSE Arca Equities Rule 8.600. 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. 26 The Exchange states that, while 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. 27 See supra note 7. The Commission notes that an investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (‘‘Advisers Act’’). As a result, the Adviser and 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 nonpublic 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. PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 (2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (3) Trading in the Shares will be subject to the existing trading surveillances, administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.28 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. (4) Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (i) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (ii) 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; (iii) 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; (iv) how information regarding the Portfolio Indicative Value is disseminated; (v) 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 (vi) trading information. (5) For initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 under the Exchange Act,29 as provided by NYSE Arca Equities Rule 5.3.30 (6) 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 Commodity Exchange (‘‘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 28 See supra note 26. CFR 240.10A–3. 30 See Notice, supra note 4, 78 FR 32506. 29 17 E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices 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: (i) Is not a member of ISG; or (ii) 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 (i) above. (7) Neither the Fund nor the Subsidiary will invest in options on commodity futures, structured notes, equity-linked derivatives, forwards, or swap contracts. The Fund’s investments will be consistent with its investment objective and will not be used to enhance leverage. (8) 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. (9) 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 nonU.S. equity securities. (10) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange. This approval order is based on all of the Exchange’s representations and description of the Fund, including those set forth above and in the Notice, as modified by Amendment No. 1.31 For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Exchange Act 32 and the rules and regulations thereunder applicable to a national securities exchange sroberts on DSK5SPTVN1PROD with NOTICES IV. Solicitation of Comments Interested persons are invited to submit written data, views, and 31 The Commission notes that it does not regulate the market for futures contracts in which the Fund plans to take positions, which, in the U.S., is the responsibility of the CFTC. The CFTC has the authority to set limits on the positions that any person may take in futures subject to its jurisdiction. These limits may be directly set by the CFTC or by the markets on which the futures are traded. The Commission has no role in establishing position limits on futures even though such limits could impact an exchange-traded product that is under the jurisdiction of the Commission. 32 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 arguments concerning the foregoing, including whether Amendment No. 1 to 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 (http://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 (http://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 Section, 100 F Street NE., Washington, DC 20549–1090. Copies of the filing will also be available for inspection and copying at the NYSE’s principal office and on its Internet Web site at www.nyse.com. 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 August 23, 2013. V. Accelerated Approval of Proposed Rule Change as Modified by Amendment No. 1 As discussed above, the Exchange submitted Amendment No. 1 to ensure that its Form 19b–4 corresponds to the representations made by the Trust in its application for certain exemptive relief PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 47041 under the 1940 Act applicable to the Fund and other actively-managed funds of the Trust.33 According to the Exchange, the revised language does not represent a change in the manner in which the Fund would be operated as described in the Exchange’s original 19b–4 filing. In addition, the revised language conforms to language included in an amendment to the Trust’s registration statement filed with the Commission on July 18, 2013.34 Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,35 for approving the proposed rule change, as modified by Amendment No. 1, prior to the 30th day after the date of publication of notice in the Federal Register. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,36 that the proposed rule change (SR– NYSEArca–2013–52), as modified by Amendment No. 1, be, and it hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–18594 Filed 8–1–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70059; File No. SR–ISE– 2013–42] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change To List Options on the Nations VolDex Index July 29, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on July 17, 2013, the International Securities Exchange, LLC (‘‘Exchange’’ or ‘‘ISE’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit 33 See supra note 5. supra note 6 and accompanying text. 35 15 U.S.C. 78f(b)(2). 36 15 U.S.C. 78s(b)(2). 37 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 34 See E:\FR\FM\02AUN1.SGM 02AUN1

Agencies

[Federal Register Volume 78, Number 149 (Friday, August 2, 2013)]
[Notices]
[Pages 47037-47041]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-18594]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70055; File No. SR-NYSEArca-2013-52]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade 
Shares of the First Trust Morningstar Managed Futures Strategy Fund 
Under NYSE Arca Equities Rule 8.600

July 29, 2013.

