Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade Shares of the iShares Core Allocation Conservative ETF, iShares Core Allocation Moderate ETF, iShares Core Allocation Moderate Growth ETF, and iShares Core Allocation Growth ETF Under NYSE Arca Equities Rule 8.600, 15191-15198 [2014-05861]

Download as PDF Federal Register / Vol. 79, No. 52 / Tuesday, March 18, 2014 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71702; File No. SR– NYSEArca–2014–19] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade Shares of the iShares Core Allocation Conservative ETF, iShares Core Allocation Moderate ETF, iShares Core Allocation Moderate Growth ETF, and iShares Core Allocation Growth ETF Under NYSE Arca Equities Rule 8.600 March 12, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on February 25, 2014, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. On March 10, 2014, the Exchange filed Amendment No. 2 to the proposed rule change, which amended and replaced the proposed rule change in its entirety.3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade the following under NYSE Arca Equities Rule 8.600 (‘‘Managed Fund Shares’’): iShares Core Allocation Conservative ETF; iShares Core Allocation Moderate ETF; iShares Core Allocation Moderate Growth ETF; and iShares Core Allocation Growth ETF. 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. emcdonald on DSK67QTVN1PROD with NOTICES 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See note 7 infra. The Exchange filed Amendment No. 1 on March 7, 2014 and withdrew it on March 11, 2014. 2 17 VerDate Mar<15>2010 18:34 Mar 17, 2014 Jkt 232001 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: 4 iShares Core Allocation Conservative ETF; iShares Core Allocation Moderate ETF; iShares Core Allocation Moderate Growth ETF; and iShares Core Allocation Growth ETF (each a ‘‘Fund’’ and collectively the ‘‘Funds’’). The Shares of the Funds will be offered by iShares U.S. ETF Trust (the ‘‘Trust’’) 5 The Trust is registered with the Commission as an open-end management investment company.6 BlackRock Fund Advisors (‘‘BFA’’) will serve as the investment adviser to the Funds (the ‘‘Adviser’’). BFA is an indirect wholly-owned subsidiary of 4 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. 5 The Commission has previously approved listing and trading on the Exchange of a number of actively managed funds under Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 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); 60460 (August 7, 2009), 74 FR 41468 (August 17, 2009) (SR– NYSEArca–2009–55) (order approving listing and trading of Dent Tactical ETF); 71540 (February 12, 2014), 79 FR 9515 (February 19, 2014) (SR– NYSEArca–2013–138) (order approving listing and trading of shares of the iShares Enhanced International Large-Cap ETF and iShares Enhanced International Small-Cap ETF). 6 The Trust is registered under the 1940 Act. On September 6, 2013, the Trust filed with the Commission Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) and under the 1940 Act relating to the Funds (File Nos. 333–179904 and 811–22649) (‘‘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. 29571 (File No. 812–13601) (‘‘Exemptive Order’’). PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 15191 BlackRock, Inc. BlackRock Investments, LLC (the ‘‘Distributor’’) will be the principal underwriter and distributor of the Funds’ Shares. State Street Bank and Trust Company (the ‘‘Administrator’’, ‘‘Custodian’’ or ‘‘Transfer Agent’’) will serve as administrator, custodian and transfer agent for the Funds.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. Commentary .06 further requires that personnel who make decisions on the open-end fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the open-end fund’s portfolio.8 Commentary .06 to Rule 8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the establishment of a ‘‘fire wall’’ between the investment adviser and the brokerdealer reflects the applicable open-end fund’s portfolio, not an underlying benchmark index, as is the case with index-based funds. The Adviser is not registered as a broker-dealer but is affiliated with multiple broker-dealers and has implemented a ‘‘fire wall’’ with 7 This Amendment No. 2 to SR–NYSEArca–2014– 19 replaces SR–NYSEArca–2014–19 as originally filed and supersedes such filing in its entirety. The Exchange has withdrawn amendment No. 1 to SR– NYSEArca–2014–19. 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 (i) adopted and implemented written policies and procedures reasonably designed to prevent violation, by the investment adviser and its supervised persons, of the Advisers Act and the Commission rules adopted thereunder; (ii) implemented, at a minimum, an annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph (i) above and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted under subparagraph (i) above. E:\FR\FM\18MRN1.SGM 18MRN1 15192 Federal Register / Vol. 79, No. 52 / Tuesday, March 18, 2014 / Notices respect to such broker-dealers regarding access to information concerning the composition and/or changes to a Fund’s portfolio. In the event (a) the Adviser or any sub-adviser registers as a brokerdealer or becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered brokerdealer, 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. emcdonald on DSK67QTVN1PROD with NOTICES iShares Core Allocation Conservative ETF The iShares Core Allocation Conservative ETF seeks to create a portfolio with a conservative risk profile by allocating its assets among the iShares Core suite of equity and fixed income exchange-traded funds (‘‘ETFs’’), as described below. The Fund will be a fund of funds and seeks to achieve its investment objective by investing, under normal circumstances,9 generally at least 80% of its net assets in the securities of ‘‘Underlying Funds’’ that themselves seek investment results corresponding to their own underlying indexes.10 The Underlying Funds will invest primarily in distinct asset classes, such as largecapitalization, mid-capitalization and small-capitalization U.S. equity, 9 The term ‘‘under normal circumstances’’ includes, but is not limited to, the absence of extreme volatility or trading halts in the equity 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. 10 As of June 30, 2013, the Underlying Funds included the following iShares Core funds: iShares Core Long-Term U.S. Bond ETF, iShares Core MSCI EAFE ETF, iShares Core MSCI Emerging Markets ETF, iShares Core MSCI Total International Stock ETF, iShares Core S&P 500 ETF, iShares Core S&P Mid-Cap ETF, iShares Core S&P Small-Cap ETF, iShares Core S&P Total U.S. Stock Market ETF, iShares Core Short-Term U.S. Bond ETF and iShares Core Total U.S. Bond Market ETF. BFA may add, eliminate or replace the Underlying Funds at any time without advance notice to investors. The Underlying Funds held by a Fund may change over time and may not include all of the Underlying Funds listed above. In addition, the relative proportions of the Underlying Funds held by a Fund may change over time. Top sectors of the iShares Core Allocation Conservative ETF primarily include agency securities, financial companies, industrials companies and treasury securities. The top sectors of the Fund, and the degree to which they represent certain industries, may change over time. VerDate Mar<15>2010 18:34 Mar 17, 2014 Jkt 232001 international developed market and emerging market equity, short-term U.S. government and corporate debt, longterm U.S. government and corporate debt, or the U.S. aggregate bond market; each such asset class has its own risk profile.11 The Fund will be an actively managed ETF that does not seek to replicate the performance of a specified index. BFA will select securities for the Fund using a proprietary, model-based investment process that seeks to maximize returns for the Fund’s stated risk/return profile through investments in Underlying Funds. The Fund intends to hold investments which in the aggregate have a conservative risk/return profile as determined by BFA. A ‘‘conservative’’ risk allocation typically emphasizes significant exposure to fixed income securities, while maintaining smaller exposure to equity securities, in an effort to preserve capital and reduce volatility of returns. As of June 30, 2013, BFA’s model recommended an allocation of approximately 20% to Underlying Funds that invest primarily in equity securities and 80% to Underlying Funds that invest primarily in fixed income securities. The Fund may lend securities representing up to one-third of the value of the Fund’s total assets (including the value of the collateral received). iShares Core Allocation Moderate ETF The iShares Core Allocation Moderate ETF will seek to create a portfolio with a moderate risk profile by allocating its assets among the iShares Core suite of equity and fixed income ETFs, as described below. The Fund will be a fund of funds and will seek to achieve its investment objective by investing, under normal circumstances, generally at least 80% of its net assets in the securities of Underlying Funds that themselves seek 11 For purposes of this proposed rule change, the term ‘‘Underlying Fund’’ includes Investment Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked Securities (as described in NYSE Arca Equities Rule 5.2(j)(6)); Portfolio Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); Trust Issued Receipts (as described in NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as described in NYSE Arca Equities Rule 8.201); Commodity Index Trust Shares (as described in NYSE Arca Equities Rule 8.203); Commodity Futures Trust Shares (as described in NYSE Arca Equities Rule 8.204); and Managed Fund Shares (as described in NYSE Arca Equities Rule 8.600). All Underlying Funds will be listed and traded on a U.S. national securities exchange. While the Underlying Funds currently include only Investment Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)), which are based on indexes, in the future, Underlying Funds may include other types of securities enumerated in this footnote. PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 investment results corresponding to their own underlying indexes.12 The Underlying Funds will invest primarily in distinct asset classes, such as largecapitalization, mid-capitalization and small-capitalization U.S. equity, international developed market and emerging market equity, short-term U.S. government and corporate debt, longterm U.S. government and corporate debt, or the U.S. aggregate bond market; each such asset class has its own risk profile. The Fund will be an actively managed ETF that does not seek to replicate the performance of a specified index. BFA will select securities for the Fund using a proprietary, model-based investment process that seeks to maximize returns for the Fund’s stated risk/return profile through investments in Underlying Funds. The Fund intends to hold investments which in the aggregate have a moderate risk/return profile as determined by BFA. A ‘‘moderate’’ risk allocation typically emphasizes exposure to fixed income securities, while maintaining some exposure to equity securities, in an effort to provide an opportunity for some capital preservation and for low to moderate capital appreciation. As of June 30, 2013, BFA’s model recommended an allocation of approximately 40% to Underlying Funds that invest primarily in equity securities and 60% to Underlying Funds that invest primarily in fixed income securities. The Fund may lend securities representing up to one-third of the value of the Fund’s total assets (including the value of the collateral received). iShares Core Allocation Moderate Growth ETF The iShares Core Allocation Moderate Growth ETF will seek to create a portfolio with a moderate growth risk profile by allocating its assets among the iShares Core suite of equity and fixed income ETFs, as described below. The Fund will be a fund of funds and will seek to achieve its investment objective by investing, under normal circumstances, generally at least 80% of its net assets in the securities of Underlying Funds that themselves seek investment results corresponding to their own underlying indexes.13 The 12 See note 11, supra. Top sectors of the iShares Core Allocation Moderate ETF primarily include agency securities, financial companies and treasury securities. The top sectors of the Fund, and the degree to which they represent certain industries, may change over time. 13 See note 11, supra. Top sectors of the iShares Core Allocation Moderate Growth ETF primarily include consumer discretionary, financial E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 79, No. 52 / Tuesday, March 18, 2014 / Notices Underlying Funds will invest primarily in distinct asset classes, such as largecapitalization, mid-capitalization and small-capitalization U.S. equity, international developed market and emerging market equity, short-term U.S. government and corporate debt, longterm U.S. government and corporate debt, or the U.S. aggregate bond market; each such asset class has its own risk profile. The Fund will be an actively managed ETF that will not seek to replicate the performance of a specified index. BFA will select securities for the Fund using a proprietary, model-based investment process that seeks to maximize returns for the Fund’s stated risk/return profile through investments in Underlying Funds. The Fund intends to hold investments which in the aggregate have a moderate growth risk/return profile as determined by BFA. A ‘‘moderate growth’’ risk allocation typically emphasizes exposure to equity securities, while maintaining some exposure to fixed income securities, in an effort to provide an opportunity for moderate capital appreciation and some capital preservation. As of June 30, 2013, BFA’s model recommended an allocation of approximately 60% to Underlying Funds that invest primarily in equity securities and 40% to Underlying Funds that invest primarily in fixed income securities. The Fund may lend securities representing up to one-third of the value of the Fund’s total assets (including the value of the collateral received). emcdonald on DSK67QTVN1PROD with NOTICES iShares Core Allocation Growth ETF The iShares Core Allocation Growth ETF seeks to create a portfolio with a growth risk profile by allocating its assets among the iShares Core suite of equity and fixed income ETFs, as described below. The Fund will be a fund of funds and will seek to achieve its investment objective by investing under normal circumstances generally at least 80% of its net assets in the securities of Underlying Funds that themselves