Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to Listing and Trading of Shares of PIMCO Diversified Income Exchange-Traded Fund, PIMCO Low Duration Exchange-Traded Fund and PIMCO Real Return Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600, 66396-66405 [2013-26410]

Download as PDF 66396 Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices and 17 CFR 200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the scheduled matter at the Closed Meeting. Commissioner Piwowar, as duty officer, voted to consider the items listed for the Closed Meeting in a closed session. The subject matter of the Closed Meeting will be: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; An adjudicatory matter; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact the Office of the Secretary at (202) 551–5400. Dated: October 31, 2013. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–26559 Filed 11–1–13; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70774; File No. SR– NYSEArca–2013–106] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to Listing and Trading of Shares of PIMCO Diversified Income ExchangeTraded Fund, PIMCO Low Duration Exchange-Traded Fund and PIMCO Real Return Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600 wreier-aviles on DSK5TPTVN1PROD with NOTICES October 30, 2013. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on October 15, 2013, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. On October 29, 2013, the Exchange filed Amendment No. 1 to the proposal.4 The Commission is publishing this notice to solicit 1 15 U.S.C.78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 4 Amendment No. 1 replaced and superseded the proposal in its entirety. 2 15 VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 comments on the proposed rule change, as modified by Amendment No. 1, from interested persons. 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’’): PIMCO Diversified Income Exchange-Traded Fund; PIMCO Low Duration ExchangeTraded Fund; and PIMCO Real Return Exchange-Traded 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 Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade shares (‘‘Shares’’) of the following under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares: 5 PIMCO Diversified Income Exchange-Traded Fund; PIMCO Low Duration ExchangeTraded Fund; and PIMCO Real Return Exchange-Traded Fund (each a ‘‘Fund’’ and, collectively, the ‘‘Funds’’). The Shares will be offered by PIMCO ETF Trust (the ‘‘Trust’’), a statutory trust 5 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) (‘‘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. PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 organized under the laws of the State of Delaware and registered with the Commission as an open-end management investment company.6 The investment manager to the Funds will be Pacific Investment Management Company LLC (‘‘PIMCO’’ or the ‘‘Adviser’’). PIMCO Investments LLC will serve as the distributor for the Funds (‘‘Distributor’’). State Street Bank & Trust Co. will serve as the custodian and transfer agent for the Funds (‘‘Custodian’’ or ‘‘Transfer Agent’’).7 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.8 In addition, 6 The Trust is registered under the 1940 Act. On April 22, 2013, the Trust filed with the Commission an amendment to the Trust’s registration statement on Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) (the ‘‘Securities Act’’) and the 1940 Act relating to the Funds (File Nos. 333–155395 and 811–22250) (the ‘‘Registration Statement’’). The description of the operation of the Trust and the Funds 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. 28993 (November 10, 2009) (File No. 812–13571) (‘‘Exemptive Order’’). 7 The Commission has previously approved the listing and trading on the Exchange of other actively managed funds under Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) (SR– NYSEArca-2008–31) (order approving Exchange listing and trading of twelve actively-managed funds of the WisdomTree Trust); 60981 (November 10, 2009), 74 FR 59594 (November 18, 2009) (SR– NYSEArca-2009–79) (order approving Exchange listing and trading of five fixed income funds of the PIMCO ETF Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9, 2012) (SR–NYSEArca–2011–95) (order approving Exchange listing and trading of PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 77 FR 20087 (April 3, 2012) (SR– NYSEArca–2012–09) (order approving Exchange listing and trading of PIMCO Global Advantage Inflation-Linked Bond Strategy Fund). 8 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 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 E:\FR\FM\05NON1.SGM 05NON1 Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices 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 non-public information regarding the open-end fund’s portfolio. The Adviser is not a registered brokerdealer but is affiliated with a brokerdealer and has implemented a ‘‘fire wall’’ with respect to such broker-dealer regarding access to information concerning the composition and/or changes to a Fund’s respective portfolio. In the event (a) the Adviser or any subadviser is a registered broker-dealer or becomes newly affiliated with a brokerdealer, or (b) any new adviser or subadviser 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 a portfolio, and will be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding such portfolio. wreier-aviles on DSK5TPTVN1PROD with NOTICES PIMCO Diversified Income ExchangeTraded Fund According to the Registration Statement, the Fund’s investment objective will be to seek maximum total return, consistent with preservation of capital and prudent investment management. The Fund will seek to achieve its investment objective by investing under normal circumstances 9 at least 65% of its total assets in a diversified portfolio of ‘‘Fixed Income Instruments’’ of varying maturities and forward contracts on such Fixed Income Instruments. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. Specifically, with respect to each of the Funds (except as noted Commission rules adopted thereunder; implemented, at a minimum, an annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph above and the effectiveness of their implementation; and designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted under subparagraph (i) above. 9 The term ‘‘under normal circumstances’’ includes, but is not limited to, the absence of extreme volatility or trading halts in the fixed income markets or the financial markets generally; operational issues causing dissemination of inaccurate market information; or force majeure type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 below), the term ‘‘Fixed Income Instruments’’ includes: securities issued or guaranteed by the U.S. Government, its agencies or government-sponsored enterprises (‘‘U.S. Government Securities’’); corporate debt securities of U.S. and non-U.S. issuers, including convertible securities and corporate commercial paper; mortgage-backed and other asset-backed securities; inflationindexed bonds issued both by governments and corporations; eventlinked bonds; bank capital and trust preferred securities; loan participations and assignments; delayed funding loans and revolving credit facilities; bank certificates of deposit, fixed time deposits and bankers’ acceptances; repurchase agreements on Fixed Income Instruments and reverse repurchase agreements on Fixed Income Instruments; debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises; obligations of non-U.S. governments or their subdivisions, agencies and government-sponsored enterprises; and obligations of international agencies or supranational entities.10 Forwards on securities are contracts to purchase or sell securities for a fixed price at a future date beyond normal settlement time. Forwards on Fixed Income Instruments are contracts to purchase or sell Fixed Income Instruments for a fixed price at a future date beyond normal settlement time. The Adviser represents that a forward will be a useful tool for gaining exposure across markets, particularly in the U.S. Treasury, U.S. agency, non-U.S. government, and mortgage markets when a Fund seeks exposure to a particular issue or maturity.11 In 10 Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. With respect to the Funds’ investments in bank capital securities, there are two common types: Tier I and Tier II. Bank capital is generally, but not always, of investment grade quality. Tier I securities are typically exchange-traded and often take the form of trust preferred securities. Tier II securities are commonly thought of as hybrids of debt and preferred stock. Tier II securities are typically traded over-the-counter, are often perpetual (with no maturity date), are callable, and have a cumulative interest deferral feature. This means that under certain conditions, the issuer bank can withhold payment of interest until a later date. However, such deferred interest payments generally earn interest. According to the Registration Statement, with respect to the PIMCO Real Return Exchange-Traded Fund, the term Fixed Income Instruments does not include: event-linked bonds; bank capital and trust preferred securities; loan participations and assignments; and debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises. 11 Investments in forwards will be made in accordance with the 1940 Act and consistent with PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 66397 general, forwards can be an economically attractive substitute for an underlying physical security that a Fund would otherwise purchase. Economic benefits include potentially lower transaction costs or attractive relative valuation of a forward versus a physical security (e.g., differences in yields). A common forward commitment is a mortgage ‘‘to be announced’’ (‘‘TBA’’), which is an important vehicle for gaining exposure to the mortgage passthrough market. Mortgage TBAs provide exposure to new mortgage pools, issued by the Government National Mortgage Association (‘‘Ginnie Mae’’), Federal National Mortgage Association (‘‘Fannie Mae’’) or Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’), which have a regular, once-a-month settlement. When a fund purchases a mortgage TBA, the underlying mortgage-related securities are delivered in the next settlement cycle (unless settlement is ‘‘rolled’’ to a future date). The Adviser believes that liquidity of a forward settling transaction depends on the underlying issue or exposure (e.g., greater liquidity for Treasuries as compared to a particular collateralized mortgage obligation). For example, the mortgage TBA market is highly liquid and positions can be easily added, rolled, or closed. According to Financial Industry Regulatory Authority (‘‘FINRA’’) Trade Reporting and Compliance Engine (‘‘TRACE’’) data, TBAs represented approximately 94% of total agency trading volume in the month of April 2013. Forwards are marked to market daily and can be priced intraday based on the underlying issue or exposure. Intraday pricing of securities to be settled on forward basis is often available on each Fund’s investment objectives and policies. With respect to each of the Funds, the Adviser represents that each Fund will typically use forwards as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. A Fund may also use forwards to enhance returns. To limit the potential risk associated with such transactions, each Fund will segregate or ‘‘earmark’’ assets determined to be liquid by PIMCO in accordance with procedures established by the Trust’s Board of Trustees and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations arising from its use of forwards. These procedures have been adopted consistent with Section 18 of the 1940 Act and related Commission guidance. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of a Fund, including a Fund’s use of derivatives, may give rise to leverage, causing a Fund to be more volatile than if it had not been leveraged. To mitigate leveraging risk, the Adviser will segregate or ‘‘earmark’’ liquid assets or otherwise cover the transactions that may give rise to such risk. E:\FR\FM\05NON1.SGM 05NON1 66398 Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices wreier-aviles on DSK5TPTVN1PROD with NOTICES quotation services such as Bloomberg. The visibility of intraday prices of forwards is related to the visibility of prices of the underlying asset. Market participants can efficiently value forward settling securities as long as they have access to the relevant information, such as the underlying exposure. On behalf of the funds it manages, PIMCO maintains standardized Master Forward Agreements in place with various counterparties. These standardized agreements include procedures for periodic collateral movement between a fund and the applicable counterparty to reflect changes in the value of forwards held by a fund. In selecting individual Fixed Income Instruments, or in making broader sector allocations for the Fund, PIMCO will develop an outlook for interest rates, currency exchange rates and the economy, analyze credit and call risks and use other investment selection techniques. The proportion of the Fund’s assets committed to an individual investment, or investments with particular characteristics (such as quality, sector, interest rate or maturity), will vary based on PIMCO’s outlook for the U.S. economy and the economies of other countries in the world, the financial markets and other factors. PIMCO will attempt to identify areas of the bond market that are undervalued relative to the rest of the market. PIMCO may identify these areas by grouping Fixed Income Instruments into sectors such as money markets, governments, corporates,12 mortgages, asset-backed and international. Once investment opportunities are identified, PIMCO will shift assets among individual Fixed Income Instruments, or among sectors, depending upon changes in relative valuations, credit spreads and other factors. According to the Registration Statement, in managing the Fund, PIMCO may employ both a bottom-up and top-down approach to investment selection. PIMCO’s bottom-up value investment style attempts to identify Fixed Income Instruments or sectors that are undervalued by the market in comparison to PIMCO’s own determination of value. Using a topdown value investment style, PIMCO 12 While non-emerging markets corporate debt securities (excluding commercial paper) generally must have $100 million or more par amount outstanding and significant par value traded to be considered as an eligible investment for each of the Funds, at least 80% of issues of such securities held by a Fund must have $100 million or more par amount outstanding at the time of investment. See also note 15, infra, regarding emerging market corporate debt securities. VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 also will consider various qualitative and quantitative factors relating to the U.S. and non-U.S. economies, and financial markets. These factors may include the outlook and projected growth of various sectors, projected growth trends in the U.S. and non-U.S. economies, forecasts for interest rates and the relationship between short- and long-term interest rates (yield curve), relative valuation levels in the financial markets and various segments within those markets, information relating to business cycles, borrowing needs and the cost of capital, political trends data relating to trade balances, and labor information. PIMCO has the flexibility to reallocate the Fund’s assets among individual investments or sectors based on its ongoing analyses. The average portfolio duration of the Fund normally will vary from three to eight years, based on PIMCO’s forecast for interest rates.13 The Fund may invest in both investment grade debt securities and high yield debt securities (‘‘junk bonds’’) subject to a maximum of 10% of its total assets in debt securities rated below B by Moody’s Investors Service, Inc. (‘‘Moody’s’’), or equivalently rated by Standard & Poor’s Rating Services (‘‘S&P’’) or Fitch, Inc. (‘‘Fitch’’), or, if unrated, determined by PIMCO to be of comparable quality.14 The Fund may invest in securities and instruments that are economically tied to emerging market countries.15 The Fund may 13 Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The longer a security’s duration, the more sensitive it will be to changes in interest rates. 