Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change To List and Trade Shares of the ARK Innovation ETF, ARK Genomic Revolution ETF, ARK Industrial Innovation ETF, and ARK Web x.0 ETF Under NYSE Arca Equities Rule 8.600, 43108-43114 [2014-17398]
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• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2014–63 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–72641; File No. SR–
NYSEArca–2014–64]
• 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–2014–63. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. 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
publicly available. All submissions
should refer to File Number SR–
NYSEArca–2014–63 and should be
submitted on or before August 14, 2014.
Rebuttal comments should be submitted
by August 28, 2014.
VI. Conclusion
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It is therefore ordered, pursuant to
Section 19(b)(3)(C) of the Act,25 that File
Number SR–NYSEArca–2014–63, be
and hereby is, temporarily suspended.
In addition, the Commission is
instituting proceedings to determine
whether the proposed rule change
should be approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–17399 Filed 7–23–14; 8:45 am]
BILLING CODE 8011–01–P
25 15
26 17
U.S.C. 78s(b)(3)(C).
CFR 200.30–3(a)(57) and (58).
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Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change To List and
Trade Shares of the ARK Innovation
ETF, ARK Genomic Revolution ETF,
ARK Industrial Innovation ETF, and
ARK Web x.0 ETF Under NYSE Arca
Equities Rule 8.600
July 18, 2014.
I. Introduction
On May 28, 2014, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the following under NYSE
Arca Equities Rule 8.600, which governs
the listing and trading of Managed Fund
Shares on the Exchange: ARK
Innovation ETF, ARK Genomic
Revolution ETF, ARK Industrial
Innovation ETF, and ARK Web x.0 ETF
(individually, ‘‘Fund’’ and, collectively,
‘‘Funds’’). The proposed rule change
was published for comment in the
Federal Register on June 10, 2014.3 The
Commission received no comments on
the proposed rule change. This order
grants approval of the proposed rule
change.
II. Description of Proposed Rule Change
The Exchange has made the following
representations and statements in
describing each Fund and its respective
investment strategies, including other
portfolio holdings and investment
restrictions.4
General
The Shares will be offered by ARK
ETF Trust (‘‘Trust’’), which is organized
as a Delaware statutory trust and is
registered with the Commission as an
open-end management investment
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 72314
(Jun. 4, 2014), 79 FR 33229 (‘‘Notice’’).
4 The Commission notes that additional
information regarding the Trust, the Funds, and the
Shares, including investment strategies, 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 note 3 and infra
note 5, respectively.
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2 17
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company.5 ARK Investment
Management LLC (‘‘Adviser’’) will serve
as the investment adviser to the Funds.6
Foreside Fund Services, LLC will be the
principal underwriter and distributor of
the Funds’ Shares. The Bank of New
York Mellon will serve as administrator,
custodian and transfer agent.
ARK Genomic Revolution ETF
The ARK Genomic Revolution ETF’s
investment objective will be long-term
growth of capital.
The Fund will invest, under normal
circumstances,7 primarily (at least 80%
of its assets) in domestic and foreign
equity securities of companies that are
relevant to the Fund’s investment theme
of genomics. Companies relevant to this
theme are those that are focused on and
are expected to benefit from extending
and enhancing the quality of human and
other life by incorporating technological
and scientific developments,
improvements and advancements in
genetics into their business, such as by
offering new products or services that
rely on genetic sequencing, analysis,
synthesis, or instrumentation. These
companies may include ones that
develop, produce, manufacture, or
significantly rely on bionic devices, bioinspired computing, bioinformatics,
molecular medicine, and agricultural
biology.