seek investment results corresponding to their own underlying indexes.14 The Underlying Funds will invest primarily in distinct asset classes, such as largecompanies, industrials, information technology companies, and treasury securities. The top sectors of the Fund, and the degree to which they represent certain industries, may change over time. 14 See note 11, supra. Top sectors of the iShares Core Allocation Growth ETF primarily include consumer discretionary, financial companies, industrials, and information technology companies. The top sectors of the Fund, and the degree to which they represent certain industries, may change over time. VerDate Mar<15>2010 18:34 Mar 17, 2014 Jkt 232001 capitalization, mid-capitalization and small-capitalization U.S. equity, international developed market and emerging market equity, short-term U.S. government and corporate debt, longterm U.S. government and corporate debt, or the U.S. aggregate bond market; each such asset class has its own risk profile. The Fund will be an actively managed ETF that will not seek to replicate the performance of a specified index. BFA will select securities for the Fund using a proprietary, model-based investment process that seeks to maximize returns for the Fund’s stated risk/return profile through investments in Underlying Funds. The Fund intends to hold investments which in the aggregate have a moderate growth risk/return profile as determined by BFA. A ‘‘moderate growth’’ risk allocation typically emphasizes exposure to equity securities, while maintaining some exposure to fixed income securities, in an effort to provide an opportunity for moderate capital appreciation and some capital preservation. As of June 30, 2013, BFA’s model recommended an allocation of approximately 60% to Underlying Funds that invest primarily in equity securities and 40% to Underlying Funds that invest primarily in fixed income securities. The Fund may lend securities representing up to one-third of the value of the Fund’s total assets (including the value of the collateral received). Other Investments While each Fund, under normal circumstances, generally will invest at least 80% of its assets in Underlying Funds, as described above, each Fund may invest in other securities and financial instruments, as described below. Each Fund may invest in other exchange-traded products (‘‘ETPs’’) in addition to the Underlying Funds described above.15 Each Fund may invest in short-term instruments on an ongoing basis to provide liquidity or for other reasons. 15 For purposes of this proposed rule change, the term ‘‘ETP’’ includes Investment Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked Securities (as described in NYSE Arca Equities Rule 5.2(j)(6)); Portfolio Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); Trust Issued Receipts (as described in NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as described in NYSE Arca Equities Rule 8.201); Commodity Index Trust Shares (as described in NYSE Arca Equities Rule 8.203); Commodity Futures Trust Shares (as described in NYSE Arca Equities Rule 8.204); and Managed Fund Shares (as described in NYSE Arca Equities Rule 8.600). All ETPs will be listed and traded on a U.S. national securities exchange. PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 15193 Short-term instruments are generally short-term investments, including (i) shares of money market funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (‘‘CDs’’), bankers’ acceptances, fixedtime deposits and other obligations of U.S. and non-U.S. banks (including nonU.S. branches) and similar institutions; (iv) commercial paper rated, at the date of purchase, ‘‘Prime-1’’ by Moody’s® Investors Service, Inc., ‘‘F–1’’ by Fitch Inc., or ‘‘A–1’’ by Standard & Poor’s® Financial Services LLC, or if unrated, of comparable quality as determined by BFA; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a–7 under the 1940 Act; (vi) repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by a Fund. Other Restrictions Each Fund will be classified as ‘‘nondiversified.’’ A non-diversified fund is a fund that is not limited by the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer.16 Each Fund intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a regulated investment company (‘‘RIC’’) under Subchapter M of the Internal Revenue Code.17 A Fund may hold up to an aggregate amount of 15% of its net assets (calculated at the time of investment) in assets deemed illiquid by the Adviser, consistent with Commission guidance.18 Each Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will 16 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. 17 26 U.S.C. 851 et seq. 18 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). E:\FR\FM\18MRN1.SGM 18MRN1 15194 Federal Register / Vol. 79, No. 52 / Tuesday, March 18, 2014 / Notices 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 assets. Illiquid assets include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined in accordance with Commission staff guidance.19 emcdonald on DSK67QTVN1PROD with NOTICES Net Asset Value The net asset value (‘‘NAV’’) for each Fund normally will be determined once daily Monday through Friday, generally as of the regularly scheduled close of business of the New York Stock Exchange (‘‘NYSE’’) (normally 4:00 p.m., Eastern time) on each day that the NYSE is open for trading, based on prices at the time of closing provided that (a) any Fund assets or liabilities denominated in currencies other than the U.S. dollar will be translated into U.S. dollars at the prevailing market rates on the date of valuation as quoted by one or more data service providers, and (b) U.S. fixed-income assets may be valued as of the announced closing time for trading in fixed-income instruments in a particular market or exchange. The NAV of each Fund will be calculated by dividing the value of the net assets of a Fund (i.e., the value of its total assets, which includes the values of the Underlying Fund shares in which a Fund invests, less total liabilities) by the total number of outstanding Shares of a Fund, generally rounded to the nearest cent. The value of the securities and other assets and liabilities held by each Fund will be determined pursuant to valuation policies and procedures approved by the Trust’s Board of Trustees (‘‘Board’’). Equity investments, including the shares of Underlying Funds and shares of other ETPs, will be valued at market 19 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 of 1933). VerDate Mar<15>2010 18:34 Mar 17, 2014 Jkt 232001 value, which will generally be determined using the last reported official closing price or last trading price on the exchange or market on which the security is primarily traded at the time of valuation. Generally, trading in U.S. government securities and certain fixed-income securities is substantially completed each day at various times prior to the close of business on the NYSE. The values of such securities used in computing the NAV of the Funds will be determined as of such times. Repurchase agreements will generally be valued at par. Other short-term instruments will generally be valued at the last available bid price received from independent pricing services. In determining the value of a fixed income investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments, and calculated yield measures. In certain circumstances, short-term instruments may be valued on the basis of amortized cost. When market quotations are not readily available or are believed by BFA to be unreliable, a Fund’s investments will be valued at fair value. Fair value determinations will be made by BFA in accordance with policies and procedures approved by the Trust’s Board. BFA may conclude that a market quotation is not readily available or is unreliable if a security or other asset or liability does not have a price source due to its lack of liquidity, if a market quotation differs significantly from recent price quotations or otherwise no longer appears to reflect fair value, where the security or other asset or liability is thinly traded, or where there is a significant event subsequent to the most recent market quotation. A ‘‘significant event’’ is an event that, in the judgment of BFA, is likely to cause a material change to the closing market price of the asset or liability held by a Fund.20 20 According to the Registration Statement, fair value represents a good faith approximation of the value of an asset or liability. The fair value of an asset or liability held by a Fund is the amount a Fund might reasonably expect to receive from the current sale of that asset or the cost to extinguish that liability in an arm’s-length transaction. Valuing a Fund’s investments using fair value pricing will result in prices that may differ from current market valuations and that may not be the prices at which those investments could have been sold during the period in which the particular fair values were used. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 Creations and Redemptions According to the Registration Statement, the consideration for purchase of Creation Units of Shares of a Fund generally will consist of the inkind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (‘‘Deposit Securities’’) and the Cash Component computed as described below. Together, the Deposit Securities and the Cash Component constitute the ‘‘Fund Deposit,’’ which will be applicable (subject to possible amendment or correction) to creation requests received in proper form. The Fund Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of a Fund. A Creation Unit will consist of 50,000 Shares of a Fund. The Creation Unit size for a Fund may change. The ‘‘Cash Component’’ will be an amount equal to the difference between the NAV of the Shares (per Creation Unit) and the ‘‘Deposit Amount,’’ which is an amount equal to the market value of the Deposit Securities, and serves to compensate for any differences between the NAV per Creation Unit and the Deposit Amount. Creation Units may be purchased only by or through a DTC participant that has entered into an authorized participant agreement (as described in the Registration Statement) with the Distributor (such DTC participant, an ‘‘Authorized Participant’’). Except as noted below, creation orders must be received by the Distributor in proper form generally before the closing time of the regular trading session of the Exchange (normally 4:00 p.m., Eastern time) in each case on the date such order is placed in order for creation of Creation Units to be effected based on the NAV of Shares of a Fund as next determined on such date after receipt of the order in proper form. On days when the Exchange or other markets close earlier than normal, a Fund may require orders to create Creation Units to be placed earlier in the day. A standard creation transaction fee will be imposed to offset the transfer and other transaction costs associated with the issuance of Creation Units. Although the Trust will not ordinarily permit partial or full cash purchases of Creation Units of Shares of a Fund, when partial or full cash purchases of Creation Units are available or specified for a Fund, they will be effected in essentially the same manner as in-kind purchases thereof. In the case of a partial or full cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities E:\FR\FM\18MRN1.SGM 18MRN1 emcdonald on DSK67QTVN1PROD with NOTICES Federal Register / Vol. 79, No. 52 / Tuesday, March 18, 2014 / Notices it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser. BFA will make available through the National Securities Clearing Corporation (‘‘NSCC’’) on each business day prior to the opening of business on the Exchange, the list of names and the required number of shares of each Deposit Security and the amount of the Cash Component to be included in the current Fund Deposit (based on information as of the end of the previous business day for each Fund). Such Fund Deposit will be applicable, subject to any adjustments as described below, to purchases of Creation Units of shares of a given Fund until such time as the next-announced Fund Deposit is made available. The identity and number of shares of the Deposit Securities will change pursuant to changes in the composition of a Fund’s portfolio and as rebalancing adjustments and corporate action events are reflected from time to time by BFA with a view to the investment objective of a Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities constituting a Fund’s portfolio. The Funds reserve the right to permit or require the substitution of a ‘‘cash in lieu’’ amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through the Depository Trust Company (‘‘DTC’’). The Funds also reserve the right to permit or require a ‘‘cash in lieu’’ amount in certain circumstances, including circumstances in which (i) the delivery of the Deposit Security by the Authorized Participant would be restricted under applicable securities or other local laws or (ii) the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming restricted under applicable securities or other local laws, or in certain other situations. Shares of a Fund may be redeemed by Authorized Participants only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor or its agent and only on a business day. The Funds will not redeem shares in amounts less than Creation Units. Each Fund generally will redeem Creation Units for Fund Securities, as defined below. VerDate Mar<15>2010 18:34 Mar 17, 2014 Jkt 232001 Except as noted below, redemption orders must be received by the Distributor in proper form generally before the closing time of the regular trading session of the Exchange (normally 4:00 p.m., Eastern time) in each case on the date such order is placed in order for redemption of Creation Units to be effected based on the NAV of Shares of a Fund as next determined on such date after receipt of the order in proper form. On days when the Exchange or other markets close earlier than normal, a Fund may require orders to redeem Creation Units to be placed earlier in the day. A standard redemption transaction fee will be imposed to offset the transfer and other transaction costs associated with the redemption of Creation Units. BFA will make available through the NSCC, prior to the opening of business on the Exchange on each business day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form on that day (‘‘Fund Securities’’) and a Cash Amount (as defined below). Fund Securities received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Units. Unless cash redemptions are available or specified for a Fund, the redemption proceeds for a Creation Unit