14 PIMCO utilizes sophisticated proprietary techniques in its creditworthiness analysis of unrated securities similar to the processes utilized by Moody’s, S&P and Fitch in their respective analyses of rated securities. For example, in making a ‘‘comparable quality’’ determination for an unrated security, PIMCO may evaluate the likelihood of payment by the obligor, the nature and provisions of the debt obligation, and/or the protection afforded by, and relative position of, the debt obligation in the event of bankruptcy, reorganization or other arrangement under laws affecting creditors’ rights. Upon consideration of these and other factors, PIMCO may determine that an unrated security is of comparable quality to rated securities in which the Fund may invest consistent with the Fund’s credit quality guidelines described above. 15 According to the Registration Statement, PIMCO will have broad discretion to identify countries that it considers to qualify as emerging markets. In making investments in emerging market securities, the Fund will emphasize those countries with relatively low gross national product per capita and with the potential for rapid economic growth. Emerging market countries are generally located in Asia, Africa, the Middle East, Latin America and Eastern Europe. PIMCO will select the country and currency composition based on its evaluation of relative interest rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances, legal and political developments and any other specific factors it believes to be relevant. While emerging markets PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 invest in securities and instruments denominated in foreign currencies and in U.S. dollar-denominated securities or instruments of foreign issuers. Subject to the Fund’s investment limitations relating to high yield debt securities generally, the Fund may invest up to 20% of its assets in mortgage-backed securities or in other asset-backed securities, although this 20% limitation does not apply to securities issued or guaranteed by Federal agencies and/or U.S. government sponsored instrumentalities. The Fund’s portfolio or the Fund’s broad-based securities market index (as defined in Form N–1A) will include a minimum of 13 non-affiliated issuers (excluding a portfolio or broad-based securities market index consisting entirely of exempted securities).16 The Fund may purchase or sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales.17 The Fund may, without limitation, seek to obtain market exposure to the securities in which it invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). The ‘‘total return’’ sought by the Fund will consist of income earned on the Fund’s investments, plus capital appreciation, if any, which generally arises from decreases in interest rates, foreign currency appreciation, or improving credit fundamentals for a particular sector or security. PIMCO Low Duration Exchange-Traded Fund According to the Registration Statement, the Fund’s investment objective will be to seek maximum total return, consistent with preservation of capital and prudent investment management. The Fund will seek to achieve its investment objective by investing under normal circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities and forward contracts on such Fixed Income corporate debt securities (excluding commercial paper) generally must have $200 million or more par amount outstanding and significant par value traded to be considered as an eligible investment for each of the Funds, at least 80% of issues of such securities held by a Fund must have $200 million or more par amount outstanding at the time of investment. 16 The Fund’s broad-based securities market index will be identified in a future amendment to the Registration Statement following the Fund’s first full calendar year of performance. 17 Each of the Funds may make short sales of securities to: offset potential declines in long positions in similar securities, to increase the flexibility of the Fund; for investment return; and as part of a risk arbitrage strategy. E:\FR\FM\05NON1.SGM 05NON1 wreier-aviles on DSK5TPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices Instruments.18 The average portfolio duration of the Fund normally will vary from one to three years based on PIMCO’s forecast for interest rates. In selecting individual Fixed Income Instruments, or in making broader sector allocations for the Fund, PIMCO will develop an outlook for interest rates, currency exchange rates and the economy, analyze credit and call risks and use other investment selection techniques. The Fund will invest primarily in investment grade debt securities, but may invest up to 10% of its total assets in high yield debt securities rated B to Ba by Moody’s, or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality.19 The Fund may invest up to 30% of its total assets in securities and instruments denominated in foreign currencies, and may invest beyond this limit in U.S. dollar-denominated securities and instruments of foreign issuers, subject to the Fund’s investment limitations relating to particular asset classes set forth herein. The Fund may invest up to 10% of its total assets in securities and instruments that are economically tied to emerging market countries, subject to the Fund’s investment limitations relating to particular asset classes set forth herein.20 The Fund will normally limit its foreign currency exposure (from non-U.S. dollar-denominated securities or currencies) to 20% of its total assets. The Fund’s portfolio or the Fund’s broad-based securities market index (as defined in Form N–1A) will include a minimum of 13 non-affiliated issuers (excluding a portfolio or broad-based securities market index consisting entirely of exempted securities).21 Subject to the Fund’s 10% investment limitations relating to high yield debt securities, the Fund may invest up to 20% of its assets in mortgage-backed securities or in other asset-backed securities, although this 20% limitation does not apply to securities issued or guaranteed by Federal agencies and/or U.S. government sponsored instrumentalities. The Fund may purchase or sell securities on a whenissued, delayed delivery or forward commitment basis and may engage in short sales.22 The Fund may, without limitation, seek to obtain market exposure to the securities in which it invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). The ‘‘total return’’ sought by the Fund will consist of income earned on the Fund’s investments, plus capital appreciation, if any, which generally arises from decreases in interest rates, foreign currency appreciation, or improving credit fundamentals for a particular sector or security. PIMCO Real Return Exchange-Traded Fund According to the Registration Statement, the Fund’s investment objective will be to seek maximum real return, consistent with preservation of capital and prudent investment management. The Fund will seek its investment objective by investing under normal circumstances at least 80% of its net assets in inflation-indexed bonds of varying maturities issued by U.S. and non-U.S. governments, their agencies or instrumentalities, and corporations, and forward contracts on such Fixed Income Instruments.23 Assets not invested in inflation-indexed bonds may be invested in other types of Fixed Income Instruments. Inflation-indexed bonds are fixed income securities that are structured to provide protection against inflation. The value of the bond’s principal or the interest income paid on the bond is adjusted to track changes in an official inflation measure. The U.S. Treasury uses the Consumer Price Index for Urban Consumers as the inflation measure. Inflation-indexed bonds issued by a foreign government are generally adjusted to reflect a comparable inflation index, calculated by that government. ‘‘Real return’’ equals total return less the estimated cost of inflation, which is typically measured by the change in an official inflation measure. According to the Registration Statement, because market convention for bonds is to use nominal yields to measure duration, duration for real return bonds, which are based on real yields, are converted to nominal durations through a conversion factor. The resulting nominal duration typically can range from 20% and 90% of the respective real duration. All security holdings will be measured in effective (nominal) duration terms.24 23 See 18 See supra discussion regarding forwards. 19 See note 14, supra. 20 See note 15, supra. 21 The Fund’s broad-based securities market index will be identified in a future amendment to the Registration Statement following the Fund’s first full calendar year of performance. 22 See note 17, supra. VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 supra discussion regarding forwards. to the Registration Statement, effective duration takes into account that for certain bonds expected cash flows will fluctuate as interest rates change and is defined in nominal yield terms, which is market convention for most bond investors and managers. The effective duration of the Barclays Capital U.S. TIPS Index (referenced below) will be calculated using the same conversion factors as the Fund. 66399 The effective duration of the Fund normally will vary within three years (plus or minus) of the effective portfolio duration of the securities comprising the Barclays Capital U.S. TIPS Index, as calculated by PIMCO, which as of January 31, 2013, as converted, was 6.16 years. The Fund will invest primarily in investment grade debt securities, but may invest up to 10% of its total assets in high yield debt securities rated B to Ba by Moody’s, or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality.25 The Fund also may invest up to 30% of its total assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers, subject to the Fund’s investment limitations relating to particular asset classes set forth herein. The Fund may invest up to 10% of its total assets in securities and instruments that are economically tied to emerging market countries, subject to the Fund’s investment limitations relating to particular asset classes set forth herein.26 The Fund will normally limit its foreign currency exposure (from nonU.S. dollar-denominated securities or currencies) to 20% of its total assets. The Fund’s portfolio or the Fund’s broad-based securities market index (as defined in Form N–1A) will include a minimum of 13 non-affiliated issuers (excluding a portfolio or broad-based securities market index consisting entirely of exempted securities).27 Subject to the Fund’s 10% investment limitations relating to high yield debt securities, the Fund may invest up to 20% of its assets in mortgage-backed securities or in other asset-backed securities, although this 20% limitation does not apply to securities issued or guaranteed by Federal agencies and/or U.S. government sponsored instrumentalities. The Fund may purchase or sell securities on a whenissued, delayed delivery or forward commitment basis and may engage in short sales.28 The Fund may, without limitation, seek to obtain market exposure to the securities in which it invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). 24 According PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 25 See note 14, supra. note 15, supra. 27 The Fund’s broad-based securities market index will be identified in a future amendment to the Registration Statement following the Fund’s first full calendar year of performance. 28 See note 17, supra 26 See E:\FR\FM\05NON1.SGM 05NON1 66400 Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices wreier-aviles on DSK5TPTVN1PROD with NOTICES Other Portfolio Holdings As disclosed in the Trust’s Registration Statement, if PIMCO believes that economic or market conditions are unfavorable to investors, PIMCO may temporarily invest up to 100% of a Fund’s assets in certain defensive strategies, including holding a substantial portion of a Fund’s assets in cash, cash equivalents or other highly rated short-term securities, including securities issued or guaranteed by the U.S. government, its agencies or instrumentalities and affiliated money market and/or short-term bond funds. While the debt securities in which the Funds primarily intend to invest are expected to consist of Fixed Income Instruments, as described above, the Funds may invest their respective remaining net assets in other securities and financial instruments, as described below. Each of the Funds may engage in foreign currency transactions through forward currency contracts. A forward foreign currency exchange contract, which involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract, reduces the Fund’s exposure to changes in the value of the currency it will deliver and increases its exposure to changes in the value of the currency it will receive for the duration of the contract. A Fund’s investments in foreign currency forwards will be subject to the limit on a Fund’s foreign currency exposure. For each of the PIMCO Low Duration Exchange-Traded Fund and PIMCO Real Return Exchange-Traded Fund, foreign currency exposure will not exceed 20% of the Fund’s total assets. There is no limit on the PIMCO Diversified Income Fund’s foreign currency exposure. The Funds may invest in equity securities. The Funds will invest only in U.S. and non-U.S. equity securities that trade in markets that are members of the Intermarket Surveillance Group (‘‘ISG’’), which includes all U.S. national securities exchanges and certain foreign exchanges, or are parties to a comprehensive surveillance sharing agreement with the Exchange.29 The Funds each may invest up to 10% of its total assets in preferred stock, convertible securities 30 and other equity-related securities. 