Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to PowerShares Insured California Municipal Bond Portfolio, PowerShares Insured National Municipal Bond Portfolio, and PowerShares Insured New York Municipal Bond Portfolio, 27950-27958 [2014-11157]
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27950
Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Notices
TKELLEY on DSK3SPTVN1PROD with NOTICES
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–NASDAQ–2014–009 and
should be submitted on or before June
5, 2014.
V. Accelerated Approval of Proposed
Rule Change, As Modified by
Amendment Nos. 1, 2, and 3
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment Nos. 1, 2, and
3 thereto, prior to the thirtieth day after
the date of publication of notice in the
Federal Register. The proposed
Amendment No. 1 amended and
replaced the proposed rule change in its
entirety and supplemented the proposed
rule change by: (a) Clarifying the types
of Derivative Instruments (as defined
above) proposed to be used by the Fund;
(b) providing specific representations
relating the use of these Derivative
Instruments; (c) providing additional
information as to the valuation of these
Derivative Instruments for purposes of
determining NAV (as defined herein);
(d) providing additional information as
to the availability of pricing for the
Derivative Instruments to market
participants, as well as information
relating to the Derivative Instruments as
part of the Disclosed Portfolio (as
defined herein); and (e) providing
additional details as to the Exchange’s
surveillance procedures with respect to
the Derivative Instruments.28
The proposed Amendment No. 2
amended and replaced the proposed
rule change, as modified by Amendment
No. 1 thereto, in its entirety, and
supplemented the proposed rule change
by: (a) Providing additional information
regarding the bank loans in which the
Fund would invest, including
information relating to the senior loan
market and valuation and price
availability of bank loans; (b) noting that
liquidity determinations would be made
in accordance with Commission
guidance; (c) clarifying that the Fund’s
investments in Derivative Instruments
would be limited in all cases to 30% of
the Fund’s net assets, regardless of
whether Derivative Instruments would
be used solely for hedging purposes; (d)
28 See
supra note 4 and accompanying text.
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representing that at least 90% of the
Fund’s net assets invested in Derivative
Instruments would trade in markets that
are members of the ISG (as defined
herein) or are parties to a
comprehensive surveillance sharing
agreement with the Exchange; (e)
providing additional information
relating to valuation and price
availability of Derivative Instruments;
and (f) clarifying in detail what
information the Disclosed Portfolio (as
defined herein) would provide as a
result of the Fund’s investments in bank
loans and Derivative Instruments.29
The proposed Amendment No. 3
amended and replaced the proposed
rule change, as modified by Amendment
No. 2 thereto, in its entirety, and
supplemented the proposed rule change
by: (a) Clarifying that at least 75% of the
Fund’s net assets that are invested in
bank loans would be invested in
tranches that have a minimum principal
amount outstanding of $100 million or
more with respect to U.S. borrowers and
$200 million or more with respect to
non-U.S. borrowers; (b) clarifying that at
least 90% of the Fund’s net assets in
Derivative Instruments would be
invested in Derivative Instruments that
trade in markets that are members of the
ISG (as defined herein), which includes,
among others, certain U.S. futures
exchanges; and (c) replacing certain
references to ‘‘securities’’ with ‘‘assets’’
for purposes of describing NAV
valuation.30
The Commission believes that the
additional information and
clarifications reflected in the proposed
rule change, as modified by Amendment
Nos. 1, 2 and 3 thereto, regarding the
Fund’s investments in bank loans and
Derivative Instruments, will benefit
investors and other market participants.
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Act,31 to approve the proposed
rule change, as modified by Amendment
Nos. 1, 2, and 3, on an accelerated basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,32 that the
proposed rule change (SR–NASDAQ–
2014–009), as modified by Amendment
Nos. 1, 2, and 3 thereto, be, and it
hereby is, approved on an accelerated
basis.
supra note 6 and accompanying text.
supra note 7 and accompanying text.
31 15 U.S.C. 78s(b)(2).
32 Id.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–11158 Filed 5–14–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72139; File No. SR–
NYSEArca–2014–45]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to PowerShares
Insured California Municipal Bond
Portfolio, PowerShares Insured
National Municipal Bond Portfolio, and
PowerShares Insured New York
Municipal Bond Portfolio
May 9, 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 25,
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, II, and
III below, which Items have been
prepared by the self-regulatory
organization. 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 the Substance
of the Proposed Rule Change
The Exchange proposes a rule change
relating to the listing and trading of the
following series of Investment Company
Units that are currently listed and
traded on the Exchange under NYSE
Arca Equities Rule 5.2(j)(3):
PowerShares Insured California
Municipal Bond Portfolio; PowerShares
Insured National Municipal Bond
Portfolio; and PowerShares Insured New
York Municipal Bond Portfolio. 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.
29 See
33 17
30 See
1
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CFR 200.30–3(a)(12).
15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Municipal Bond Portfolios
TKELLEY on DSK3SPTVN1PROD with NOTICES
1. Purpose
The Exchange currently lists and
trades shares of the PowerShares
Insured California Municipal Bond
Portfolio (‘‘CA Portfolio’’), PowerShares
Insured National Municipal Bond
Portfolio (‘‘National Portfolio’’) and
PowerShares Insured New York
Municipal Bond Portfolio (‘‘NY
Portfolio’’, and, together with the CA
Portfolio and the National Portfolio, the
‘‘Municipal Bond Portfolios’’ or the
‘‘Funds’’) 4 under NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02, which
governs the listing and trading of
Investment Company Units (‘‘Units’’)
based on fixed income securities
indexes.5 The Funds are series of the
PowerShares Exchange-Traded Fund
Trust II (‘‘Trust’’).6
4 On February 27, 2014, the Trust filed a posteffective amendment on Form 485 under the
Securities Act of 1933 (15 U.S.C. 77a) (‘‘1933 Act’’)
to its registration statement on Form N–1A under
the 1933 Act and the Investment Company Act of
1940 (‘‘1940 Act’’) (15 U.S.C. 80a–1) (File Nos. 333–
138490 and 811–21977) (the ‘‘Registration
Statement’’). The description of the operation of the
Trust and the Funds herein is based, in part, on the
Registration Statement. In addition, the
Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act.
See Investment Company Act Release No. 27841
(May 25, 2007) (File No. 812–13335) (‘‘Exemptive
Order’’).
5 The Municipal Bond Portfolios were initially
listed on the American Stock Exchange, Inc.
(‘‘Amex’’) (now NYSE MKT) on October 11, 2007
pursuant to the generic listing criteria of Amex Rule
1000A. On November 3, 2008, the listings
transferred from the Amex to NYSE Arca, which
changes were effected pursuant to NYSE Arca
Equities Rule 5.2(j)(3), Commentary .02.
6 The Commission previously has approved a
proposed rule change relating to listing and trading
on the Exchange of Units based on municipal bond
indexes. See Securities Exchange Act Release No.
67985 (October 4, 2012), 77 FR 61804 (October 11,
2012) (SR–NYSEArca–2012–92) (order approving
proposed rule change relating to the listing and
trading of iShares 2018 S&P AMT-Free Municipal
Series and iShares 2019 S&P AMT-Free Municipal
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Invesco PowerShares Capital
Management LLC is the investment
adviser (‘‘Adviser’’) for the Funds.
Invesco Distributors, Inc. is the Funds’
distributor (‘‘Distributor’’). The Bank of
New York Mellon is the administrator,
custodian and fund accounting and
transfer agent for each Fund.
The Exchange is submitting this
proposed rule change (1) to permit the
continued listing and trading of shares
(‘‘Shares’’) of the Funds following
previous changes to the indexes
underlying the Funds, as described
below, and (2) to propose changes to the
indexes underlying the Funds and new
names for the Funds, as described
below.
On May 28, 2009, the municipal bond
indexes underlying the CA Portfolio; the
National Portfolio; and the NY Portfolio
were changed to the Merrill Lynch
California Insured Long-Term Core Plus
Municipal Securities Index, the Merrill
Lynch National Insured Long-Term Core
Plus Municipal Securities Index, and
the Merrill Lynch New York Insured
Long-Term Core Plus Municipal
Securities Index, respectively.7 On
September 25, 2009, the names of the
indexes underlying the Municipal Bond
Portfolios again were changed to the
BofA Merrill Lynch California Insured
Long-Term Core Plus Municipal
Securities Index (‘‘CA Index’’), the BofA
Merrill Lynch National Insured LongTerm Core Plus Municipal Securities
Index (‘‘National Index’’), and the BofA
Merrill Lynch New York Insured LongTerm Core Plus Municipal Securities
Index, respectively 8 (‘‘NY Index’’,
collectively, with the CA Index and the
National Index, the ‘‘Municipal Bond
Indexes’’).9
Series under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02) (‘‘iShares Order’’).
7 The changes to the indexes underlying the
Municipal Bond Portfolios were reflected in a
supplement on Form 497 under the 1933 Act, dated
May 28, 2009 (‘‘May 28, 2009 Supplement’’) to the
Municipal Bond Portfolios’ prospectus dated
February 27, 2009. The previous names of the
indexes underlying the Municipal Bond Portfolios
were the Merrill Lynch California Insured LongTerm Core Municipal Securities Index, Merrill
Lynch National Insured Long-Term Core Municipal
Securities Index, and Merrill Lynch New York
Insured Long-Term Core Municipal Securities
Index, respectively.
8 BofA Merrill Lynch is the ‘‘Index Provider’’
with respect to the Municipal Bond Indexes and the
‘‘New Municipal Bond Indexes’’ (as described
below). The Index Provider is a broker-dealer and
has implemented a firewall with respect to and will
maintain procedures designed to prevent the use
and dissemination of material non-public
information regarding the Municipal Bond Indexes
and New Municipal Bond Indexes.
9 The September 25, 2009, name changes were
reflected in a supplement dated September 25, 2009
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The Exchange recently became aware
of changes to the indexes underlying the
Municipal Bond Portfolios as reflected
in the May 28, 2009 Supplement.
Currently, therefore, the Municipal
Bond Indexes do not meet the generic
listing criteria of NYSE Arca Equities
Rule 5.2(j)(3), as described below.
Accordingly, the Exchange is
submitting this proposed rule change to
permit the continued listing of each of
the Funds. The Municipal Bond Indexes
meet all of the requirements of the
generic listing criteria of NYSE Arca
Equities Rule 5.2(j)(3), except for those
set forth in Commentary .02(a)(2).10
Specifically, as of March 6, 2014,
approximately 34.84%, and 37.16%,
and 59.22% of the weight of the
components of the CA Index, Core Index
and NY Index, respectively, have a
minimum original principal amount
outstanding of $100 million or more.
PowerShares Insured California
Municipal Bond Portfolio
According to the Registration
Statement, the CA Portfolio seeks
investment results that generally
correspond (before fees and expenses) to
the price and yield performance of the
CA Index. The CA Portfolio generally
invests at least 80% of its total assets in
insured municipal securities that are
exempt from federal income tax and
California state income tax (the ‘‘80%
policy’’). The CA Portfolio normally
invests at least 80% of its total assets in
the securities that comprise the CA
Index and generally expects to so invest
at least 90% of its total assets. The CA
Portfolio, however, reserves the right to
invest up to 20% of its assets in certain
futures, options and swap contracts,
cash and cash equivalents, including
money market funds, as well as in
municipal securities not included in the
CA Index to the extent that the Adviser
believes investment in such instruments
will facilitate the CA Portfolio’s ability
to achieve its investment objective.