generally will consist of Fund Securities, plus the Cash Amount, which is an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after the receipt of a redemption request in proper form, and the value of Fund Securities, less a redemption transaction fee. The Trust may, in its sole discretion, substitute a ‘‘cash in lieu’’ amount to replace any Fund Security. The Funds also reserve the right to permit or require a ‘‘cash in lieu’’ amount in certain circumstances, including circumstances in which (i) the delivery of a Fund Security to the Authorized Participant would be restricted under applicable securities or other local laws or (ii) the delivery of a Fund Security to the Authorized Participant would result in the disposition of the Fund Security by the Authorized Participant becoming restricted under applicable securities or other local laws, or in certain other situations. The amount of cash paid out in such cases will be equivalent to the value of the substituted security listed as a Fund Security. In the event that the Fund Securities have a value greater than the NAV of the Shares, a compensating cash payment equal to the PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 15195 difference is required to be made by or through an Authorized Participant by the redeeming shareholder. Availability of Information The Funds’ Web site (www.ishares.com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for a Fund that may be downloaded. The Funds’ Web site will include additional quantitative information updated on a daily basis, including, for the Funds, (1) the prior business day’s reported closing price, NAV and mid-point of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/Ask Price’’),21 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 on the Exchange, each Fund will disclose on its Web site the Disclosed Portfolio that will form the basis for such Fund’s calculation of NAV at the end of the business day.22 On a daily basis, each Fund will disclose for each portfolio security or other financial instrument of each Fund the following information on the Funds’ Web site: Ticker symbol (if applicable), name of security and financial instrument, number of shares and dollar value of securities and financial instruments held in the portfolio, and percentage weighting of the security and financial instrument in the portfolio. The Web site information will be publicly available at no charge. In addition, a basket composition file, which includes the security names and share quantities required to be delivered in exchange for each Fund’s Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the NYSE via NSCC. The basket represents one Creation Unit of a Fund. Investors can also obtain the Trust’s Statement of Additional Information 21 The Bid/Ask Price of Shares of each Fund will be determined using the mid-point of the highest bid and the lowest offer on the Exchange as of the time of calculation of a Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Funds and their service providers. 22 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. E:\FR\FM\18MRN1.SGM 18MRN1 15196 Federal Register / Vol. 79, No. 52 / Tuesday, March 18, 2014 / Notices emcdonald on DSK67QTVN1PROD with NOTICES (‘‘SAI’’), each Fund’s Shareholder Reports, and the Trust’s Form N–CSR and Form N–SAR, filed twice a year. The Trust’s SAI and Shareholder Reports are available free upon request from the Trust, and those documents and the Form N–CSR and Form N–SAR may be viewed on-screen or downloaded from the Commission’s Web site at www.sec.gov. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. Information regarding the previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. Quotation and last sale information for the Shares of each Fund, shares of the Underlying Funds and shares of other ETPs will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line. In addition, the Indicative Optimized Portfolio Value (‘‘IOPV’’),23 which is the Portfolio Indicative Value as defined in NYSE Arca Equities Rule 8.600 (c)(3), will be widely disseminated at least every 15 seconds during the Core Trading Session by one or more major market data vendors.24 The dissemination of the IOPV, together with the Disclosed Portfolio, will allow investors to determine the value of the underlying portfolio of each Fund on a daily basis and to provide a close estimate of that value throughout the trading day. The intra-day, closing and settlement prices of repurchase agreements and shortterm instruments will also be readily available from published or other public sources, or online information services such as Bloomberg or Reuters. Additional information regarding the Trust and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions and taxes is included in 23 The IOPV will be based on the current value of the securities and other assets held by the Funds using market data converted into U.S. dollars at the current currency rates. The IOPV price will be based on quotes and closing prices from the securities’ local market and may not reflect events that occur subsequent to the local market’s close. Premiums and discounts between the IOPV and the market price may occur. The IOPV will not necessarily reflect the precise composition of the current portfolio of securities held by a Fund at a particular point in time or the best possible valuation of the current portfolio. Therefore, the IOPV should not be viewed as a ‘‘real-time’’ update of a Fund’s NAV, which will be calculated only once a day. 24 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available IOPVs taken from CTA or other data feeds. VerDate Mar<15>2010 18:34 Mar 17, 2014 Jkt 232001 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. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Funds.25 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 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 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. Eastern time 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 26 under the Act, 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 25 See 26 17 PO 00000 NYSE Arca Equities Rule 7.12. CFR 240.10A–3. Frm 00102 Fmt 4703 Sfmt 4703 representation from the issuer of the Shares that the NAV per Share of each Fund will be calculated daily and that the NAV and the Disclosed Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) will be made available to all market participants at the same time. Surveillance The Exchange represents that trading in the Shares will be subject to the existing surveillance procedures administered by the Financial Industry Regulatory Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.27 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 federal securities laws applicable to trading on the Exchange. The Exchange’s current trading surveillance focuses on detecting securities trading outside their normal patterns. 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 of each Fund, shares of the Underlying Funds, and shares of other ETPs 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 of each Fund, shares of the Underlying Funds, and shares of other ETPs, from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares of the Funds, shares of the Underlying Funds, and shares of other ETPs from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.28 In addition, the Exchange also has a general policy prohibiting the 27 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. 28 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that, with the exception of short-term instruments, as described above, all components of the Disclosed Portfolio for a Fund will trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 79, No. 52 / Tuesday, March 18, 2014 / Notices distribution of material, non-public information by its employees. emcdonald on DSK67QTVN1PROD with NOTICES Information Bulletin Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation 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 Equity Trading Permit Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated IOPV will not be calculated or publicly disseminated; (4) how information regarding the IOPV is disseminated; (5) the requirement that Equity Trading Permit Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (6) trading information. In addition, the Bulletin will reference that 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 will be calculated after 4:00 p.m. Eastern time each trading day. 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5) 29 that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in NYSE Arca Equities Rule 8.600. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to 29 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 18:34 Mar 17, 2014 Jkt 232001 deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. The Adviser has implemented a ‘‘fire wall’’ with respect to its affiliated broker-dealers regarding access to information concerning the composition and/or changes to a Fund’s portfolio. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares of the Funds, shares of the Underlying Funds, and shares of other ETPs with 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 of the Funds, shares of the Underlying Funds, and shares of other ETPs from such markets and other entities. The Exchange may obtain information regarding trading in the Shares of the Funds, shares of the Underlying Funds, and shares of other ETPs from ISG member markets or markets with which the Exchange has in place a comprehensive surveillance sharing agreement. A Fund may hold up [sic] an aggregate amount of 15% of its net assets (calculated at the time of investment) in assets deemed illiquid by the Adviser, consistent with Commission guidance. 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 of each Fund 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. In addition, a large amount of information is publicly available regarding the Funds and the Shares, thereby promoting market transparency. Moreover, the IOPV 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 their Web site the Disclosed Portfolio that will form the basis for a Fund’s calculation of NAV at the end of the business day. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information will be available via the CTA high-speed line. The Web site for the Funds will include a form of the prospectus for the Funds and PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 15197 additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in 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 a Fund’s holdings, the IOPV, 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, FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares of the Funds, shares of the Underlying Funds, and shares of other ETPs 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, shares of the Underlying Funds, and shares of other ETPs from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares as well as shares of the Underlying Funds, and shares of other ETPs from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. As noted above, investors will have ready access to information regarding a Fund’s holdings, the IOPV, the Disclosed Portfolio, and quotation and last sale information for the Shares. The proposed rule change would benefit investors by providing them with additional choices of transparent and tradeable products. 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 E:\FR\FM\18MRN1.SGM 18MRN1 15198 Federal Register / Vol. 79, No. 52 / Tuesday, March 18, 2014 / Notices of the purpose of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of other actively-managed exchange-traded products that hold equity securities and 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 is consistent with the Act. Comments may be submitted by any of the following methods: emcdonald on DSK67QTVN1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2014–19 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2014–19. 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 VerDate Mar<15>2010 18:34 Mar 17, 2014 Jkt 232001 submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2014–19 and should be submitted on or before April 8, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–05861 Filed 3–17–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71697; File No. SR– NASDAQ–2014–021] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Routing Fees March 12, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 4, 2014, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by NASDAQ. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 30 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NASDAQ proposes to modify Chapter XV, entitled ‘‘Options Pricing,’’ at Section 2 governing pricing for NASDAQ members using the NASDAQ Options Market (‘‘NOM’’), NASDAQ’s facility for executing and routing standardized equity and index options. Specifically, NOM proposes to amend its Customer Routing Fees. The text of the proposed rule change is available on the Exchange’s Web site at https:// www.nasdaq.cchwallstreet.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 Exchange included statements concerning the purpose of and basis for the proposed rule change. The text of these 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 aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this filing is to amend the Routing Fees in Chapter XV, Section 2(3) to recoup costs incurred by the Exchange to route orders to away markets. Today, the Exchange assesses a NonCustomer a $0.95 per contract Routing Fee to any options exchange. The Customer 3 Routing Fee for option orders routed to NASDAQ OMX PHLX LLC (‘‘PHLX’’) is a $0.05 per contract Fixed Fee in addition to the actual transaction fee assessed. The Customer Routing Fee for option orders routed to NASDAQ OMX BX, Inc. (‘‘BX Options’’) is $0.00 per contract. The Customer Routing Fee for option orders routed to all other options exchanges 4 (excluding 3 The term ‘‘Customer’’ or (‘‘C’’) applies to any transaction that is identified by a Participant for clearing in the Customer range at The Options Clearing Corporation (‘‘OCC’’) which is not for the account of broker or dealer or for the account of a ‘‘Professional’’ (as that term is defined in Chapter I, Section 1(a)(48)). 4 Including BATS Exchange, Inc. (‘‘BATS’’), BOX Options Exchange LLC (‘‘BOX’’), the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’), C2 Options Exchange, Incorporated (‘‘C2’’), E:\FR\FM\18MRN1.SGM 18MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 52 (Tuesday, March 18, 2014)]
[Notices]
[Pages 15191-15198]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05861]