29 See note 45, infra. convertible security is a bond, debenture, note, preferred stock, or other security that entitles the holder to acquire common stock or other equity securities of the same or a different issuer. A convertible security generally entitles the holder to receive interest paid or accrued until the convertible security matures or is redeemed, converted or exchanged. 30 A VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 The Funds may invest in, to the extent permitted by Section 12(d)(1) of the 1940 Act and rules thereunder, other affiliated and unaffiliated funds, such as open-end or closed-end management investment companies, including other exchange traded funds. The Funds may hold up to an aggregate amount of 15% of their respective net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser, consistent with Commission guidance.31 The Funds will monitor their 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 a 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.32 Investment Limitations The Funds will be subject to the following investment limitations: The Funds may not concentrate their investments in a particular industry, as that term is used in the 1940 Act,33 and 31 In reaching liquidity decisions, the Adviser may consider the following factors: the frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; and the nature of the security and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). 32 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 Securities Act. 33 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). PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction from time to time.34 With respect to the PIMCO Diversified Income Exchange-Traded Fund and PIMCO Low Duration Exchange-Traded Fund, the Funds may not, with respect to 75% of each Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, if, as a result (i) more than 5% of a Fund’s total assets would be invested in the securities of that issuer,35 or (ii) a Fund would hold more than 10% of the outstanding voting securities of that issuer. For the purpose of this restriction, each state and each separate political subdivision, agency, authority or instrumentality of such state, each multi-state agency or authority, and each guarantor, if any, are treated as separate issuers of municipal bonds. The PIMCO Real Return ExchangeTraded Fund will be non-diversified,36 which means that it may invest its assets in a smaller number of issuers than a diversified fund. Each Fund intends to qualify annually and elect to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code.37 The Funds will not invest in options contracts, futures contracts, or swap agreements. 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 Funds that are referred to but not defined in this proposed rule change are defined in the Registration Statement. Net Asset Value According to the Registration Statement, the net asset value (‘‘NAV’’) of the Funds’ Shares is determined by dividing the total value of the applicable Fund’s portfolio investments and other assets, less any liabilities, by the total number of Shares outstanding. Fund Shares will be valued as of the close of regular trading (normally 4:00 p.m., 34 The Funds’ policies with respect to the concentration of investments in a particular industry is disclosed in the Trust’s Registration Statement. 35 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act (15 U.S.C. 80e). 36 A ‘‘non-diversified company,’’ as defined in Section 5(b)(2) of the 1940 Act, means any management company other than a diversified company (as defined in Section 5(b)(1) of the 1940 Act). 37 26 U.S.C. 851. E:\FR\FM\05NON1.SGM 05NON1 wreier-aviles on DSK5TPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices E.T.) on each day NYSE Arca is open. On each business day, before commencement of trading in Fund Shares on NYSE Arca, each Fund will disclose on its Web site the identities and quantities of the portfolio instruments and other assets held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the business day. Information that becomes known to a Fund or its agents after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of a portfolio asset or the NAV determined earlier that day. Each Fund will reserve the right to change the time its NAV is calculated if the Fund closes earlier, or as permitted by the Commission. For purposes of calculating NAV, portfolio securities and other assets for which market quotes are readily available will be valued at market value. Market value will generally be determined on the basis of last reported sales prices, or if no sales are reported, as is the case for most securities traded over-the-counter, based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. For exchange-traded securities, including common stocks, preferred stocks, securities convertible into stocks, closed-end funds, exchange traded funds and other equity-related securities, market value also may be determined on the day that the valuation is made based on the applicable exchange’s official closing price or last reported sales price. Shares of non-exchange-traded open-end or closed-end management investment companies normally will be valued at their most recently calculated NAV. Fixed Income Instruments, including those to be purchased under firm commitment agreements (other than obligations having a maturity of 60 days or less), will be normally valued on the basis of quotes obtained from brokers and dealers or independent pricing services, which take into account appropriate factors such as institutionalsized trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. In addition, Fixed Income Instruments will normally be valued using data reflecting the earlier closing of the principal markets for those assets. Forwards for which market quotes are readily available will be valued at market value. Local closing prices will be used for all instrument valuation purposes. Typically, forwards on Fixed Income Instruments will be marked to market daily. VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 Additional information regarding the valuation of Fund investments in calculating a Fund’s NAV is provided in the Registration Statement. Portfolio Indicative Value In order to provide additional information regarding the intra-day value of Shares of the Funds, the NYSE Arca or a market data vendor will disseminate every 15 seconds through the facilities of the Consolidated Tape Association (‘‘CTA’’) or other widely disseminated means an updated Portfolio Indicative Value (‘‘PIV’’) for each Fund as calculated by an information provider or market data vendor. The PIV will be based upon the current value for the components of a Fund’s Disclosed Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2). A third party market data provider will calculate the PIV for the Funds. For the purpose of determining a Fund’s PIV, the third party market data provider’s valuation of forwards will be similar to their valuation of all securities. The third party market data provider will generally use market quotes if available. Where market quotes are not available, they may fair value securities against proxies (such as swap or yield curves). Each Fund’s disclosure of forward positions will include information that market participants can use to value these positions intraday. This information may include tickers or other identifiers, or the underlying asset or index. Creations and Redemptions of Shares According to the Registration Statement, Shares of the Funds that trade in the secondary market will be ‘‘created’’ at NAV by authorized participants only in block-size Creation Units of 50,000 Shares for each Fund or multiples thereof. The Funds will offer and issue Shares at their NAV per Share generally in exchange for a basket of securities held by the Fund (the ‘‘Deposit Securities’’) together with a deposit of a specified cash payment (the ‘‘Cash Component’’). Alternatively, the Funds may issue Creation Units in exchange for a specified all-cash payment (‘‘Cash Deposit’’). Similarly, Shares can be redeemed only in Creation Units, generally in-kind for a portfolio of securities held by a Fund and/or for a specified amount of cash. Except when aggregated in Creation Units, Shares will not be redeemable by a Fund. The prices at which creations and redemptions occur will be based on the next calculation of NAV after an order is received. Requirements as to the timing and form of orders are described PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 66401 in the authorized participant agreement. PIMCO will make available on each business day via the National Securities Clearing Corporation (‘‘NSCC’’) or other method of public dissemination, prior to the opening of business (subject to amendments) on the Exchange (currently 9:30 a.m., E.T.), the identity and the required amount of each Deposit Security and the amount of the Cash Component (or Cash Deposit) to be included in the current Fund Deposit 38 (based on information at the end of the previous business day). Creations and redemptions must be made by an Authorized Participant or through a firm that is either a participant in the Continuous Net Settlement System of the NSCC or a DTC participant, and in each case, must have executed an agreement with the Distributor and Transfer Agent with respect to creations and redemptions of Creation Unit aggregations. Impact of Use of Forwards on Arbitrage Mechanism The Adviser believes there will be minimal, if any, impact to the arbitrage mechanism as a result of the use of forwards. Market makers and participants should be able to value forwards as long as the positions are disclosed with relevant information. The Adviser believes that the price at which Shares will trade will be disciplined by arbitrage opportunities created by the ability to purchase or redeem creation Shares at their NAV, which should ensure that Shares will not trade at a material discount or premium in relation to their NAV. The Adviser does not believe there will be any significant impacts to the settlement or operational aspects of a Fund’s arbitrage mechanism due to the use of forwards. To the extent forwards are not eligible for in-kind transfer, they will typically be substituted with a ‘‘cash in lieu’’ amount when a Fund processes purchases or redemptions of creation units in-kind. Availability of Information The Trust’s Web site (www.pimcoetfs.com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Funds that may be downloaded. The Trust’s Web site will include additional quantitative information updated on a daily basis, including, for the Funds, (1) daily trading volume, the prior business day’s reported closing price, NAV and mid38 The Deposit Securities and Cash Component or, alternatively, the Cash Deposit, constitute the ‘‘Fund Deposit,’’ which represents the investment amount for a Creation Unit of a Fund. E:\FR\FM\05NON1.SGM 05NON1 66402 Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices wreier-aviles on DSK5TPTVN1PROD with NOTICES point of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/ Ask Price’’),39 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 (9:30 a.m., E.T. to 4:00 p.m., E.T.) on the Exchange, each Fund will disclose on the Trust’s Web site the Disclosed Portfolio that will form the basis for a Fund’s calculation of NAV at the end of the business day.40 On a daily basis, each Fund will disclose for each portfolio security and other financial instrument of a Fund the following information: Ticker symbol (if applicable), name of security and financial instrument, number of shares, if applicable, and dollar value of securities and financial instruments held in the portfolio, and percentage weighting of the security and financial instrument in the portfolio. As noted above, each Fund’s disclosure of forward positions will include information that market participants can use to value these positions intraday, and this information may include tickers or other identifiers, or the underlying asset or index. The Web site information will be publicly available at no charge. In addition, a basket composition file, which will include the security names and quantities of securities required to be delivered in exchange for Fund Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the NYSE via the NSCC. The basket will represent one Creation Unit of a Fund. The NAV of the Funds will normally be determined as of the close of the regular trading session on the NYSE (ordinarily 4:00 p.m., E.T.) on each business day. Authorized participants may refer to the basket composition file for information regarding Fixed Income Instruments, and any other instrument that may 39 The Bid/Ask Price of a Fund’s Shares 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 a Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Funds and their service providers. 40 Under accounting procedures followed by the Funds, trades made on the prior business day (‘‘T’’) will be booked and reflected in NAV on the current business day (‘‘T+1’’). Accordingly, the Funds 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. VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 comprise a Fund’s basket on a given day. Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Funds’ Shareholder Reports, and its 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. Intra-day and closing price information regarding equity securities traded on a national securities exchange, including common stocks, preferred stocks, securities convertible into stocks, closed-end funds, exchange traded funds and other equity-related securities, will be available from the exchange on which such securities are traded. Price information regarding nonexchange-traded open-end or closed-end management investment companies will be available from major market data vendors. Intra-day and closing price information regarding Fixed Income Instruments also will be available from major market data vendors. Price information relating to forwards will be available from major market data vendors. Information regarding market price and trading volume of the Shares will be continually available on a realtime basis throughout the day on brokers’ computer screens and other electronic services. Information regarding the previous day’s closing price and trading volume information for the Shares of each Fund will be published daily in the financial section of newspapers. Quotation and last sale information for the Shares of each Fund will be available via the CTA high-speed line. In addition, the PIV for each Fund, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session.41 The dissemination of the PIV, together with the Disclosed Portfolio, will allow investors to determine the approximate value of the underlying portfolio of a Fund on a daily basis and to provide a close estimate of that value throughout the trading day. 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 41 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available PIVs taken from CTA or other data feeds. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 a Fund.42 Trading in Shares of a 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 of a Fund 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 a 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 of the Funds will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares of a Fund may be halted. 