The CA Index is designed to track the
performance of U.S. dollardenominated, investment grade, taxexempt debt publicly issued by
California or U.S. territories (including
Puerto Rico), or their political
subdivisions, in the U.S. domestic
market and includes approximately 267
bonds (as of January 31, 2014). The CA
Index is adjusted monthly. The CA
to the Municipal Bond Portfolios’ prospectus dated
February 27, 2009.
10 Commentary .02(a)(2) to NYSE Arca Equities
Rule 5.2(j)(3) provides that components that in the
aggregate account for at least 75% of the weight of
the index or portfolio each shall have a minimum
original principal amount outstanding of $100
million or more.
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Portfolio, using an ‘‘indexing’’
investment approach, attempts to
replicate, before fees and expenses, the
performance of the CA Index through
sampling. The Adviser seeks correlation
over time of 0.95% or better between the
CA Portfolio’s performance and the
performance of the CA Index.
As of January 31, 2014, approximately
86.1% of the weight of the CA Index
components was composed of
individual maturities that were part of
an entire municipal bond offering with
a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January 31, 2014, the
total dollar amount outstanding of
issues in the CA Index was
approximately $17.201 billion and the
average dollar amount outstanding of
issues in the CA Index was
approximately $64.42 million. Further,
the most heavily weighted component
represents 3.53% of the weight of the
CA Index and the five most heavily
weighted components represent 9.94%
of the weight of the CA Index.11
Therefore, the Exchange believes that,
notwithstanding that the CA Index does
not satisfy the criterion in NYSE Arca
Equities Rule 5.2(j)(3), Commentary .02
(a)(2), the CA Index is sufficiently
broad-based to deter potential
manipulation, given that it is composed
of approximately 267 issues and 127
unique issuers. The Exchange notes that
the individual maturities that are part of
the same municipal bond offering share
common characteristics, such as issuer,
rating, structure, and purpose (i.e.,
general obligation bonds, revenue bonds
or ‘‘double-barreled’’ bonds). In
addition, the CA Index securities are
sufficiently liquid to deter manipulation
in that a substantial portion (86.1%) of
the CA Index weight is composed of
maturities that are part of a minimum
original principal amount outstanding
of $100 million or more for all the
maturities of the offering, and in view
of the substantial total dollar amount
outstanding and the average dollar
amount outstanding of CA Index issues,
as referenced above.
In addition, the average daily notional
trading volume for CA Index
components for the calendar year 2013
was approximately $27.45 million and
the sum of the notional trading volumes
for the same period was
approximately$6.9 billion.
PowerShares Insured National
Municipal Bond Portfolio
According to the Registration
Statement, the National Portfolio seeks
investment results that generally
correspond (before fees and expenses) to
the price and yield performance of the
National Index. The National Portfolio
will generally invest at least 80% of its
total assets in the securities that
compose the National Index and
generally expects to so invest at least
90% of its total assets. The National
Portfolio, however, reserves the right to
invest up to 20% of its assets in certain
futures, options and swap contracts,
cash and cash equivalents, including
money market funds, as well as in
municipal securities not included in the
National Index to the extent that the
Adviser believes such investments will
facilitate the National Portfolio’s ability
to achieve its investment objective. The
National Index is designed to track the
performance of U.S. dollar-denominated
investment grade insured tax-exempt
debt publicly issued by U.S. states and
territories (including Puerto Rico), or
their political subdivision, in the U.S.
domestic market and includes
approximately 1,238 bonds (as of
January 31, 2014). The National Index is
adjusted monthly.
The National Portfolio, using an
‘‘indexing’’ investment approach,
attempts to replicate, before fees and
expenses, the performance of the
National Index through sampling. The
Adviser seeks correlation over time of
0.95% or better between the National
Portfolio’s performance and the
performance of the National Index.
As of January 31, 2014, approximately
89.24% of the weight of the National
Index components was composed of
individual maturities that were part of
an entire municipal bond offering with
a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January 31, 2014, the
total dollar amount outstanding of
issues in the National Index was
approximately $78.69 billion and the
average dollar amount outstanding of
issues in the National Index was
approximately $63.56 million. Further,
the most heavily weighted component
represents 0.88% of the weight of the
National Index and the five most
heavily weighted components represent
3.51% of the weight of the National
Index.12 Therefore, the Exchange
believes that, notwithstanding that the
National Index does not satisfy the
11 See note 11, supra, regarding the requirement
of Commentary .02(a)(4) to NYSE Arca Equities
Rule 5.2(j)(3).
12 See note 11, supra, regarding the requirement
of Commentary .02(a)(4) to NYSE Arca Equities
Rule 5.2(j)(3).
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criterion in NYSE Arca Equities Rule
5.2(j)(3), Commentary .02 (a)(2), the
National Index is sufficiently broadbased to deter potential manipulation,
given that it is composed of
approximately 1,238 issues and 521
unique issuers. The Exchange notes that
the individual maturities that are part of
the same municipal bond offering share
common characteristics, such as issuer,
rating, structure, and purpose (i.e.,
general obligation bonds, revenue bonds
or ‘‘double-barreled’’ bonds). In
addition, the National Index securities
are sufficiently liquid to deter potential
manipulation in that a substantial
portion (89.24%) of the National Index
weight is composed of maturities that
are part of a minimum original principal
amount outstanding of $100 million or
more for all the maturities of the
offering, and in view of the substantial
total dollar amount outstanding and the
average dollar amount outstanding of
National Index issues, as referenced
above.
In addition, the average daily notional
trading volume for National Index
components for the calendar year 2013
was approximately $101.99 million and
the sum of the notional trading volumes
for the same period was approximately
$25.7 billion.
PowerShares Insured New York
Municipal Bond Portfolio
According to the Registration
Statement, the NY Portfolio seeks
investment results that generally
correspond (before fees and expenses) to
the price and yield performance of the
NY Index. The NY Portfolio will
generally invest at least 80% of its total
assets in insured municipal securities
that are exempt from federal income tax,
New York State income tax and New
York City income tax. The NY Portfolio
will normally invest at least 80% of its
total assets in the securities that
compose the NY Index. The NY
Portfolio, however, reserves the right to
invest up to 20% of its assets in certain
futures, options and swap contracts,
cash and cash equivalents, including
money market funds, as well as in
municipal securities not included in the
NY Index to the extent that the Adviser
believes such investments will facilitate
the NY Portfolio’s ability to achieve its
investment objective.
The NY Index is designed to track the
performance of U.S. dollardenominated, investment grade, taxexempt debt publicly issued by New
York or U.S. territories (including
Puerto Rico), or their political
subdivisions, included in the U.S.
domestic market and includes
approximately 130 bonds (as of January
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31, 2014). The NY Index is adjusted
monthly. The NY Portfolio, using an
‘‘indexing’’ investment approach,
attempts to replicate, before fees and
expenses, the performance of the NY
Index through sampling. The Adviser
seeks correlation over time of 0.95% or
better between the NY Portfolio’s
performance and the performance of the
NY Index.
As of January 31, 2014, approximately
95.89% of the weight of the NY Index
components was composed of
individual maturities that were part of
an entire municipal bond offering with
a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January, 2014, the total
dollar amount outstanding of issues in
the NY Index was approximately $17.76
billion and the average dollar amount
outstanding of issues in the NY Index
was approximately $90.58 million.
Further, the most heavily weighted
component represents 6.14% of the
weight of the NY Index and the five
most heavily weighted components
represent 20.15% of the weight of the
NY Index.13 Therefore, the Exchange
believes that, notwithstanding that the
NY Index does not satisfy the criterion
in NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02 (a)(2), the NY Index is
sufficiently broad-based to deter
potential manipulation, given that it is
composed of approximately 130 issues
and 25 unique issuers. The Exchange
notes that the individual maturities that
are part of the same municipal bond
offering share common characteristics,
such as issuer, rating, structure, and
purpose (i.e., general obligation bonds,
revenue bonds or ‘‘double-barreled’’
bonds). In addition, the NY Index
securities are sufficiently liquid to deter
manipulation in that a substantial
portion (95.89%) of the NY Index
weight is composed of maturities that
are part of a minimum original principal
amount outstanding of $100 million or
more for all the maturities of the
offering, and in view of the substantial
total dollar amount outstanding and the
average dollar amount outstanding of
NY Index issues, as referenced above.
In addition, the average daily notional
trading volume for NY Index
components for the calendar year 2013
was approximately $19.41 million and
the sum of the notional trading volumes
for the same period was approximately
$4.89 billion.
Changes to Indexes Underlying the
Municipal Bond Portfolios
As noted above, the indexes currently
underlying the Municipal Bond
Portfolios are the BofA Merrill Lynch
California Insured Long-Term Core Plus
Municipal Securities Index, the BofA
Merrill Lynch National Insured LongTerm Core Plus Municipal Securities
Index and the BofA Merrill Lynch New
York Insured Long-Term Core Plus
Municipal Securities Index,
respectively. As described below, the
Trust has proposed to change the
indexes underlying the Funds and the
name of the Funds.
On May 10, 2013, the Trust filed with
the Commission on Schedule 14A a
definitive proxy statement and notice of
shareholders meeting calling a meeting
on June 20, 2013 (‘‘Proxy Statement’’).14
As stated in the Proxy Statement, each
of the Funds has a policy to invest
normally at least 80% of its total assets
in insured municipal securities (the
‘‘80% investment policy’’), the income
from which is exempt, as applicable,
from federal income tax or from both
federal and state income tax. As stated
in the Proxy Statement, in response to
the changing market environment
relating to municipal securities
insurance, the Adviser proposed that
each Fund’s underlying index be
changed from one that is composed
solely of insured municipal securities to
one that is composed of both insured
and uninsured municipal securities.
However, according to the Proxy
Statement, before a Fund can change its
underlying index to invest in uninsured
municipal securities, it must obtain
shareholder approval of a change to its
fundamental 80% investment policy.
Therefore, the Trust recommended that
the fundamental 80% investment policy
of each Fund be changed such that (1)
it requires an investment of at least 80%
of a Fund’s net assets (plus any
borrowings for investment purposes),
rather than total assets, and (2) it
eliminates the requirement that the
municipal securities be insured, such
that a Fund need only invest 80% of its
net assets (plus any borrowings for
investment purposes) in municipal
securities, regardless of whether those
securities are insured or uninsured.
Thus, in the Proxy Statement, the
Trust stated that, subject to shareholder
approval of the above proposals, each
Fund intends to change its underlying
index to one that is composed of both
insured and uninsured municipal
securities. Following such change, the
13 See note 11, supra, regarding the requirement
of Commentary .02(a)(4) to NYSE Arca Equities
Rule 5.2(j)(3).
14 See Definitive Proxy Statement dated May 10,
2013 on Schedule 14A (Proxy Statement Pursuant
to Section 14(a) of the Act) (File No. 811–21977).