[[Page 15191]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71702; File No. SR-NYSEArca-2014-19]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 2, To List and 
Trade Shares of the iShares Core Allocation Conservative ETF, iShares 
Core Allocation Moderate ETF, iShares Core Allocation Moderate Growth 
ETF, and iShares Core Allocation Growth ETF Under NYSE Arca Equities 
Rule 8.600

March 12, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on February 25, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. On March 10, 2014, the Exchange filed Amendment No. 2 to 
the proposed rule change, which amended and replaced the proposed rule 
change in its entirety.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See note 7 infra. The Exchange filed Amendment No. 1 on 
March 7, 2014 and withdrew it on March 11, 2014.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade the following under NYSE 
Arca Equities Rule 8.600 (``Managed Fund Shares''): iShares Core 
Allocation Conservative ETF; iShares Core Allocation Moderate ETF; 
iShares Core Allocation Moderate Growth ETF; and iShares Core 
Allocation Growth ETF. 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: \4\ iShares Core Allocation 
Conservative ETF; iShares Core Allocation Moderate ETF; iShares Core 
Allocation Moderate Growth ETF; and iShares Core Allocation Growth ETF 
(each a ``Fund'' and collectively the ``Funds''). The Shares of the 
Funds will be offered by iShares U.S. ETF Trust (the ``Trust'') \5\ The 
Trust is registered with the Commission as an open-end management 
investment company.\6\ BlackRock Fund Advisors (``BFA'') will serve as 
the investment adviser to the Funds (the ``Adviser''). BFA is an 
indirect wholly-owned subsidiary of BlackRock, Inc. BlackRock 
Investments, LLC (the ``Distributor'') will be the principal 
underwriter and distributor of the Funds' Shares. State Street Bank and 
Trust Company (the ``Administrator'', ``Custodian'' or ``Transfer 
Agent'') will serve as administrator, custodian and transfer agent for 
the Funds.\7\
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    \4\ 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.
    \5\ The Commission has previously approved listing and trading 
on the Exchange of a number of actively managed funds under Rule 
8.600. See, e.g., Securities Exchange Act Release Nos. 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); 60460 (August 7, 2009), 74 FR 41468 
(August 17, 2009) (SR-NYSEArca-2009-55) (order approving listing and 
trading of Dent Tactical ETF); 71540 (February 12, 2014), 79 FR 9515 
(February 19, 2014) (SR-NYSEArca-2013-138) (order approving listing 
and trading of shares of the iShares Enhanced International Large-
Cap ETF and iShares Enhanced International Small-Cap ETF).
    \6\ The Trust is registered under the 1940 Act. On September 6, 
2013, the Trust filed with the Commission Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a) and under the 1940 Act 
relating to the Funds (File Nos. 333-179904 and 811-22649) 
(``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. 29571 (File No. 812-
13601) (``Exemptive Order'').
    \7\ This Amendment No. 2 to SR-NYSEArca-2014-19 replaces SR-
NYSEArca-2014-19 as originally filed and supersedes such filing in 
its entirety. The Exchange has withdrawn amendment No. 1 to SR-
NYSEArca-2014-19.
---------------------------------------------------------------------------