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. The Shares of each Fund will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. The Exchange represents that, for initial and/or continued listing, the Funds will be in compliance with Rule 10A–3 under the Act,43 as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for each Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of each Fund that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio for each Fund will be made available to all market participants at the same time. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, 42 See 43 17 E:\FR\FM\05NON1.SGM NYSE Arca Equities Rule 7.12. CFR 240.10A–3. 05NON1 Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices wreier-aviles on DSK5TPTVN1PROD with NOTICES administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.44 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 and exchangetraded securities held by the Funds with other markets and other entities that are members of the ISG, and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares and exchange-traded securities held by the Funds from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and exchange-traded securities held by the Funds from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.45 In addition, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain Fixed Income Instruments reported to FINRA’s Trade Reporting and Compliance Engine (‘‘TRACE’’). With respect to their equity securities investments, the Funds will invest only in U.S. and non-U.S. equity securities that trade in markets that are members of the ISG, which includes all U.S. national securities exchanges and certain foreign exchanges, or are parties to a comprehensive surveillance sharing agreement with the Exchange. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. 44 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. 45 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 Information Bulletin Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares of each Fund. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Unit aggregations (and that Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP 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 PIV will not be calculated or publicly disseminated; (4) how information regarding the PIV is disseminated; (5) the requirement that ETP 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 each 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 of each Fund 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) 46 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 of each Fund 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 surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to deter and detect violations of Exchange 46 15 PO 00000 U.S.C. 78f(b)(5). Frm 00075 Fmt 4703 Sfmt 4703 66403 rules and applicable federal securities laws. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares and exchangetraded securities held by the Funds with other markets and other entities that are members of the ISG, and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares and exchange-traded securities held by the Funds from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and exchange-traded securities held by the Funds from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain Fixed Income Instruments reported to TRACE. The Adviser is not a brokerdealer but is affiliated with a brokerdealer and has implemented a ‘‘fire wall’’ with respect to such broker-dealer regarding access to information concerning the composition and/or changes to a Fund’s portfolio. In addition, the Funds will implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material non-public information regarding a Fund’s portfolio holdings. While emerging markets corporate debt securities (excluding commercial paper) generally must have $200 million or more par amount outstanding and significant par value traded to be considered as an eligible investment for each of the Funds, at least 80% of issues of such securities held by a Fund must have $200 million or more par amount outstanding at the time of investment. The Diversified Income Exchange-Traded Fund may invest in both investment grade debt securities and high yield debt securities subject to a maximum of 10% of its total assets in debt securities rated below B by Moody’s, or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality. The Low Duration Exchange-Traded Fund and Real Return Exchange-Traded Fund will each invest primarily in investment grade debt securities, but may invest up to 10% of its total assets in high yield debt securities rated B to Ba by Moody’s, or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality. The Funds will invest only in U.S. and non-U.S. equity securities that trade in markets that are members of the ISG, which includes all U.S. national E:\FR\FM\05NON1.SGM 05NON1 wreier-aviles on DSK5TPTVN1PROD with NOTICES 66404 Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices securities exchanges and certain foreign exchanges, or are parties to a comprehensive surveillance sharing agreement with the Exchange. The Funds may hold up to an aggregate amount of 15% of their respective net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser, consistent with Commission guidance. Each Fund may invest up to 20% of its assets in mortgage-backed securities or in other asset-backed securities, although this 20% limitation does not apply to securities issued or guaranteed by Federal agencies and/or U.S. government sponsored instrumentalities. The Funds will not invest in options contracts, futures contracts, or swap agreements. 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 is publicly available regarding the Funds and the Shares, thereby promoting market transparency. Moreover, the PIV will be widely disseminated 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 Funds will disclose on the Trust’s Web site the Disclosed Portfolio that will form the basis for such 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. Intra-day and closing price information regarding equity securities traded on a national securities exchange, including common stocks, preferred stocks, securities convertible into stocks, closed-end funds, exchange traded funds and other equity-related securities, will be available from the exchange on which such securities are traded. Price information regarding nonexchange-traded open-end or closed-end management investment companies will be available from major market data vendors. Intra-day and closing price VerDate Mar<15>2010 15:22 Nov 04, 2013 Jkt 232001 information regarding Fixed Income Instruments also will be available from major market data vendors. Price information relating to forwards will be available from major market data vendors. The Trust’s Web site will include a form of the prospectus for the Funds and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Trading in Shares of a 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 Shares of a Fund may be halted. In addition, as noted above, investors will have ready access to information regarding the Funds’ holdings, the PIV, the Disclosed Portfolio, and quotation and last sale information for the Shares. 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 additional types of actively-managed exchange-traded products 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 Funds’ holdings, the PIV, 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 Exchange notes that the proposed rule change will facilitate the listing and trading of additional types of actively-managed exchange-traded products that invest primarily in debt securities, which will enhance competition among market PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 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 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, as modified by Amendment No. 1 thereto, 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–2013–106 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–2013–106. 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 E:\FR\FM\05NON1.SGM 05NON1 Federal Register / Vol. 78, No. 214 / Tuesday, November 5, 2013 / Notices 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 on official business days between 10:00 a.m. and 3:00 p.m. 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–2013–106 and should be submitted on or before November 26, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.47 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–26410 Filed 11–4–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70776; File No. SR–FINRA– 2013–031] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change Relating to Participation on the Alternative Display Facility October 30, 2013. wreier-aviles on DSK5TPTVN1PROD with NOTICES I. Introduction On July 18, 2013, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 proposed rule change to amend FINRA Rules 6271 and 6272 regarding the requirements for members seeking registration as FINRA Alternative Display Facility (‘‘ADF’’) Market Participants (the ‘‘Proposal’’). 47 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 15:22 Nov 04, 2013 Jkt 232001 The Proposal was published for comment in the Federal Register on August 1, 2013.3 The Commission received one comment letter on the Proposal.4 On September 10, 2013, the Commission extended the time period in which to either approve, disapprove, or to institute proceedings to determine whether to approve or disapprove the Proposal, to October 30, 2013.5 On October 25, 2013, FINRA responded to the comment letter.6 This order institutes proceedings under Section 19(b)(2)(B) of the Act to determine whether to approve or disapprove the Proposal. II. Background Current ADF Registration Requirements The ADF is a quotation collection and trade reporting facility. According to FINRA, the ADF provides (1) ADF market participants (i.e., ADF-registered market makers (‘‘ADF Market Makers’’) or electronic communications networks (‘‘ECNs’’ and, with ‘‘ADF Market Makers’’, ‘‘ADF Market Participants’’)) with the ability to post quotations or display orders in NMS stocks and (2) all member firms that participate in the ADF the ability to view quotations and report transactions in NMS stocks to the Securities Information Processors (‘‘SIPs’’) for consolidation and dissemination of data to vendors and ADF Market Participants.7 FINRA states that the ADF is also designed to deliver real-time data to FINRA for regulatory purposes, including enforcement of 3 See Securities Exchange Act Release No. 70048 (July 26, 2013), 78 FR 46652 (‘‘Notice’’). 4 See Letter to Elizabeth M. Murphy, Secretary, Commission, from David Harris, Chairman and CEO, National Stock Exchange, Inc., dated September 9, 2013 (‘‘NSX Letter’’). 5 See Securities Exchange Act Release No. 70358, 78 FR 56967 (September 16, 2013) (SR–FINRA– 2013–031). 6 See Letter from Stephanie M. Dumont, Senior Vice President and Director of Capital Markets Policy, FINRA to the Commission dated October 25, 2013, (‘‘FINRA Response’’). 7 See Notice, 78 FR at 46652. The ADF was initially approved by the Commission on July 24, 2002, in connection with the SEC’s approval of SuperMontage and Nasdaq’s registration as a national securities exchange. See Securities Exchange Act Release No. 46249 (July 24, 2002), 67 FR 49822 (July 31, 2002); see also NASD Notice to Members 02–45 (August 2002). At that time, the ADF was approved for Nasdaq-listed securities for a nine-month pilot period to provide FINRA members with an alternative to the Nasdaq systems for reporting quotations and transactions in Nasdaq UTP Plan securities. On September 28, 2006, the SEC approved amendments to extend the ADF’s functionality to all NMS stocks. See Securities Exchange Act Release No. 54537 (September 28, 2006), 71 FR 59173 (October 6, 2006); see also NASD Notice to Members 06–67 (November 2006). The ADF was approved on a permanent basis for NMS stocks on January 26, 2007. See Securities Exchange Act Release No. 55181 (January 26, 2007), 72 FR 5093 (February 2, 2007). PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 66405 requirements imposed by Regulation NMS.8 FINRA rules provide that ADF Market Participants (i.e., either registered reporting ADF Market Makers or registered reporting ADF ECNs) 9 must register as ADF market makers or ECNs before making a market or displaying orders on the ADF.10 Members are required to register as ADF Market Participants by applying to FINRA, which includes certifying the member’s good standing with FINRA and demonstrating compliance with the net capital and other financial responsibility provisions of the Act.11 Before displaying quotations or orders on the ADF, ADF Trading Centers 12 must also execute and comply with a Certification Record to certify the ADF Trading Center’s compliance efforts with its obligations under Regulation NMS.13 Status of the ADF and Other FINRA Transparency Facilities According to FINRA, no member has registered with FINRA as a registered reporting ADF Market Maker since the ADF was launched in 2002, and there have been four members that, at various points in time, were registered as registered reporting ADF ECNs.14 Since the second quarter of 2010, FINRA states that there have been no ADF Market Participants.15 FINRA states that in 2011, it began the process of updating and migrating all of its transparency facilities (including the FINRA Trade Reporting Facilities, the Trade Reporting and Compliance Engine (‘‘TRACE’’), and the ADF) off of independent technology platforms and onto a new, single, updated technology platform known as the Multi Product Platform (‘‘MPP’’).16 FINRA originally scheduled the migration of the ADF onto MPP last, anticipating onboarding of a new ADF Market Participant no sooner than mid-2014.17 8 See 17 CFR 242.600. FINRA Rule 6220(a)(3), (12), (13). 10 See FINRA Rule 6271. 11 See FINRA Rule 6271(b). 12 An ‘‘ADF Trading Center’’ is a registered reporting ADF Market Maker or registered reporting ADF ECN that is a ‘‘Trading Center,’’ as defined in Rule 600(b)(78) of SEC regulation NMS, and that is certified to display its quotations or orders through the ADF. See FINRA Rule 6220(a)(4); see also 17 CFR 242.600(b)(87). 13 See FINRA Rules 6220(a)(5), 6250(a)(7); NASD Notice to Members 06–67 (November 2006); see also SR–NASD–2006–091, Exhibit 3. 14 See Notice, 78 FR at 46653. 15 See id. 16 See id. 17 See id. After the ADF is migrated to MPP, however, FINRA claims that it will only have the ADF base infrastructure completed. FINRA 9 See E:\FR\FM\05NON1.SGM Continued 05NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 214 (Tuesday, November 5, 2013)]
[Notices]
[Pages 66396-66405]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-26410]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70774; File No. SR-NYSEArca-2013-106]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1 Thereto,
Relating to Listing and Trading of Shares of PIMCO Diversified Income
Exchange-Traded Fund, PIMCO Low Duration Exchange-Traded Fund and PIMCO
Real Return Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600