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27953
proposed underlying indexes for the
Funds will be, respectively, BofA
Merrill Lynch California Long-Term
Core Plus Municipal Securities Index
(‘‘New CA Index’’); BofA Merrill Lynch
National Long-Term Core Plus
Municipal Index (‘‘New National
Index’’); and BofA Merrill Lynch New
York Long-Term Core Plus Municipal
Securities Index (‘‘New NY Index’’,
collectively, with the New CA Index
and the New National Index, the ‘‘New
Municipal Bond Indexes’’).
According to the Proxy Statement, the
change in investment objective for each
Fund described above is designed to
enable each Fund to track its proposed
underlying index by substituting the
actual name of the proposed underlying
index in the investment objective;
otherwise, there is no other change to
any of the investment objectives. After
such change, each Fund’s investment
objective will be to seek investment
results that generally correspond (before
fees and expenses) to the price and yield
of its respective proposed underlying
index.
In addition, each Fund intends to
change its name by removing the word
‘‘Insured’’ and adding the term ‘‘AMTFree’’ to reflect that the proposed
underlying indexes will include
primarily municipal securities that are
exempt from the alternative minimum
tax. 15 After such change, the names of
the Funds will be PowerShares
California AMT-Free Municipal Bond
Portfolio (‘‘New CA Portfolio’’),
PowerShares National AMT-Free
Municipal Bond Portfolio (‘‘New
National Portfolio’’) and PowerShares
New York AMT-Free Municipal Bond
Portfolio (‘‘New NY Portfolio’’),
respectively.16
The New Municipal Bond Indexes
currently do not meet the generic listing
criteria of NYSE Arca Equities Rule
5.2(j)(3), as described below.
Accordingly, the Exchange is submitting
this proposed rule change to permit the
15 In connection with the addition of the term
‘‘AMT-Free’’ to each Fund’s name, the Trust’s
Board of Trustees has adopted a non-fundamental
investment policy for each Fund normally to invest
at least 80% of its net assets, including the amount
of any borrowings for investment purposes, in
municipal securities that are exempt from the
federal alternative minimum tax.
16 The shareholders of each Fund have approved
these changes contingent upon approval of this
proposed rule change. The changes described
herein with respect to use of the New Municipal
Bond Indexes will be effective upon filing with the
Commission of another amendment to the Trust’s
Registration Statement, or a prospectus supplement
reflecting these changes. The Adviser represents
that the Adviser and Sub-Adviser have managed
and will continue to manage the Funds in the
manner described in the Registration Statement and
will not implement the changes described herein
until this proposed rule change is operative.
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continued listing of each of the Funds
based on the New Municipal Bond
Indexes. The New Municipal Bond
Indexes meet all of the requirements of
the generic listing criteria of NYSE Arca
Equities Rule 5.2(j)(3), except for those
set forth in Commentary .02(a)(2).17
Specifically, as of January 31, 2014,
approximately 59.51%, 46.90%, and
60.63% of the weight of the components
of the New CA Index, New National
Index and New NY Index, respectively,
have a minimum original principal
amount outstanding of $100 million or
more.
TKELLEY on DSK3SPTVN1PROD with NOTICES
PowerShares California AMT-Free
Municipal Bond Portfolio
According to the Registration
Statement as supplemented by the
Proxy Statement, the New CA Portfolio
will generally seek investment results
that correspond (before fees and
expenses) to the price and yield
performance of the New CA Index. The
New CA Portfolio normally will invest
at least 80% of its net assets (plus
borrowings for investment purposes, if
any) in municipal securities that are
exempt from federal income tax and
California state income tax. The New
CA Portfolio normally will invest at
least 80% of its total assets in the
securities that compose the New CA
Index and generally expects to so invest
at least 90% of its total assets.18 The
New CA Portfolio, however, reserves the
right to invest up to 20% of its assets in
certain futures, options and swap
contracts, cash and cash equivalents,
including money market funds, as well
as in municipal securities not included
in the New CA Index to the extent that
the Adviser believes investment in such
instruments will facilitate the New CA
Portfolio’s ability to achieve its
investment objective.
The New CA Index is designed to
track the performance of U.S. dollardenominated, investment grade, taxexempt debt publicly issued by
California or U.S. territories (including
Puerto Rico), or their political
subdivisions, in the U.S. domestic
market and includes approximately
1,086 bonds (as of January 31, 2014).
The New CA Index is adjusted monthly.
The New CA Portfolio, using an
‘‘indexing’’ investment approach, will
attempt to replicate, before fees and
17 See note 10, supra, regarding the requirements
of Commentary .02(a)(2) to NYSE Arca Equities
Rule 5.2(j)(3).
18 Each Fund is required by Rule 35d–1 under the
1940 Act to invest at least 80% of its net assets (plus
borrowings for investment purposes, if any) in
securities implied by its name. In addition, the
Exemptive Order requires each Fund to invest at
least 80% of its total assets in securities comprising
its underlying index.
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expenses, the performance of the New
CA Index through sampling. The
Adviser will seek correlation over time
of 0.95% or better between the New CA
Portfolio’s performance and the
performance of the New CA Index.
As of January 31, 2014, approximately
94.60% of the weight of the New CA
Index components was composed of
individual maturities that were part of
an entire municipal bond offering with
a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January, 2014, the total
dollar amount outstanding of issues in
the New CA Index was approximately
$100.76 billion and the average dollar
amount outstanding of issues in the
Index was approximately $92.81
million. Further, the most heavily
weighted component represents 1.39%
of the weight of the New CA Index and
the five most heavily weighted
components represent 5.17% of the
weight of the CA Index.19 Therefore, the
Exchange believes that, notwithstanding
that the New CA Index does not satisfy
the criterion in NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02(a)(2), the
New CA Index is sufficiently broadbased to deter potential manipulation,
given that it is composed of
approximately 1,086 issues and 229
unique issuers. The Exchange notes that
the individual maturities that are part of
the same municipal bond offering share
common characteristics, such as issuer,
rating, structure, and purpose (i.e.,
general obligation bonds, revenue bonds
or ‘‘double-barreled’’ bonds). In
addition, the New CA Index securities
are sufficiently liquid to deter
manipulation in that a substantial
portion (94.60%) of the New CA Index
weight is composed of maturities that
are part of a minimum original principal
amount outstanding of $100 million or
more for all the maturities of the
offering, and in view of the substantial
total dollar amount outstanding and the
average dollar amount outstanding of
New CA Index issues, as referenced
above.
In addition, the average daily notional
trading volume for New CA Index
components for the calendar year 2013
was approximately $364.22 million and
the sum of the notional trading volumes
for the same period was approximately
$91.78 billion.
19 See note 11, supra, regarding the requirements
of Commentary .02(a)(4) to NYSE Arca Equities
Rule 5.2(j)(3).
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PowerShares National AMT-Free
Municipal Bond Portfolio
According to the Registration
Statement as supplemented by the
Proxy Statement, the New National
Portfolio generally will seek investment
results that correspond (before fees and
expenses) to the price and yield
performance of the New National Index.
The New National Portfolio normally
will invest at least 80% of its net assets
(plus borrowings for investment
purposes, if any) in municipal securities
that are exempt from federal income tax.
The New National Portfolio will
normally invest at least 80% of its total
assets in the securities that compose the
New National Index and generally
expects to so invest at least 90% of its
total assets. The New National Portfolio,
however, reserves the right to invest up
to 20% of its assets in certain futures,
options and swap contracts, cash and
cash equivalents, including money
market funds, as well as in municipal
securities not included in the New
National Index to the extent that the
Adviser believes such investments will
facilitate the New National Portfolio’s
ability to achieve its investment
objective. The New National Index is
designed to track the performance of
U.S. dollar-denominated investment
grade tax-exempt debt publicly issued
by U.S. states or U.S. territories
(including Puerto Rico), or its political
subdivision, in the U.S. domestic
market and includes approximately
5,476 bonds (as of January 31, 2014).
The New National Index is adjusted
monthly.
The New National Portfolio, using an
‘‘indexing’’ investment approach, will
attempt to replicate, before fees and
expenses, the performance of the New
National Index through sampling. The
Adviser will seek correlation over time
of 0.95% or better between the National
Portfolio’s performance and the
performance of the New National Index.
As of January 31, 2014, approximately
91.86% of the weight of the New
National Index components was
composed of individual maturities that
were part of an entire municipal bond
offering with a minimum original
principal amount outstanding of $100
million or more for all maturities of the
offering. In addition, as of January 31,
2014, the total dollar amount
outstanding of issues in the New
National Index was approximately
$394.04 billion and the average dollar
amount outstanding of issues in the
New National Index was approximately
$71.96 million. Further, the most
heavily weighted component represents
0.34% of the weight of the New
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PowerShares New York AMT-Free
Municipal Bond Portfolio
According to the Registration
Statement as supplemented by the
Proxy Statement, the New NY Portfolio
will seek investment results that
correspond (before fees and expenses)
generally to the price and yield
performance of the New NY Index. The
New NY Portfolio will normally invest
at least 80% of its net assets in
municipal securities that are exempt
from federal income tax, New York State
income tax and New York City income
tax. The NY Portfolio will normally
invest at least 80% of its total assets in
the securities that compose the New NY
Index. The New NY Portfolio, however,
reserves the right to invest up to 20% of
its assets in certain futures, options and
swap contracts, cash and cash
equivalents, including money market
funds, as well as in municipal securities
not included in the New NY Index to
the extent that the Adviser believes such
investments will facilitate the New NY
Portfolio’s ability to achieve its
investment objective. The Adviser will
seek correlation over time of 0.95% or
better between the New NY Portfolio’s
performance and the performance of the
New NY Index. The New NY Index is
designed to track the performance of
U.S. dollar-denominated, investment
grade, tax-exempt debt publicly issued
by New York or U.S. territories
(including Puerto Rico), or their
political subdivisions, included in the
U.S. domestic market includes
approximately 952 bonds (as of January
31, 2014).
As of January 31, 2014, approximately
98.21% of the weight of the New NY
Index components was composed of
individual maturities that were part of
an entire municipal bond offering with
a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January 31, 2014, the
total dollar amount outstanding of
issues in the New NY Index was
approximately $86.75 billion and the
average dollar amount outstanding of
issues in the New NY Index was
approximately $91.13 million. Further,
the most heavily weighted component
represents 1.61% of the weight of the
New NY Index and the five most heavily
weighted components represent 5.07%
of the weight of the New NY Index.21
Therefore, the Exchange believes that,
notwithstanding that the New NY Index
does not satisfy the criterion in NYSE
Arca Equities Rule 5.2(j)(3),
Commentary .02(a)(2), the New NY
Index is sufficiently broad-based to
deter potential manipulation, given that
it is composed of approximately 952
issues and 67 unique issuers. The
Exchange notes that the individual
maturities that are part of the same
municipal bond offering share common
characteristics, such as issuer, rating,
structure, and purpose (i.e., general
obligation bonds, revenue bonds or
‘‘double-barreled’’ bonds). In addition,
the New NY Index securities are
sufficiently liquid to deter potential
manipulation in that a substantial
portion (98.21%) of the New NY Index
weight is composed of maturities that
are part of a minimum original principal
amount outstanding of $100 million or
more for all the maturities of the
offering, and in view of the substantial
total dollar amount outstanding and the
average dollar amount outstanding of
20 See note 11, supra, regarding the requirements
of Commentary .02(a)(4) to NYSE Arca Equities
Rule 5.2(j)(3).
