Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of Reality Shares Isolated Dividend Growth Index ETF Under NYSE Arca Equities Rule 5.2(j)(3), 24475-24483 [2014-09808]

Download as PDF Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices 2014–15 and should be submitted on or before May 21, 2014. public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Kevin M. O’Neill, Deputy Secretary. IV. Solicitation of Comments [FR Doc. 2014–09806 Filed 4–29–14; 8:45 am] 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– MIAX–2014–15 on the subject line. Paper Comments mstockstill on DSK4VPTVN1PROD with NOTICES • 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–MIAX–2014–15. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference 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 such filing also will be available for inspection and copying at the principal office of MIAX. 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–MIAX– VerDate Mar<15>2010 17:41 Apr 29, 2014 Jkt 232001 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72015; File No. SR– NYSEArca–2014–41] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of Reality Shares Isolated Dividend Growth Index ETF Under NYSE Arca Equities Rule 5.2(j)(3) April 24, 2014. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on April 11, 2014, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the following under NYSE Arca Equities Rule 5.2(j)(3) (‘‘Investment Company Units’’): Reality Shares Isolated Dividend Growth Index 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 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 24475 on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade shares (‘‘Shares’’) of the following under NYSE Arca Equities Rule 5.2(j)(3), which governs the listing and trading of Investment Company Units on the Exchange: Reality Shares Isolated Dividend Growth Index ETF (the ‘‘Fund’’).4 The Shares of the Fund will be offered by the Reality Shares ETF Trust (formerly, the ERNY Financial ETF Trust) (the ‘‘Trust’’). The Trust will be registered with the Commission as an open-end management investment company.5 Reality Shares Advisors, LLC (formerly, ERNY Financial Advisors, LLC) will serve as the investment adviser to the Fund (the ‘‘Adviser’’). ALPS Distributors, Inc. (the ‘‘Distributor’’) will be the principal underwriter and distributor of the Fund’s Shares. The Bank of New York Mellon (the ‘‘Administrator,’’ ‘‘Transfer Agent’’ or ‘‘Custodian’’) will serve as administrator, custodian and transfer agent for the Fund. As described in more detail below, the Fund will seek long-term capital appreciation by tracking the performance of the Reality Shares Isolated Dividend Growth Index (the ‘‘Index’’). The Index was developed and is maintained by Reality Shares, Inc. 4 NYSE Arca Equities Rule 5.2(j)(3)(A) provides that an Investment Company Unit is a security that represents an interest in a registered investment company that holds securities comprising, or otherwise based on or representing an interest in, an index or portfolio of securities (or holds securities in another registered investment company that holds securities comprising, or otherwise based on or representing an interest in, an index or portfolio of securities). 5 The Trust will be registered under the Investment Company Act of 1940 (the ‘‘1940 Act’’) (15 U.S.C. 80a–1). On February 6, 2014, the Trust filed a registration statement on Form N–1A under the Securities Act of 1933 (the ‘‘1933 Act’’) (15 U.S.C. 77a), and under the 1940 Act relating to the Fund, as amended by Pre-Effective Amendment Number 1, filed with the Commission on February 6, 2014 (File Nos. 333–192288 and 811–22911) (the ‘‘Registration Statement’’). The description of the operation of the Trust and the Fund herein is based, in part, on the Registration Statement. In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. Investment Company Act Release No. 30678 (August 27, 2013) (‘‘Exemptive Order’’). Investments made by the Fund will comply with the conditions set forth in the Exemptive Order. E:\FR\FM\30APN1.SGM 30APN1 24476 Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES (the ‘‘Index Provider’’).6 The Adviser is a wholly-owned subsidiary of the Index Provider. Commentary .01(b)(1) to Rule 5.2(j)(3) provides that, if the applicable index is maintained by a fund advisor or a broker-dealer, such fund advisor or broker-dealer shall erect a ‘‘fire wall’’ around the personnel who have access to information concerning changes and adjustments to the index, and the index shall be calculated by a third party who is not a broker-dealer or fund advisor.7 The Index Provider is not registered as an investment adviser or broker dealer and is not affiliated with any brokerdealers. The Adviser is not registered as a broker-dealer and is not affiliated with any broker-dealers.8 In the event (a) the Adviser, any sub-adviser or the Index Provider becomes registered as a brokerdealer or newly affiliated with a brokerdealer, or (b) any new adviser, subadviser or Index Provider is a registered broker-dealer or becomes affiliated with a broker-dealer, they will implement a fire wall with respect to their relevant personnel or broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. The Exchange is submitting this proposed rule change because the Index 6 The Index will be calculated by International Data Corporation (‘‘IDC’’), which is not affiliated with the Adviser or Index Provider, and which is not a broker-dealer or fund advisor. 7 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. 8 The Adviser and the Index Provider have represented that a fire wall exists around the respective personnel who have access to information concerning changes and adjustments to the Index. VerDate Mar<15>2010 17:41 Apr 29, 2014 Jkt 232001 for the Fund does not meet all of the ‘‘generic’’ listing requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) applicable to the listing of Investment Company Units based upon an index of ‘‘US Component Stocks’’.9 Specifically, Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) sets forth the requirements to be met by components of an index or portfolio of US Component Stocks. As discussed in more detail herein, the Index is calculated using a proprietary, rules-based methodology designed to track market expectations for dividend growth conveyed in real-time using bidask prices on exchange-listed S&P 500 Index options and exchange-listed options on exchange traded funds (‘‘ETFs’’) designed to track the S&P 500 Index.10 The Fund may also invest up to 20% of its total assets in other securities such as over-the-counter (‘‘OTC’’) options, futures, and forward contracts on the S&P 500 Index and OTC options, futures and forward contracts on ETFs that track the S&P 500 Index. Because the Index will consist primarily of S&P 500 Index options and options on ETFs designed to track the S&P 500 Index, and not US Component Stocks, the Index does not satisfy the requirements of Commentary .01(a)(A).11 9 NYSE Arca Equities Rule 5.2(j)(3) defines the term ‘‘US Component Stock’’ to mean an equity security that is registered under Sections 12(b) or 12(g) of the Act or an American Depositary Receipt, the underlying equity security of which is registered under Sections 12(b) or 12(g) of the Act. 10 For purposes of this proposed rule change, such ETFs include Investment Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)) and Portfolio Depositary Receipts (as described in NYSE Arca Equities Rule 8.100). The ETFs all will be listed and traded in the U.S. on registered exchanges. The Fund may not invest in leveraged or inverse leveraged (e.g., 2X, –2X, 3X or –3X) ETFs or options on such ETFs. 11 The Exchange notes that the S&P 500 Index has been previously approved by the Commission under Section 19(b)(2) of the Act in connection with the listing and trading of index options and Portfolio Depositary Receipts, as well as other securities. See e.g., Securities Exchange Act Release Nos. 19907 (June 24, 1983), 48 FR 30814 (July 5, 1983) (approving the listing and trading of options on the S&P 500 Index); 31591 (December 18, 1992), 57 FR 60253 (December 18, 1992) (approving the listing and trading of Portfolio Depositary Receipts based on the S&P 500 Index). NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(A)(5) provides that all securities in the applicable index or portfolio shall be US Component Stocks listed on a national securities exchange and shall be NMS Stocks as defined in Rule 600 under Regulation NMS of the Act. Each component stock of the S&P 500 Index is a US Component Stock that is listed on a national securities exchange and is an NMS Stock. Options are excluded from the definition of NMS Stock. The Fund and the Index meet all of the requirements of the listing standards for Investment Company Units in Rule 5.2(j)(3) and the requirements of Commentary .01, except the requirements in Commentary .01(a)(A)(1)–(5), as the Index consists of options on US Component Stocks. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 Principal Investments According to the Registration Statement, the Fund will seek long-term capital appreciation and will seek investment results that, before fees and expenses, generally correspond to the performance of the Index. At least 80% of the Fund’s total assets (exclusive of collateral held from securities lending, if any) will be invested in the component securities of the Index. The Fund will seek a correlation of 0.95 or better between its performance and the performance of its Index. A figure of 1.00 would represent perfect correlation. The Fund generally will use a representative sampling investment strategy. The Fund will buy (i.e., hold a ‘‘long’’ position in) and sell (i.e., hold a ‘‘short’’ position in) put and call options. The strategy of taking both a long position in a security through its ex-dividend date (the last date an investor can own the security and receive dividends paid on the security) and a corresponding short position in the same security immediately thereafter is designed to allow the Fund to isolate its exposure to the growth of the level of dividends expected to be paid on such security while minimizing its exposure to changes in the trading price of such security. The Fund will buy and sell U.S. exchange-listed options on the S&P 500 Index and U.S. exchange-listed options on ETFs designed to track the S&P 500 Index. A put option gives the purchaser of the option the right to sell, and the issuer of the option the obligation to buy, the underlying security or instrument on a specified date or during a specified period of time. A call option on a security gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security or instrument on a specified date or during a specified period of time. The Fund will invest in a combination of put and call options designed to allow the Fund to isolate its exposure to the growth of the level of expected dividends reflected in options on the S&P 500 Index and options on ETFs tracking the S&P 500 Index, while minimizing the Fund’s exposure to changes in the trading price of such securities. Index Methodology The Index will be calculated using a proprietary, rules-based methodology designed to track market expectations for dividend growth conveyed in realThe S&P 500 Index consists of Component Stocks and satisfies the requirements of Commentary .01(a)(A)(1)–(5). E:\FR\FM\30APN1.SGM 30APN1 Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES time using the mid-point of the bid-ask spread on S&P 500 Index options and options on ETFs designed to track the S&P 500 Index.12 All options included in the Index will be listed and traded on a U.S. national securities exchange. The Index will consist of a minimum of 20 components. The prices of index and ETF options reflect the market trading prices of the securities included in the applicable underlying index or ETF, as well as market expectations regarding the level of dividends to be paid on such indexes or ETFs during the term of the option. The Index constituents, and, therefore, most of the Fund’s portfolio holdings, will consist of multiple corresponding near-term and long-term put and call option combinations on the same reference assets (i.e., options on the S&P 500 Index or options on S&P 500 ETFs) with the same strike price. Because option prices reflect both stock price and dividend expectations, they can be used in combination to isolate either price exposure or dividend expectations. The use of near-term and long-term put and call option combinations on the same reference asset with the same strike price, but with different maturities, is designed to gain exposure to the expected dividends reflected in options on the S&P 500 Index and options on ETFs tracking the S&P 500 Index while neutralizing the impact of stock price. Once established, this portfolio construction of option combinations will accomplish two goals. First, the use of corresponding buy or sell positions on near and long-term options at the same strike price is designed to neutralize underlying stock price movements. In other