I. Introduction

    On May 15, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the First 
Trust Morningstar Futures Strategy Fund (``Fund'') \3\ under NYSE Arca 
Equities Rule 8.600. The proposed rule change was published for comment 
in the Federal Register on May 30, 2013.\4\ The Commission received no 
comments on the proposal. On July 24, 2013, the Exchange filed 
Amendment No. 1 to the proposed rule change.\5\ The Commission is 
publishing this notice to solicit comments on Amendment No. 1 to the 
proposed rule change from interested persons and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See infra note 5 (noting the change in the name of the Fund 
in Amendment No. 1).
    \4\ See Securities Exchange Act Release No. 69636 (May 24, 
2013), 78 FR 32503 (``Notice'').
    \5\ In Amendment No. 1, the Exchange: (i) Changed the name of 
the Fund to the First Trust Morningstar Futures Managed Strategy 
Fund; (ii) clarified that the Fund will seek to exceed, rather than 
track, the performance of its benchmark (as described below); and 
(iii) made conforming changes to reflect the clarification in (ii). 
The Exchange explained that the changes in Amendment No. 1 are 
intended to ensure that the representations in the Exchange's 19b-4 
filing correspond to the representations made by the Trust in its 
application for certain exemptive relief under the 1940 Act 
applicable to the Fund and other actively-managed funds of the 
Trust. See Investment Company Act Release No. 30029 (April 20, 2012) 
(File No. 812-13795). According to the Exchange, the changes 
contained in Amendment No. 1 do not represent a change in the manner 
in which the Fund would be operated as described in the Exchange's 
original 19b-4 filing. In addition, the revised language conforms to 
language included in an amendment to the Trust's registration 
statement filed with the Commission on July 18, 2013. See infra note 
6 and accompanying text.
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares. The Shares will be offered by First Trust Exchange-Traded 
Fund V (``Trust''),\6\ a statutory trust organized under the laws of 
the State of Massachusetts and registered with the Commission as an 
open-end management investment company. The investment adviser to the 
Fund is First Trust Advisors L.P. (``Adviser''). First Trust Portfolios 
L.P. will be the principal underwriter and distributor of the Shares. 
The Bank of New York Mellon Corporation will serve as administrator, 
custodian, and transfer agent for the Fund. The Exchange states that 
the Adviser is not a broker-dealer but is affiliated with a broker-
dealer and has implemented a fire wall between it and its broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio.\7\
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    \6\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On July 18, 2013, the Trust filed with the 
Commission an amendment to its 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''). In addition, the 
Commission 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).
    \7\ See NYSE Arca Equities Rule 8.600, Commentary .06. 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 Exchange states that 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 (``CPO''). As 
a result of the instruments that will be held by the Fund, the Adviser 
has registered as a CPO and is also a member of the National Futures 
Association.

Investments

    The Fund will seek to achieve positive total returns that are not 
directly correlated to broad market equity or fixed income returns. The 
Fund uses as a benchmark the Morningstar\(R)\ Diversified Futures 
Index\(SM)\ (the ``Benchmark''), which is developed, maintained and 
sponsored by Morningstar, Inc. (``Morningstar'') \8\ and seeks to 
exceed the performance of the Benchmark. The Fund is not an ``index 
tracking'' ETF. However, the Fund will generally seek to hold similar 
instruments to those included in the Benchmark and seek exposure to 
commodities, currencies, and equity indexes included in the Benchmark. 
The Benchmark seeks to reflect trends (in either direction) in the 
commodity futures, currency 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 on commodities, currencies, and equity 
indexes. However, the Fund is not obligated to invest in the same 
instruments included in the Benchmark. The Exchange states that there 
can be no assurance that the Fund's performance

[[Page 47038]]

will exceed the performance of the Benchmark at any time.
---------------------------------------------------------------------------

    \8\ 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.
---------------------------------------------------------------------------

    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.
    Under normal market conditions,\9\ the Fund, through FT Cayman 
Subsidiary, a wholly-owned subsidiary of the Fund organized under the 
laws of the Cayman Islands (``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.
---------------------------------------------------------------------------