21 See note 11, supra, regarding the requirements
of Commentary .02(a)(4) to NYSE Arca Equities
Rule 5.2(j)(3).
TKELLEY on DSK3SPTVN1PROD with NOTICES
National Index and the five most
heavily weighted components represent
1.47% of the weight of the New
National Index.20 Therefore, the
Exchange believes that, notwithstanding
that the New National Index does not
satisfy the criterion in NYSE Arca
Equities Rule 5.2(j)(3), Commentary
.02(a)(2), the New National Index is
sufficiently broad-based to deter
potential manipulation, given that it is
composed of approximately 5,476 issues
and 1,259 unique issuers. The Exchange
notes that the individual maturities that
are part of the same municipal bond
offering share common characteristics,
such as issuer, rating, structure, and
purpose (i.e., general obligation bonds,
revenue bonds or ‘‘double-barreled’’
bonds). In addition, the New National
Index securities are sufficiently liquid to
deter potential manipulation in that a
substantial portion (91.86%) of the New
National Index weight is composed of
maturities that are part of a minimum
original principal amount outstanding
of $100 million or more for all the
maturities of the offering, and in view
of the substantial total dollar amount
outstanding and the average dollar
amount outstanding of New National
Index issues, as referenced above.
In addition, the average daily notional
trading volume for New National Index
components for the calendar year 2013
was approximately $1.26 billion and the
sum of the notional trading volumes for
the same period was approximately
$317.73 billion.
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27955
New NY Index issues, as referenced
above.
In addition, the average daily notional
trading volume for New NY Index
components for the calendar year 2013
was approximately $334.68 million and
the sum of the notional trading volumes
for the same period was approximately
$84.34 billion.
All components of each of the
Municipal Bond Indexes and New
Municipal Bond Indexes currently are
rated as investment grade (A3 or higher
by Moody’s Investors Service).
The Exchange represents that: (1)
With respect to the Municipal Bond
Portfolios, except for Commentary
.02(a)(2) to NYSE Arca Equities Rule
5.2(j)(3), the Shares of the Municipal
Bond Portfolios currently satisfy all of
the generic listing standards under
NYSE Arca Equities Rule 5.2(j)(3); (2)
the continued listing standards under
NYSE Arca Equities Rules 5.2(j)(3) and
5.5(g)(2) applicable to Units shall apply
to the Shares of the Funds; and (3) the
Trust is required to comply with Rule
10A–3 22 under the Act for the initial
and continued listing of the Shares of
the Funds. In addition, the Exchange
represents that the Shares of the Funds
will comply with all other requirements
applicable to Units including, but not
limited to, requirements relating to the
dissemination of key information such
as the value of the Index and the
applicable Intraday Indicative Value
(‘‘IIV’’),23 rules governing the trading of
equity securities, trading hours, trading
halts, surveillance, information barriers
and the Information Bulletin to Equity
Trading Permit Holders (‘‘ETP
Holders’’), as set forth in Exchange rules
applicable to Units and prior
Commission orders approving the
generic listing rules applicable to the
listing and trading of Units.24
The current value of the Municipal
Bond Indexes and New Municipal Bond
Indexes are widely disseminated by one
or more major market data vendors at
22 17
CFR 240.10A–3.
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 of 9:30 a.m. to 4:00 p.m., Eastern time.
Currently, it is the Exchange’s understanding that
several major market data vendors display and/or
make widely available IIVs taken from the
Consolidated Tape Association (‘‘CTA’’) or other
data feeds.
24 See, e.g., Securities Exchange Act Release Nos.
55783 (May 17, 2007), 72 FR 29194 (May 24, 2007)
(SR–NYSEArca-2007–36) (order approving NYSE
Arca generic listing standards for Units based on a
fixed income index); 44551 (July 12, 2001), 66 FR
37716 (July 19, 2001) (SR–PCX–2001–14) (order
approving generic listing standards for Units and
Portfolio Depositary Receipts); 41983 (October 6,
1999), 64 FR 56008 (October 15, 1999) (SR–PCX–
98–29) (order approving rules for listing and trading
of Units).
23 The
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TKELLEY on DSK3SPTVN1PROD with NOTICES
least once per day, as required by NYSE
Arca Equities Rule 5.2(j)(3),
Commentary .02(b)(ii). The IIVs for
Shares of the Funds are disseminated by
one or more major market data vendors,
updated at least every 15 seconds
during the Exchange’s Core Trading
Session, as required by NYSE Arca
Equities Rule 5.2(j)(3), Commentary
.02(c), and Commentary .01(c),
respectively. The components and
percentage weightings of each
Municipal Bond Index and New
Municipal Bond Index are also available
from major market data vendors. In
addition, the portfolio of securities held
by each Fund is disclosed daily on the
Funds’ Web site at
www.invescopowershares.com
Detailed descriptions of the Funds,
the Municipal Bond Indexes, the New
Municipal Bond Indexes, procedures for
creating and redeeming Shares,
transaction fees and expenses,
dividends, distributions, taxes, risks,
and reports to be distributed to
beneficial owners of the Shares can be
found in the Registration Statement or
on the Web site for the Funds
(www.invescopowershares.com), as
applicable.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 25 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). 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 federal securities
laws applicable to trading on the
Exchange.26 The Exchange represents
that these procedures are adequate to
properly monitor Exchange trading of
the Shares in all trading sessions and to
25 15
U.S.C. 78f(b)(5).
surveils trading on the Exchange
pursuant to a regulatory services agreement. The
Exchange is responsible for FINRA’s performance
under this regulatory services agreement.
26 FINRA
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18:18 May 14, 2014
Jkt 232001
deter and 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 with other markets
that are members of the Intermarket
Surveillance Group (‘‘ISG’’). In addition,
the Exchange will communicate as
needed regarding trading in the Shares
with other markets that are members of
the ISG or with which the Exchange has
in place a comprehensive surveillance
sharing agreement. The Index Provider
is a broker-dealer and has implemented
a firewall and will maintain procedures
designed to prevent the use and
dissemination of material non-public
information regarding the Municipal
Bond Indexes and New Municipal Bond
Indexes.
As discussed above, the Exchange
believes that each of the Municipal
Bond Indexes is sufficiently broad-based
to deter potential manipulation. As of
January 31, 2014, approximately 86.1%
of the weight of the CA Index
components was composed of
individual maturities that were part of
an entire municipal bond offering with
a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January 31, 2014, the
total dollar amount outstanding of
issues in the CA Index was
approximately $17.201 billion and the
average dollar amount outstanding of
issues in the Index was approximately
$64.42 million. Further, the most
heavily weighted component represents
3.53% of the weight of the CA Index
and the five most heavily weighted
components represent 9.94% of the
weight of the CA Index.
As of January 31, 2014, approximately
89.24% of the weight of the National
Index components was composed of
individual maturities that were part of
an entire municipal bond offering with
a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January 31, 2014, the
total dollar amount outstanding of
issues in the National Index was
approximately $78.69 billion and the
average dollar amount outstanding of
issues in the National Index was
approximately $63.56 million. Further,
the most heavily weighted component
represents 0.88% of the weight of the
National Index and the five most
heavily weighted components represent
3.51% of the weight of the National
Index.
As of January 31, 2014, approximately
95.89% of the weight of the NY Index
components was composed of
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Fmt 4703
Sfmt 4703
individual maturities that were part of
an entire municipal bond offering with
a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January 31, 2014, the
total dollar amount outstanding of
issues in the NY Index was
approximately $17.76 billion and the
average dollar amount outstanding of
issues in the NY Index was
approximately $90.58 million. Further,
the most heavily weighted component
represents 6.14% of the weight of the
NY Index and the five most heavily
weighted components represent 20.15%
of the weight of the NY Index.
As discussed above, the Exchange
further believes that each of the New
Municipal Bond Indexes is sufficiently
broad-based to deter potential
manipulation. As of January 31, 2014,
approximately 94.60% of the weight of
the New CA Index components was
composed of individual maturities that
were part of an entire municipal bond
offering with a minimum original
principal amount outstanding of $100
million or more for all maturities of the
offering. In addition, as of January 31,
2014, the total dollar amount
outstanding of issues in the New CA
Index was approximately $100.76
billion and the average dollar amount
outstanding of issues in the New CA
Index was approximately $92.81
million. Further, the most heavily
weighted component represents 1.39%
of the weight of the New CA Index and
the five most heavily weighted
components represent 5.17% of the
weight of the New CA Index.
As of January 31, 2014, approximately
91.86% of the weight of the New
National Index components was
composed of individual maturities that
were part of an entire municipal bond
offering with a minimum original
principal amount outstanding of $100
million or more for all maturities of the
offering. In addition, as of January 31,
2014, the total dollar amount
outstanding of issues in the New
National Index was approximately
$394.04 billion and the average dollar
amount outstanding of issues in the
New National Index was approximately
$71.96 million. Further, the most
heavily weighted component represents
0.34% of the weight of the New
National Index and the five most
heavily weighted components represent
1.47% of the weight of the New
National Index.
As of January 31, 2014, approximately
98.21% of the weight of the New NY
Index components was composed of
individual maturities that were part of
an entire municipal bond offering with
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a minimum original principal amount
outstanding of $100 million or more for
all maturities of the offering. In
addition, as of January 31, 2014, the
total dollar amount outstanding of
issues in the New NY Index was
approximately $86.75 billion and the
average dollar amount outstanding of
issues in the New NY Index was
approximately $91.13 million. Further,
the most heavily weighted component
represents 1.61% of the weight of the
New NY Index and the five most heavily
weighted components represent 5.07%
of the weight of the New NY Index.
The Municipal Bond Indexes and
New Municipal Bond Indexes values,
calculated and disseminated at least
once daily, as well as the components
of the Municipal Bond Indexes and New
Municipal Bond Indexes and their
respective percentage weightings, will
be available from major market data
vendors. In addition, the portfolio of
securities held by the Funds will be
disclosed on the Funds’ Web site. The
IIV for Shares of the Funds will be
disseminated by one or more major
market data vendors, updated at least
every 15 seconds during the Exchange’s
Core Trading Session.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that a large amount of
information is publicly available
regarding the Funds and the Shares,
thereby promoting market transparency.
The Funds’ portfolio holdings will be
disclosed on the Funds’ Web site daily
after the close of trading on the
Exchange and prior to the opening of
trading on the Exchange the following
day. Moreover, the IIV for Shares of the
Funds will be widely disseminated by
one or more major market data vendors
at least every 15 seconds during the
Exchange’s Core Trading Session. The
current value of the Municipal Bond
Indexes and New Municipal Bond
Indexes will be disseminated by one or
more major market data vendors at least
once per day. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
last sale information will be available
via the CTA high-speed line. The Web
site for the Funds will include the
prospectus for the Funds and additional
data relating to NAV and other
applicable quantitative information.