words, the corresponding ‘‘buy’’ and ‘‘sell’’ positions on the same reference asset are designed to net against each other and eliminate the impact that changes to the stock price of the reference asset would otherwise have on the value of the Index (and Fund Shares). Second, by minimizing the impact of price fluctuations through the construct of the near- and long-term contract combinations, the strategy is designed to isolate market expectations for dividends implied between expiration dates of the near-term and long-term option contracts. Over time, the Index 12 There is no guarantee that either the level of overall dividends paid by such companies will grow over time, or that the Index or Fund’s investment strategies will capture such growth. The Fund will include appropriate risk disclosure in its offering documents disclosing these risks, which will be available for free on the Commission’s Web site and on the Fund’s Web site, www.realityshares.com. VerDate Mar<15>2010 17:41 Apr 29, 2014 Jkt 232001 will increase or decrease in value as the dividend spread between the near-term and long-term option combinations increases or decreases as a result of changing market expectations for dividend growth. Other Fund Investments While, as described above, at least 80% of the Fund’s total assets (exclusive of collateral held from securities lending, if any) will be invested in the component securities of the Index, the Fund may invest up to 20% of the Fund’s total assets in other securities and financial instruments, as described below. The Fund may invest in U.S. exchange-listed futures contracts based on the S&P 500 Index and ETFs designed to track the S&P 500 Index and forward contracts based on the S&P 500 Index and ETFs designed to track the S&P 500 Index. The Fund’s use of exchange-listed futures contracts and forward contracts is designed to allow the Fund to isolate its exposure to the growth of the level of expected dividends reflected in options on the S&P 500 Index and options on ETFs tracking the S&P 500 Index, while minimizing the Fund’s exposure to changes in the trading price of such securities. The Fund may also buy and sell OTC options on the S&P 500 Index and on ETFs designed to track the S&P 500 Index. The Fund may enter into dividend and total return swap transactions (including equity swap transactions) based on the S&P 500 Index and ETFs designed to track the S&P 500 Index.13 In a typical swap transaction, one party agrees to make periodic payments to another party (‘‘counterparty’’) based on the change in market value or level of a specified rate, index, or asset. In return, the counterparty agrees to make periodic payments to the first party based on the return of a different specified rate, index, or asset. Swap transactions are usually done on a net basis, the Fund receiving or paying only the net amount of the two payments. In a typical dividend swap transaction, the Fund would pay the swap counterparty a premium and would be entitled to receive the value of the actual dividends paid on the subject index during the term of the swap contract. In a typical total return swap, the Fund might exchange long or short exposures to the return of the underlying securities or index to isolate the value of the dividends paid on the underlying 13 The Fund will transact only with swap dealers that have in place an ISDA agreement with the Fund. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 24477 securities or index constituents. The Fund also may engage in interest rate swap transactions. In a typical interest rate swap transaction one stream of future interest payments is exchanged for another. Such transactions often take the form of an exchange of a fixed payment for a variable payment based on a future interest rate. The Fund intends to use interest rate swap transactions to manage or hedge exposure to interest rate fluctuations. The Fund may invest up to 20% of its assets (exclusive of collateral held from securities lending, if any) in exchangelisted equity securities and derivative instruments (specifically, futures contracts, forward contracts and swap transactions) 14 relating to the Index and its component securities that the Adviser believes will help the Fund track the Index. For example, the Fund may buy and sell ETFs and, to a limited extent, individual large-capitalization equity securities listed and traded on a U.S. national securities exchange. The Fund may invest in the securities of other investment companies (including money market funds) to the extent permitted under the 1940 Act. The Fund’s short positions and its investments in swaps, futures contracts, forward contracts and options based on the S&P 500 Index and ETFs designed to track the S&P 500 Index will be backed by investments in cash, highquality short-term debt securities and money-market instruments in an amount equal to the Fund’s maximum liability under the applicable position or contract, or will otherwise be offset in accordance with Section 18 of the 1940 Act. Short-term debt securities and money market instruments include shares of fixed income or money market mutual funds, commercial paper, certificates of deposit, bankers’ acceptances, U.S. Government Securities (including securities issued or guaranteed by the U.S. government or its authorities, agencies, or instrumentalities), repurchase agreements 15 and bonds that are rated BBB or higher. 14 Where practicable, the Fund intends to invest in swaps cleared through a central clearing house (‘‘Cleared Swaps’’). Currently, only certain of the interest rate swaps in which the Fund intends to invest are Cleared Swaps, while the dividend and total return swaps (including equity swaps) in which the Fund may invest are currently not Cleared Swaps. 15 The Fund may enter into repurchase agreements with banks and broker-dealers. A repurchase agreement is an agreement under which securities are acquired by a fund from a securities dealer or bank subject to resale at an agreed upon price on a later date. The acquiring fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations E:\FR\FM\30APN1.SGM Continued 30APN1 24478 Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES In addition to the investments described above, and in a manner consistent with its investment objective, the Fund may invest a limited portion of its net assets in high-quality, shortterm debt securities and money market instruments for cash management purposes.16 Short-term debt securities and money market instruments include shares of fixed income or money market mutual funds, commercial paper, certificates of deposit, bankers’ acceptances, U.S. Government Securities (including securities issued or guaranteed by the U.S. government or its authorities, agencies, or instrumentalities), repurchase agreements and bonds that are rated BBB or higher. The Fund will attempt to limit counterparty risk in non-cleared swap, forward and OTC option contracts by entering into such contracts only with counterparties the Adviser believes are creditworthy and by limiting the Fund’s exposure to each counterparty. The Adviser will monitor the creditworthiness of each counterparty and the Fund’s exposure to each counterparty on an ongoing basis.17 The Fund’s investments in swaps, futures contracts, forward contracts and options will be consistent with the Fund’s investment objective and with the requirements of the 1940 Act.18 and the fund is delayed or prevented from exercising its rights to dispose of the collateral securities. 16 The Fund may invest in shares of money market mutual funds to the extent permitted by the 1940 Act. 17 The Fund will seek, where possible, to use counterparties, as applicable, whose financial status is such that the risk of default is reduced; however, the risk of losses resulting from default is still possible. The Adviser will evaluate the creditworthiness of counterparties on an ongoing basis. In addition to information provided by credit agencies, the Adviser will evaluate each approved counterparty using various methods of analysis, such as, for example, the counterparty’s liquidity in the event of default, the counterparty’s reputation, the Adviser’s past experience with the counterparty, and the counterparty’s share of market participation. 18 To limit the potential risk associated with such transactions, the Fund will segregate or ‘‘earmark’’ assets determined to be liquid by the Adviser in accordance with procedures established by the Trust’s Board of Trustees and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations arising from such transactions. These procedures have been adopted consistent with Section 18 of the 1940 Act and related Commission guidance. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of the Fund, including the Fund’s use of derivatives, may give rise to leverage, causing the Fund to be more volatile than if it had not been leveraged. To mitigate leveraging risk, the Adviser will segregate or ‘‘earmark’’ liquid assets or otherwise cover the transactions that may give rise to such risk. VerDate Mar<15>2010 17:41 Apr 29, 2014 Jkt 232001 Investment Restrictions To the extent the Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investments to approximately the same extent as the Index. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment) deemed illiquid by the Adviser, consistent with Commission guidance.19 The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund’s net assets are held in illiquid 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.20 The Fund may make secured loans of its portfolio securities; however, securities loans will not be made if, as a result, the aggregate amount of all outstanding securities loans by the Fund exceeds 33 1/3% of its total assets (including the market value of collateral received). To the extent the Fund engages in securities lending, securities loans will be made to broker-dealers that the Adviser believes to be of relatively high credit standing pursuant 19 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). 20 The Commission has stated that long-standing Commission guidelines have required open-end funds to hold no more than 15% of their net assets in illiquid securities and other illiquid assets. See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008), footnote 34. See also, Investment Company Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement Regarding ‘‘Restricted Securities’’); Investment Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions of Guidelines to Form N–1A). A fund’s portfolio security is illiquid if it cannot be disposed of in the ordinary course of business within seven days at approximately the value ascribed to it by the fund. See Investment Company Act Release No. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a–7 under the 1940 Act); Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the 1933 Act). PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 to agreements requiring that the loans continuously be collateralized by cash, liquid securities, or shares of other investment companies with a value at least equal to the market value of the loaned securities. The Fund will be classified as a ‘‘nondiversified’’ investment company under the 1940 Act.21 The Fund intends to qualify for and to elect treatment as a separate regulated investment company (‘‘RIC’’) under Subchapter M of the Internal Revenue Code.22 The Fund’s investments will be consistent with its investment objective and will not be used to provide multiple returns of a benchmark or to produce leveraged returns. Creation and Redemption of Shares According to the Registration Statement, the Fund will issue and redeem Shares only in Creation Units at the net asset value (‘‘NAV’’) next determined after receipt of an order on a continuous basis every business day. Creation Unit size is 25,000 Shares per Creation Unit. The Creation Unit size for the Fund may change. The consideration for purchase of a Creation Unit of the Fund generally will consist of either (i) the in-kind deposit of a designated portfolio of securities (the ‘‘Deposit Securities’’) per each Creation Unit and the ‘‘Cash Component’’ (defined below), computed as described below or (ii) the cash value of the Deposit Securities (‘‘Deposit Cash’’) and the ‘‘Cash Component,’’ computed as described below. Because non-exchange traded derivatives and certain listed derivatives are not currently eligible for in-kind transfer, they will be substituted with an amount of cash of equal value (i.e., Deposit Cash) when the Fund processes purchases of Creation Units in-kind. Specifically, the Fund will not accept exchange-traded options, OTC options, exchange-traded futures, forward contracts, dividend swap transactions, total return swap transactions and interest rate swap transactions as Deposit Securities. When accepting purchases of Creation Units for cash, the Fund may incur additional costs associated with the acquisition of Deposit Securities that would otherwise be provided by an inkind purchaser. Together, the Deposit Securities or Deposit Cash, as applicable, and the Cash Component constitute the ‘‘Fund Deposit,’’ which represents the minimum initial and 21 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. 