    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. Commentary .06 further 
requires that personnel who make decisions on the open-end fund's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the open-end fund's portfolio.\8\ Commentary .06 to Rule 8.600 is 
similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 
5.2(j)(3); however, Commentary .06 in connection with the establishment 
of a ``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not registered as a broker-dealer but is affiliated with multiple 
broker-dealers and has implemented a ``fire wall'' with

[[Page 15192]]

respect to such broker-dealers regarding access to information 
concerning the composition and/or changes to a Fund's portfolio. In the 
event (a) the Adviser or any sub-adviser registers as a 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.
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    \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 (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
---------------------------------------------------------------------------

iShares Core Allocation Conservative ETF
    The iShares Core Allocation Conservative ETF seeks to create a 
portfolio with a conservative risk profile by allocating its assets 
among the iShares Core suite of equity and fixed income exchange-traded 
funds (``ETFs''), as described below.
    The Fund will be a fund of funds and seeks to achieve its 
investment objective by investing, under normal circumstances,\9\ 
generally at least 80% of its net assets in the securities of 
``Underlying Funds'' that themselves seek investment results 
corresponding to their own underlying indexes.\10\ The Underlying Funds 
will invest primarily in distinct asset classes, such as large-
capitalization, mid-capitalization and small-capitalization U.S. 
equity, international developed market and emerging market equity, 
short-term U.S. government and corporate debt, long-term U.S. 
government and corporate debt, or the U.S. aggregate bond market; each 
such asset class has its own risk profile.\11\
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    \9\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the equity markets or the financial markets generally; operational 
issues causing dissemination of inaccurate market information; or 
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
    \10\ As of June 30, 2013, the Underlying Funds included the 
following iShares Core funds: iShares Core Long-Term U.S. Bond ETF, 
iShares Core MSCI EAFE ETF, iShares Core MSCI Emerging Markets ETF, 
iShares Core MSCI Total International Stock ETF, iShares Core S&P 
500 ETF, iShares Core S&P Mid-Cap ETF, iShares Core S&P Small-Cap 
ETF, iShares Core S&P Total U.S. Stock Market ETF, iShares Core 
Short-Term U.S. Bond ETF and iShares Core Total U.S. Bond Market 
ETF. BFA may add, eliminate or replace the Underlying Funds at any 
time without advance notice to investors. The Underlying Funds held 
by a Fund may change over time and may not include all of the 
Underlying Funds listed above. In addition, the relative proportions 
of the Underlying Funds held by a Fund may change over time. Top 
sectors of the iShares Core Allocation Conservative ETF primarily 
include agency securities, financial companies, industrials 
companies and treasury securities. The top sectors of the Fund, and 
the degree to which they represent certain industries, may change 
over time.
    \11\ For purposes of this proposed rule change, the term 
``Underlying Fund'' includes Investment Company Units (as described 
in NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked Securities (as 
described in NYSE Arca Equities Rule 5.2(j)(6)); Portfolio 
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); 
Trust Issued Receipts (as described in NYSE Arca Equities Rule 
8.200); Commodity-Based Trust Shares (as described in NYSE Arca 
Equities Rule 8.201); Commodity Index Trust Shares (as described in 
NYSE Arca Equities Rule 8.203); Commodity Futures Trust Shares (as 
described in NYSE Arca Equities Rule 8.204); and Managed Fund Shares 
(as described in NYSE Arca Equities Rule 8.600). All Underlying 
Funds will be listed and traded on a U.S. national securities 
exchange. While the Underlying Funds currently include only 
Investment Company Units (as described in NYSE Arca Equities Rule 
5.2(j)(3)), which are based on indexes, in the future, Underlying 
Funds may include other types of securities enumerated in this 
footnote.
---------------------------------------------------------------------------

    The Fund will be an actively managed ETF that does not seek to 
replicate the performance of a specified index. BFA will select 
securities for the Fund using a proprietary, model-based investment 
process that seeks to maximize returns for the Fund's stated risk/
return profile through investments in Underlying Funds.
    The Fund intends to hold investments which in the aggregate have a 
conservative risk/return profile as determined by BFA. A 
``conservative'' risk allocation typically emphasizes significant 
exposure to fixed income securities, while maintaining smaller exposure 
to equity securities, in an effort to preserve capital and reduce 
volatility of returns. As of June 30, 2013, BFA's model recommended an 
allocation of approximately 20% to Underlying Funds that invest 
primarily in equity securities and 80% to Underlying Funds that invest 
primarily in fixed income securities.
    The Fund may lend securities representing up to one-third of the 
value of the Fund's total assets (including the value of the collateral 
received).
iShares Core Allocation Moderate ETF
    The iShares Core Allocation Moderate ETF will seek to create a 
portfolio with a moderate risk profile by allocating its assets among 
the iShares Core suite of equity and fixed income ETFs, as described 
below.
    The Fund will be a fund of funds and will seek to achieve its 
investment objective by investing, under normal circumstances, 
generally at least 80% of its net assets in the securities of 
Underlying Funds that themselves seek investment results corresponding 
to their own underlying indexes.\12\ The Underlying Funds will invest 
primarily in distinct asset classes, such as large-capitalization, mid-
capitalization and small-capitalization U.S. equity, international 
developed market and emerging market equity, short-term U.S. government 
and corporate debt, long-term U.S. government and corporate debt, or 
the U.S. aggregate bond market; each such asset class has its own risk 
profile.
---------------------------------------------------------------------------