Moreover, prior to the commencement
of trading, the Exchange will inform its
ETP Holders in an Information Bulletin
of the special characteristics and risks
associated with trading the Shares. If the
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Exchange becomes aware that the NAV
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. With respect to trading
halts, the Exchange may consider all
relevant factors in exercising its
discretion to halt or suspend trading in
the Shares of the Funds. 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. If the applicable
IIV, the Municipal Bond Index or New
Municipal Bond Index values are not
being disseminated as required, the
Corporation may halt trading during the
day in which the interruption to the
dissemination of the applicable IIV,
Municipal Bond Index, or New
Municipal Bond Index value occurs. If
the interruption to the dissemination of
the applicable IIV, Municipal Bond
Index, or New Municipal Bond Index
value persists past the trading day in
which it occurred, the Corporation will
halt trading. Trading in Shares of the
Funds will be halted if the circuit
breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable, and trading in the Shares
will be subject to NYSE Arca Equities
Rule 7.34, which sets forth
circumstances under which Shares of
the Funds may be halted. In addition,
investors will have ready access to
information regarding the applicable
IIV, 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 continued listing
and trading of exchange-traded products
that principally hold municipal bonds
and that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
The Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, investors will
have ready access to information
regarding 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
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
27957
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 continued listing and
trading of exchange-traded products that
will enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2014–45 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–2014–45. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
E:\FR\FM\15MYN1.SGM
15MYN1
27958
Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Notices
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 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–2014–45, and should be
submitted on or before June 5, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–11157 Filed 5–14–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72138; File No. SR–
NYSEArca-2014–23]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Approving a
Proposed Rule Change to List and
Trade Shares of the iShares Interest
Rate Hedged Corporate Bond ETF and
iShares Interest Rate Hedged High
Yield Bond ETF Under NYSE Arca
Equities Rule 8.600
TKELLEY on DSK3SPTVN1PROD with NOTICES
May 9, 2014.
I. Introduction
On March 19, 2014, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) 1 of the Securities
Exchange Act of 1934 (‘‘Exchange
Act’’) 2 and Rule 19b–4 thereunder,3 a
proposed rule change to list and trade
shares (‘‘Shares’’) of the iShares Interest
27 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
VerDate Mar<15>2010
18:18 May 14, 2014
Jkt 232001
Rate Hedged Corporate Bond ETF and
iShares Interest Rate Hedged High Yield
Bond ETF (each, a ‘‘Fund’’ and
collectively, the ‘‘Funds’’). The
proposed rule change was published for
comment in the Federal Register on
March 28, 2014.4 The Commission
received no comments on the proposal.
This order approves the proposed rule
change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade the Shares under NYSE Arca
Equities Rule 8.600, which governs the
listing and trading of Managed Fund
Shares on the Exchange. The Shares will
be offered by iShares U.S. ETF Trust
(‘‘Trust’’). The Trust is registered with
the Commission as an open-end
management investment company.5
BlackRock Fund Advisors (‘‘BFA’’) will
serve as the investment adviser to the
Funds (‘‘Adviser’’). BlackRock
Investments, LLC will be the principal
distributor of the Funds’ Shares. State
Street Bank and Trust Company will
serve as the administrator, custodian,
and transfer agent for the Funds. The
Exchange represents that the Adviser is
not registered as a broker-dealer, but is
affiliated with multiple broker-dealers
and has implemented a fire wall with
respect to its broker-dealer affiliates
regarding access to information
concerning the composition of and
changes to each Fund’s portfolio.6
4 See Securities Exchange Act Release No. 71778
(March 24, 2014), 79 FR 17585 (‘‘Notice’’).
5 The Trust is registered under the 1940 Act. On
August 22, 2013, the Trust filed with the
Commission post-effective amendments on Form
N–1A under the Securities Act of 1933 (15 U.S.C.
77a) and under the 1940 Act relating to the iShares
Interest Rate Hedged Corporate Bond ETF (the
‘‘Corporate Bond Registration Statement’’) and the
iShares Interest Rate Hedged High Yield Bond ETF
(the ‘‘High Yield Registration Statement’’ and
together with the Corporate Bond Registration
Statement, the ‘‘Registration Statements’’) (File Nos.
333–179904 and 811–22649). In addition, the
Exchange states that the Commission has issued an
order granting certain exemptive relief to the Trust
under the 1940 Act. See Investment Company Act
Release No. 29571 (File No. 812–13601)
(‘‘Exemptive Order’’).
6 See Commentary .06 to NYSE Arca Equities
Rule 8.600. The Exchange represents that in the
event (a) the Adviser or any sub-adviser registers as
a broker-dealer or becomes newly affiliated with a
broker-dealer, or (b) any new adviser or sub-adviser
is a registered broker-dealer or becomes affiliated
with a broker-dealer, it will implement a fire wall
with respect to its relevant personnel or its brokerdealer affiliate regarding access to information
concerning the composition of or changes to a
Fund’s portfolio, and will be subject to procedures
designed to prevent the use and dissemination of
material non-public information regarding a Fund’s
portfolio.
PO 00000
Frm 00122
Fmt 4703
Sfmt 4703
The Exchange has made the following
representations and statements
regarding the Funds.7
iShares Interest Rate Hedged Corporate
Bond ETF
The Fund will seek to mitigate the
interest rate risk of a portfolio composed
of U.S. dollar-denominated, investment
grade corporate bonds. The Fund will
seek to achieve its investment objective
by investing, under normal
circumstances,8 at least 80% of its net
assets in U.S. dollar-denominated
investment-grade bonds, in one or more
investment companies (exchange-traded
and non-exchange-traded funds) that
principally invest in investment-grade
bonds,9 in U.S. Treasury securities (or
cash equivalents), and by taking short
positions in U.S. Treasury futures and
other interest rate futures contracts.
The Fund will attempt to mitigate
interest rate risk primarily through the
use of U.S. Treasury futures contracts.
The Fund may also take short positions
in other interest rate futures contracts,
including but not limited to, Eurodollar
and Federal Funds futures. The Fund
will invest only in futures contracts that
are traded on an exchange that is a
member of the Intermarket Surveillance
Group (‘‘ISG’’) or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
iShares Interest Rate Hedged High Yield
Bond ETF
The Fund will seek to mitigate the
interest rate risk of a portfolio composed
of U.S. dollar-denominated, high yield
corporate bonds. The Fund will seek to
achieve its investment objective by
investing, under normal circumstances,
at least 80% of its net assets in U.S.
dollar-denominated high yield corporate
bonds, in one or more investment
companies (exchange-traded and non7 Additional information regarding the Trust, the
Funds, and the Shares, investment strategies,
investment restrictions, risks, net asset value
(‘‘NAV’’) calculation, creation and redemption
procedures, fees, portfolio holdings, disclosure
policies, distributions, and taxes, among other
information, is included in the Notice and the
Registration Statement, as applicable. See Notice
and Registration Statement, supra notes 4 and 5,
respectively.
8 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the equity
markets or the financial markets generally;
operational issues causing dissemination of
inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance.
9 Initially, the Fund intends to invest a substantial
portion of its assets in the iShares iBoxx $
Investment Grade Corporate Bond ETF (the
‘‘Underlying Corporate Bond Fund’’).
E:\FR\FM\15MYN1.SGM
15MYN1
]]>Agencies
[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Notices]
[Pages 27950-27958]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11157]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72139; File No. SR-NYSEArca-2014-45]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to PowerShares Insured California
Municipal Bond Portfolio, PowerShares Insured National Municipal Bond
Portfolio, and PowerShares Insured New York Municipal Bond Portfolio
May 9, 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 25, 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, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes a rule change relating to the listing and
trading of the following series of Investment Company Units that are
currently listed and traded on the Exchange under NYSE Arca Equities
Rule 5.2(j)(3): PowerShares Insured California Municipal Bond
Portfolio; PowerShares Insured National Municipal Bond Portfolio; and
PowerShares Insured New York Municipal Bond Portfolio. 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.
[[Page 27951]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange currently lists and trades shares of the PowerShares
Insured California Municipal Bond Portfolio (``CA Portfolio''),
PowerShares Insured National Municipal Bond Portfolio (``National
Portfolio'') and PowerShares Insured New York Municipal Bond Portfolio
(``NY Portfolio'', and, together with the CA Portfolio and the National
Portfolio, the ``Municipal Bond Portfolios'' or the ``Funds'') \4\
under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02, which governs
the listing and trading of Investment Company Units (``Units'') based
on fixed income securities indexes.\5\ The Funds are series of the
PowerShares Exchange-Traded Fund Trust II (``Trust'').\6\
---------------------------------------------------------------------------
\4\ On February 27, 2014, the Trust filed a post-effective
amendment on Form 485 under the Securities Act of 1933 (15 U.S.C.
77a) (``1933 Act'') to its registration statement on Form N-1A under
the 1933 Act and the Investment Company Act of 1940 (``1940 Act'')
(15 U.S.C. 80a-1) (File Nos. 333-138490 and 811-21977) (the
``Registration Statement''). The description of the operation of the
Trust and the Funds herein is based, in part, on the Registration
Statement. In addition, the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940 Act. See
Investment Company Act Release No. 27841 (May 25, 2007) (File No.
812-13335) (``Exemptive Order'').
\5\ The Municipal Bond Portfolios were initially listed on the
American Stock Exchange, Inc. (``Amex'') (now NYSE MKT) on October
11, 2007 pursuant to the generic listing criteria of Amex Rule
1000A. On November 3, 2008, the listings transferred from the Amex
to NYSE Arca, which changes were effected pursuant to NYSE Arca
Equities Rule 5.2(j)(3), Commentary .02.
\6\ The Commission previously has approved a proposed rule
change relating to listing and trading on the Exchange of Units
based on municipal bond indexes. See Securities Exchange Act Release
No. 67985 (October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-
NYSEArca-2012-92) (order approving proposed rule change relating to
the listing and trading of iShares 2018 S&P AMT-Free Municipal
Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE
Arca Equities Rule 5.2(j)(3), Commentary .02) (``iShares Order'').
---------------------------------------------------------------------------
Invesco PowerShares Capital Management LLC is the investment
adviser (``Adviser'') for the Funds. Invesco Distributors, Inc. is the
Funds' distributor (``Distributor''). The Bank of New York Mellon is
the administrator, custodian and fund accounting and transfer agent for
each Fund.
The Exchange is submitting this proposed rule change (1) to permit
the continued listing and trading of shares (``Shares'') of the Funds
following previous changes to the indexes underlying the Funds, as
described below, and (2) to propose changes to the indexes underlying
the Funds and new names for the Funds, as described below.
Municipal Bond Portfolios
On May 28, 2009, the municipal bond indexes underlying the CA
Portfolio; the National Portfolio; and the NY Portfolio were changed to
the Merrill Lynch California Insured Long-Term Core Plus Municipal
Securities Index, the Merrill Lynch National Insured Long-Term Core
Plus Municipal Securities Index, and the Merrill Lynch New York Insured
Long-Term Core Plus Municipal Securities Index, respectively.\7\ On
September 25, 2009, the names of the indexes underlying the Municipal
Bond Portfolios again were changed to the BofA Merrill Lynch California
Insured Long-Term Core Plus Municipal Securities Index (``CA Index''),
the BofA Merrill Lynch National Insured Long-Term Core Plus Municipal
Securities Index (``National Index''), and the BofA Merrill Lynch New
York Insured Long-Term Core Plus Municipal Securities Index,
respectively \8\ (``NY Index'', collectively, with the CA Index and the
National Index, the ``Municipal Bond Indexes'').\9\
---------------------------------------------------------------------------
\7\ The changes to the indexes underlying the Municipal Bond
Portfolios were reflected in a supplement on Form 497 under the 1933
Act, dated May 28, 2009 (``May 28, 2009 Supplement'') to the
Municipal Bond Portfolios' prospectus dated February 27, 2009. The
previous names of the indexes underlying the Municipal Bond
Portfolios were the Merrill Lynch California Insured Long-Term Core
Municipal Securities Index, Merrill Lynch National Insured Long-Term
Core Municipal Securities Index, and Merrill Lynch New York Insured
Long-Term Core Municipal Securities Index, respectively.