22 26 U.S.C. 851 et seq. E:\FR\FM\30APN1.SGM 30APN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices subsequent investment amount for a Creation Unit of the Fund. The Cash Component is an amount equal to the difference between the NAV of the Shares (per Creation Unit) and the market value of the Deposit Securities or Deposit Cash, as applicable. The Cash Component serves the function of compensating for any differences between the NAV per Creation Unit and the market value of the Deposit Securities or Deposit Cash, as applicable. A portfolio composition file, to be sent via the National Securities Clearing Corporation (‘‘NSCC’’), will be made available on each business day, prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern time) containing a list of the names and the required amount of each security in the Deposit Securities to be included in the current Fund Deposit for the Fund (based on information about the Fund’s portfolio at the end of the previous business day). In addition, on each business day, the estimated Cash Component, effective through and including the previous business day, will be made available through NSCC. The Fund Deposit will be applicable for purchases of Creation Units of the Fund until such time as the nextannounced Fund Deposit is made available. In accordance with the Exemptive Order, the Fund will reserve the right to accept a non-conforming Fund Deposit. In addition, the composition of the Deposit Securities may change as, among other things, corporate actions and investment decisions by the Adviser are implemented for the Fund’s portfolio. All purchase orders must be placed by or through an ‘‘Authorized Participant’’. An Authorized Participant must be either a broker-dealer or other participant in the Continuous Net Settlement System (‘‘Clearing Process’’) of the NSCC or a participant in The Depository Trust Company (‘‘DTC’’) with access to the DTC system, and must execute an agreement with the Distributor that governs transactions in the Fund’s Creation Units. In-kind portions of purchase orders will be processed through the Clearing Process when it is available. Fund Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Fund through the Distributor and only on a business day. The Fund, through the NSCC, will make available immediately prior to the opening of business on the Exchange on each business day, the list of the names and quantities of the Fund’s portfolio securities that will be VerDate Mar<15>2010 17:41 Apr 29, 2014 Jkt 232001 applicable (subject to possible amendment or correction) to redemption requests received in proper form on that day (‘‘Fund Securities’’). Redemption proceeds for a Creation Unit will be paid either in-kind or in cash or a combination thereof, as determined by the Trust. With respect to in-kind redemptions of the Fund, redemption proceeds for a Creation Unit will consist of Fund Securities plus cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the ‘‘Cash Redemption Amount’’). In the event that the Fund Securities have a value greater than the NAV of the Shares, a compensating cash payment equal to the differential will be required to be made by or through an Authorized Participant by the redeeming shareholder. Notwithstanding the foregoing, at the Trust’s discretion, an Authorized Participant may receive the corresponding cash value of the securities in lieu of the in-kind securities representing one or more Fund Securities.23 Because nonexchange traded derivatives and certain listed derivatives are not eligible for inkind transfer, they will be substituted with an amount of cash of equal value when the Fund processes redemptions of Creation Units in-kind. Specifically, the Fund will transfer the corresponding cash value of exchange-traded options, OTC options, exchange-traded futures, forward contracts, dividend swap transactions, total return swap transactions and interest rate swap transactions in lieu of in-kind securities. In accordance with the Exemptive Order, the Fund also reserves the right to distribute to the Authorized Participant non-conforming Fund Securities. The right of redemption may be suspended or the date of payment postponed: (i) For any period during which the New York Stock Exchange (‘‘NYSE’’) is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the NYSE is suspended or restricted; (iii) for any period during which an emergency exists as a result of which disposal of the Shares or determination of the Fund’s NAV is not reasonably practicable; or (iv) in such other circumstances as permitted by the Commission. 23 The Adviser represents that, to the extent the Trust effects the redemption of Shares in cash, such transactions will be effected in the same manner for all Authorized Participants. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 24479 For an order involving a Creation Unit to be effectuated at the Fund’s NAV on a particular day, it must be received by the Distributor by or before the deadline for such order (‘‘Order Cut-Off Time’’). The Order Cut-Off Time for creation and redemption orders for the Fund will be 4:00 p.m. Eastern time. Orders for creation or redemption of Creation Units for cash generally must be submitted by 4:00 p.m. Eastern time. A standard creation or redemption transaction fee (as applicable) will be imposed to offset transfer and other transaction costs that may be incurred by the Fund. Determination of Net Asset Value The Fund will calculate its NAV by: (i) Taking the current market value of its total assets; (ii) subtracting any liabilities; and (iii) dividing that amount by the total number of Shares outstanding. The Fund will calculate NAV once each business day as of the regularly scheduled close of trading on the NYSE (normally, 4:00 p.m., Eastern Time) as described in its Registration Statement. In calculating the Fund’s NAV per Share, the Fund’s investments will be valued in accordance with procedures approved by the Trust’s Board of Trustees. These procedures, which may be changed by the Trust’s Board of Trustees from time to time, generally require investments to be valued using market valuations. A market valuation generally means a valuation (i) obtained from an exchange, an independent pricing service, or a major market maker (or dealer), (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, an independent pricing service, or a major market maker (or dealer) or (iii) based on amortized cost. The Trust may use various independent pricing services, or discontinue the use of any independent pricing service, as determined by the Trust’s Board of Trustees from time to time. The Trust will generally value exchange-listed equity securities (which include common stocks and ETFs) and exchange-listed options, including options on the S&P 500 Index and options on ETFs, at market closing prices. Market closing price is generally determined on the basis of last reported sales prices on the applicable exchange, or if no sales are reported, based on the last reported quotes. The Trust will generally value exchange-listed futures at the settlement price determined by the applicable exchange. Non-exchangetraded derivatives, including OTC options, swap transactions and forward transactions, will normally be valued on the basis of quotations or equivalent E:\FR\FM\30APN1.SGM 30APN1 24480 Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices indication of value supplied by an independent pricing service or major market makers or dealers. Debt securities and money market instruments generally will be valued based on prices provided by independent pricing services, which may use valuation models or matrix pricing to determine current value. Investment company securities (other than ETFs) will be valued at NAV. The Trust generally will use amortized cost to value fixed income or money market securities that have a remaining maturity of 60 days or less. In the event that current market valuations are not readily available or the Trust or Adviser believes such valuations do not reflect current market value, the Trust’s procedures require that a security’s fair value be determined in accordance with the 1940 Act.24 In determining such value the Trust or the Adviser may consider, among other things, (i) price comparisons among multiple sources, (ii) a review of corporate actions and news events, and (iii) a review of relevant financial indicators (e.g., interest rates or market indices). In these cases, the Fund’s NAV may reflect certain portfolio securities’ fair values rather than their market prices. Fair value pricing involves subjective judgments and it is possible that the fair value determination for a security is materially different than the value that could be realized upon the sale of the security. Availability of Information The Fund’s Web site, www.realityshares.com, which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The Fund’s Web site will include additional quantitative information updated on a daily basis, including, for the Fund, (1) 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’’),25 and a calculation of the premium and discount of the Bid/Ask Price against mstockstill on DSK4VPTVN1PROD with NOTICES 24 The Trust’s Board of Trustees has established Fair Value Procedures, in accordance with the 1940 Act, governing the valuation of any portfolio investments for which market quotations or prices are not readily available. The Fund has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding valuation of any portfolio investments. 25 The Bid/Ask Price of the Fund will be determined using the mid-point of the highest bid and the lowest offer on the Exchange as of the time of calculation of the Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Fund and its service providers. VerDate Mar<15>2010 17:41 Apr 29, 2014 Jkt 232001 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 a daily basis, the Adviser, on behalf of the Fund, will disclose on the Fund’s Web site the following information regarding each portfolio holding, as applicable to the type of holding: ticker symbol, CUSIP number or other identifier, if any; a description of the holding (including the type of holding, such as the type of swap); the identity of the security, commodity, index, or other asset or instrument underlying the holding, if any; for options, the option strike price; quantity held (as measured by, for example, par value, notional value or number of shares, contracts or units); maturity date, if any; coupon rate, if any; effective date, if any; market value of the holding; and the percentage weighting of the holding in the Fund’s portfolio. The Web site information will be publicly available at no charge. In addition, a portfolio composition file, which includes the security names and quantities, as applicable, required to be delivered in exchange for the Fund’s Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the NYSE via NSCC. The portfolio composition file will represent one Creation Unit of Shares of the Fund. Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and the Trust’s Form N–CSR and Form N–SAR, filed twice a year. The Trust’s SAI and Shareholder Reports 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 will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line. Information relating to U.S. exchangelisted options is available via the Options Price Reporting Authority. The value of the Index will be published by one or more major market data vendors every 15 seconds during the NYSE Arca PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 Core Trading Session of 9:30 a.m. E.T. to 4:00 p.m. E.T. Information about the Index constituents, the weighting of the constituents, the Index’s methodology and the Index’s rules will be available at no charge on the Index Provider’s Web site at www.realityshares.com. In addition, the Intraday Indicative Value (‘‘IIV’’) as defined in NYSE Arca Equities Rule 5.2(j)(3), Commentary 01(c), will be widely disseminated at least every 15 seconds during the Core Trading Session by one or more major market data vendors.26 The dissemination of the IIV will allow investors to determine the value of the underlying portfolio of the Fund on a daily basis and will provide a close estimate of that value throughout the trading day. The intra-day, closing and settlement prices of the portfolio securities and other Fund investments, including futures and exchange-traded equities, ETFs and exchange-traded options, will also be readily available from the national securities exchanges trading such securities, automated quotation systems, published or other public sources, and, with respect to OTC options, swap transactions and forward transactions, from third party pricing sources, or on-line information services such as Bloomberg or Reuters. The intra-day, closing and settlement prices of debt securities and money market instruments will be readily available from published and other public sources or on-line information services. Price information regarding investment company securities, including ETFs, will be available from on-line information services and from the Web site for the applicable investment company security. Additional information regarding the Trust and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions and taxes is included in the Registration Statement. All terms relating to the Fund that are referred to, but not defined in, this proposed rule change are defined in the Registration Statement. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund.27 Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 26 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available IIVs taken from the CTA or other data feeds. 27 See NYSE Arca Equities Rule 7.12. E:\FR\FM\30APN1.SGM 30APN1 Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES 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 portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. If the IIV, the Index Value or the value of the Index Components is not being disseminated as required, the Exchange may halt trading during the day in which the disruption occurs; if the interruption persists past the day in which it occurred, the Exchange will halt trading no later than the beginning of the trading day following the interruption. The Exchange will obtain a representation from the Fund that the NAV for the Fund will be calculated daily and will be made available to all market participants at the same time. Under NYSE Arca Equities Rule 7.34(a)(5), if the Exchange becomes aware that the NAV for the Fund is not being disseminated to all market participants at the same time, it will halt trading in the Shares until such time as the NAV is available to all market participants. 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 will conform to the initial and continued listing criteria under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2), except that the Index will not meet the requirements of NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(A)(1)–(5) in that the Index will consist of options based on US Component Stocks (i.e., ETFs based on the S&P 500 Index) and options on an index of US Component Stocks (i.e., VerDate Mar<15>2010 17:41 Apr 29, 2014 Jkt 232001 S&P 500 Index options), rather than US Component Stocks themselves. The Index will include a minimum of 20 components and, therefore, would meet the numerical requirement of NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(A)(4) (a minimum of 13 index or portfolio components). The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 28 under the Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and will be made available to all market participants at the same time. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, 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.29 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 surveillances referred to above generally focus on detecting securities trading outside their normal patterns, which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, exchange-listed equity securities, ETFs, futures contracts and exchange-traded options contracts with other markets and other entities that are members of the Intermarket Surveillance Group (‘‘ISG’’), and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares, exchange-listed equity securities, ETFs, futures contracts and exchange-traded options contracts from such markets and other entities. In 28 17 CFR 240.10A–3. 29 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. PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 24481 addition, the Exchange may obtain information regarding trading in the Shares, exchange-listed equity securities, ETFs, futures contracts and exchange-traded options contracts from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.30 All exchange-listed equity securities, ETFs, futures contracts and options held by the Fund will be traded on U.S. exchanges, all of which are members of ISG or are exchanges with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA’s Trade Reporting and Compliance Engine (‘‘TRACE’’). In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Information Bulletin Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Unit aggregations (and that Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated IIV or Index value will not be calculated or publicly disseminated; (4) how information regarding the IIV and Index value will be disseminated; (5) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (6) trading information. In addition, the Bulletin will reference that the Fund is subject to various fees and expenses described in the Registration Statement. The Bulletin will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the 30 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. E:\FR\FM\30APN1.SGM 30APN1 24482 Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES 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) 31 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 5.2(j)(3), except that the Index will consist of options based on US Component Stocks (i.e., ETFs based on the S&P 500 Index) and options on an index of US Component Stocks (i.e., the S&P 500 Index), rather than US Component Stocks themselves. The Shares will be subject to the existing trading surveillances, administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. The Index Provider is not registered as an investment adviser or broker dealer and is not affiliated with any broker-dealers. The Adviser is not registered as a broker-dealer and is not affiliated with any broker-dealers. In the event (a) the Adviser, any sub-adviser, or the Index Provider becomes registered as a broker-dealer or newly affiliated with a broker-dealer, or (b) any new adviser, sub-adviser, or Index Provider is a registered broker-dealer or becomes affiliated with a broker-dealer, they will implement a fire wall with respect to their relevant personnel or broker-dealer affiliate regarding access to information concerning the composition and/or changes to the Index or portfolio, and will be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding such Index or portfolio. The Adviser and Index Provider have implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Index. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of 31 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 17:41 Apr 29, 2014 Jkt 232001 investment) deemed illiquid by the Adviser, consistent with Commission guidance [sic] All exchange-listed equity securities, ETFs, options and futures contracts held by the Fund will be traded on U.S. exchanges, all of which are members of ISG or are exchanges with which the Exchange has in place a comprehensive surveillance sharing agreement. The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV will be made available to all market participants at the same time. In addition, a large amount of information will be publicly available regarding the Fund and the Shares, thereby promoting market transparency. Moreover, the IIV 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 Fund will disclose on its Web site the portfolio that will form the basis for the Fund’s calculation of NAV at the end of the business day. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information will be available via the CTA high-speed line. Information relating to U.S. exchange-listed options is available via the Options Price Reporting Authority. The intra-day, closing and settlement prices of the portfolio securities and other Fund investments, including futures and exchange-traded equities and options, will also be readily available from the national securities exchanges trading such securities, automated quotation systems, published or other public sources, and, with respect to swap transactions and forward transactions, from third party pricing sources, or online information services such as Bloomberg or Reuters. The intra-day, closing and settlement prices of debt securities and money market instruments will be readily available from published and other public sources or on-line information services. The Web site for the Fund will include the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the IIV, the Fund’s 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 an additional type of issue of Investment Company Units that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Shares will be subject to the existing trading surveillances, administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, exchange-traded equity securities, ETFs, futures contracts and exchange-traded options contracts 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, exchange-traded equity securities, ETFs, futures contracts and exchange-traded options contracts from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, exchange-traded equity securities, ETFs, futures contracts and exchange-traded options contracts from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the IIV, and quotation and last sale information for the Shares. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of an E:\FR\FM\30APN1.SGM 30APN1 Federal Register / Vol. 79, No. 83 / Wednesday, April 30, 2014 / Notices additional type of issue of Investment Company Units that will enhance competition among market participants, to the benefit of investors and the marketplace. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate 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. 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca-2014–41 on the subject line. mstockstill on DSK4VPTVN1PROD with NOTICES 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-2014–41. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written 17:41 Apr 29, 2014 Jkt 232001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–09808 Filed 4–29–14; 8:45 am] BILLING CODE 8011–01–P IV. Solicitation of Comments VerDate Mar<15>2010 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–2014–41 and should be submitted on or before May 21, 2014. SMALL BUSINESS ADMINISTRATION Contemporary Healthcare Senior Lien Fund I, LP; License No. 02/02–0649; Notice Seeking Exemption Under Section 312 of the Small Business Investment Act, Conflicts of Interest Notice is hereby given that Contemporary Healthcare Senior Lien Fund I, LP, 1040 Broad Street, Suite 103, Shrewsbury, NJ 07702, a Federal Licensee under the Small Business Investment Act of 1958, as amended (‘‘the Act’’), in connection with the financing of a small concern, has sought an exemption under Section 312 of the Act and Section 107.730, Financings which constitute Conflicts of Interest of the Small Business Administration (‘‘SBA’’) Rules and Regulations (13 CFR 107). Contemporary Healthcare Senior Lien Fund I, LP proposes to provide debt financing to CWP Hermann Park, LLC and HP SNF OPCO, LLC, 5600 Chenevert Street, Houston, TX 77004. The financing is brought within the purview of § 107.730(a)(4) of the Regulations because the proceeds will be used to discharge an obligation to Contemporary Healthcare Fund I, LP, an Associate of Contemporary Healthcare Senior Lien Fund I, LP. Therefore this 32 17 PO 00000 CFR 200.30–3(a)(12). Frm 00113 Fmt 4703 Sfmt 4703 24483 transaction requires prior SBA exemption. Notice is hereby given that any interested person may submit written comments on the transaction, within fifteen days of the date of this publication, to the Associate Administrator for Investment and Innovation, U.S. Small Business Administration, 409 Third Street SW., Washington, DC 20416. Javier E. Saade, Associate Administrator for Office of Investment and Innovation. [FR Doc. 2014–09816 Filed 4–29–14; 8:45 am] BILLING CODE P DEPARTMENT OF STATE [Public Notice: 8709] 60-Day Notice of Proposed Information Collection: Affidavit Regarding a Change of Name Notice of request for public comment. ACTION: The Department of State is seeking Office of Management and Budget (OMB) approval for the information collection described below. In accordance with the Paperwork Reduction Act of 1995, we are requesting comments on this collection from all interested individuals and organizations. The purpose of this notice is to allow 60 days for public comment preceding submission of the collection to OMB. DATES: The Department will accept comments from the public up to June 30, 2014. ADDRESSES: You may submit comments by any of the following methods: • Web: Persons with access to the Internet may use the Federal Docket Management System (FDMS) to comment on this notice by going to www.Regulations.gov. You can search for the document by entering ‘‘Public Notice 8709’’ in the Search bar. If necessary, use the Narrow by Agency filter option on the Results page. • Email: PPTFormsOfficer@state.gov • Mail: PPT Forms Officer, U.S. Department of State, 2201 C Street NW., Washington, DC 20520. • Fax: (202) 485–6496 (include a cover sheet addressed to ‘‘PPT Forms Officer’’ referencing the DS form number, information collection title, and OMB control number). • Hand Delivery or Courier: PPT Forms Officer, U.S. Department of State, 2201 C Street NW., Washington, DC 20520. SUMMARY: E:\FR\FM\30APN1.SGM 30APN1