In selecting companies that the
Adviser believes are relevant to a
particular investment theme, it will seek
5 The Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). The Exchange
states that on March 31, 2014, the Trust filed with
the Commission its registration statement on Form
N–1A under the Securities Act of 1933 (‘‘Securities
Act’’) and under the 1940 Act relating to the Funds
(File Nos. 333–191019 and 811–22883)
(‘‘Registration Statement’’). In addition, according
to the Exchange, the Trust has obtained certain
exemptive relief under the 1940 Act. See
Investment Company Act Release No. 31009 (April
7, 2014) (File No. 812–14172).
6 The Exchange states that the Adviser is not
registered as a broker-dealer and is not affiliated
with a broker-dealer. The Exchange states that in
the event (a) the Adviser or any sub-adviser
becomes, or becomes newly affiliated with, a
broker-dealer, or (b) any new adviser or sub-adviser
is, or becomes affiliated with, a broker-dealer, it
will implement a fire wall with respect to its
relevant personnel or broker-dealer affiliate, as
applicable, regarding access to information
concerning the composition and/or changes to a
portfolio, and will be subject to procedures
designed to prevent the use and dissemination of
material, non-public information regarding such
portfolio.
7 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.
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to identify, using its own internal
research and analysis, companies
capitalizing on disruptive innovation or
that are enabling the further
development of a theme in the markets
in which they operate. The Adviser’s
internal research and analysis will
leverage insights from diverse sources,
including external research, to develop
and refine its investment themes and
identify and take advantage of trends
that have ramifications for individual
companies or entire industries. The
Adviser will use both ‘‘top down’’
(macro-economic and business cycle
analysis) and ‘‘bottom up’’ (valuation,
fundamental, and quantitative
measures) approaches to select
investments for the Fund.
Under normal circumstances,
substantially all of the Fund’s assets
will be invested in equity securities,
including common stocks, partnership
interests, business trust shares, and
other equity investments or ownership
interests in business enterprises.8
The Fund’s investments will include
issuers of micro-, small-, medium-, and
large-capitalizations. The Fund’s
investments in foreign equity securities
will be in both developed and emerging
markets.9
The Fund will be concentrated in
issuers in any industry or group of
industries in the health care sector.
Issuers in the health care sector include
manufacturers and distributors of health
care equipment and supplies, owners
and operators of health care facilities,
health maintenance organizations and
managed health care plans, health care
providers, and issuers that provide
services to health care providers.
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ARK Industrial Innovation ETF
The ARK Industrial Innovation ETF’s
investment objective will be long-term
growth of capital.
The Fund will invest, under normal
circumstances,10 primarily (at least 80%
of its assets) in domestic and foreign
equity securities of companies that are
relevant to the Fund’s investment theme
of industrial innovation. Companies
relevant to this theme are those that are
8 At least 90% of each Fund’s investments in
equity securities (including Global Depositary
Receipts (‘‘GDRs’’), American Depositary Receipts
(‘‘ADRs’’), rights, warrants, and preferred securities,
discussed under ‘‘Other Investments,’’ below) will
be in securities that trade in markets that are
members of the Intermarket Surveillance Group
(‘‘ISG’’) or are parties to a comprehensive
surveillance sharing agreement with the Exchange.
9 The Adviser generally considers emerging
market countries to be developing market countries
whose gross domestic product per person is
classified below ‘‘high income’’ by the World Bank.
Investments in emerging markets equity securities
will not exceed 20% of a Fund’s total assets.
10 See supra note 7.
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expected to focus on and benefit from
the development of new products or
services, technological improvements,
and advancements in scientific research
related to, among other things,
disruptive innovation in energy
(‘‘energy transformation companies’’),
automation and manufacturing
(‘‘automation transformation
companies’’), materials, and
transportation.11
In selecting companies that the
Adviser believes are relevant to a
particular investment theme, it will seek
to identify, using its own internal
research and analysis, companies
capitalizing on disruptive innovation or
that are enabling the further
development of a theme in the markets
in which they operate. The Adviser’s
internal research and analysis will
leverage insights from diverse sources,
including external research, to develop
and refine its investment themes and
identify and take advantage of trends
that have ramifications for individual
companies or entire industries. The
Adviser will use both ‘‘top down’’
(macro-economic and business cycle
analysis) and ‘‘bottom up’’ (valuation,
fundamental, and quantitative
measures) approaches to select
investments for the Fund.