\8\ BofA Merrill Lynch is the ``Index Provider'' with respect to
the Municipal Bond Indexes and the ``New Municipal Bond Indexes''
(as described below). The Index Provider is a broker-dealer and has
implemented a firewall with respect to and will maintain procedures
designed to prevent the use and dissemination of material non-public
information regarding the Municipal Bond Indexes and New Municipal
Bond Indexes.
\9\ The September 25, 2009, name changes were reflected in a
supplement dated September 25, 2009 to the Municipal Bond
Portfolios' prospectus dated February 27, 2009.
---------------------------------------------------------------------------
The Exchange recently became aware of changes to the indexes
underlying the Municipal Bond Portfolios as reflected in the May 28,
2009 Supplement. Currently, therefore, the Municipal Bond Indexes do
not meet the generic listing criteria of NYSE Arca Equities Rule
5.2(j)(3), as described below.
Accordingly, the Exchange is submitting this proposed rule change
to permit the continued listing of each of the Funds. The Municipal
Bond Indexes meet all of the requirements of the generic listing
criteria of NYSE Arca Equities Rule 5.2(j)(3), except for those set
forth in Commentary .02(a)(2).\10\ Specifically, as of March 6, 2014,
approximately 34.84%, and 37.16%, and 59.22% of the weight of the
components of the CA Index, Core Index and NY Index, respectively, have
a minimum original principal amount outstanding of $100 million or
more.
---------------------------------------------------------------------------
\10\ Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3)
provides that components that in the aggregate account for at least
75% of the weight of the index or portfolio each shall have a
minimum original principal amount outstanding of $100 million or
more.
---------------------------------------------------------------------------
PowerShares Insured California Municipal Bond Portfolio
According to the Registration Statement, the CA Portfolio seeks
investment results that generally correspond (before fees and expenses)
to the price and yield performance of the CA Index. The CA Portfolio
generally invests at least 80% of its total assets in insured municipal
securities that are exempt from federal income tax and California state
income tax (the ``80% policy''). The CA Portfolio normally invests at
least 80% of its total assets in the securities that comprise the CA
Index and generally expects to so invest at least 90% of its total
assets. The CA Portfolio, however, reserves the right to invest up to
20% of its assets in certain futures, options and swap contracts, cash
and cash equivalents, including money market funds, as well as in
municipal securities not included in the CA Index to the extent that
the Adviser believes investment in such instruments will facilitate the
CA Portfolio's ability to achieve its investment objective.
The CA Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by
California or U.S. territories (including Puerto Rico), or their
political subdivisions, in the U.S. domestic market and includes
approximately 267 bonds (as of January 31, 2014). The CA Index is
adjusted monthly. The CA
[[Page 27952]]
Portfolio, using an ``indexing'' investment approach, attempts to
replicate, before fees and expenses, the performance of the CA Index
through sampling. The Adviser seeks correlation over time of 0.95% or
better between the CA Portfolio's performance and the performance of
the CA Index.
As of January 31, 2014, approximately 86.1% of the weight of the CA
Index components was composed of individual maturities that were part
of an entire municipal bond offering with a minimum original principal
amount outstanding of $100 million or more for all maturities of the
offering. In addition, as of January 31, 2014, the total dollar amount
outstanding of issues in the CA Index was approximately $17.201 billion
and the average dollar amount outstanding of issues in the CA Index was
approximately $64.42 million. Further, the most heavily weighted
component represents 3.53% of the weight of the CA Index and the five
most heavily weighted components represent 9.94% of the weight of the
CA Index.\11\ Therefore, the Exchange believes that, notwithstanding
that the CA Index does not satisfy the criterion in NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02 (a)(2), the CA Index is sufficiently
broad-based to deter potential manipulation, given that it is composed
of approximately 267 issues and 127 unique issuers. The Exchange notes
that the individual maturities that are part of the same municipal bond
offering share common characteristics, such as issuer, rating,
structure, and purpose (i.e., general obligation bonds, revenue bonds
or ``double-barreled'' bonds). In addition, the CA Index securities are
sufficiently liquid to deter manipulation in that a substantial portion
(86.1%) of the CA Index weight is composed of maturities that are part
of a minimum original principal amount outstanding of $100 million or
more for all the maturities of the offering, and in view of the
substantial total dollar amount outstanding and the average dollar
amount outstanding of CA Index issues, as referenced above.
---------------------------------------------------------------------------
\11\ See note 11, supra, regarding the requirement of Commentary
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------
In addition, the average daily notional trading volume for CA Index
components for the calendar year 2013 was approximately $27.45 million
and the sum of the notional trading volumes for the same period was
approximately$6.9 billion.
PowerShares Insured National Municipal Bond Portfolio
According to the Registration Statement, the National Portfolio
seeks investment results that generally correspond (before fees and
expenses) to the price and yield performance of the National Index. The
National Portfolio will generally invest at least 80% of its total
assets in the securities that compose the National Index and generally
expects to so invest at least 90% of its total assets. The National
Portfolio, however, reserves the right to invest up to 20% of its
assets in certain futures, options and swap contracts, cash and cash
equivalents, including money market funds, as well as in municipal
securities not included in the National Index to the extent that the
Adviser believes such investments will facilitate the National
Portfolio's ability to achieve its investment objective. The National
Index is designed to track the performance of U.S. dollar-denominated
investment grade insured tax-exempt debt publicly issued by U.S. states
and territories (including Puerto Rico), or their political
subdivision, in the U.S. domestic market and includes approximately
1,238 bonds (as of January 31, 2014). The National Index is adjusted
monthly.
The National Portfolio, using an ``indexing'' investment approach,
attempts to replicate, before fees and expenses, the performance of the
National Index through sampling. The Adviser seeks correlation over
time of 0.95% or better between the National Portfolio's performance
and the performance of the National Index.
As of January 31, 2014, approximately 89.24% of the weight of the
National Index components was composed of individual maturities that
were part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the National Index was approximately
$78.69 billion and the average dollar amount outstanding of issues in
the National Index was approximately $63.56 million. Further, the most
heavily weighted component represents 0.88% of the weight of the
National Index and the five most heavily weighted components represent
3.51% of the weight of the National Index.\12\ Therefore, the Exchange
believes that, notwithstanding that the National Index does not satisfy
the criterion in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02
(a)(2), the National Index is sufficiently broad-based to deter
potential manipulation, given that it is composed of approximately
1,238 issues and 521 unique issuers. The Exchange notes that the
individual maturities that are part of the same municipal bond offering
share common characteristics, such as issuer, rating, structure, and
purpose (i.e., general obligation bonds, revenue bonds or ``double-
barreled'' bonds). In addition, the National Index securities are
sufficiently liquid to deter potential manipulation in that a
substantial portion (89.24%) of the National Index weight is composed
of maturities that are part of a minimum original principal amount
outstanding of $100 million or more for all the maturities of the
offering, and in view of the substantial total dollar amount
outstanding and the average dollar amount outstanding of National Index
issues, as referenced above.
---------------------------------------------------------------------------
\12\ See note 11, supra, regarding the requirement of Commentary
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------
In addition, the average daily notional trading volume for National
Index components for the calendar year 2013 was approximately $101.99
million and the sum of the notional trading volumes for the same period
was approximately $25.7 billion.
PowerShares Insured New York Municipal Bond Portfolio
According to the Registration Statement, the NY Portfolio seeks
investment results that generally correspond (before fees and expenses)
to the price and yield performance of the NY Index. The NY Portfolio
will generally invest at least 80% of its total assets in insured
municipal securities that are exempt from federal income tax, New York
State income tax and New York City income tax. The NY Portfolio will
normally invest at least 80% of its total assets in the securities that
compose the NY Index. The NY Portfolio, however, reserves the right to
invest up to 20% of its assets in certain futures, options and swap
contracts, cash and cash equivalents, including money market funds, as
well as in municipal securities not included in the NY Index to the
extent that the Adviser believes such investments will facilitate the
NY Portfolio's ability to achieve its investment objective.
The NY Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by New
York or U.S. territories (including Puerto Rico), or their political
subdivisions, included in the U.S. domestic market and includes
approximately 130 bonds (as of January
[[Page 27953]]
31, 2014). The NY Index is adjusted monthly. The NY Portfolio, using an
``indexing'' investment approach, attempts to replicate, before fees
and expenses, the performance of the NY Index through sampling. The
Adviser seeks correlation over time of 0.95% or better between the NY
Portfolio's performance and the performance of the NY Index.
As of January 31, 2014, approximately 95.89% of the weight of the
NY Index components was composed of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January, 2014, the total dollar
amount outstanding of issues in the NY Index was approximately $17.76
billion and the average dollar amount outstanding of issues in the NY
Index was approximately $90.58 million. Further, the most heavily
weighted component represents 6.14% of the weight of the NY Index and
the five most heavily weighted components represent 20.15% of the
weight of the NY Index.\13\ Therefore, the Exchange believes that,
notwithstanding that the NY Index does not satisfy the criterion in
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (a)(2), the NY Index
is sufficiently broad-based to deter potential manipulation, given that
it is composed of approximately 130 issues and 25 unique issuers. The
Exchange notes that the individual maturities that are part of the same
municipal bond offering share common characteristics, such as issuer,
rating, structure, and purpose (i.e., general obligation bonds, revenue
bonds or ``double-barreled'' bonds). In addition, the NY Index
securities are sufficiently liquid to deter manipulation in that a
substantial portion (95.89%) of the NY Index weight is composed of
maturities that are part of a minimum original principal amount
outstanding of $100 million or more for all the maturities of the
offering, and in view of the substantial total dollar amount
outstanding and the average dollar amount outstanding of NY Index
issues, as referenced above.
---------------------------------------------------------------------------
\13\ See note 11, supra, regarding the requirement of Commentary
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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In addition, the average daily notional trading volume for NY Index
components for the calendar year 2013 was approximately $19.41 million
and the sum of the notional trading volumes for the same period was
approximately $4.89 billion.
Changes to Indexes Underlying the Municipal Bond Portfolios
As noted above, the indexes currently underlying the Municipal Bond
Portfolios are the BofA Merrill Lynch California Insured Long-Term Core
Plus Municipal Securities Index, the BofA Merrill Lynch National
Insured Long-Term Core Plus Municipal Securities Index and the BofA
Merrill Lynch New York Insured Long-Term Core Plus Municipal Securities
Index, respectively. As described below, the Trust has proposed to
change the indexes underlying the Funds and the name of the Funds.
On May 10, 2013, the Trust filed with the Commission on Schedule
14A a definitive proxy statement and notice of shareholders meeting
calling a meeting on June 20, 2013 (``Proxy Statement'').\14\ As stated
in the Proxy Statement, each of the Funds has a policy to invest
normally at least 80% of its total assets in insured municipal
securities (the ``80% investment policy''), the income from which is
exempt, as applicable, from federal income tax or from both federal and
state income tax. As stated in the Proxy Statement, in response to the
changing market environment relating to municipal securities insurance,
the Adviser proposed that each Fund's underlying index be changed from
one that is composed solely of insured municipal securities to one that
is composed of both insured and uninsured municipal securities.