Agencies

[Federal Register Volume 79, Number 83 (Wednesday, April 30, 2014)]
[Notices]
[Pages 24475-24483]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09808]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72015; File No. SR-NYSEArca-2014-41]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of Shares of 
Reality Shares Isolated Dividend Growth Index ETF Under NYSE Arca 
Equities Rule 5.2(j)(3)

April 24, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on April 11, 2014, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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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 shares of the following 
under NYSE Arca Equities Rule 5.2(j)(3) (``Investment Company Units''): 
Reality Shares Isolated Dividend Growth Index 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 the 
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 5.2(j)(3), which governs the 
listing and trading of Investment Company Units on the Exchange: 
Reality Shares Isolated Dividend Growth Index ETF (the ``Fund'').\4\ 
The Shares of the Fund will be offered by the Reality Shares ETF Trust 
(formerly, the ERNY Financial ETF Trust) (the ``Trust''). The Trust 
will be registered with the Commission as an open-end management 
investment company.\5\ Reality Shares Advisors, LLC (formerly, ERNY 
Financial Advisors, LLC) will serve as the investment adviser to the 
Fund (the ``Adviser''). ALPS Distributors, Inc. (the ``Distributor'') 
will be the principal underwriter and distributor of the Fund's Shares. 
The Bank of New York Mellon (the ``Administrator,'' ``Transfer Agent'' 
or ``Custodian'') will serve as administrator, custodian and transfer 
agent for the Fund.
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    \4\ NYSE Arca Equities Rule 5.2(j)(3)(A) provides that an 
Investment Company Unit is a security that represents an interest in 
a registered investment company that holds securities comprising, or 
otherwise based on or representing an interest in, an index or 
portfolio of securities (or holds securities in another registered 
investment company that holds securities comprising, or otherwise 
based on or representing an interest in, an index or portfolio of 
securities).
    \5\ The Trust will be registered under the Investment Company 
Act of 1940 (the ``1940 Act'') (15 U.S.C. 80a-1). On February 6, 
2014, the Trust filed a registration statement on Form N-1A under 
the Securities Act of 1933 (the ``1933 Act'') (15 U.S.C. 77a), and 
under the 1940 Act relating to the Fund, as amended by Pre-Effective 
Amendment Number 1, filed with the Commission on February 6, 2014 
(File Nos. 333-192288 and 811-22911) (the ``Registration 
Statement''). The description of the operation of the Trust and the 
Fund herein is based, in part, on the Registration Statement. In 
addition, the Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act. Investment Company 
Act Release No. 30678 (August 27, 2013) (``Exemptive Order''). 
Investments made by the Fund will comply with the conditions set 
forth in the Exemptive Order.
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    As described in more detail below, the Fund will seek long-term 
capital appreciation by tracking the performance of the Reality Shares 
Isolated Dividend Growth Index (the ``Index''). The Index was developed 
and is maintained by Reality Shares, Inc.

[[Page 24476]]

(the ``Index Provider'').\6\ The Adviser is a wholly-owned subsidiary 
of the Index Provider.
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    \6\ The Index will be calculated by International Data 
Corporation (``IDC''), which is not affiliated with the Adviser or 
Index Provider, and which is not a broker-dealer or fund advisor.
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    Commentary .01(b)(1) to Rule 5.2(j)(3) provides that, if the 
applicable index is maintained by a fund advisor or a broker-dealer, 
such fund advisor or broker-dealer shall erect a ``fire wall'' around 
the personnel who have access to information concerning changes and 
adjustments to the index, and the index shall be calculated by a third 
party who is not a broker-dealer or fund advisor.\7\ The Index Provider 
is not registered as an investment adviser or broker dealer and is not 
affiliated with any broker-dealers. The Adviser is not registered as a 
broker-dealer and is not affiliated with any broker-dealers.\8\ In the 
event (a) the Adviser, any sub-adviser or the Index Provider becomes 
registered as a broker-dealer or newly affiliated with a broker-dealer, 
or (b) any new adviser, sub-adviser or Index Provider is a registered 
broker-dealer or becomes affiliated with a broker-dealer, they will 
implement a fire wall with respect to their relevant personnel or 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \7\ 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.
    \8\ The Adviser and the Index Provider have represented that a 
fire wall exists around the respective personnel who have access to 
information concerning changes and adjustments to the Index.
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    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet all of the ``generic'' listing 
requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule 
5.2(j)(3) applicable to the listing of Investment Company Units based 
upon an index of ``US Component Stocks''.\9\ Specifically, Commentary 
.01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) sets forth the 
requirements to be met by components of an index or portfolio of US 
Component Stocks. As discussed in more detail herein, the Index is 
calculated using a proprietary, rules-based methodology designed to 
track market expectations for dividend growth conveyed in real-time 
using bid-ask prices on exchange-listed S&P 500 Index options and 
exchange-listed options on exchange traded funds (``ETFs'') designed to 
track the S&P 500 Index.\10\ The Fund may also invest up to 20% of its 
total assets in other securities such as over-the-counter (``OTC'') 
options, futures, and forward contracts on the S&P 500 Index and OTC 
options, futures and forward contracts on ETFs that track the S&P 500 
Index. Because the Index will consist primarily of S&P 500 Index 
options and options on ETFs designed to track the S&P 500 Index, and 
not US Component Stocks, the Index does not satisfy the requirements of 
Commentary .01(a)(A).\11\
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    \9\ NYSE Arca Equities Rule 5.2(j)(3) defines the term ``US 
Component Stock'' to mean an equity security that is registered 
under Sections 12(b) or 12(g) of the Act or an American Depositary 
Receipt, the underlying equity security of which is registered under 
Sections 12(b) or 12(g) of the Act.
    \10\ For purposes of this proposed rule change, such ETFs 
include Investment Company Units (as described in NYSE Arca Equities 
Rule 5.2(j)(3)) and Portfolio Depositary Receipts (as described in 
NYSE Arca Equities Rule 8.100). The ETFs all will be listed and 
traded in the U.S. on registered exchanges. The Fund may not invest 
in leveraged or inverse leveraged (e.g., 2X, -2X, 3X or -3X) ETFs or 
options on such ETFs.
    \11\ The Exchange notes that the S&P 500 Index has been 
previously approved by the Commission under Section 19(b)(2) of the 
Act in connection with the listing and trading of index options and 
Portfolio Depositary Receipts, as well as other securities. See 
e.g., Securities Exchange Act Release Nos. 19907 (June 24, 1983), 48 
FR 30814 (July 5, 1983) (approving the listing and trading of 
options on the S&P 500 Index); 31591 (December 18, 1992), 57 FR 
60253 (December 18, 1992) (approving the listing and trading of 
Portfolio Depositary Receipts based on the S&P 500 Index). NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .01(a)(A)(5) provides that all 
securities in the applicable index or portfolio shall be US 
Component Stocks listed on a national securities exchange and shall 
be NMS Stocks as defined in Rule 600 under Regulation NMS of the 
Act. Each component stock of the S&P 500 Index is a US Component 
Stock that is listed on a national securities exchange and is an NMS 
Stock. Options are excluded from the definition of NMS Stock. The 
Fund and the Index meet all of the requirements of the listing 
standards for Investment Company Units in Rule 5.2(j)(3) and the 
requirements of Commentary .01, except the requirements in 
Commentary .01(a)(A)(1)-(5), as the Index consists of options on US 
Component Stocks. The S&P 500 Index consists of Component Stocks and 
satisfies the requirements of Commentary .01(a)(A)(1)-(5).
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Principal Investments
    According to the Registration Statement, the Fund will seek long-
term capital appreciation and will seek investment results that, before 
fees and expenses, generally correspond to the performance of the 
Index. At least 80% of the Fund's total assets (exclusive of collateral 
held from securities lending, if any) will be invested in the component 
securities of the Index. The Fund will seek a correlation of 0.95 or 
better between its performance and the performance of its Index. A 
figure of 1.00 would represent perfect correlation. The Fund generally 
will use a representative sampling investment strategy.
    The Fund will buy (i.e., hold a ``long'' position in) and sell 
(i.e., hold a ``short'' position in) put and call options. The strategy 
of taking both a long position in a security through its ex-dividend 
date (the last date an investor can own the security and receive 
dividends paid on the security) and a corresponding short position in 
the same security immediately thereafter is designed to allow the Fund 
to isolate its exposure to the growth of the level of dividends 
expected to be paid on such security while minimizing its exposure to 
changes in the trading price of such security.
    The Fund will buy and sell U.S. exchange-listed options on the S&P 
500 Index and U.S. exchange-listed options on ETFs designed to track 
the S&P 500 Index. A put option gives the purchaser of the option the 
right to sell, and the issuer of the option the obligation to buy, the 
underlying security or instrument on a specified date or during a 
specified period of time. A call option on a security gives the 
purchaser of the option the right to buy, and the writer of the option 
the obligation to sell, the underlying security or instrument on a 
specified date or during a specified period of time. The Fund will 
invest in a combination of put and call options designed to allow the 
Fund to isolate its exposure to the growth of the level of expected 
dividends reflected in options on the S&P 500 Index and options on ETFs 
tracking the S&P 500 Index, while minimizing the Fund's exposure to 
changes in the trading price of such securities.
Index Methodology
    The Index will be calculated using a proprietary, rules-based 
methodology designed to track market expectations for dividend growth 
conveyed in real-