Under normal circumstances,
substantially all of the Fund’s assets
will be invested in equity securities,
including common stocks, partnership
interests, business trust shares, and
other equity investments or ownership
interests in business enterprises.12
The Fund’s investments will include
issuers of micro-, small-, medium-, and
large-capitalizations. The Fund’s
investments in foreign equity securities
will be in both developed and emerging
markets.13
The Fund will be concentrated in
issuers in any industry or group of
11 The Adviser will consider a company to be an
energy transformation company if it seeks to
capitalize on innovations or evolutions in: (i) Ways
that energy is stored or used; (ii) the discovery,
collection and/or implementation of new sources of
energy, including unconventional sources of oil or
natural gas; and/or (iii) the production or
development of new materials for use in
commercial applications of energy production, use
or storage. The Adviser will consider a company to
be an automation transformation company if it is
focused on man capitalizing on the productivity of
machines, such as through the automation of
functions, processes or activities previously
performed by human labor, or the use of robotics
to perform other functions, activities, or processes.
12 See supra note 8.
13 See supra note 9.
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43109
industries in the industrials 14 and
information technology sectors.15
ARK Innovation ETF
The ARK Innovation ETF’s
investment objective will be long-term
growth of capital.
The Fund will invest, under normal
circumstances,16 primarily (at least 65%
of its assets) in domestic and foreign
equity securities of companies that are
relevant to the Fund’s investment theme
of disruptive innovation. Companies
relevant to this theme are those that rely
on or benefit from the development of
new products or services, technological
improvements, and advancements in
scientific research relating to the areas
of genomics (‘‘genomic companies’’),
industrial innovation (‘‘industrial
innovation companies’’), or the
increased use of shared technology,
infrastructure, and services (‘‘Web x.0
companies’’).
In selecting companies that the
Adviser believes are relevant to a
particular investment theme, it will seek
to identify, using its own internal
research and analysis, companies
capitalizing on disruptive innovation or
that are enabling the further
development of a theme in the markets
in which they operate. The Adviser’s
internal research and analysis will
leverage insights from diverse sources,
including external research, to develop
and refine its investment themes and
identify and take advantage of trends
that have ramifications for individual
companies or entire industries. The
types of companies that the Adviser
believes are genomic companies,
industrial innovation companies, or
Web x.0 companies are listed below:
• Genomics companies are companies
that are focused on and are expected to
benefit from extending and enhancing
the quality of human and other life by
incorporating technological and
scientific developments in genetics into
their business, such as by offering
products or services that rely on genetic
sequencing, analysis, synthesis, or
instrumentation. These companies may
include ones that develop, produce,
14 The industrials sector includes companies
engaged in the manufacture and distribution of
capital goods, such as those used in defense,
construction and engineering, companies that
manufacture and distribute electrical equipment
and industrial machinery, and those that provide
commercial and transportation services and
supplies.
15 The information technology sector includes
software developers, providers of information
technology consulting and services, and
manufacturers and distributors of computers,
peripherals, communications equipment, and
semiconductors.
16 See supra note 7.
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manufacture, or significantly rely on
bionic devices, bio-inspired computing,
bioinformatics, molecular medicine, and
agricultural biology.
• Industrial innovation companies are
companies that are focused on and are
expected to benefit from the
development of new products or
services, technological improvements,
and advancements in scientific research
related to, among other things,
disruptive innovation in energy (energy
transformation companies), automation
and manufacturing (automation
transformation companies), materials,
and transportation.17
• Web x.0 companies are companies
that are focused on and expected to
benefit from shifting the bases of
technology infrastructure from hardware
and software to the cloud, enabling
mobile and local services, such as
companies that rely on or benefit from
the increased use of shared technology,
infrastructure, and services. These
companies may also include ones that
develop, use, or rely on innovative
payment methodologies, big data, the
internet of things, and social
distribution and media.