However, according to the Proxy Statement, before a Fund can change its
underlying index to invest in uninsured municipal securities, it must
obtain shareholder approval of a change to its fundamental 80%
investment policy. Therefore, the Trust recommended that the
fundamental 80% investment policy of each Fund be changed such that (1)
it requires an investment of at least 80% of a Fund's net assets (plus
any borrowings for investment purposes), rather than total assets, and
(2) it eliminates the requirement that the municipal securities be
insured, such that a Fund need only invest 80% of its net assets (plus
any borrowings for investment purposes) in municipal securities,
regardless of whether those securities are insured or uninsured.
---------------------------------------------------------------------------
\14\ See Definitive Proxy Statement dated May 10, 2013 on
Schedule 14A (Proxy Statement Pursuant to Section 14(a) of the Act)
(File No. 811-21977).
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Thus, in the Proxy Statement, the Trust stated that, subject to
shareholder approval of the above proposals, each Fund intends to
change its underlying index to one that is composed of both insured and
uninsured municipal securities. Following such change, the proposed
underlying indexes for the Funds will be, respectively, BofA Merrill
Lynch California Long-Term Core Plus Municipal Securities Index (``New
CA Index''); BofA Merrill Lynch National Long-Term Core Plus Municipal
Index (``New National Index''); and BofA Merrill Lynch New York Long-
Term Core Plus Municipal Securities Index (``New NY Index'',
collectively, with the New CA Index and the New National Index, the
``New Municipal Bond Indexes'').
According to the Proxy Statement, the change in investment
objective for each Fund described above is designed to enable each Fund
to track its proposed underlying index by substituting the actual name
of the proposed underlying index in the investment objective;
otherwise, there is no other change to any of the investment
objectives. After such change, each Fund's investment objective will be
to seek investment results that generally correspond (before fees and
expenses) to the price and yield of its respective proposed underlying
index.
In addition, each Fund intends to change its name by removing the
word ``Insured'' and adding the term ``AMT-Free'' to reflect that the
proposed underlying indexes will include primarily municipal securities
that are exempt from the alternative minimum tax. \15\ After such
change, the names of the Funds will be PowerShares California AMT-Free
Municipal Bond Portfolio (``New CA Portfolio''), PowerShares National
AMT-Free Municipal Bond Portfolio (``New National Portfolio'') and
PowerShares New York AMT-Free Municipal Bond Portfolio (``New NY
Portfolio''), respectively.\16\
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\15\ In connection with the addition of the term ``AMT-Free'' to
each Fund's name, the Trust's Board of Trustees has adopted a non-
fundamental investment policy for each Fund normally to invest at
least 80% of its net assets, including the amount of any borrowings
for investment purposes, in municipal securities that are exempt
from the federal alternative minimum tax.
\16\ The shareholders of each Fund have approved these changes
contingent upon approval of this proposed rule change. The changes
described herein with respect to use of the New Municipal Bond
Indexes will be effective upon filing with the Commission of another
amendment to the Trust's Registration Statement, or a prospectus
supplement reflecting these changes. The Adviser represents that the
Adviser and Sub-Adviser have managed and will continue to manage the
Funds in the manner described in the Registration Statement and will
not implement the changes described herein until this proposed rule
change is operative.
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The New Municipal Bond Indexes currently do not meet the generic
listing criteria of NYSE Arca Equities Rule 5.2(j)(3), as described
below. Accordingly, the Exchange is submitting this proposed rule
change to permit the
[[Page 27954]]
continued listing of each of the Funds based on the New Municipal Bond
Indexes. The New Municipal Bond Indexes meet all of the requirements of
the generic listing criteria of NYSE Arca Equities Rule 5.2(j)(3),
except for those set forth in Commentary .02(a)(2).\17\ Specifically,
as of January 31, 2014, approximately 59.51%, 46.90%, and 60.63% of the
weight of the components of the New CA Index, New National Index and
New NY Index, respectively, have a minimum original principal amount
outstanding of $100 million or more.
---------------------------------------------------------------------------
\17\ See note 10, supra, regarding the requirements of
Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------
PowerShares California AMT-Free Municipal Bond Portfolio
According to the Registration Statement as supplemented by the
Proxy Statement, the New CA Portfolio will generally seek investment
results that correspond (before fees and expenses) to the price and
yield performance of the New CA Index. The New CA Portfolio normally
will invest at least 80% of its net assets (plus borrowings for
investment purposes, if any) in municipal securities that are exempt
from federal income tax and California state income tax. The New CA
Portfolio normally will invest at least 80% of its total assets in the
securities that compose the New CA Index and generally expects to so
invest at least 90% of its total assets.\18\ The New CA Portfolio,
however, reserves the right to invest up to 20% of its assets in
certain futures, options and swap contracts, cash and cash equivalents,
including money market funds, as well as in municipal securities not
included in the New CA Index to the extent that the Adviser believes
investment in such instruments will facilitate the New CA Portfolio's
ability to achieve its investment objective.
---------------------------------------------------------------------------
\18\ Each Fund is required by Rule 35d-1 under the 1940 Act to
invest at least 80% of its net assets (plus borrowings for
investment purposes, if any) in securities implied by its name. In
addition, the Exemptive Order requires each Fund to invest at least
80% of its total assets in securities comprising its underlying
index.
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The New CA Index is designed to track the performance of U.S.
dollar-denominated, investment grade, tax-exempt debt publicly issued
by California or U.S. territories (including Puerto Rico), or their
political subdivisions, in the U.S. domestic market and includes
approximately 1,086 bonds (as of January 31, 2014). The New CA Index is
adjusted monthly. The New CA Portfolio, using an ``indexing''
investment approach, will attempt to replicate, before fees and
expenses, the performance of the New CA Index through sampling. The
Adviser will seek correlation over time of 0.95% or better between the
New CA Portfolio's performance and the performance of the New CA Index.
As of January 31, 2014, approximately 94.60% of the weight of the
New CA Index components was composed of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January, 2014, the total dollar
amount outstanding of issues in the New CA Index was approximately
$100.76 billion and the average dollar amount outstanding of issues in
the Index was approximately $92.81 million. Further, the most heavily
weighted component represents 1.39% of the weight of the New CA Index
and the five most heavily weighted components represent 5.17% of the
weight of the CA Index.\19\ Therefore, the Exchange believes that,
notwithstanding that the New CA Index does not satisfy the criterion in
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(a)(2), the New CA
Index is sufficiently broad-based to deter potential manipulation,
given that it is composed of approximately 1,086 issues and 229 unique
issuers. The Exchange notes that the individual maturities that are
part of the same municipal bond offering share common characteristics,
such as issuer, rating, structure, and purpose (i.e., general
obligation bonds, revenue bonds or ``double-barreled'' bonds). In
addition, the New CA Index securities are sufficiently liquid to deter
manipulation in that a substantial portion (94.60%) of the New CA Index
weight is composed of maturities that are part of a minimum original
principal amount outstanding of $100 million or more for all the
maturities of the offering, and in view of the substantial total dollar
amount outstanding and the average dollar amount outstanding of New CA
Index issues, as referenced above.
---------------------------------------------------------------------------
\19\ See note 11, supra, regarding the requirements of
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------
In addition, the average daily notional trading volume for New CA
Index components for the calendar year 2013 was approximately $364.22
million and the sum of the notional trading volumes for the same period
was approximately $91.78 billion.
PowerShares National AMT-Free Municipal Bond Portfolio
According to the Registration Statement as supplemented by the
Proxy Statement, the New National Portfolio generally will seek
investment results that correspond (before fees and expenses) to the
price and yield performance of the New National Index. The New National
Portfolio normally will invest at least 80% of its net assets (plus
borrowings for investment purposes, if any) in municipal securities
that are exempt from federal income tax. The New National Portfolio
will normally invest at least 80% of its total assets in the securities
that compose the New National Index and generally expects to so invest
at least 90% of its total assets. The New National Portfolio, however,
reserves the right to invest up to 20% of its assets in certain
futures, options and swap contracts, cash and cash equivalents,
including money market funds, as well as in municipal securities not
included in the New National Index to the extent that the Adviser
believes such investments will facilitate the New National Portfolio's
ability to achieve its investment objective. The New National Index is
designed to track the performance of U.S. dollar-denominated investment
grade tax-exempt debt publicly issued by U.S. states or U.S.
territories (including Puerto Rico), or its political subdivision, in
the U.S. domestic market and includes approximately 5,476 bonds (as of
January 31, 2014). The New National Index is adjusted monthly.
The New National Portfolio, using an ``indexing'' investment
approach, will attempt to replicate, before fees and expenses, the
performance of the New National Index through sampling. The Adviser
will seek correlation over time of 0.95% or better between the National
Portfolio's performance and the performance of the New National Index.
As of January 31, 2014, approximately 91.86% of the weight of the
New National Index components was composed of individual maturities
that were part of an entire municipal bond offering with a minimum
original principal amount outstanding of $100 million or more for all
maturities of the offering. In addition, as of January 31, 2014, the
total dollar amount outstanding of issues in the New National Index was
approximately $394.04 billion and the average dollar amount outstanding
of issues in the New National Index was approximately $71.96 million.
Further, the most heavily weighted component represents 0.34% of the
weight of the New
[[Page 27955]]
National Index and the five most heavily weighted components represent
1.47% of the weight of the New National Index.\20\ Therefore, the
Exchange believes that, notwithstanding that the New National Index
does not satisfy the criterion in NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02(a)(2), the New National Index is sufficiently broad-
based to deter potential manipulation, given that it is composed of
approximately 5,476 issues and 1,259 unique issuers. The Exchange notes
that the individual maturities that are part of the same municipal bond
offering share common characteristics, such as issuer, rating,
structure, and purpose (i.e., general obligation bonds, revenue bonds
or ``double-barreled'' bonds). In addition, the New National Index
securities are sufficiently liquid to deter potential manipulation in
that a substantial portion (91.86%) of the New National Index weight is
composed of maturities that are part of a minimum original principal
amount outstanding of $100 million or more for all the maturities of
the offering, and in view of the substantial total dollar amount
outstanding and the average dollar amount outstanding of New National
Index issues, as referenced above.
---------------------------------------------------------------------------
\20\ See note 11, supra, regarding the requirements of
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------
In addition, the average daily notional trading volume for New
National Index components for the calendar year 2013 was approximately
$1.26 billion and the sum of the notional trading volumes for the same
period was approximately $317.73 billion.
PowerShares New York AMT-Free Municipal Bond Portfolio
According to the Registration Statement as supplemented by the
Proxy Statement, the New NY Portfolio will seek investment results that
correspond (before fees and expenses) generally to the price and yield
performance of the New NY Index. The New NY Portfolio will normally
invest at least 80% of its net assets in municipal securities that are
exempt from federal income tax, New York State income tax and New York
City income tax. The NY Portfolio will normally invest at least 80% of
its total assets in the securities that compose the New NY Index. The
New NY Portfolio, however, reserves the right to invest up to 20% of
its assets in certain futures, options and swap contracts, cash and
cash equivalents, including money market funds, as well as in municipal
securities not included in the New NY Index to the extent that the
Adviser believes such investments will facilitate the New NY
Portfolio's ability to achieve its investment objective. The Adviser
will seek correlation over time of 0.95% or better between the New NY
Portfolio's performance and the performance of the New NY Index. The
New NY Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by New
York or U.S. territories (including Puerto Rico), or their political
subdivisions, included in the U.S. domestic market includes
approximately 952 bonds (as of January 31, 2014).