[[Page 24477]]

time using the mid-point of the bid-ask spread on S&P 500 Index options 
and options on ETFs designed to track the S&P 500 Index.\12\ All 
options included in the Index will be listed and traded on a U.S. 
national securities exchange. The Index will consist of a minimum of 20 
components.
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    \12\ There is no guarantee that either the level of overall 
dividends paid by such companies will grow over time, or that the 
Index or Fund's investment strategies will capture such growth. The 
Fund will include appropriate risk disclosure in its offering 
documents disclosing these risks, which will be available for free 
on the Commission's Web site and on the Fund's Web site, 
www.realityshares.com.
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    The prices of index and ETF options reflect the market trading 
prices of the securities included in the applicable underlying index or 
ETF, as well as market expectations regarding the level of dividends to 
be paid on such indexes or ETFs during the term of the option. The 
Index constituents, and, therefore, most of the Fund's portfolio 
holdings, will consist of multiple corresponding near-term and long-
term put and call option combinations on the same reference assets 
(i.e., options on the S&P 500 Index or options on S&P 500 ETFs) with 
the same strike price. Because option prices reflect both stock price 
and dividend expectations, they can be used in combination to isolate 
either price exposure or dividend expectations. The use of near-term 
and long-term put and call option combinations on the same reference 
asset with the same strike price, but with different maturities, is 
designed to gain exposure to the expected dividends reflected in 
options on the S&P 500 Index and options on ETFs tracking the S&P 500 
Index while neutralizing the impact of stock price.
    Once established, this portfolio construction of option 
combinations will accomplish two goals. First, the use of corresponding 
buy or sell positions on near and long-term options at the same strike 
price is designed to neutralize underlying stock price movements. In 
other words, the corresponding ``buy'' and ``sell'' positions on the 
same reference asset are designed to net against each other and 
eliminate the impact that changes to the stock price of the reference 
asset would otherwise have on the value of the Index (and Fund Shares). 
Second, by minimizing the impact of price fluctuations through the 
construct of the near- and long-term contract combinations, the 
strategy is designed to isolate market expectations for dividends 
implied between expiration dates of the near-term and long-term option 
contracts. Over time, the Index will increase or decrease in value as 
the dividend spread between the near-term and long-term option 
combinations increases or decreases as a result of changing market 
expectations for dividend growth.
Other Fund Investments
    While, as described above, at least 80% of the Fund's total assets 
(exclusive of collateral held from securities lending, if any) will be 
invested in the component securities of the Index, the Fund may invest 
up to 20% of the Fund's total assets in other securities and financial 
instruments, as described below.
    The Fund may invest in U.S. exchange-listed futures contracts based 
on the S&P 500 Index and ETFs designed to track the S&P 500 Index and 
forward contracts based on the S&P 500 Index and ETFs designed to track 
the S&P 500 Index. The Fund's use of exchange-listed futures contracts 
and forward contracts is designed to allow the Fund to isolate its 
exposure to the growth of the level of expected dividends reflected in 
options on the S&P 500 Index and options on ETFs tracking the S&P 500 
Index, while minimizing the Fund's exposure to changes in the trading 
price of such securities. The Fund may also buy and sell OTC options on 
the S&P 500 Index and on ETFs designed to track the S&P 500 Index.
    The Fund may enter into dividend and total return swap transactions 
(including equity swap transactions) based on the S&P 500 Index and 
ETFs designed to track the S&P 500 Index.\13\ In a typical swap 
transaction, one party agrees to make periodic payments to another 
party (``counterparty'') based on the change in market value or level 
of a specified rate, index, or asset. In return, the counterparty 
agrees to make periodic payments to the first party based on the return 
of a different specified rate, index, or asset. Swap transactions are 
usually done on a net basis, the Fund receiving or paying only the net 
amount of the two payments. In a typical dividend swap transaction, the 
Fund would pay the swap counterparty a premium and would be entitled to 
receive the value of the actual dividends paid on the subject index 
during the term of the swap contract. In a typical total return swap, 
the Fund might exchange long or short exposures to the return of the 
underlying securities or index to isolate the value of the dividends 
paid on the underlying securities or index constituents. The Fund also 
may engage in interest rate swap transactions. In a typical interest 
rate swap transaction one stream of future interest payments is 
exchanged for another. Such transactions often take the form of an 
exchange of a fixed payment for a variable payment based on a future 
interest rate. The Fund intends to use interest rate swap transactions 
to manage or hedge exposure to interest rate fluctuations.
---------------------------------------------------------------------------

    \13\ The Fund will transact only with swap dealers that have in 
place an ISDA agreement with the Fund.
---------------------------------------------------------------------------

    The Fund may invest up to 20% of its assets (exclusive of 
collateral held from securities lending, if any) in exchange-listed 
equity securities and derivative instruments (specifically, futures 
contracts, forward contracts and swap transactions) \14\ relating to 
the Index and its component securities that the Adviser believes will 
help the Fund track the Index. For example, the Fund may buy and sell 
ETFs and, to a limited extent, individual large-capitalization equity 
securities listed and traded on a U.S. national securities exchange.
---------------------------------------------------------------------------

    \14\ Where practicable, the Fund intends to invest in swaps 
cleared through a central clearing house (``Cleared Swaps''). 
Currently, only certain of the interest rate swaps in which the Fund 
intends to invest are Cleared Swaps, while the dividend and total 
return swaps (including equity swaps) in which the Fund may invest 
are currently not Cleared Swaps.
---------------------------------------------------------------------------

    The Fund may invest in the securities of other investment companies 
(including money market funds) to the extent permitted under the 1940 
Act.
    The Fund's short positions and its investments in swaps, futures 
contracts, forward contracts and options based on the S&P 500 Index and 
ETFs designed to track the S&P 500 Index will be backed by investments 
in cash, high-quality short-term debt securities and money-market 
instruments in an amount equal to the Fund's maximum liability under 
the applicable position or contract, or will otherwise be offset in 
accordance with Section 18 of the 1940 Act. Short-term debt securities 
and money market instruments include shares of fixed income or money 
market mutual funds, commercial paper, certificates of deposit, 
bankers' acceptances, U.S. Government Securities (including securities 
issued or guaranteed by the U.S. government or its authorities, 
agencies, or instrumentalities), repurchase agreements \15\ and bonds 
that are rated BBB or higher.
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    \15\ The Fund may enter into repurchase agreements with banks 
and broker-dealers. A repurchase agreement is an agreement under 
which securities are acquired by a fund from a securities dealer or 
bank subject to resale at an agreed upon price on a later date. The 
acquiring fund bears a risk of loss in the event that the other 
party to a repurchase agreement defaults on its obligations and the 
fund is delayed or prevented from exercising its rights to dispose 
of the collateral securities.

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[[Page 24478]]

    In addition to the investments described above, and in a manner 
consistent with its investment objective, the Fund may invest a limited 
portion of its net assets in high-quality, short-term debt securities 
and money market instruments for cash management purposes.\16\ Short-
term debt securities and money market instruments include shares of 
fixed income or money market mutual funds, commercial paper, 
certificates of deposit, bankers' acceptances, U.S. Government 
Securities (including securities issued or guaranteed by the U.S. 
government or its authorities, agencies, or instrumentalities), 
repurchase agreements and bonds that are rated BBB or higher.
---------------------------------------------------------------------------

    \16\ The Fund may invest in shares of money market mutual funds 
to the extent permitted by the 1940 Act.
---------------------------------------------------------------------------

    The Fund will attempt to limit counterparty risk in non-cleared 
swap, forward and OTC option contracts by entering into such contracts 
only with counterparties the Adviser believes are creditworthy and by 
limiting the Fund's exposure to each counterparty. The Adviser will 
monitor the creditworthiness of each counterparty and the Fund's 
exposure to each counterparty on an ongoing basis.\17\
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    \17\ The Fund will seek, where possible, to use counterparties, 
as applicable, whose financial status is such that the risk of 
default is reduced; however, the risk of losses resulting from 
default is still possible. The Adviser will evaluate the 
creditworthiness of counterparties on an ongoing basis. In addition 
to information provided by credit agencies, the Adviser will 
evaluate each approved counterparty using various methods of 
analysis, such as, for example, the counterparty's liquidity in the 
event of default, the counterparty's reputation, the Adviser's past 
experience with the counterparty, and the counterparty's share of 
market participation.
---------------------------------------------------------------------------

    The Fund's investments in swaps, futures contracts, forward 
contracts and options will be consistent with the Fund's investment 
objective and with the requirements of the 1940 Act.\18\
---------------------------------------------------------------------------

    \18\ To limit the potential risk associated with such 
transactions, the Fund will segregate or ``earmark'' assets 
determined to be liquid by the Adviser in accordance with procedures 
established by the Trust's Board of Trustees and in accordance with 
the 1940 Act (or, as permitted by applicable regulation, enter into 
certain offsetting positions) to cover its obligations arising from 
such transactions. These procedures have been adopted consistent 
with Section 18 of the 1940 Act and related Commission guidance. In 
addition, the Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of the Fund, including the Fund's 
use of derivatives, may give rise to leverage, causing the Fund to 
be more volatile than if it had not been leveraged. To mitigate 
leveraging risk, the Adviser will segregate or ``earmark'' liquid 
assets or otherwise cover the transactions that may give rise to 
such risk.
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Investment Restrictions
    To the extent the Index concentrates (i.e., holds 25% or more of 
its total assets) in the securities of a particular industry or group 
of industries, the Fund will concentrate its investments to 
approximately the same extent as the Index.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment) deemed 
illiquid by the Adviser, consistent with Commission guidance.\19\ The 
Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid 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.\20\
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    \19\ 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).
    \20\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the 1933 Act).
---------------------------------------------------------------------------