    \9\ 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.\10\ 
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. The 
Subsidiary's investments will provide the Fund with exposure to 
domestic and international markets.
---------------------------------------------------------------------------

    \10\ 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.
---------------------------------------------------------------------------

    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,\11\ 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'') \12\ 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 seek to exceed the investment returns of the Benchmark 
within the limitations of the federal tax requirements applicable to 
regulated investment companies.
---------------------------------------------------------------------------

    \11\ The Fund may invest in shares of money market funds to the 
extent permitted by the 1940 Act.
    \12\ 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).
---------------------------------------------------------------------------

    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).\13\ 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.
---------------------------------------------------------------------------

    \13\ According to the Exchange, 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.
---------------------------------------------------------------------------

    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 the bank 
or securities dealer 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 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. 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 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

    The Fund may from time to time purchase securities on a ``when-
issued''

[[Page 47039]]

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.\14\
---------------------------------------------------------------------------

    \14\ The term ``Underlying ETPs'' includes Trust Issued Receipts 
(as described in NYSE Arca Equities Rule 8.200); 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.
---------------------------------------------------------------------------

Investment Limitations

    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. Further the Fund's investments will be consistent 
with the Fund's investment objective and will not be used to enhance 
leverage.
    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.\15\ This restriction does not apply to obligations issued 
or guaranteed by the U.S. Government, its agencies, or 
instrumentalities.
---------------------------------------------------------------------------

    \15\ 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.\16\
---------------------------------------------------------------------------

    \16\ 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 or the Subsidiary will not invest in options on commodity 
futures, structured notes, equity-linked derivatives, forwards, or swap 
contracts.
    The Fund intends to qualify, and to elect to be treated as, a 
separate regulated investment company under Subchapter M of the 
Internal Revenue Code.\17\
---------------------------------------------------------------------------

    \17\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    A more detailed description of the Shares, Fund, Subsidiary, 
Benchmark, investment strategies and risks, creation and redemption 
procedures, and fees, among other things, is included in the Notice and 
the Registration Statement, as applicable.\18\
---------------------------------------------------------------------------

    \18\ See supra notes 4 and 6, respectively.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\19\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\20\ which requires, among other things, that the Exchange's rules 
be designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Commission notes that the Fund 
and the Shares must comply with the rules of the Exchange, including 
the requirements of NYSE Arca Equities Rule 8.600, to be listed and 
traded on the Exchange.
---------------------------------------------------------------------------

    \19\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Exchange Act,\21\ which sets forth Congress's finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association (``CTA'') high-speed line. In addition, the Portfolio 
Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session.\22\ 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, as defined in NYSE Arca Equities Rule 
8.600(c)(2), that will form the basis for the Fund's calculation of net 
asset value (``NAV'') at the end of the business day.\23\ The NAV of 
the

[[Page 47040]]

Fund will be determined at the close of trading (normally 4:00 p.m. 
Eastern Time) on each day the New York Stock Exchange is open for 
business. 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. 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's Web site will include 
a form of the prospectus for the Fund and additional data relating to 
NAV and other applicable quantitative information.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \22\ According to the Exchange, several major market data 
vendors widely disseminate Portfolio Indicative Values taken from 
CTA or other data feeds.
    \23\ On a daily basis, for each portfolio security and other 
financial instrument of the Fund and of the holdings of the 
Subsidiary, the Fund will disclose 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.
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes 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.\24\ 
In addition, trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares may be halted. The Exchange may halt trading in the Shares 
if trading is not occurring in the securities and/or the financial 
instruments comprising the Disclosed Portfolio of the Fund, or if other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.\25\
---------------------------------------------------------------------------