October 30, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on October 15, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. On October 29, 2013, the Exchange filed Amendment No. 1
to the proposal.\4\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as modified by Amendment No. 1,
from interested persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ Amendment No. 1 replaced and superseded the proposal in its
entirety.
---------------------------------------------------------------------------

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''): PIMCO
Diversified Income Exchange-Traded Fund; PIMCO Low Duration Exchange-
Traded Fund; and PIMCO Real Return Exchange-Traded 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
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares: \5\ PIMCO Diversified
Income Exchange-Traded Fund; PIMCO Low Duration Exchange-Traded Fund;
and PIMCO Real Return Exchange-Traded Fund (each a ``Fund'' and,
collectively, the ``Funds''). The Shares will be offered by PIMCO ETF
Trust (the ``Trust''), a statutory trust organized under the laws of
the State of Delaware and registered with the Commission as an open-end
management investment company.\6\
---------------------------------------------------------------------------

\5\ 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) (``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.
\6\ The Trust is registered under the 1940 Act. On April 22,
2013, the Trust filed with the Commission an amendment to the
Trust's registration statement on Form N-1A under the Securities Act
of 1933 (15 U.S.C. 77a) (the ``Securities Act'') and the 1940 Act
relating to the Funds (File Nos. 333-155395 and 811-22250) (the
``Registration Statement''). The description of the operation of the
Trust and the Funds 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. 28993 (November 10, 2009) (File
No. 812-13571) (``Exemptive Order'').
---------------------------------------------------------------------------

The investment manager to the Funds will be Pacific Investment
Management Company LLC (``PIMCO'' or the ``Adviser''). PIMCO
Investments LLC will serve as the distributor for the Funds
(``Distributor''). State Street Bank & Trust Co. will serve as the
custodian and transfer agent for the Funds (``Custodian'' or ``Transfer
Agent'').\7\
---------------------------------------------------------------------------

\7\ The Commission has previously approved the listing and
trading on the Exchange of other actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8,
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order
approving Exchange listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 60981 (November 10, 2009), 74 FR
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving
Exchange listing and trading of five fixed income funds of the PIMCO
ETF Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9, 2012)
(SR-NYSEArca-2011-95) (order approving Exchange listing and trading
of PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012),
77 FR 20087 (April 3, 2012) (SR-NYSEArca-2012-09) (order approving
Exchange listing and trading of PIMCO Global Advantage Inflation-
Linked Bond Strategy 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 broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\8\ In addition,

[[Page 66397]]

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 non-public
information regarding the open-end fund's portfolio. The Adviser is not
a registered broker-dealer but is affiliated with a broker-dealer and
has implemented a ``fire wall'' with respect to such broker-dealer
regarding access to information concerning the composition and/or
changes to a Fund's respective portfolio. In the event (a) the Adviser
or any sub-adviser is a registered broker-dealer or 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 a portfolio,
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio.
---------------------------------------------------------------------------

\8\ 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 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; implemented, at a
minimum, an annual review regarding the adequacy of the policies and
procedures established pursuant to subparagraph above and the
effectiveness of their implementation; and designated an individual
(who is a supervised person) responsible for administering the
policies and procedures adopted under subparagraph (i) above.
---------------------------------------------------------------------------

PIMCO Diversified Income Exchange-Traded Fund
According to the Registration Statement, the Fund's investment
objective will be to seek maximum total return, consistent with
preservation of capital and prudent investment management. The Fund
will seek to achieve its investment objective by investing under normal
circumstances \9\ at least 65% of its total assets in a diversified
portfolio of ``Fixed Income Instruments'' of varying maturities and
forward contracts on such Fixed Income Instruments.
---------------------------------------------------------------------------

\9\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
---------------------------------------------------------------------------

Fixed Income Instruments include bonds, debt securities and other
similar instruments issued by various U.S. and non-U.S. public- or
private-sector entities. Specifically, with respect to each of the
Funds (except as noted below), the term ``Fixed Income Instruments''
includes: securities issued or guaranteed by the U.S. Government, its
agencies or government-sponsored enterprises (``U.S. Government
Securities''); corporate debt securities of U.S. and non-U.S. issuers,
including convertible securities and corporate commercial paper;
mortgage-backed and other asset-backed securities; inflation-indexed
bonds issued both by governments and corporations; event-linked bonds;
bank capital and trust preferred securities; loan participations and
assignments; delayed funding loans and revolving credit facilities;
bank certificates of deposit, fixed time deposits and bankers'
acceptances; repurchase agreements on Fixed Income Instruments and
reverse repurchase agreements on Fixed Income Instruments; debt
securities issued by states or local governments and their agencies,
authorities and other government-sponsored enterprises; obligations of
non-U.S. governments or their subdivisions, agencies and government-
sponsored enterprises; and obligations of international agencies or
supranational entities.\10\
---------------------------------------------------------------------------

\10\ Securities issued by U.S. Government agencies or
government-sponsored enterprises may not be guaranteed by the U.S.
Treasury.
With respect to the Funds' investments in bank capital
securities, there are two common types: Tier I and Tier II. Bank
capital is generally, but not always, of investment grade quality.
Tier I securities are typically exchange-traded and often take the
form of trust preferred securities. Tier II securities are commonly
thought of as hybrids of debt and preferred stock. Tier II
securities are typically traded over-the-counter, are often
perpetual (with no maturity date), are callable, and have a
cumulative interest deferral feature. This means that under certain
conditions, the issuer bank can withhold payment of interest until a
later date. However, such deferred interest payments generally earn
interest.
According to the Registration Statement, with respect to the
PIMCO Real Return Exchange-Traded Fund, the term Fixed Income
Instruments does not include: event-linked bonds; bank capital and
trust preferred securities; loan participations and assignments; and
debt securities issued by states or local governments and their
agencies, authorities and other government-sponsored enterprises.
---------------------------------------------------------------------------

Forwards on securities are contracts to purchase or sell securities
for a fixed price at a future date beyond normal settlement time.
Forwards on Fixed Income Instruments are contracts to purchase or sell
Fixed Income Instruments for a fixed price at a future date beyond
normal settlement time. The Adviser represents that a forward will be a
useful tool for gaining exposure across markets, particularly in the
U.S. Treasury, U.S. agency, non-U.S. government, and mortgage markets
when a Fund seeks exposure to a particular issue or maturity.\11\ In
general, forwards can be an economically attractive substitute for an
underlying physical security that a Fund would otherwise purchase.
Economic benefits include potentially lower transaction costs or
attractive relative valuation of a forward versus a physical security
(e.g., differences in yields).
---------------------------------------------------------------------------

\11\ Investments in forwards will be made in accordance with the
1940 Act and consistent with each Fund's investment objectives and
policies. With respect to each of the Funds, the Adviser represents
that each Fund will typically use forwards as a substitute for
taking a position in the underlying asset and/or as part of a
strategy designed to reduce exposure to other risks, such as
interest rate or currency risk. A Fund may also use forwards to
enhance returns. To limit the potential risk associated with such
transactions, each Fund will segregate or ``earmark'' assets
determined to be liquid by PIMCO in accordance with procedures
established by the Trust's Board of Trustees and in accordance with
the 1940 Act (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations arising from
its use of forwards. These procedures have been adopted consistent
with Section 18 of the 1940 Act and related Commission guidance. In
addition, the Fund will include appropriate risk disclosure in its
offering documents, including leveraging risk. Leveraging risk is
the risk that certain transactions of a Fund, including a Fund's use
of derivatives, may give rise to leverage, causing a Fund to be more
volatile than if it had not been leveraged. To mitigate leveraging
risk, the Adviser will segregate or ``earmark'' liquid assets or
otherwise cover the transactions that may give rise to such risk.
---------------------------------------------------------------------------

A common forward commitment is a mortgage ``to be announced''
(``TBA''), which is an important vehicle for gaining exposure to the
mortgage pass-through market. Mortgage TBAs provide exposure to new
mortgage pools, issued by the Government National Mortgage Association
(``Ginnie Mae''), Federal National Mortgage Association (``Fannie
Mae'') or Federal Home Loan Mortgage Corporation (``Freddie Mac''),
which have a regular, once-a-month settlement. When a fund purchases a
mortgage TBA, the underlying mortgage-related securities are delivered
in the next settlement cycle (unless settlement is ``rolled'' to a
future date).
The Adviser believes that liquidity of a forward settling
transaction depends on the underlying issue or exposure (e.g., greater
liquidity for Treasuries as compared to a particular collateralized
mortgage obligation). For example, the mortgage TBA market is highly
liquid and positions can be easily added, rolled, or closed. According
to Financial Industry Regulatory Authority (``FINRA'') Trade Reporting
and Compliance Engine (``TRACE'') data, TBAs represented approximately
94% of total agency trading volume in the month of April 2013.
Forwards are marked to market daily and can be priced intraday
based on the underlying issue or exposure. Intraday pricing of
securities to be settled on forward basis is often available on