    The Fund may make secured loans of its portfolio securities; 
however, securities loans will not be made if, as a result, the 
aggregate amount of all outstanding securities loans by the Fund 
exceeds 33 1/3% of its total assets (including the market value of 
collateral received). To the extent the Fund engages in securities 
lending, securities loans will be made to broker-dealers that the 
Adviser believes to be of relatively high credit standing pursuant to 
agreements requiring that the loans continuously be collateralized by 
cash, liquid securities, or shares of other investment companies with a 
value at least equal to the market value of the loaned securities.
    The Fund will be classified as a ``non-diversified'' investment 
company under the 1940 Act.\21\
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    \21\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund intends to qualify for and to elect treatment as a 
separate regulated investment company (``RIC'') under Subchapter M of 
the Internal Revenue Code.\22\
---------------------------------------------------------------------------

    \22\ 26 U.S.C. 851 et seq.
---------------------------------------------------------------------------

    The Fund's investments will be consistent with its investment 
objective and will not be used to provide multiple returns of a 
benchmark or to produce leveraged returns.
Creation and Redemption of Shares
    According to the Registration Statement, the Fund will issue and 
redeem Shares only in Creation Units at the net asset value (``NAV'') 
next determined after receipt of an order on a continuous basis every 
business day. Creation Unit size is 25,000 Shares per Creation Unit. 
The Creation Unit size for the Fund may change.
    The consideration for purchase of a Creation Unit of the Fund 
generally will consist of either (i) the in-kind deposit of a 
designated portfolio of securities (the ``Deposit Securities'') per 
each Creation Unit and the ``Cash Component'' (defined below), computed 
as described below or (ii) the cash value of the Deposit Securities 
(``Deposit Cash'') and the ``Cash Component,'' computed as described 
below. Because non-exchange traded derivatives and certain listed 
derivatives are not currently eligible for in-kind transfer, they will 
be substituted with an amount of cash of equal value (i.e., Deposit 
Cash) when the Fund processes purchases of Creation Units in-kind. 
Specifically, the Fund will not accept exchange-traded options, OTC 
options, exchange-traded futures, forward contracts, dividend swap 
transactions, total return swap transactions and interest rate swap 
transactions as Deposit Securities.
    When accepting purchases of Creation Units for cash, the Fund may 
incur additional costs associated with the acquisition of Deposit 
Securities that would otherwise be provided by an in-kind purchaser. 
Together, the Deposit Securities or Deposit Cash, as applicable, and 
the Cash Component constitute the ``Fund Deposit,'' which represents 
the minimum initial and

[[Page 24479]]

subsequent investment amount for a Creation Unit of the Fund. The Cash 
Component is an amount equal to the difference between the NAV of the 
Shares (per Creation Unit) and the market value of the Deposit 
Securities or Deposit Cash, as applicable. The Cash Component serves 
the function of compensating for any differences between the NAV per 
Creation Unit and the market value of the Deposit Securities or Deposit 
Cash, as applicable.
    A portfolio composition file, to be sent via the National 
Securities Clearing Corporation (``NSCC''), will be made available on 
each business day, prior to the opening of business on the Exchange 
(currently 9:30 a.m., Eastern time) containing a list of the names and 
the required amount of each security in the Deposit Securities to be 
included in the current Fund Deposit for the Fund (based on information 
about the Fund's portfolio at the end of the previous business day). In 
addition, on each business day, the estimated Cash Component, effective 
through and including the previous business day, will be made available 
through NSCC.
    The Fund Deposit will be applicable for purchases of Creation Units 
of the Fund until such time as the next-announced Fund Deposit is made 
available. In accordance with the Exemptive Order, the Fund will 
reserve the right to accept a non-conforming Fund Deposit. In addition, 
the composition of the Deposit Securities may change as, among other 
things, corporate actions and investment decisions by the Adviser are 
implemented for the Fund's portfolio.
    All purchase orders must be placed by or through an ``Authorized 
Participant''. An Authorized Participant must be either a broker-dealer 
or other participant in the Continuous Net Settlement System 
(``Clearing Process'') of the NSCC or a participant in The Depository 
Trust Company (``DTC'') with access to the DTC system, and must execute 
an agreement with the Distributor that governs transactions in the 
Fund's Creation Units. In-kind portions of purchase orders will be 
processed through the Clearing Process when it is available.
    Fund Shares may be redeemed only in Creation Units at their NAV 
next determined after receipt of a redemption request in proper form by 
the Fund through the Distributor and only on a business day. The Fund, 
through the NSCC, will make available immediately prior to the opening 
of business on the Exchange on each business day, the list of the names 
and quantities of the Fund's portfolio securities that will be 
applicable (subject to possible amendment or correction) to redemption 
requests received in proper form on that day (``Fund Securities''). 
Redemption proceeds for a Creation Unit will be paid either in-kind or 
in cash or a combination thereof, as determined by the Trust. With 
respect to in-kind redemptions of the Fund, redemption proceeds for a 
Creation Unit will consist of Fund Securities plus cash in an amount 
equal to the difference between the NAV of the Shares being redeemed, 
as next determined after a receipt of a request in proper form, and the 
value of the Fund Securities (the ``Cash Redemption Amount''). In the 
event that the Fund Securities have a value greater than the NAV of the 
Shares, a compensating cash payment equal to the differential will be 
required to be made by or through an Authorized Participant by the 
redeeming shareholder. Notwithstanding the foregoing, at the Trust's 
discretion, an Authorized Participant may receive the corresponding 
cash value of the securities in lieu of the in-kind securities 
representing one or more Fund Securities.\23\ Because non-exchange 
traded derivatives and certain listed derivatives are not eligible for 
in-kind transfer, they will be substituted with an amount of cash of 
equal value when the Fund processes redemptions of Creation Units in-
kind. Specifically, the Fund will transfer the corresponding cash value 
of exchange-traded options, OTC options, exchange-traded futures, 
forward contracts, dividend swap transactions, total return swap 
transactions and interest rate swap transactions in lieu of in-kind 
securities. In accordance with the Exemptive Order, the Fund also 
reserves the right to distribute to the Authorized Participant non-
conforming Fund Securities.
---------------------------------------------------------------------------

    \23\ The Adviser represents that, to the extent the Trust 
effects the redemption of Shares in cash, such transactions will be 
effected in the same manner for all Authorized Participants.
---------------------------------------------------------------------------

    The right of redemption may be suspended or the date of payment 
postponed: (i) For any period during which the New York Stock Exchange 
(``NYSE'') is closed (other than customary weekend and holiday 
closings); (ii) for any period during which trading on the NYSE is 
suspended or restricted; (iii) for any period during which an emergency 
exists as a result of which disposal of the Shares or determination of 
the Fund's NAV is not reasonably practicable; or (iv) in such other 
circumstances as permitted by the Commission.
    For an order involving a Creation Unit to be effectuated at the 
Fund's NAV on a particular day, it must be received by the Distributor 
by or before the deadline for such order (``Order Cut-Off Time''). The 
Order Cut-Off Time for creation and redemption orders for the Fund will 
be 4:00 p.m. Eastern time. Orders for creation or redemption of 
Creation Units for cash generally must be submitted by 4:00 p.m. 
Eastern time. A standard creation or redemption transaction fee (as 
applicable) will be imposed to offset transfer and other transaction 
costs that may be incurred by the Fund.
Determination of Net Asset Value
    The Fund will calculate its NAV by: (i) Taking the current market 
value of its total assets; (ii) subtracting any liabilities; and (iii) 
dividing that amount by the total number of Shares outstanding. The 
Fund will calculate NAV once each business day as of the regularly 
scheduled close of trading on the NYSE (normally, 4:00 p.m., Eastern 
Time) as described in its Registration Statement.
    In calculating the Fund's NAV per Share, the Fund's investments 
will be valued in accordance with procedures approved by the Trust's 
Board of Trustees. These procedures, which may be changed by the 
Trust's Board of Trustees from time to time, generally require 
investments to be valued using market valuations. A market valuation 
generally means a valuation (i) obtained from an exchange, an 
independent pricing service, or a major market maker (or dealer), (ii) 
based on a price quotation or other equivalent indication of value 
supplied by an exchange, an independent pricing service, or a major 
market maker (or dealer) or (iii) based on amortized cost. The Trust 
may use various independent pricing services, or discontinue the use of 
any independent pricing service, as determined by the Trust's Board of 
Trustees from time to time.
    The Trust will generally value exchange-listed equity securities 
(which include common stocks and ETFs) and exchange-listed options, 
including options on the S&P 500 Index and options on ETFs, at market 
closing prices. Market closing price is generally determined on the 
basis of last reported sales prices on the applicable exchange, or if 
no sales are reported, based on the last reported quotes. The Trust 
will generally value exchange-listed futures at the settlement price 
determined by the applicable exchange. Non-exchange-traded derivatives, 
including OTC options, swap transactions and forward transactions, will 
normally be valued on the basis of quotations or equivalent

[[Page 24480]]

indication of value supplied by an independent pricing service or major 
market makers or dealers. Debt securities and money market instruments 
generally will be valued based on prices provided by independent 
pricing services, which may use valuation models or matrix pricing to 
determine current value. Investment company securities (other than 
ETFs) will be valued at NAV. The Trust generally will use amortized 
cost to value fixed income or money market securities that have a 
remaining maturity of 60 days or less.
    In the event that current market valuations are not readily 
available or the Trust or Adviser believes such valuations do not 
reflect current market value, the Trust's procedures require that a 
security's fair value be determined in accordance with the 1940 
Act.\24\ In determining such value the Trust or the Adviser may 
consider, among other things, (i) price comparisons among multiple 
sources, (ii) a review of corporate actions and news events, and (iii) 
a review of relevant financial indicators (e.g., interest rates or 
market indices). In these cases, the Fund's NAV may reflect certain 
portfolio securities' fair values rather than their market prices. Fair 
value pricing involves subjective judgments and it is possible that the 
fair value determination for a security is materially different than 
the value that could be realized upon the sale of the security.
---------------------------------------------------------------------------