    \12\ See note 11, supra. Top sectors of the iShares Core 
Allocation Moderate ETF primarily include agency securities, 
financial companies and treasury securities. The top sectors of the 
Fund, and the degree to which they represent certain industries, may 
change over time.
---------------------------------------------------------------------------

    The Fund will be an actively managed ETF that does not seek to 
replicate the performance of a specified index. BFA will select 
securities for the Fund using a proprietary, model-based investment 
process that seeks to maximize returns for the Fund's stated risk/
return profile through investments in Underlying Funds.
    The Fund intends to hold investments which in the aggregate have a 
moderate risk/return profile as determined by BFA. A ``moderate'' risk 
allocation typically emphasizes exposure to fixed income securities, 
while maintaining some exposure to equity securities, in an effort to 
provide an opportunity for some capital preservation and for low to 
moderate capital appreciation. As of June 30, 2013, BFA's model 
recommended an allocation of approximately 40% to Underlying Funds that 
invest primarily in equity securities and 60% to Underlying Funds that 
invest primarily in fixed income securities.
    The Fund may lend securities representing up to one-third of the 
value of the Fund's total assets (including the value of the collateral 
received).
iShares Core Allocation Moderate Growth ETF
    The iShares Core Allocation Moderate Growth ETF will seek to create 
a portfolio with a moderate growth risk profile by allocating its 
assets among the iShares Core suite of equity and fixed income ETFs, as 
described below.
    The Fund will be a fund of funds and will seek to achieve its 
investment objective by investing, under normal circumstances, 
generally at least 80% of its net assets in the securities of 
Underlying Funds that themselves seek investment results corresponding 
to their own underlying indexes.\13\ The

[[Page 15193]]

Underlying Funds will invest primarily in distinct asset classes, such 
as large-capitalization, mid-capitalization and small-capitalization 
U.S. equity, international developed market and emerging market equity, 
short-term U.S. government and corporate debt, long-term U.S. 
government and corporate debt, or the U.S. aggregate bond market; each 
such asset class has its own risk profile.
---------------------------------------------------------------------------

    \13\ See note 11, supra. Top sectors of the iShares Core 
Allocation Moderate Growth ETF primarily include consumer 
discretionary, financial companies, industrials, information 
technology companies, and treasury securities. The top sectors of 
the Fund, and the degree to which they represent certain industries, 
may change over time.
---------------------------------------------------------------------------

    The Fund will be an actively managed ETF that will not seek to 
replicate the performance of a specified index. BFA will select 
securities for the Fund using a proprietary, model-based investment 
process that seeks to maximize returns for the Fund's stated risk/
return profile through investments in Underlying Funds.
    The Fund intends to hold investments which in the aggregate have a 
moderate growth risk/return profile as determined by BFA. A ``moderate 
growth'' risk allocation typically emphasizes exposure to equity 
securities, while maintaining some exposure to fixed income securities, 
in an effort to provide an opportunity for moderate capital 
appreciation and some capital preservation. As of June 30, 2013, BFA's 
model recommended an allocation of approximately 60% to Underlying 
Funds that invest primarily in equity securities and 40% to Underlying 
Funds that invest primarily in fixed income securities.
    The Fund may lend securities representing up to one-third of the 
value of the Fund's total assets (including the value of the collateral 
received).
iShares Core Allocation Growth ETF
    The iShares Core Allocation Growth ETF seeks to create a portfolio 
with a growth risk profile by allocating its assets among the iShares 
Core suite of equity and fixed income ETFs, as described below.
    The Fund will be a fund of funds and will seek to achieve its 
investment objective by investing under normal circumstances generally 
at least 80% of its net assets in the securities of Underlying Funds 
that themselves seek investment results corresponding to their own 
underlying indexes.\14\ The Underlying Funds will invest primarily in 
distinct asset classes, such as large-capitalization, mid-
capitalization and small-capitalization U.S. equity, international 
developed market and emerging market equity, short-term U.S. government 
and corporate debt, long-term U.S. government and corporate debt, or 
the U.S. aggregate bond market; each such asset class has its own risk 
profile.
---------------------------------------------------------------------------

    \14\ See note 11, supra. Top sectors of the iShares Core 
Allocation Growth ETF primarily include consumer discretionary, 
financial companies, industrials, and information technology 
companies. The top sectors of the Fund, and the degree to which they 
represent certain industries, may change over time.
---------------------------------------------------------------------------

    The Fund will be an actively managed ETF that will not seek to 
replicate the performance of a specified index. BFA will select 
securities for the Fund using a proprietary, model-based investment 
process that seeks to maximize returns for the Fund's stated risk/
return profile through investments in Underlying Funds.
    The Fund intends to hold investments which in the aggregate have a 
moderate growth risk/return profile as determined by BFA. A ``moderate 
growth'' risk allocation typically emphasizes exposure to equity 
securities, while maintaining some exposure to fixed income securities, 
in an effort to provide an opportunity for moderate capital 
appreciation and some capital preservation. As of June 30, 2013, BFA's 
model recommended an allocation of approximately 60% to Underlying 
Funds that invest primarily in equity securities and 40% to Underlying 
Funds that invest primarily in fixed income securities.
    The Fund may lend securities representing up to one-third of the 
value of the Fund's total assets (including the value of the collateral 
received).
Other Investments
    While each Fund, under normal circumstances, generally will invest 
at least 80% of its assets in Underlying Funds, as described above, 
each Fund may invest in other securities and financial instruments, as 
described below.
    Each Fund may invest in other exchange-traded products (``ETPs'') 
in addition to the Underlying Funds described above.\15\
---------------------------------------------------------------------------

    \15\ For purposes of this proposed rule change, the term ``ETP'' 
includes Investment Company Units (as described in NYSE Arca 
Equities Rule 5.2(j)(3)); Index-Linked Securities (as described in 
NYSE Arca Equities Rule 5.2(j)(6)); Portfolio Depositary Receipts 
(as described in NYSE Arca Equities Rule 8.100); Trust Issued 
Receipts (as described in NYSE Arca Equities Rule 8.200); Commodity-
Based Trust Shares (as described in NYSE Arca Equities Rule 8.201); 
Commodity Index Trust Shares (as described in NYSE Arca Equities 
Rule 8.203); Commodity Futures Trust Shares (as described in NYSE 
Arca Equities Rule 8.204); and Managed Fund Shares (as described in 
NYSE Arca Equities Rule 8.600). All ETPs will be listed and traded 
on a U.S. national securities exchange.
---------------------------------------------------------------------------

    Each Fund may invest in short-term instruments on an ongoing basis 
to provide liquidity or for other reasons. Short-term instruments are 
generally short-term investments, including (i) shares of money market 
funds (including those advised by BFA or otherwise affiliated with 
BFA); (ii) obligations issued or guaranteed by the U.S. government, its 
agencies or instrumentalities (including government-sponsored 
enterprises); (iii) negotiable certificates of deposit (``CDs''), 
bankers' acceptances, fixed-time deposits and other obligations of U.S. 
and non-U.S. banks (including non-U.S. branches) and similar 
institutions; (iv) commercial paper rated, at the date of purchase, 
``Prime-1'' by Moody's[supreg] Investors Service, Inc., ``F-1'' by 
Fitch Inc., or ``A-1'' by Standard & Poor's[supreg] Financial Services 
LLC, or if unrated, of comparable quality as determined by BFA; (v) 
non-convertible corporate debt securities (e.g., bonds and debentures) 
with remaining maturities at the date of purchase of not more than 397 
days and that satisfy the rating requirements set forth in Rule 2a-7 
under the 1940 Act; (vi) repurchase agreements; and (vii) short-term 
U.S. dollar-denominated obligations of non-U.S. banks (including U.S. 
branches) that, in the opinion of BFA, are of comparable quality to 
obligations of U.S. banks which may be purchased by a Fund.
Other Restrictions
    Each Fund will be classified as ``non-diversified.'' A non-
diversified fund is a fund that is not limited by the 1940 Act with 
regard to the percentage of its assets that may be invested in the 
securities of a single issuer.\16\
---------------------------------------------------------------------------

    \16\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

    Each Fund intends to maintain the required level of diversification 
and otherwise conduct its operations so as to qualify as a regulated 
investment company (``RIC'') under Subchapter M of the Internal Revenue 
Code.\17\
---------------------------------------------------------------------------