The Adviser will select investments
for the Fund that represent its highestconviction investment ideas within the
theme of disruptive innovation, as
described above, in constructing the
Fund’s portfolio. The Adviser’s process
for identifying genomic companies,
industrial innovation companies, and
Web x.0 companies will use both ‘‘top
down’’ (macro-economic and business
cycle analysis) and ‘‘bottom up’’
(valuation, fundamental, and
quantitative measures) approaches. The
Adviser’s highest-conviction investment
ideas are those that it believes present
the best risk-reward opportunities.
Under normal circumstances,
substantially all of the Fund’s assets
will be invested in equity securities,
including common stocks, partnership
interests, business trust shares, and
other equity investments or ownership
interests in business enterprises.18
The Fund’s investments will include
issuers of micro-, small-, medium-, and
large-capitalizations. The Fund’s
investments in foreign equity securities
will be in both developed and emerging
markets.19
The Fund will be concentrated in
issuers in any industry or group of
industries in the industrials 20 and
information technology 21 sectors.
ARK Web x.0 ETF
The ARK Web x.0 ETF’s investment
objective will be long-term growth of
capital.
The Fund will invest, under normal
circumstances,22 primarily (at least 80%
of its assets) in domestic and foreign
equity securities of companies that are
relevant to the Fund’s investment theme
of Web x.0. Companies relevant to this
theme are focused on and expected to
benefit from shifting the bases of
technology infrastructure from hardware
and software to the cloud, enabling
mobile and local services, such as
companies that rely on or benefit from
the increased use of shared technology,
infrastructure, and services. These
companies may also include ones that
develop, use, or rely on innovative
payment methodologies, big data, the
internet of things, and social
distribution and media.
In selecting companies that the
Adviser believes are relevant to a
particular investment theme, it will seek
to identify, using its own internal
research and analysis, companies
capitalizing on disruptive innovation or
that are enabling the further
development of a theme in the markets
in which they operate. The Adviser’s
internal research and analysis will
leverage insights from diverse sources,
including internal and external
research, to develop and refine its
investment themes and identify and
take advantage of trends that have
ramifications for individual companies
or entire industries. The Adviser will
use both ‘‘top down’’ (macro-economic
and business cycle analysis) and
‘‘bottom up’’ (valuation, fundamental,
and quantitative measures) approaches
to select investments for the Fund.
Under normal circumstances,
substantially all of the Fund’s assets
will be invested in equity securities,
including common stocks, partnership
interests, business trust shares, and
other equity investments or ownership
interests in business enterprises.23
The Fund’s investments will include
issuers of micro-, small-, medium-, and
large-capitalizations. The Fund’s
investments in foreign equity securities
will be in both developed and emerging
markets.24
The Fund will be concentrated in
issuers in any group of industries in the
information technology sector.25 The
Fund’s investments may include issuers
17 See
supra note 11.
supra note 8.
19 See supra note 9.
20 See supra note 14.
21 See supra note 15.
18 See
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22 See
supra note 7.
supra note 8.
24 See supra note 9.
25 See supra note 15.
23 See
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in the telecommunications services
sector.26
Other Investments
While each Fund will invest, under
normal circumstances, primarily in the
equity securities described above, each
Fund may invest in other investments,
as described below. With the exception
of the ARK Innovation ETF, under
normal circumstances, such other
investments will not exceed 20% of a
Fund’s assets. Regarding the ARK
Innovation ETF, under normal
circumstances, such other investments
will not exceed 35% of the Fund’s
investments.
Each Fund may invest no more than
35% of its assets in depositary receipts
(i.e., ADRs and GDRs), rights, warrants,
preferred securities, and convertible
securities.