[[Page 66398]]

quotation services such as Bloomberg. The visibility of intraday prices
of forwards is related to the visibility of prices of the underlying
asset. Market participants can efficiently value forward settling
securities as long as they have access to the relevant information,
such as the underlying exposure.
On behalf of the funds it manages, PIMCO maintains standardized
Master Forward Agreements in place with various counterparties. These
standardized agreements include procedures for periodic collateral
movement between a fund and the applicable counterparty to reflect
changes in the value of forwards held by a fund.
In selecting individual Fixed Income Instruments, or in making
broader sector allocations for the Fund, PIMCO will develop an outlook
for interest rates, currency exchange rates and the economy, analyze
credit and call risks and use other investment selection techniques.
The proportion of the Fund's assets committed to an individual
investment, or investments with particular characteristics (such as
quality, sector, interest rate or maturity), will vary based on PIMCO's
outlook for the U.S. economy and the economies of other countries in
the world, the financial markets and other factors. PIMCO will attempt
to identify areas of the bond market that are undervalued relative to
the rest of the market. PIMCO may identify these areas by grouping
Fixed Income Instruments into sectors such as money markets,
governments, corporates,\12\ mortgages, asset-backed and international.
Once investment opportunities are identified, PIMCO will shift assets
among individual Fixed Income Instruments, or among sectors, depending
upon changes in relative valuations, credit spreads and other factors.
---------------------------------------------------------------------------

\12\ While non-emerging markets corporate debt securities
(excluding commercial paper) generally must have $100 million or
more par amount outstanding and significant par value traded to be
considered as an eligible investment for each of the Funds, at least
80% of issues of such securities held by a Fund must have $100
million or more par amount outstanding at the time of investment.
See also note 15, infra, regarding emerging market corporate debt
securities.
---------------------------------------------------------------------------

According to the Registration Statement, in managing the Fund,
PIMCO may employ both a bottom-up and top-down approach to investment
selection. PIMCO's bottom-up value investment style attempts to
identify Fixed Income Instruments or sectors that are undervalued by
the market in comparison to PIMCO's own determination of value. Using a
top-down value investment style, PIMCO also will consider various
qualitative and quantitative factors relating to the U.S. and non-U.S.
economies, and financial markets. These factors may include the outlook
and projected growth of various sectors, projected growth trends in the
U.S. and non-U.S. economies, forecasts for interest rates and the
relationship between short- and long-term interest rates (yield curve),
relative valuation levels in the financial markets and various segments
within those markets, information relating to business cycles,
borrowing needs and the cost of capital, political trends data relating
to trade balances, and labor information. PIMCO has the flexibility to
reallocate the Fund's assets among individual investments or sectors
based on its ongoing analyses.
The average portfolio duration of the Fund normally will vary from
three to eight years, based on PIMCO's forecast for interest rates.\13\
The Fund may invest in both investment grade debt securities and high
yield debt securities (``junk bonds'') subject to a maximum of 10% of
its total assets in debt securities rated below B by Moody's Investors
Service, Inc. (``Moody's''), or equivalently rated by Standard & Poor's
Rating Services (``S&P'') or Fitch, Inc. (``Fitch''), or, if unrated,
determined by PIMCO to be of comparable quality.\14\ The Fund may
invest in securities and instruments that are economically tied to
emerging market countries.\15\ The Fund may invest in securities and
instruments denominated in foreign currencies and in U.S. dollar-
denominated securities or instruments of foreign issuers. Subject to
the Fund's investment limitations relating to high yield debt
securities generally, the Fund may invest up to 20% of its assets in
mortgage-backed securities or in other asset-backed securities,
although this 20% limitation does not apply to securities issued or
guaranteed by Federal agencies and/or U.S. government sponsored
instrumentalities.
---------------------------------------------------------------------------

\13\ Duration is a measure used to determine the sensitivity of
a security's price to changes in interest rates. The longer a
security's duration, the more sensitive it will be to changes in
interest rates.
\14\ PIMCO utilizes sophisticated proprietary techniques in its
creditworthiness analysis of unrated securities similar to the
processes utilized by Moody's, S&P and Fitch in their respective
analyses of rated securities. For example, in making a ``comparable
quality'' determination for an unrated security, PIMCO may evaluate
the likelihood of payment by the obligor, the nature and provisions
of the debt obligation, and/or the protection afforded by, and
relative position of, the debt obligation in the event of
bankruptcy, reorganization or other arrangement under laws affecting
creditors' rights. Upon consideration of these and other factors,
PIMCO may determine that an unrated security is of comparable
quality to rated securities in which the Fund may invest consistent
with the Fund's credit quality guidelines described above.
\15\ According to the Registration Statement, PIMCO will have
broad discretion to identify countries that it considers to qualify
as emerging markets. In making investments in emerging market
securities, the Fund will emphasize those countries with relatively
low gross national product per capita and with the potential for
rapid economic growth. Emerging market countries are generally
located in Asia, Africa, the Middle East, Latin America and Eastern
Europe. PIMCO will select the country and currency composition based
on its evaluation of relative interest rates, inflation rates,
exchange rates, monetary and fiscal policies, trade and current
account balances, legal and political developments and any other
specific factors it believes to be relevant. While emerging markets
corporate debt securities (excluding commercial paper) generally
must have $200 million or more par amount outstanding and
significant par value traded to be considered as an eligible
investment for each of the Funds, at least 80% of issues of such
securities held by a Fund must have $200 million or more par amount
outstanding at the time of investment.
---------------------------------------------------------------------------

The Fund's portfolio or the Fund's broad-based securities market
index (as defined in Form N-1A) will include a minimum of 13 non-
affiliated issuers (excluding a portfolio or broad-based securities
market index consisting entirely of exempted securities).\16\ The Fund
may purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis and may engage in short sales.\17\ The Fund
may, without limitation, seek to obtain market exposure to the
securities in which it invests by entering into a series of purchase
and sale contracts or by using other investment techniques (such as buy
backs or dollar rolls). The ``total return'' sought by the Fund will
consist of income earned on the Fund's investments, plus capital
appreciation, if any, which generally arises from decreases in interest
rates, foreign currency appreciation, or improving credit fundamentals
for a particular sector or security.
---------------------------------------------------------------------------

\16\ The Fund's broad-based securities market index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
\17\ Each of the Funds may make short sales of securities to:
offset potential declines in long positions in similar securities,
to increase the flexibility of the Fund; for investment return; and
as part of a risk arbitrage strategy.
---------------------------------------------------------------------------

PIMCO Low Duration Exchange-Traded Fund
According to the Registration Statement, the Fund's investment
objective will be to seek maximum total return, consistent with
preservation of capital and prudent investment management. The Fund
will seek to achieve its investment objective by investing under normal
circumstances at least 65% of its total assets in a diversified
portfolio of Fixed Income Instruments of varying maturities and forward
contracts on such Fixed Income

[[Page 66399]]

Instruments.\18\ The average portfolio duration of the Fund normally
will vary from one to three years based on PIMCO's forecast for
interest rates. In selecting individual Fixed Income Instruments, or in
making broader sector allocations for the Fund, PIMCO will develop an
outlook for interest rates, currency exchange rates and the economy,
analyze credit and call risks and use other investment selection
techniques.
---------------------------------------------------------------------------

\18\ See supra discussion regarding forwards.
---------------------------------------------------------------------------

The Fund will invest primarily in investment grade debt securities,
but may invest up to 10% of its total assets in high yield debt
securities rated B to Ba by Moody's, or equivalently rated by S&P or
Fitch, or, if unrated, determined by PIMCO to be of comparable
quality.\19\ The Fund may invest up to 30% of its total assets in
securities and instruments denominated in foreign currencies, and may
invest beyond this limit in U.S. dollar-denominated securities and
instruments of foreign issuers, subject to the Fund's investment
limitations relating to particular asset classes set forth herein. The
Fund may invest up to 10% of its total assets in securities and
instruments that are economically tied to emerging market countries,
subject to the Fund's investment limitations relating to particular
asset classes set forth herein.\20\ The Fund will normally limit its
foreign currency exposure (from non-U.S. dollar-denominated securities
or currencies) to 20% of its total assets.
---------------------------------------------------------------------------

\19\ See note 14, supra.
\20\ See note 15, supra.
---------------------------------------------------------------------------

The Fund's portfolio or the Fund's broad-based securities market
index (as defined in Form N-1A) will include a minimum of 13 non-
affiliated issuers (excluding a portfolio or broad-based securities
market index consisting entirely of exempted securities).\21\ Subject
to the Fund's 10% investment limitations relating to high yield debt
securities, the Fund may invest up to 20% of its assets in mortgage-
backed securities or in other asset-backed securities, although this
20% limitation does not apply to securities issued or guaranteed by
Federal agencies and/or U.S. government sponsored instrumentalities.
The Fund may purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis and may engage in short sales.\22\
The Fund may, without limitation, seek to obtain market exposure to the
securities in which it invests by entering into a series of purchase
and sale contracts or by using other investment techniques (such as buy
backs or dollar rolls). The ``total return'' sought by the Fund will
consist of income earned on the Fund's investments, plus capital
appreciation, if any, which generally arises from decreases in interest
rates, foreign currency appreciation, or improving credit fundamentals
for a particular sector or security.
---------------------------------------------------------------------------

\21\ The Fund's broad-based securities market index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
\22\ See note 17, supra.
---------------------------------------------------------------------------

PIMCO Real Return Exchange-Traded Fund
According to the Registration Statement, the Fund's investment
objective will be to seek maximum real return, consistent with
preservation of capital and prudent investment management. The Fund
will seek its investment objective by investing under normal
circumstances at least 80% of its net assets in inflation-indexed bonds
of varying maturities issued by U.S. and non-U.S. governments, their
agencies or instrumentalities, and corporations, and forward contracts
on such Fixed Income Instruments.\23\ Assets not invested in inflation-
indexed bonds may be invested in other types of Fixed Income
Instruments. Inflation-indexed bonds are fixed income securities that
are structured to provide protection against inflation. The value of
the bond's principal or the interest income paid on the bond is
adjusted to track changes in an official inflation measure. The U.S.
Treasury uses the Consumer Price Index for Urban Consumers as the
inflation measure. Inflation-indexed bonds issued by a foreign
government are generally adjusted to reflect a comparable inflation
index, calculated by that government. ``Real return'' equals total
return less the estimated cost of inflation, which is typically
measured by the change in an official inflation measure.
---------------------------------------------------------------------------