As of January 31, 2014, approximately 98.21% of the weight of the
New NY Index components was composed of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the New NY Index was approximately
$86.75 billion and the average dollar amount outstanding of issues in
the New NY Index was approximately $91.13 million. Further, the most
heavily weighted component represents 1.61% of the weight of the New NY
Index and the five most heavily weighted components represent 5.07% of
the weight of the New NY Index.\21\ Therefore, the Exchange believes
that, notwithstanding that the New NY Index does not satisfy the
criterion in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(a)(2),
the New NY Index is sufficiently broad-based to deter potential
manipulation, given that it is composed of approximately 952 issues and
67 unique issuers. The Exchange notes that the individual maturities
that are part of the same municipal bond offering share common
characteristics, such as issuer, rating, structure, and purpose (i.e.,
general obligation bonds, revenue bonds or ``double-barreled'' bonds).
In addition, the New NY Index securities are sufficiently liquid to
deter potential manipulation in that a substantial portion (98.21%) of
the New NY Index weight is composed of maturities that are part of a
minimum original principal amount outstanding of $100 million or more
for all the maturities of the offering, and in view of the substantial
total dollar amount outstanding and the average dollar amount
outstanding of New NY Index issues, as referenced above.
---------------------------------------------------------------------------
\21\ See note 11, supra, regarding the requirements of
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------
In addition, the average daily notional trading volume for New NY
Index components for the calendar year 2013 was approximately $334.68
million and the sum of the notional trading volumes for the same period
was approximately $84.34 billion.
All components of each of the Municipal Bond Indexes and New
Municipal Bond Indexes currently are rated as investment grade (A3 or
higher by Moody's Investors Service).
The Exchange represents that: (1) With respect to the Municipal
Bond Portfolios, except for Commentary .02(a)(2) to NYSE Arca Equities
Rule 5.2(j)(3), the Shares of the Municipal Bond Portfolios currently
satisfy all of the generic listing standards under NYSE Arca Equities
Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca
Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply
to the Shares of the Funds; and (3) the Trust is required to comply
with Rule 10A-3 \22\ under the Act for the initial and continued
listing of the Shares of the Funds. In addition, the Exchange
represents that the Shares of the Funds will comply with all other
requirements applicable to Units including, but not limited to,
requirements relating to the dissemination of key information such as
the value of the Index and the applicable Intraday Indicative Value
(``IIV''),\23\ rules governing the trading of equity securities,
trading hours, trading halts, surveillance, information barriers and
the Information Bulletin to Equity Trading Permit Holders (``ETP
Holders''), as set forth in Exchange rules applicable to Units and
prior Commission orders approving the generic listing rules applicable
to the listing and trading of Units.\24\
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\22\ 17 CFR 240.10A-3.
\23\ 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 of 9:30 a.m. to 4:00 p.m., Eastern time.
Currently, it is the Exchange's understanding that several major
market data vendors display and/or make widely available IIVs taken
from the Consolidated Tape Association (``CTA'') or other data
feeds.
\24\ See, e.g., Securities Exchange Act Release Nos. 55783 (May
17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order
approving NYSE Arca generic listing standards for Units based on a
fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19,
2001) (SR-PCX-2001-14) (order approving generic listing standards
for Units and Portfolio Depositary Receipts); 41983 (October 6,
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order
approving rules for listing and trading of Units).
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The current value of the Municipal Bond Indexes and New Municipal
Bond Indexes are widely disseminated by one or more major market data
vendors at
[[Page 27956]]
least once per day, as required by NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02(b)(ii). The IIVs for Shares of the Funds are
disseminated by one or more major market data vendors, updated at least
every 15 seconds during the Exchange's Core Trading Session, as
required by NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(c), and
Commentary .01(c), respectively. The components and percentage
weightings of each Municipal Bond Index and New Municipal Bond Index
are also available from major market data vendors. In addition, the
portfolio of securities held by each Fund is disclosed daily on the
Funds' Web site at www.invescopowershares.com
Detailed descriptions of the Funds, the Municipal Bond Indexes, the
New Municipal Bond Indexes, procedures for creating and redeeming
Shares, transaction fees and expenses, dividends, distributions, taxes,
risks, and reports to be distributed to beneficial owners of the Shares
can be found in the Registration Statement or on the Web site for the
Funds (www.invescopowershares.com), as applicable.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \25\ 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.
---------------------------------------------------------------------------
\25\ 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). 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
federal securities laws applicable to trading on the Exchange.\26\ 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. FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
with other markets that are members of the Intermarket Surveillance
Group (``ISG''). In addition, the Exchange will communicate as needed
regarding trading in the Shares with other markets that are members of
the ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. The Index Provider is a broker-dealer
and has implemented a firewall and will maintain procedures designed to
prevent the use and dissemination of material non-public information
regarding the Municipal Bond Indexes and New Municipal Bond Indexes.
---------------------------------------------------------------------------
\26\ 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.
---------------------------------------------------------------------------
As discussed above, the Exchange believes that each of the
Municipal Bond Indexes is sufficiently broad-based to deter potential
manipulation. As of January 31, 2014, approximately 86.1% of the weight
of the CA Index components was composed of individual maturities that
were part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the CA Index was approximately $17.201
billion and the average dollar amount outstanding of issues in the
Index was approximately $64.42 million. Further, the most heavily
weighted component represents 3.53% of the weight of the CA Index and
the five most heavily weighted components represent 9.94% of the weight
of the CA Index.
As of January 31, 2014, approximately 89.24% of the weight of the
National Index components was composed of individual maturities that
were part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the National Index was approximately
$78.69 billion and the average dollar amount outstanding of issues in
the National Index was approximately $63.56 million. Further, the most
heavily weighted component represents 0.88% of the weight of the
National Index and the five most heavily weighted components represent
3.51% of the weight of the National Index.
As of January 31, 2014, approximately 95.89% of the weight of the
NY Index components was composed of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the NY Index was approximately $17.76
billion and the average dollar amount outstanding of issues in the NY
Index was approximately $90.58 million. Further, the most heavily
weighted component represents 6.14% of the weight of the NY Index and
the five most heavily weighted components represent 20.15% of the
weight of the NY Index.
As discussed above, the Exchange further believes that each of the
New Municipal Bond Indexes is sufficiently broad-based to deter
potential manipulation. As of January 31, 2014, approximately 94.60% of
the weight of the New CA Index components was composed of individual
maturities that were part of an entire municipal bond offering with a
minimum original principal amount outstanding of $100 million or more
for all maturities of the offering. In addition, as of January 31,
2014, the total dollar amount outstanding of issues in the New CA Index
was approximately $100.76 billion and the average dollar amount
outstanding of issues in the New CA Index was approximately $92.81
million. Further, the most heavily weighted component represents 1.39%
of the weight of the New CA Index and the five most heavily weighted
components represent 5.17% of the weight of the New CA Index.
As of January 31, 2014, approximately 91.86% of the weight of the
New National Index components was composed of individual maturities
that were part of an entire municipal bond offering with a minimum
original principal amount outstanding of $100 million or more for all
maturities of the offering. In addition, as of January 31, 2014, the
total dollar amount outstanding of issues in the New National Index was
approximately $394.04 billion and the average dollar amount outstanding
of issues in the New National Index was approximately $71.96 million.
Further, the most heavily weighted component represents 0.34% of the
weight of the New National Index and the five most heavily weighted
components represent 1.47% of the weight of the New National Index.
As of January 31, 2014, approximately 98.21% of the weight of the
New NY Index components was composed of individual maturities that were
part of an entire municipal bond offering with
[[Page 27957]]
a minimum original principal amount outstanding of $100 million or more
for all maturities of the offering. In addition, as of January 31,
2014, the total dollar amount outstanding of issues in the New NY Index
was approximately $86.75 billion and the average dollar amount
outstanding of issues in the New NY Index was approximately $91.13
million. Further, the most heavily weighted component represents 1.61%
of the weight of the New NY Index and the five most heavily weighted
components represent 5.07% of the weight of the New NY Index.
The Municipal Bond Indexes and New Municipal Bond Indexes values,
calculated and disseminated at least once daily, as well as the
components of the Municipal Bond Indexes and New Municipal Bond Indexes
and their respective percentage weightings, will be available from
major market data vendors. In addition, the portfolio of securities
held by the Funds will be disclosed on the Funds' Web site. The IIV for
Shares of the Funds will be disseminated by one or more major market
data vendors, updated at least every 15 seconds during the Exchange's
Core Trading Session.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that a large amount of information is publicly available regarding the
Funds and the Shares, thereby promoting market transparency. The Funds'
portfolio holdings will be disclosed on the Funds' Web site daily after
the close of trading on the Exchange and prior to the opening of
trading on the Exchange the following day. Moreover, the IIV for Shares
of the Funds will be widely disseminated by one or more major market
data vendors at least every 15 seconds during the Exchange's Core
Trading Session. The current value of the Municipal Bond Indexes and
New Municipal Bond Indexes will be disseminated by one or more major
market data vendors at least once per day. Information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services, and quotation and last sale information will
be available via the CTA high-speed line. The Web site for the Funds
will include the prospectus for the Funds and additional data relating
to NAV and other applicable quantitative information. Moreover, prior
to the commencement of trading, the Exchange will inform its ETP
Holders in an Information Bulletin of the special characteristics and
risks associated with trading the Shares. If the Exchange becomes aware
that the NAV 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. With respect to
trading halts, the Exchange may consider all relevant factors in
exercising its discretion to halt or suspend trading in the Shares of
the Funds. 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. If the applicable IIV, the Municipal Bond Index or
New Municipal Bond Index values are not being disseminated as required,
the Corporation may halt trading during the day in which the
interruption to the dissemination of the applicable IIV, Municipal Bond
Index, or New Municipal Bond Index value occurs. If the interruption to
the dissemination of the applicable IIV, Municipal Bond Index, or New
Municipal Bond Index value persists past the trading day in which it
occurred, the Corporation will halt trading. Trading in Shares of the
Funds will be halted if the circuit breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or because of market conditions or
for reasons that, in the view of the Exchange, make trading in the
Shares inadvisable, and trading in the Shares will be subject to NYSE
Arca Equities Rule 7.34, which sets forth circumstances under which
Shares of the Funds may be halted. In addition, investors will have
ready access to information regarding the applicable IIV, 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 continued listing and
trading of exchange-traded products that principally hold municipal
bonds and that will enhance competition among market participants, to
the benefit of investors and the marketplace. The Exchange has in place
surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, investors will have ready
access to information regarding 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 continued listing and trading
of exchange-traded products that will enhance competition among market
participants, to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2014-45 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-2014-45. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the
[[Page 27958]]
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 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-2014-45, and should
be submitted on or before June 5, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11157 Filed 5-14-14; 8:45 am]
BILLING CODE 8011-01-P