ADRs and GDRs are securities
typically issued by a bank or trust
company that evidence ownership of
underlying securities issued by a foreign
corporation and entitle the holder to all
dividends and capital gains that are
paid out on the underlying foreign
securities. Rights and warrants are
option securities permitting their
holders to subscribe for other securities.
Preferred securities are contractual
obligations that entail rights to
distributions declared by the issuer’s
board of directors, but may permit the
issuer to defer or suspend distributions
for a certain period of time. ADRs may
be traded over the counter (‘‘OTC’’).27
Each Fund may invest in the
securities of open-end or closed-end
investment companies, subject to
applicable limitations under the 1940
Act. A Fund’s investment in other
investment companies may include
shares of exchange traded funds
registered under the 1940 Act
(‘‘ETFs’’),28 closed-end investment
companies (which include business
development companies), unit
investment trusts, and other open-end
investment companies. In addition, the
Funds may invest in other exchangetraded products (‘‘ETPs’’), such as
commodity pools,29 or other entities
that are traded on an exchange.
26 The telecommunications services sector
includes companies that provide fixed-line or
wireless telecommunication and data transmission
services.
27 See supra note 8.
28 For purposes of this filing, ETFs, which will be
listed on a national securities exchange, include the
following: Investment Company Units (as described
in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca
Equities Rule 8.100); and Managed Fund Shares (as
described in NYSE Arca Equities Rule 8.600).
29 For purposes of this filing, ETPs include Trust
Issued Receipts (as described in NYSE Arca
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In addition, each Fund may use
derivative instruments. Specifically, the
Funds may use options, futures, swaps,
and forwards, for hedging or risk
management purposes or as part of its
investment practices. Derivative
instruments are contracts whose value
depends on, or is derived from, the
value of an underlying asset, reference
rate, or index. These underlying assets,
reference rates, or indices may be any
one of the following: stocks, interest
rates, currency exchange rates, and
stock indices.
The options in which the Funds may
invest may be exchanged-traded or OTC.
The exchange-traded options in which
the Funds may invest will trade on
markets that are members of the ISG or
parties to a comprehensive surveillance
sharing agreement with the Exchange.
The futures in which the Funds may
invest will be exchange-traded. Each
Fund will not invest more than 10% of
its assets in futures that trade in markets
that are not members of the ISG or
parties to a comprehensive surveillance
sharing agreement with the Exchange.
The swaps in which the Funds will
invest may be cleared swaps or noncleared. The Funds will collateralize
their obligations with liquid assets
consistent with the 1940 Act and
interpretations thereunder.
The Funds will only enter into
transactions in derivative instruments
with counterparties that the Adviser
reasonably believes are capable of
performing under the contract and will
post as collateral as required by the
counterparty. The Funds will seek,
where possible, to use counterparties, as
applicable, whose financial status is
such that the risk of default is reduced;
however, the risk of losses resulting
from default is still possible. The
Adviser will evaluate the
creditworthiness of counterparties on a
regular basis. In addition to information
provided by credit agencies, the Adviser
will review approved counterparties
using various factors, which may
include the counterparty’s reputation,
the Adviser’s past experience with the
counterparty, and the price/market
actions of debt of the counterparty.
The Funds may invest in currency
forwards. A currency forward
transaction is a contract to buy or sell
a specified quantity of currency at a
specified date in the future at a
specified price, which may be any fixed
Equities Rule 8.200); Commodity-Based Trust
Shares (as described in NYSE Arca Equities Rule
8.201); Currency Trust Shares (as described in
NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities
Rule 8.203); and Trust Units (as described in NYSE
Arca Equities Rule 8.500).
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number of days from the date of the
contract agreed upon by the parties, at
a price set at the time of the contract.
Currency forward contracts may be used
to increase or reduce exposure to
currency price movements.