\23\ See supra discussion regarding forwards.
---------------------------------------------------------------------------

According to the Registration Statement, because market convention
for bonds is to use nominal yields to measure duration, duration for
real return bonds, which are based on real yields, are converted to
nominal durations through a conversion factor. The resulting nominal
duration typically can range from 20% and 90% of the respective real
duration. All security holdings will be measured in effective (nominal)
duration terms.\24\ The effective duration of the Fund normally will
vary within three years (plus or minus) of the effective portfolio
duration of the securities comprising the Barclays Capital U.S. TIPS
Index, as calculated by PIMCO, which as of January 31, 2013, as
converted, was 6.16 years.
---------------------------------------------------------------------------

\24\ According to the Registration Statement, effective duration
takes into account that for certain bonds expected cash flows will
fluctuate as interest rates change and is defined in nominal yield
terms, which is market convention for most bond investors and
managers. The effective duration of the Barclays Capital U.S. TIPS
Index (referenced below) will be calculated using the same
conversion factors as the Fund.
---------------------------------------------------------------------------

\25\ See note 14, supra.
---------------------------------------------------------------------------

The Fund also may invest up to 30% of its total assets in
securities denominated in foreign currencies, and may invest beyond
this limit in U.S. dollar-denominated securities of foreign issuers,
subject to the Fund's investment limitations relating to particular
asset classes set forth herein. The Fund may invest up to 10% of its
total assets in securities and instruments that are economically tied
to emerging market countries, subject to the Fund's investment
limitations relating to particular asset classes set forth herein.\26\
The Fund will normally limit its foreign currency exposure (from non-
U.S. dollar-denominated securities or currencies) to 20% of its total
assets.
---------------------------------------------------------------------------

\26\ See note 15, supra.
---------------------------------------------------------------------------

The Fund's portfolio or the Fund's broad-based securities market
index (as defined in Form N-1A) will include a minimum of 13 non-
affiliated issuers (excluding a portfolio or broad-based securities
market index consisting entirely of exempted securities).\27\ Subject
to the Fund's 10% investment limitations relating to high yield debt
securities, the Fund may invest up to 20% of its assets in mortgage-
backed securities or in other asset-backed securities, although this
20% limitation does not apply to securities issued or guaranteed by
Federal agencies and/or U.S. government sponsored instrumentalities.
The Fund may purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis and may engage in short sales.\28\
The Fund may, without limitation, seek to obtain market exposure to the
securities in which it invests by entering into a series of purchase
and sale contracts or by using other investment techniques (such as buy
backs or dollar rolls).
---------------------------------------------------------------------------

\27\ The Fund's broad-based securities market index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
\28\ See note 17, supra

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

[[Page 66400]]

Other Portfolio Holdings
As disclosed in the Trust's Registration Statement, if PIMCO
believes that economic or market conditions are unfavorable to
investors, PIMCO may temporarily invest up to 100% of a Fund's assets
in certain defensive strategies, including holding a substantial
portion of a Fund's assets in cash, cash equivalents or other highly
rated short-term securities, including securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities and
affiliated money market and/or short-term bond funds.
While the debt securities in which the Funds primarily intend to
invest are expected to consist of Fixed Income Instruments, as
described above, the Funds may invest their respective remaining net
assets in other securities and financial instruments, as described
below.
Each of the Funds may engage in foreign currency transactions
through forward currency contracts. A forward foreign currency exchange
contract, which involves an obligation to purchase or sell a specific
currency at a future date at a price set at the time of the contract,
reduces the Fund's exposure to changes in the value of the currency it
will deliver and increases its exposure to changes in the value of the
currency it will receive for the duration of the contract. A Fund's
investments in foreign currency forwards will be subject to the limit
on a Fund's foreign currency exposure. For each of the PIMCO Low
Duration Exchange-Traded Fund and PIMCO Real Return Exchange-Traded
Fund, foreign currency exposure will not exceed 20% of the Fund's total
assets. There is no limit on the PIMCO Diversified Income Fund's
foreign currency exposure.
The Funds may invest in equity securities. The Funds will invest
only in U.S. and non-U.S. equity securities that trade in markets that
are members of the Intermarket Surveillance Group (``ISG''), which
includes all U.S. national securities exchanges and certain foreign
exchanges, or are parties to a comprehensive surveillance sharing
agreement with the Exchange.\29\
---------------------------------------------------------------------------

\29\ See note 45, infra.
---------------------------------------------------------------------------

The Funds each may invest up to 10% of its total assets in
preferred stock, convertible securities \30\ and other equity-related
securities.
---------------------------------------------------------------------------

\30\ A convertible security is a bond, debenture, note,
preferred stock, or other security that entitles the holder to
acquire common stock or other equity securities of the same or a
different issuer. A convertible security generally entitles the
holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged.
---------------------------------------------------------------------------

The Funds may invest in, to the extent permitted by Section
12(d)(1) of the 1940 Act and rules thereunder, other affiliated and
unaffiliated funds, such as open-end or closed-end management
investment companies, including other exchange traded funds.
The Funds may hold up to an aggregate amount of 15% of their
respective net assets in illiquid securities (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser, consistent with Commission guidance.\31\ The Funds will
monitor their 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 a 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.\32\
---------------------------------------------------------------------------

\31\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer).
\32\ 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 Securities Act.
---------------------------------------------------------------------------

Investment Limitations
The Funds will be subject to the following investment limitations:
The Funds may not concentrate their investments in a particular
industry, as that term is used in the 1940 Act,\33\ and as interpreted,
modified, or otherwise permitted by regulatory authority having
jurisdiction from time to time.\34\
---------------------------------------------------------------------------

\33\ 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).
\34\ The Funds' policies with respect to the concentration of
investments in a particular industry is disclosed in the Trust's
Registration Statement.
---------------------------------------------------------------------------

With respect to the PIMCO Diversified Income Exchange-Traded Fund
and PIMCO Low Duration Exchange-Traded Fund, the Funds may not, with
respect to 75% of each Fund's total assets, purchase the securities of
any issuer, except securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, if, as a result
(i) more than 5% of a Fund's total assets would be invested in the
securities of that issuer,\35\ or (ii) a Fund would hold more than 10%
of the outstanding voting securities of that issuer. For the purpose of
this restriction, each state and each separate political subdivision,
agency, authority or instrumentality of such state, each multi-state
agency or authority, and each guarantor, if any, are treated as
separate issuers of municipal bonds. The PIMCO Real Return Exchange-
Traded Fund will be non-diversified,\36\ which means that it may invest
its assets in a smaller number of issuers than a diversified fund.
---------------------------------------------------------------------------

\35\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
\36\ A ``non-diversified company,'' as defined in Section
5(b)(2) of the 1940 Act, means any management company other than a
diversified company (as defined in Section 5(b)(1) of the 1940 Act).
---------------------------------------------------------------------------

Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code.\37\
---------------------------------------------------------------------------

\37\ 26 U.S.C. 851.
---------------------------------------------------------------------------

The Funds will not invest in options contracts, futures contracts,
or swap agreements.
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 Funds that are referred to but not defined in
this proposed rule change are defined in the Registration Statement.
Net Asset Value
According to the Registration Statement, the net asset value
(``NAV'') of the Funds' Shares is determined by dividing the total
value of the applicable Fund's portfolio investments and other assets,
less any liabilities, by the total number of Shares outstanding. Fund
Shares will be valued as of the close of regular trading (normally 4:00
p.m.,

[[Page 66401]]

E.T.) on each day NYSE Arca is open. On each business day, before
commencement of trading in Fund Shares on NYSE Arca, each Fund will
disclose on its Web site the identities and quantities of the portfolio
instruments and other assets held by the Fund that will form the basis
for the Fund's calculation of NAV at the end of the business day.
Information that becomes known to a Fund or its agents after the NAV
has been calculated on a particular day will not generally be used to
retroactively adjust the price of a portfolio asset or the NAV
determined earlier that day. Each Fund will reserve the right to change
the time its NAV is calculated if the Fund closes earlier, or as
permitted by the Commission.
For purposes of calculating NAV, portfolio securities and other
assets for which market quotes are readily available will be valued at
market value. Market value will generally be determined on the basis of
last reported sales prices, or if no sales are reported, as is the case
for most securities traded over-the-counter, based on quotes obtained
from a quotation reporting system, established market makers, or
independent pricing services. For exchange-traded securities, including
common stocks, preferred stocks, securities convertible into stocks,
closed-end funds, exchange traded funds and other equity-related
securities, market value also may be determined on the day that the
valuation is made based on the applicable exchange's official closing
price or last reported sales price. Shares of non-exchange-traded open-
end or closed-end management investment companies normally will be
valued at their most recently calculated NAV. Fixed Income Instruments,
including those to be purchased under firm commitment agreements (other
than obligations having a maturity of 60 days or less), will be
normally valued on the basis of quotes obtained from brokers and
dealers or independent pricing services, which take into account
appropriate factors such as institutional-sized trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data. In addition,
Fixed Income Instruments will normally be valued using data reflecting
the earlier closing of the principal markets for those assets.
Forwards for which market quotes are readily available will be
valued at market value. Local closing prices will be used for all
instrument valuation purposes. Typically, forwards on Fixed Income
Instruments will be marked to market daily.
Additional information regarding the valuation of Fund investments
in calculating a Fund's NAV is provided in the Registration Statement.
Portfolio Indicative Value
In order to provide additional information regarding the intra-day
value of Shares of the Funds, the NYSE Arca or a market data vendor
will disseminate every 15 seconds through the facilities of the
Consolidated Tape Association (``CTA'') or other widely disseminated
means an updated Portfolio Indicative Value (``PIV'') for each Fund as
calculated by an information provider or market data vendor. The PIV
will be based upon the current value for the components of a Fund's
Disclosed Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2).
A third party market data provider will calculate the PIV for the
Funds. For the purpose of determining a Fund's PIV, the third party
market data provider's valuation of forwards will be similar to their
valuation of all securities. The third party market data provider will
generally use market quotes if available. Where market quotes are not
available, they may fair value securities against proxies (such as swap
or yield curves).
Each Fund's disclosure of forward positions will include
information that market participants can use to value these positions
intraday. This information may include tickers or other identifiers, or
the underlying asset or index.
Creations and Redemptions of Shares
According to the Registration Statement, Shares of the Funds that
trade in the secondary market will be ``created'' at NAV by authorized
participants only in block-size Creation Units of 50,000 Shares for
each Fund or multiples thereof. The Funds will offer and issue Shares
at their NAV per Share generally in exchange for a basket of securities
held by the Fund (the ``Deposit Securities'') together with a deposit
of a specified cash payment (the ``Cash Component''). Alternatively,
the Funds may issue Creation Units in exchange for a specified all-cash
payment (``Cash Deposit''). Similarly, Shares can be redeemed only in
Creation Units, generally in-kind for a portfolio of securities held by
a Fund and/or for a specified amount of cash.
Except when aggregated in Creation Units, Shares will not be
redeemable by a Fund. The prices at which creations and redemptions
occur will be based on the next calculation of NAV after an order is
received. Requirements as to the timing and form of orders are
described in the authorized participant agreement. PIMCO will make
available on each business day via the National Securities Clearing
Corporation (``NSCC'') or other method of public dissemination, prior
to the opening of business (subject to amendments) on the Exchange
(currently 9:30 a.m., E.T.), the identity and the required amount of
each Deposit Security and the amount of the Cash Component (or Cash
Deposit) to be included in the current Fund Deposit \38\ (based on
information at the end of the previous business day). Creations and
redemptions must be made by an Authorized Participant or through a firm
that is either a participant in the Continuous Net Settlement System of
the NSCC or a DTC participant, and in each case, must have executed an
agreement with the Distributor and Transfer Agent with respect to
creations and redemptions of Creation Unit aggregations.
---------------------------------------------------------------------------