    \24\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \25\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing 
additional considerations for the suspension of trading in or 
removal from listing of Managed Fund Shares on the Exchange). With 
respect to trading halts, the Exchange may consider other relevant 
factors in exercising its discretion to halt or suspend trading in 
the Shares. Trading in Shares 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.
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    Further, the Financial Industry Regulatory Authority (``FINRA''), 
on behalf of the Exchange,\26\ will communicate as needed regarding 
trading in the Shares with other markets that are members of the 
Intermarket Surveillance Group (``ISG''), including all U.S. securities 
exchanges and futures exchanges on which futures contracts included in 
the Benchmark are traded or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. The Exchange states that 
it has a general policy prohibiting the distribution of material, non-
public information by its employees. The Exchange also states that the 
Adviser is affiliated with a broker-dealer, and the Adviser 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.\27\
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    \26\ The Exchange states that, while 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.
    \27\ See supra note 7. The Commission notes that an investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and 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.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of its proposal to list and trade the Shares, the Exchange 
has made representations, including:
    (1) The Shares will conform to the initial listing criteria 
applicable under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading in the Shares will be subject to the existing trading 
surveillances, administered by FINRA on behalf of the Exchange, which 
are designed to detect violations of Exchange rules and applicable 
federal securities laws.\28\ 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.
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    \28\ See supra note 26.
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    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (i) 
The procedures for purchases and redemptions of Shares in Creation 
Units (and that Shares are not individually redeemable); (ii) 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; (iii) 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; (iv) how information regarding the Portfolio Indicative 
Value is disseminated; (v) 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 (vi) trading information.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\29\ as provided by 
NYSE Arca Equities Rule 5.3.\30\
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    \29\ 17 CFR 240.10A-3.
    \30\ See Notice, supra note 4, 78 FR 32506.
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    (6) 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 
Commodity Exchange (``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

[[Page 47041]]

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: (i) Is not a member 
of ISG; or (ii) 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 (i) above.
    (7) Neither the Fund nor the Subsidiary will invest in options on 
commodity futures, structured notes, equity-linked derivatives, 
forwards, or swap contracts. The Fund's investments will be consistent 
with its investment objective and will not be used to enhance leverage.
    (8) 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.
    (9) 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.
    (10) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.

This approval order is based on all of the Exchange's representations 
and description of the Fund, including those set forth above and in the 
Notice, as modified by Amendment No. 1.\31\
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    \31\ The Commission notes that it does not regulate the market 
for futures contracts in which the Fund plans to take positions, 
which, in the U.S., is the responsibility of the CFTC. The CFTC has 
the authority to set limits on the positions that any person may 
take in futures subject to its jurisdiction. These limits may be 
directly set by the CFTC or by the markets on which the futures are 
traded. The Commission has no role in establishing position limits 
on futures even though such limits could impact an exchange-traded 
product that is under the jurisdiction of the Commission.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Exchange Act \32\ 
and the rules and regulations thereunder applicable to a national 
securities exchange
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    \32\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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 (http://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 (http://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 Section, 100 F Street 
NE., Washington, DC 20549-1090. Copies of the filing will also be 
available for inspection and copying at the NYSE's principal office and 
on its Internet Web site at www.nyse.com. 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 August 23, 2013.

V. Accelerated Approval of Proposed Rule Change as Modified by 
Amendment No. 1

    As discussed above, the Exchange submitted Amendment No. 1 to 
ensure that its Form 19b-4 corresponds to the representations made by 
the Trust in its application for certain exemptive relief under the 
1940 Act applicable to the Fund and other actively-managed funds of the 
Trust.\33\ According to the Exchange, the revised language does not 
represent a change in the manner in which the Fund would be operated as 
described in the Exchange's original 19b-4 filing. In addition, the 
revised language conforms to language included in an amendment to the 
Trust's registration statement filed with the Commission on July 18, 
2013.\34\
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    \33\ See supra note 5.
    \34\ See supra note 6 and accompanying text.
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    Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\35\ for approving the proposed rule change, as 
modified by Amendment No. 1, prior to the 30th day after the date of 
publication of notice in the Federal Register.
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    \35\ 15 U.S.C. 78f(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\36\ that the proposed rule change (SR-NYSEArca-2013-52), 
as modified by Amendment No. 1, be, and it hereby is, approved on an 
accelerated basis.
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    \36\ 15 U.S.C. 78s(b)(2).
    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-18594 Filed 8-1-13; 8:45 am]
BILLING CODE 8011-01-P