The Funds may enter into futures
contracts and options, including options
on futures contracts. Futures contracts
generally provide for the future sale by
one party and purchase by another party
of a specified instrument, index, or
commodity at a specified future time
and at a specified price. Futures
contracts are standardized as to maturity
date and underlying instrument and are
traded on futures exchanges. An option
is a contract that provides the holder the
right to buy or sell shares or futures at
a fixed price, within a specified period
of time.
The Funds may invest in participation
notes (‘‘P-Notes’’). P-Notes are issued by
banks or broker-dealers and are
designed to offer a return linked to the
performance of a particular underlying
equity security or market. P-Notes can
have the characteristics or take the form
of various instruments, including, but
not limited to, certificates or warrants.
Each Fund may invest in repurchase
agreements with commercial banks,
brokers, or dealers and invest securities
lending cash collateral. A repurchase
agreement is an agreement under which
a Fund acquires a money market
instrument from a seller, subject to
resale to the seller at an agreed upon
price and date.
The Funds may invest in structured
notes. A structured note is a derivative
security for which the amount of
principal repayment and/or interest
payments is based on the movement of
one or more ‘‘factors.’’ These factors
include, but are not limited to, currency
exchange rates, interest rates (such as
the prime lending rate or LIBOR),
referenced bonds, and stock indices.
Each Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment), including Rule
144A securities deemed illiquid by the
Adviser consistent with Commission
guidance.30 Each Fund will monitor its
portfolio liquidity on an ongoing basis
to determine whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of each Fund’s net assets are held in
illiquid assets. Illiquid assets include
assets subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets, as determined in accordance
with Commission staff guidance.
Each Fund will be classified as a
‘‘non-diversified’’ investment company
under the 1940 Act and therefore may
concentrate its investments in any
particular industry or group of
industries, such that: (i) ARK Genomic
Revolution ETF will concentrate in
securities of issuers having their
principal business activities in any
industry or group of industries in the
health care sector; (ii) ARK Innovation
ETF will concentrate in securities of
issuers having their principal business
activities in any industry or group of
industries in the health care sector, the
industrials sector, the information
technology sector, or the
telecommunications services sector;
(iii) ARK Industrial Innovation ETF will
concentrate in securities of issuers
having their principal business
activities in any industry or group of
industries in the industrials sector or
the information technology sector; and
(iv) ARK Web x.0 ETF will concentrate
in securities of issuers having their
principal business activities in any
industry or group of industries in the
information technology sector or the
telecommunications services sector.
Each Fund will consider an issuer to
have its ‘‘principal business activities’’
in an industry or group of industries if
the issuer derives more than 50% of its
revenues from a business considered to
be a part of such industry or group of
industries according to a third party’s
industry classification system or that of
the Adviser.
The Funds intend to qualify for and
to elect treatment as a separate regulated
investment company under Subchapter
M of the Internal Revenue Code.
Each Fund may take a temporary
defensive position (investments in cash
or cash equivalents) in response to
adverse market, economic, political, or
other conditions.31 Cash equivalents
30 In reaching liquidity decisions, the Adviser
may consider the following factors: the frequency
of trades and quotes for the asset; the number of
dealers wishing to purchase or sell the asset and the
number of other potential purchasers; dealer
undertakings to make a market in the asset; and the
nature of the asset and the nature of the
marketplace in which it trades (e.g., the time
needed to dispose of the asset, the method of
soliciting offers, and the mechanics of transfer).
31 Circumstances under which a Fund may
temporarily depart from its normal investment
process include, but are not limited to, extreme
volatility or trading halts in the equity markets or
the financial markets generally; operational issues
causing dissemination of inaccurate market
information; or force majeure type events such as
systems failure, natural or man-made disaster, act
of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
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include short-term high quality debt
securities and money market
instruments, such as commercial paper,
certificates of deposit, bankers’
acceptances, U.S. Government
securities, repurchase agreements and
bonds that are rated BBB or higher, and
shares of short-term fixed income or
money market funds.
III. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of
Section 6 of the Act 32 and the rules and
regulations thereunder applicable to a
national securities exchange.33 In
particular, the Commission finds that
the proposal is consistent with Section
6(b)(5) of the Act,34 which requires,
among other things, that the Exchange’s
rules be designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Commission notes
that the Funds and the Shares must
comply with the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600 for the Shares to be listed
and traded on the Exchange.
The Commission finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Act,35 which sets
forth Congress’ finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. Quotation
and last-sale information for the Shares
will be available via the Consolidated
Tape Association (‘‘CTA’’) high-speed
line. In addition, an indicative
optimized portfolio value (‘‘IOPV’’),36
which is the Portfolio Indicative Value
as defined in NYSE Arca Equities Rule
32 15
U.S.C. 78f.
approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
34 15 U.S.C. 78f(b)(5).
35 15 U.S.C. 78k–1(a)(1)(C)(iii).
36 According to the Exchange, the IOPV
calculations are estimates of the value of the Funds’
NAV per Share using market data converted into
U.S. dollars at the current currency rates. The IOPV
price is based on quotes and closing prices from the
securities’ local market and may not reflect events
that occur subsequent to the local market’s close.
Premiums and discounts between the IOPV and the
market price may occur. This should not be viewed
as a ‘‘real-time’’ update of the NAV per Share of the
Funds, which is calculated only once a day.
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8.600(c)(3), relating to each Fund will be
widely disseminated every fifteen
seconds during the NYSE Arca Core
Trading Session by one or more major
market data vendors.37 On each
business day, before commencement of
trading in Shares in the Core Trading
Session on the Exchange, the Adviser
will disclose on its Web site the
identities and quantities of the portfolio
of securities and other assets
(‘‘Disclosed Portfolio’’) held by the
Funds that will form the basis for each
Fund’s calculation of NAV at the end of
the business day.38 In addition, a basket
composition file, which includes the
security names and share quantities, if
applicable, required to be delivered in
exchange for a Fund’s Shares, together
with estimates and actual cash
components, will be publicly
disseminated daily prior to the opening
of the New York Stock Exchange
(‘‘NYSE’’) via the National Securities
Clearing Corporation. The NAV of each
Fund will be determined each business
day as of the close of trading (ordinarily
4:00 p.m., Eastern Time on the NYSE.39
37 According to the Exchange, several major
market data vendors display and/or make widely
available IOPVs published on CTA or other data
feeds.
38 On a daily basis, the Adviser will disclose for
each portfolio security and other financial
instrument of the Funds the following information
on the Funds’ Web site: Ticker symbol (if
applicable), name of security and/or financial
instrument, number of shares, if applicable, and
dollar value of financial instruments and securities
held in the portfolio, and percentage weighting of
the security and financial instrument in the
portfolio. The Web site information will be publicly
available at no charge.
39 The NAV per Share for each Fund will be
computed by dividing the value of the net assets of
the Fund (the value of its total assets less total
liabilities) by the total number of Shares
outstanding. Expenses and fees will be accrued
daily and taken into account for purposes of
determining NAV. According to the Exchange, price
information for exchange-traded equity securities,
including equity securities of domestic and foreign
companies, such as common stock, partnership
interests, business trust shares, ETFs and ETPs, as
well as depositary receipts (excluding ADRs traded
OTC), rights, warrants, and preferred securities, will
be taken from the exchange where the security or
asset is primarily traded. ADRs traded OTC will be
valued on the basis of the market closing price on
the exchange where the stock of the foreign issuer
that underlies the ADR is listed. Investment
company securities (other than ETFs), including
closed end investment companies, unit investment
trusts, and other open-end investment companies,
will be valued at NAV, utilizing pricing services.