\38\ The Deposit Securities and Cash Component or,
alternatively, the Cash Deposit, constitute the ``Fund Deposit,''
which represents the investment amount for a Creation Unit of a
Fund.
---------------------------------------------------------------------------

Impact of Use of Forwards on Arbitrage Mechanism
The Adviser believes there will be minimal, if any, impact to the
arbitrage mechanism as a result of the use of forwards. Market makers
and participants should be able to value forwards as long as the
positions are disclosed with relevant information. The Adviser believes
that the price at which Shares will trade will be disciplined by
arbitrage opportunities created by the ability to purchase or redeem
creation Shares at their NAV, which should ensure that Shares will not
trade at a material discount or premium in relation to their NAV.
The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of a Fund's arbitrage
mechanism due to the use of forwards. To the extent forwards are not
eligible for in-kind transfer, they will typically be substituted with
a ``cash in lieu'' amount when a Fund processes purchases or
redemptions of creation units in-kind.
Availability of Information
The Trust's Web site (www.pimcoetfs.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Funds that may be downloaded. The Trust's Web
site will include additional quantitative information updated on a
daily basis, including, for the Funds, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-

[[Page 66402]]

point of the bid/ask spread at the time of calculation of such NAV (the
``Bid/Ask Price''),\39\ 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
(9:30 a.m., E.T. to 4:00 p.m., E.T.) on the Exchange, each Fund will
disclose on the Trust's Web site the Disclosed Portfolio that will form
the basis for a Fund's calculation of NAV at the end of the business
day.\40\
---------------------------------------------------------------------------

\39\ The Bid/Ask Price of a Fund's Shares 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 a Fund's NAV. The records
relating to Bid/Ask Prices will be retained by the Funds and their
service providers.
\40\ Under accounting procedures followed by the Funds, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Funds
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, each Fund will disclose for each portfolio
security and other financial instrument of a Fund the following
information: Ticker symbol (if applicable), name of security and
financial instrument, number of shares, if applicable, and dollar value
of securities and financial instruments held in the portfolio, and
percentage weighting of the security and financial instrument in the
portfolio. As noted above, each Fund's disclosure of forward positions
will include information that market participants can use to value
these positions intraday, and this information may include tickers or
other identifiers, or the underlying asset or index. The Web site
information will be publicly available at no charge.
In addition, a basket composition file, which will include the
security names and quantities of securities required to be delivered in
exchange for Fund Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via the NSCC. The basket will represent one Creation Unit of a
Fund. The NAV of the Funds will normally be determined as of the close
of the regular trading session on the NYSE (ordinarily 4:00 p.m., E.T.)
on each business day. Authorized participants may refer to the basket
composition file for information regarding Fixed Income Instruments,
and any other instrument that may comprise a Fund's basket on a given
day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Funds' Shareholder Reports, and its 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. Intra-day and
closing price information regarding equity securities traded on a
national securities exchange, including common stocks, preferred
stocks, securities convertible into stocks, closed-end funds, exchange
traded funds and other equity-related securities, will be available
from the exchange on which such securities are traded. Price
information regarding non-exchange-traded open-end or closed-end
management investment companies will be available from major market
data vendors. Intra-day and closing price information regarding Fixed
Income Instruments also will be available from major market data
vendors. Price information relating to forwards will be available from
major market data vendors. 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 of each Fund will
be published daily in the financial section of newspapers. Quotation
and last sale information for the Shares of each Fund will be available
via the CTA high-speed line. In addition, the PIV for each Fund, as
defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session.\41\ The dissemination of the
PIV, together with the Disclosed Portfolio, will allow investors to
determine the approximate value of the underlying portfolio of a Fund
on a daily basis and to provide a close estimate of that value
throughout the trading day.
---------------------------------------------------------------------------

\41\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available PIVs
taken from CTA or other data feeds.
---------------------------------------------------------------------------

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 a Fund.\42\ Trading in Shares of a 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 of a Fund 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 a 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 of the Funds will be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth circumstances under which Shares of a
Fund may be halted.
---------------------------------------------------------------------------

\42\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

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.
The Shares of each Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. The Exchange
represents that, for initial and/or continued listing, the Funds will
be in compliance with Rule 10A-3 under the Act,\43\ as provided by NYSE
Arca Equities Rule 5.3. A minimum of 100,000 Shares for each Fund will
be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
each Fund that the NAV per Share will be calculated daily and that the
NAV and the Disclosed Portfolio for each Fund will be made available to
all market participants at the same time.
---------------------------------------------------------------------------

\43\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances,

[[Page 66403]]

administered by FINRA on behalf of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities
laws.\44\ 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.
---------------------------------------------------------------------------

\44\ 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 and exchange-traded securities held by
the Funds with other markets and other entities that are members of the
ISG, and FINRA, on behalf of the Exchange, may obtain trading
information regarding trading in the Shares and exchange-traded
securities held by the Funds from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and exchange-traded securities held by the Funds from markets
and other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement.\45\ In
addition, FINRA, on behalf of the Exchange, is able to access, as
needed, trade information for certain Fixed Income Instruments reported
to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

\45\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
---------------------------------------------------------------------------

With respect to their equity securities investments, the Funds will
invest only in U.S. and non-U.S. equity securities that trade in
markets that are members of the ISG, which includes all U.S. national
securities exchanges and certain foreign exchanges, or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
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 (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares of each Fund. Specifically, the Bulletin will
discuss the following: (1) The procedures for purchases and redemptions
of Shares in Creation Unit aggregations (and that Shares are not
individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its ETP 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 PIV will not be calculated or
publicly disseminated; (4) how information regarding the PIV is
disseminated; (5) the requirement that ETP 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 each 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 of each Fund
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) \46\ 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.
---------------------------------------------------------------------------

\46\ 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 of each Fund 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 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 and exchange-traded securities held by
the Funds with other markets and other entities that are members of the
ISG, and FINRA, on behalf of the Exchange, may obtain trading
information regarding trading in the Shares and exchange-traded
securities held by the Funds from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and exchange-traded securities held by the Funds from markets
and other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. In
addition, FINRA, on behalf of the Exchange, is able to access, as
needed, trade information for certain Fixed Income Instruments reported
to TRACE. The Adviser is not a broker-dealer but is affiliated with a
broker-dealer and has implemented a ``fire wall'' with respect to such
broker-dealer regarding access to information concerning the
composition and/or changes to a Fund's portfolio. In addition, the
Funds will implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding a Fund's portfolio holdings. While emerging
markets corporate debt securities (excluding commercial paper)
generally must have $200 million or more par amount outstanding and
significant par value traded to be considered as an eligible investment
for each of the Funds, at least 80% of issues of such securities held
by a Fund must have $200 million or more par amount outstanding at the
time of investment. The Diversified Income Exchange-Traded Fund may
invest in both investment grade debt securities and high yield debt
securities subject to a maximum of 10% of its total assets in debt
securities rated below B by Moody's, or equivalently rated by S&P or
Fitch, or, if unrated, determined by PIMCO to be of comparable quality.
The Low Duration Exchange-Traded Fund and Real Return Exchange-Traded
Fund will each invest primarily in investment grade debt securities,
but may invest up to 10% of its total assets in high yield debt
securities rated B to Ba by Moody's, or equivalently rated by S&P or
Fitch, or, if unrated, determined by PIMCO to be of comparable quality.
The Funds will invest only in U.S. and non-U.S. equity securities that
trade in markets that are members of the ISG, which includes all U.S.
national

[[Page 66404]]

securities exchanges and certain foreign exchanges, or are parties to a
comprehensive surveillance sharing agreement with the Exchange. The
Funds may hold up to an aggregate amount of 15% of their respective net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser,
consistent with Commission guidance. Each Fund may invest up to 20% of
its assets in mortgage-backed securities or in other asset-backed
securities, although this 20% limitation does not apply to securities
issued or guaranteed by Federal agencies and/or U.S. government
sponsored instrumentalities. The Funds will not invest in options
contracts, futures contracts, or swap agreements.
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 is publicly available regarding the Funds and the Shares,
thereby promoting market transparency. Moreover, the PIV will be widely
disseminated 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 Funds will disclose on the Trust's Web
site the Disclosed Portfolio that will form the basis for such 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. Intra-day and closing price information regarding equity
securities traded on a national securities exchange, including common
stocks, preferred stocks, securities convertible into stocks, closed-
end funds, exchange traded funds and other equity-related securities,
will be available from the exchange on which such securities are
traded. Price information regarding non-exchange-traded open-end or
closed-end management investment companies will be available from major
market data vendors. Intra-day and closing price information regarding
Fixed Income Instruments also will be available from major market data
vendors. Price information relating to forwards will be available from
major market data vendors. The Trust's Web site will include a form of
the prospectus for the Funds and additional data relating to NAV and
other applicable quantitative information. Moreover, prior to the
commencement of trading, the Exchange will inform its ETP Holders in an
Information Bulletin of the special characteristics and risks
associated with trading the Shares. Trading in Shares of a 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 Shares of a Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Funds'
holdings, the PIV, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
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
additional types of actively-managed exchange-traded products 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 Funds' holdings,
the PIV, 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 Exchange notes that the
proposed rule change will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that
invest primarily in debt securities, which 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 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, as modified by Amendment No. 1 thereto, 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-2013-106 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-2013-106. 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

[[Page 66405]]

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 on official business days between 10:00 a.m. and
3:00 p.m. 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-2013-106 and should be submitted on or before November 26,
2013.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
---------------------------------------------------------------------------

\47\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-26410 Filed 11-4-13; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.