    \24\ The Trust's Board of Trustees has established Fair Value 
Procedures, in accordance with the 1940 Act, governing the valuation 
of any portfolio investments for which market quotations or prices 
are not readily available. The Fund has implemented procedures 
designed to prevent the use and dissemination of material, non-
public information regarding valuation of any portfolio investments.
---------------------------------------------------------------------------

Availability of Information
    The Fund's Web site, www.realityshares.com, which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) 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''),\25\ 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.
---------------------------------------------------------------------------

    \25\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
---------------------------------------------------------------------------

    On a daily basis, the Adviser, on behalf of the Fund, will disclose 
on the Fund's Web site the following information regarding each 
portfolio holding, as applicable to the type of holding: ticker symbol, 
CUSIP number or other identifier, if any; a description of the holding 
(including the type of holding, such as the type of swap); the identity 
of the security, commodity, index, or other asset or instrument 
underlying the holding, if any; for options, the option strike price; 
quantity held (as measured by, for example, par value, notional value 
or number of shares, contracts or units); maturity date, if any; coupon 
rate, if any; effective date, if any; market value of the holding; and 
the percentage weighting of the holding in the Fund's portfolio. The 
Web site information will be publicly available at no charge.
    In addition, a portfolio composition file, which includes the 
security names and quantities, as applicable, required to be delivered 
in exchange for the Fund's Shares, together with estimates and actual 
cash components, will be publicly disseminated daily prior to the 
opening of the NYSE via NSCC. The portfolio composition file will 
represent one Creation Unit of Shares of the Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's 
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and 
Shareholder Reports 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 will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. Information relating to U.S. exchange-listed 
options is available via the Options Price Reporting Authority. The 
value of the Index will be published by one or more major market data 
vendors every 15 seconds during the NYSE Arca Core Trading Session of 
9:30 a.m. E.T. to 4:00 p.m. E.T. Information about the Index 
constituents, the weighting of the constituents, the Index's 
methodology and the Index's rules will be available at no charge on the 
Index Provider's Web site at www.realityshares.com.
    In addition, the Intraday Indicative Value (``IIV'') as defined in 
NYSE Arca Equities Rule 5.2(j)(3), Commentary 01(c), will be widely 
disseminated at least every 15 seconds during the Core Trading Session 
by one or more major market data vendors.\26\
---------------------------------------------------------------------------

    \26\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIVs 
taken from the CTA or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the IIV will allow investors to determine the 
value of the underlying portfolio of the Fund on a daily basis and will 
provide a close estimate of that value throughout the trading day. The 
intra-day, closing and settlement prices of the portfolio securities 
and other Fund investments, including futures and exchange-traded 
equities, ETFs and exchange-traded options, will also be readily 
available from the national securities exchanges trading such 
securities, automated quotation systems, published or other public 
sources, and, with respect to OTC options, swap transactions and 
forward transactions, from third party pricing sources, or on-line 
information services such as Bloomberg or Reuters. The intra-day, 
closing and settlement prices of debt securities and money market 
instruments will be readily available from published and other public 
sources or on-line information services. Price information regarding 
investment company securities, including ETFs, will be available from 
on-line information services and from the Web site for the applicable 
investment company security.
    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, distributions 
and taxes is included in the Registration Statement. All terms relating 
to the Fund that are referred to, but not defined in, this proposed 
rule change are defined in the Registration Statement.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\27\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule

[[Page 24481]]

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 portfolio of the Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.
---------------------------------------------------------------------------

    \27\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

    If the IIV, the Index Value or the value of the Index Components is 
not being disseminated as required, the Exchange may halt trading 
during the day in which the disruption occurs; if the interruption 
persists past the day in which it occurred, the Exchange will halt 
trading no later than the beginning of the trading day following the 
interruption. The Exchange will obtain a representation from the Fund 
that the NAV for the Fund will be calculated daily and will be made 
available to all market participants at the same time. Under NYSE Arca 
Equities Rule 7.34(a)(5), if the Exchange becomes aware that the NAV 
for the Fund is not being disseminated to all market participants at 
the same time, it will halt trading in the Shares until such time as 
the NAV is available to all market participants.
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 will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2), except 
that the Index will not meet the requirements of NYSE Arca Equities 
Rule 5.2(j)(3), Commentary .01(a)(A)(1)-(5) in that the Index will 
consist of options based on US Component Stocks (i.e., ETFs based on 
the S&P 500 Index) and options on an index of US Component Stocks 
(i.e., S&P 500 Index options), rather than US Component Stocks 
themselves. The Index will include a minimum of 20 components and, 
therefore, would meet the numerical requirement of NYSE Arca Equities 
Rule 5.2(j)(3), Commentary .01(a)(A)(4) (a minimum of 13 index or 
portfolio components). The Exchange represents that, for initial and/or 
continued listing, the Fund will be in compliance with Rule 10A-3 \28\ 
under the Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 
100,000 Shares for the Fund will be outstanding at the commencement of 
trading on the Exchange. The Exchange will obtain a representation from 
the issuer of the Shares that the NAV per Share will be calculated 
daily and will be made available to all market participants at the same 
time.
---------------------------------------------------------------------------

    \28\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\29\ 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.
---------------------------------------------------------------------------

    \29\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares, exchange-listed equity securities, 
ETFs, futures contracts and exchange-traded options contracts with 
other markets and other entities that are members of the Intermarket 
Surveillance Group (``ISG''), and FINRA, on behalf of the Exchange, may 
obtain trading information regarding trading in the Shares, exchange-
listed equity securities, ETFs, futures contracts and exchange-traded 
options contracts from such markets and other entities. In addition, 
the Exchange may obtain information regarding trading in the Shares, 
exchange-listed equity securities, ETFs, futures contracts and 
exchange-traded options contracts from markets and other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\30\ All exchange-listed 
equity securities, ETFs, futures contracts and options held by the Fund 
will be traded on U.S. exchanges, all of which are members of ISG or 
are exchanges with which the Exchange has in place a comprehensive 
surveillance sharing agreement. In addition, FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income securities held by the Fund reported to FINRA's Trade 
Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \30\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
portfolio for the Fund may trade on markets that are members of ISG 
or with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit aggregations (and that Shares are not individually 
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated IIV or Index value will not be calculated or 
publicly disseminated; (4) how information regarding the IIV and Index 
value will be disseminated; (5) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (6) 
trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the

[[Page 24482]]

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) \31\ 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.
---------------------------------------------------------------------------

    \31\ 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 
5.2(j)(3), except that the Index will consist of options based on US 
Component Stocks (i.e., ETFs based on the S&P 500 Index) and options on 
an index of US Component Stocks (i.e., the S&P 500 Index), rather than 
US Component Stocks themselves. The Shares will be subject to the 
existing trading surveillances, administered by FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
federal securities laws applicable to trading on the Exchange. The 
Index Provider is not registered as an investment adviser or broker 
dealer and is not affiliated with any broker-dealers. The Adviser is 
not registered as a broker-dealer and is not affiliated with any 
broker-dealers. In the event (a) the Adviser, any sub-adviser, or the 
Index Provider becomes registered as a broker-dealer or newly 
affiliated with a broker-dealer, or (b) any new adviser, sub-adviser, 
or Index Provider is a registered broker-dealer or becomes affiliated 
with a broker-dealer, they will implement a fire wall with respect to 
their relevant personnel or broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the Index or 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
Index or portfolio. The Adviser and Index Provider have implemented 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the Index. The Fund may hold up to an 
aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment) deemed illiquid by the Adviser, 
consistent with Commission guidance [sic] All exchange-listed equity 
securities, ETFs, options and futures contracts held by the Fund will 
be traded on U.S. exchanges, all of which are members of ISG or are 
exchanges with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
will be made available to all market participants at the same time. In 
addition, a large amount of information will be publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. Moreover, the IIV 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 Fund will disclose on its Web site the portfolio that 
will form the basis for the Fund's calculation of NAV at the end of the 
business day. Information regarding market price and trading volume of 
the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and quotation and last sale information will be available via 
the CTA high-speed line. Information relating to U.S. exchange-listed 
options is available via the Options Price Reporting Authority. The 
intra-day, closing and settlement prices of the portfolio securities 
and other Fund investments, including futures and exchange-traded 
equities and options, will also be readily available from the national 
securities exchanges trading such securities, automated quotation 
systems, published or other public sources, and, with respect to swap 
transactions and forward transactions, from third party pricing 
sources, or on-line information services such as Bloomberg or Reuters. 
The intra-day, closing and settlement prices of debt securities and 
money market instruments will be readily available from published and 
other public sources or on-line information services. The Web site for 
the Fund will include the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. 
Moreover, prior to the commencement of trading, the Exchange will 
inform its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. Trading 
in Shares of the Fund will be halted if the circuit breaker parameters 
in NYSE Arca Equities Rule 7.12 have been reached or because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. In addition, as noted above, 
investors will have ready access to information regarding the Fund's 
holdings, the IIV, the Fund's 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 
an additional type of issue of Investment Company Units that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Shares will be 
subject to the existing trading surveillances, administered by FINRA on 
behalf of the Exchange, which are designed to detect violations of 
Exchange rules and federal securities laws applicable to trading on the 
Exchange. FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares, exchange-traded equity securities, 
ETFs, futures contracts and exchange-traded options contracts 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, exchange-traded equity securities, 
ETFs, futures contracts and exchange-traded options contracts from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, exchange-traded equity 
securities, ETFs, futures contracts and exchange-traded options 
contracts from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. In addition, as noted above, investors will have 
ready access to information regarding the Fund's holdings, the IIV, and 
quotation and last sale information for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an

[[Page 24483]]

additional type of issue of Investment Company Units that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2014-41 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-2014-41. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference 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-2014-41 and should 
be submitted on or before May 21, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09808 Filed 4-29-14; 8:45 am]
BILLING CODE 8011-01-P