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

    A Fund may hold up to an aggregate amount of 15% of its net assets 
(calculated at the time of investment) in assets deemed illiquid by the 
Adviser, consistent with Commission guidance.\18\ Each Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will

[[Page 15194]]

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 assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.\19\
---------------------------------------------------------------------------

    \18\ 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).
    \19\ 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 of 1933).
---------------------------------------------------------------------------

Net Asset Value
    The net asset value (``NAV'') for each Fund normally will be 
determined once daily Monday through Friday, generally as of the 
regularly scheduled close of business of the New York Stock Exchange 
(``NYSE'') (normally 4:00 p.m., Eastern time) on each day that the NYSE 
is open for trading, based on prices at the time of closing provided 
that (a) any Fund assets or liabilities denominated in currencies other 
than the U.S. dollar will be translated into U.S. dollars at the 
prevailing market rates on the date of valuation as quoted by one or 
more data service providers, and (b) U.S. fixed-income assets may be 
valued as of the announced closing time for trading in fixed-income 
instruments in a particular market or exchange. The NAV of each Fund 
will be calculated by dividing the value of the net assets of a Fund 
(i.e., the value of its total assets, which includes the values of the 
Underlying Fund shares in which a Fund invests, less total liabilities) 
by the total number of outstanding Shares of a Fund, generally rounded 
to the nearest cent.
    The value of the securities and other assets and liabilities held 
by each Fund will be determined pursuant to valuation policies and 
procedures approved by the Trust's Board of Trustees (``Board'').
    Equity investments, including the shares of Underlying Funds and 
shares of other ETPs, will be valued at market value, which will 
generally be determined using the last reported official closing price 
or last trading price on the exchange or market on which the security 
is primarily traded at the time of valuation.
    Generally, trading in U.S. government securities and certain fixed-
income securities is substantially completed each day at various times 
prior to the close of business on the NYSE. The values of such 
securities used in computing the NAV of the Funds will be determined as 
of such times.
    Repurchase agreements will generally be valued at par. Other short-
term instruments will generally be valued at the last available bid 
price received from independent pricing services. In determining the 
value of a fixed income investment, pricing services may use certain 
information with respect to transactions in such investments, 
quotations from dealers, pricing matrixes, market transactions in 
comparable investments, various relationships observed in the market 
between investments, and calculated yield measures. In certain 
circumstances, short-term instruments may be valued on the basis of 
amortized cost.
    When market quotations are not readily available or are believed by 
BFA to be unreliable, a Fund's investments will be valued at fair 
value. Fair value determinations will be made by BFA in accordance with 
policies and procedures approved by the Trust's Board. BFA may conclude 
that a market quotation is not readily available or is unreliable if a 
security or other asset or liability does not have a price source due 
to its lack of liquidity, if a market quotation differs significantly 
from recent price quotations or otherwise no longer appears to reflect 
fair value, where the security or other asset or liability is thinly 
traded, or where there is a significant event subsequent to the most 
recent market quotation. A ``significant event'' is an event that, in 
the judgment of BFA, is likely to cause a material change to the 
closing market price of the asset or liability held by a Fund.\20\
---------------------------------------------------------------------------

    \20\ According to the Registration Statement, fair value 
represents a good faith approximation of the value of an asset or 
liability. The fair value of an asset or liability held by a Fund is 
the amount a Fund might reasonably expect to receive from the 
current sale of that asset or the cost to extinguish that liability 
in an arm's-length transaction. Valuing a Fund's investments using 
fair value pricing will result in prices that may differ from 
current market valuations and that may not be the prices at which 
those investments could have been sold during the period in which 
the particular fair values were used.
---------------------------------------------------------------------------

Creations and Redemptions
    According to the Registration Statement, the consideration for 
purchase of Creation Units of Shares of a Fund generally will consist 
of the in-kind deposit of a designated portfolio of securities 
(including any portion of such securities for which cash may be 
substituted) (``Deposit Securities'') and the Cash Component computed 
as described below. Together, the Deposit Securities and the Cash 
Component constitute the ``Fund Deposit,'' which will be applicable 
(subject to possible amendment or correction) to creation requests 
received in proper form. The Fund Deposit represents the minimum 
initial and subsequent investment amount for a Creation Unit of a Fund. 
A Creation Unit will consist of 50,000 Shares of a Fund. The Creation 
Unit size for a Fund may change.
    The ``Cash Component'' will be an amount equal to the difference 
between the NAV of the Shares (per Creation Unit) and the ``Deposit 
Amount,'' which is an amount equal to the market value of the Deposit 
Securities, and serves to compensate for any differences between the 
NAV per Creation Unit and the Deposit Amount.
    Creation Units may be purchased only by or through a DTC 
participant that has entered into an authorized participant agreement 
(as described in the Registration Statement) with the Distributor (such 
DTC participant, an ``Authorized Participant''). Except as noted below, 
creation orders must be received by the Distributor in proper form 
generally before the closing time of the regular trading session of the 
Exchange (normally 4:00 p.m., Eastern time) in each case on the date 
such order is placed in order for creation of Creation Units to be 
effected based on the NAV of Shares of a Fund as next determined on 
such date after receipt of the order in proper form. On days when the 
Exchange or other markets close earlier than normal, a Fund may require 
orders to create Creation Units to be placed earlier in the day. A 
standard creation transaction fee will be imposed to offset the 
transfer and other transaction costs associated with the issuance of 
Creation Units.
    Although the Trust will not ordinarily permit partial or full cash 
purchases of Creation Units of Shares of a Fund, when partial or full 
cash purchases of Creation Units are available or specified for a Fund, 
they will be effected in essentially the same manner as in-kind 
purchases thereof. In the case of a partial or full cash purchase, the 
Authorized Participant must pay the cash equivalent of the Deposit 
Securities

[[Page 15195]]

it would otherwise be required to provide through an in-kind purchase, 
plus the same Cash Component required to be paid by an in-kind 
purchaser.
    BFA will make available through the National Securities Clearing 
Corporation (``NSCC'') on each business day prior to the opening of 
business on the Exchange, the list of names and the required number of 
shares of each Deposit Security and the amount of the Cash Component to 
be included in the current Fund Deposit (based on information as of the 
end of the previous business day for each Fund). Such Fund Deposit will 
be applicable, subject to any adjustments as described below, to 
purchases of Creation Units of shares of a given Fund until such time 
as the next-announced Fund Deposit is made available.
    The identity and number of shares of the Deposit Securities will 
change pursuant to changes in the composition of a Fund's portfolio and 
as rebalancing adjustments and corporate action events are reflected 
from time to time by BFA with a view to the investment objective of a 
Fund. The composition of the Deposit Securities may also change in 
response to adjustments to the weighting or composition of the 
component securities constituting a Fund's portfolio.
    The Funds reserve the right to permit or require the substitution 
of a ``cash in lieu'' amount to be added to the Cash Component to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the Depository Trust Company (``DTC''). The Funds also reserve the 
right to permit or require a ``cash in lieu'' amount in certain 
circumstances, including circumstances in which (i) the delivery of the 
Deposit Security by the Authorized Participant would be restricted 
under applicable securities or other local laws or (ii) the delivery of 
the Deposit Security to the Authorized Participant would result in the 
disposition of the Deposit Security by the Authorized Participant 
becoming restricted under applicable securities or other local laws, or 
in certain other situations.
    Shares of a Fund may be redeemed by Authorized Participants only in 
Creation Units at their NAV next determined after receipt of a 
redemption request in proper form by the Distributor or its agent and 
only on a business day. The Funds will not redeem shares in amounts 
less than Creation Units. Each Fund generally will redeem Creation 
Units for Fund Securities, as defined below.
    Except as noted below, redemption orders must be received by the 
Distributor in proper form generally before the closing time of the 
regular trading session of the Exchange (normally 4:00 p.m., Eastern 
time) in each case on the date such order is placed in order for 
redemption of Creation Units to be effected based on the NAV of Shares 
of a Fund as next determined on such date after receipt of the order in 
proper form. On days when the Exchange or other markets close earlier 
than normal, a Fund may require orders to redeem Creation Units to be 
placed earlier in the day. A standard redemption transaction fee will 
be imposed to offset the transfer and other transaction costs 
associated with the redemption of Creation Units.
    BFA will make available through the NSCC, prior to the opening of 
business on the Exchange on each business day, the designated portfolio 
of securities (including any portion of such securities for which cash 
may be substituted) that will be applicable (subject to possible 
amendment or correction) to redemption requests received in proper form 
on that day (``Fund Securities'') and a Cash Amount (as defined below). 
Fund Securities received on redemption may not be identical to Deposit 
Securities that are applicable to creations of Creation Units.
    Unless cash redemptions are available or specified for a Fund, the 
redemption proceeds for a Creation Unit generally will consist of Fund 
Securities, plus the Cash Amount, which is an amount equal to the 
difference between the NAV of the Shares being redeemed, as next 
determined after the receipt of a redemption request in proper form, 
and the value of Fund Securities, less a redemption transaction fee.
    The Trust may, in its sole discretion, substitute a ``cash in 
lieu'' amount to replace any Fund Security. The Funds also reserve the 
right to permit or require a ``cash in lieu'' amount in certain 
circumstances, including circumstances in which (i) the delivery of a 
Fund Security to the Authorized Participant would be restricted under 
applicable securities or other local laws or (ii) the delivery of a 
Fund Security to the Authorized Participant would result in the 
disposition of the Fund Security by the Authorized Participant becoming 
restricted under applicable securities or other local laws, or in 
certain other situations. The amount of cash paid out in such cases 
will be equivalent to the value of the substituted security listed as a 
Fund Security. In the event that the Fund Securities have a value 
greater than the NAV of the Shares, a compensating cash payment equal 
to the difference is required to be made by or through an Authorized 
Participant by the redeeming shareholder.
Availability of Information
    The Funds' Web site (www.ishares.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for a Fund that may be downloaded. The Funds' Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Funds, (1) the prior business day's 
reported closing price, NAV and mid-point of the bid/ask spread at the 
time of calculation of such NAV (the ``Bid/Ask Price''),\21\ 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 on the Exchange, each 
Fund will disclose on its Web site the Disclosed Portfolio that will 
form the basis for such Fund's calculation of NAV at the end of the 
business day.\22\
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    \21\ The Bid/Ask Price of Shares of each Fund will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of a Fund's NAV. The records 
relating to Bid/Ask Prices will be retained by the Funds and their 
service providers.
    \22\ 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.
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    On a daily basis, each Fund will disclose for each portfolio 
security or other financial instrument of each Fund the following 
information on the Funds' Web site: Ticker symbol (if applicable), name 
of security and financial instrument, number of shares and dollar value 
of securities and financial instruments held in the portfolio, and 
percentage weighting of the security and financial instrument in the 
portfolio. The Web site information will be publicly available at no 
charge.
    In addition, a basket composition file, which includes the security 
names and share quantities required to be delivered in exchange for 
each Fund's Shares, together with estimates and actual cash components, 
will be publicly disseminated daily prior to the opening of the NYSE 
via NSCC. The basket represents one Creation Unit of a Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information

[[Page 15196]]

(``SAI''), each Fund's Shareholder Reports, and the Trust's Form N-CSR 
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at www.sec.gov. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares of each Fund, shares of the Underlying Funds and shares of other 
ETPs will be available via the Consolidated Tape Association (``CTA'') 
high-speed line. In addition, the Indicative Optimized Portfolio Value 
(``IOPV''),\23\ which is the Portfolio Indicative Value as defined in 
NYSE Arca Equities Rule 8.600 (c)(3), will be widely disseminated at 
least every 15 seconds during the Core Trading Session by one or more 
major market data vendors.\24\ The dissemination of the IOPV, together 
with the Disclosed Portfolio, will allow investors to determine the 
value of the underlying portfolio of each Fund on a daily basis and to 
provide a close estimate of that value throughout the trading day. The 
intra-day, closing and settlement prices of repurchase agreements and 
short-term instruments will also be readily available from published or 
other public sources, or online information services such as Bloomberg 
or Reuters.
---------------------------------------------------------------------------

    \23\ The IOPV will be based on the current value of the 
securities and other assets held by the Funds using market data 
converted into U.S. dollars at the current currency rates. The IOPV 
price will be based on quotes and closing prices from the 
securities' local market and may not reflect events that occur 
subsequent to the local market's close. Premiums and discounts 
between the IOPV and the market price may occur. The IOPV will not 
necessarily reflect the precise composition of the current portfolio 
of securities held by a Fund at a particular point in time or the 
best possible valuation of the current portfolio. Therefore, the 
IOPV should not be viewed as a ``real-time'' update of a Fund's NAV, 
which will be calculated only once a day.
    \24\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IOPVs 
taken from CTA or other data feeds.
---------------------------------------------------------------------------

    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio 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.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Funds.\25\ 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 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 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.
---------------------------------------------------------------------------

    \25\ 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. Eastern time 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 \26\ under the Act, 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 
that the NAV per Share of each Fund will be calculated daily and that 
the NAV and the Disclosed Portfolio as defined in NYSE Arca Equities 
Rule 8.600(c)(2) will be made available to all market participants at 
the same time.
---------------------------------------------------------------------------

    \26\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing surveillance procedures administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\27\ 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 federal securities laws applicable to trading on 
the Exchange.
---------------------------------------------------------------------------

    \27\ 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 Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. 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 of each Fund, shares of the Underlying 
Funds, and shares of other ETPs 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 of each 
Fund, shares of the Underlying Funds, and shares of other ETPs, from 
such markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares of the Funds, shares of the 
Underlying Funds, and shares of other ETPs from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\28\
---------------------------------------------------------------------------

    \28\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that, with the exception of 
short-term instruments, as described above, all components of the 
Disclosed Portfolio for a Fund will trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the

[[Page 15197]]

distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'') 
of the special characteristics and risks associated with trading the 
Shares. Specifically, the Bulletin will discuss the following: (1) The 
procedures for purchases and redemptions of Shares in Creation 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 Equity Trading Permit Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated IOPV will not be calculated or publicly 
disseminated; (4) how information regarding the IOPV is disseminated; 
(5) the requirement that Equity Trading Permit Holders deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (6) trading 
information.
    In addition, the Bulletin will reference that 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 will be 
calculated after 4:00 p.m. Eastern time each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \29\ 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.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place 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 
federal securities laws applicable to trading on the Exchange. The 
Adviser has implemented a ``fire wall'' with respect to its affiliated 
broker-dealers regarding access to information concerning the 
composition and/or changes to a Fund's portfolio. FINRA, on behalf of 
the Exchange, will communicate as needed regarding trading in the 
Shares of the Funds, shares of the Underlying Funds, and shares of 
other ETPs with 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 of the Funds, shares of the Underlying 
Funds, and shares of other ETPs from such markets and other entities. 
The Exchange may obtain information regarding trading in the Shares of 
the Funds, shares of the Underlying Funds, and shares of other ETPs 
from ISG member markets or markets with which the Exchange has in place 
a comprehensive surveillance sharing agreement. A Fund may hold up 
[sic] an aggregate amount of 15% of its net assets (calculated at the 
time of investment) in assets deemed illiquid by the Adviser, 
consistent with Commission guidance.
    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 of each Fund 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. In addition, a 
large amount of information is publicly available regarding the Funds 
and the Shares, thereby promoting market transparency. Moreover, the 
IOPV 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 
their Web site the Disclosed Portfolio that will form the basis for a 
Fund's calculation of NAV at the end of the business day. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last sale information will be available via the CTA high-speed 
line. The Web site for the Funds 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 Equity Trading Permit 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 a Fund's 
holdings, the IOPV, 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, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares of 
the Funds, shares of the Underlying Funds, and shares of other ETPs 
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, shares of the Underlying Funds, and 
shares of other ETPs from such markets and other entities. In addition, 
the Exchange may obtain information regarding trading in the Shares as 
well as shares of the Underlying Funds, and shares of other ETPs from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
As noted above, investors will have ready access to information 
regarding a Fund's holdings, the IOPV, the Disclosed Portfolio, and 
quotation and last sale information for the Shares. The proposed rule 
change would benefit investors by providing them with additional 
choices of transparent and tradeable products.

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

[[Page 15198]]

of the purpose of the Act. The Exchange notes that the proposed rule 
change will facilitate the listing and trading of other actively-
managed exchange-traded products that hold equity securities and 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 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-2014-19 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2014-19. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml 
).Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2014-19 and should 
be submitted on or before April 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05861 Filed 3-17-14; 8:45 am]
BILLING CODE 8011-01-P

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