Non-exchange-traded derivatives, including
forwards, swaps, and certain options, will normally
be valued on the basis of quotes obtained from
brokers and dealers or independent pricing services
using data reflecting the earlier closing of the
principal markets for those assets. Prices obtained
from independent pricing services use information
provided by market makers or estimates of market
values obtained from yield data relating to
investments or securities with similar
characteristics. Exchange-traded options (excluding
options on futures) will be valued at market closing
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Information regarding market price and
trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume information for the Shares will
be published daily in the financial
section of newspapers. Quotation and
last-sale information for underlying
securities that are exchange-listed,
including equities (including common
stock, partnership interests, and
business trust shares, as well as
depositary receipts (excluding ADRs
traded OTC and GDRs), rights, warrants,
preferred securities, ETFs, and ETPs
(collectively, ‘‘Exchange Traded
Equities’’)), will be available via the
CTA high-speed line and from the
securities exchange on which they are
listed. Quotation and last-sale
information for GDRs will be available
from the securities exchange on which
they are listed. Information relating to
futures and options on futures also will
be available from the exchange on
which such instruments are traded.
Information relating to exchange-traded
options will be available via the Options
Price Reporting Authority. Quotation
information from brokers and dealers or
pricing services will be available for
ADRs traded OTC, investment company
securities (other than ETFs), including
closed end investment companies, unit
investment trusts and open-end
investment companies, non-exchangetraded derivatives, including forwards,
swaps, and certain options, and fixed
income securities, including P-Notes,
structured notes, debt securities, money
market instruments, such as commercial
paper, certificates of deposit, bankers’
acceptances, U.S. Government
securities, repurchase agreements,
bonds and convertible securities, and
price. Futures and options on futures will be valued
at the settlement price determined by the applicable
exchange. Fixed income securities generally trade
in the OTC market rather than on a securities
exchange. A Fund will generally value these
portfolio securities, including P-Notes, structured
notes, debt securities, money market instruments,
such as commercial paper, certificates of deposit,
bankers’ acceptances, U.S. Government securities,
repurchase agreements, bonds and convertible
securities, and shares of short-term fixed income or
money market funds by relying on independent
pricing services. A Fund’s pricing services will use
valuation models or matrix pricing to determine
current value. In general, pricing services use
information with respect to comparable bond and
note transactions, quotations from bond dealers, or
by reference to other securities that are considered
comparable in such characteristics as rating,
interest rate, maturity date, option adjusted spread
models, prepayment projections, interest rate
spreads, and yield curves. Matrix price is an
estimated price or value for a fixed-income security
and is considered a form of fair value pricing.
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shares of short-term fixed income or
money market funds. Pricing
information regarding each asset class in
which the Funds will invest is generally
available through nationally recognized
data services providers through
subscription agreements. The Funds’
Web site will include a form of the
prospectus for the Funds and additional
data relating to NAV and other
applicable quantitative information for
each Fund.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Exchange will obtain a representation
from the issuer of the Shares that the
NAV per Share for each Fund will be
calculated daily and that the NAV and
the Disclosed Portfolio for each Fund
will be made available to all market
participants at the same time. 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,40 and trading in the Shares
will be subject to NYSE Arca Equities
Rule 8.600(d)(2)(D), which sets forth
additional circumstances under which
trading in the Shares of a Fund may be
halted. The Exchange states that it has
a general policy prohibiting the
distribution of material, non-public
information by its employees.
Consistent with NYSE Arca Equities
Rule 8.600(d)(2)(B)(ii), the Reporting
Authority must implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material, non-public
information regarding the actual
components of a Fund’s portfolio. In
addition, the Exchange states that the
Adviser is not registered as, nor
affiliated with, a broker-dealer.41 The
40 These reasons may include: (1) The extent to
which trading is not occurring in the securities and/
or the financial instruments comprising the
Disclosed Portfolio of the Funds; or (2) whether
other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly
market are present. 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.
41 See supra note 6. The Exchange states that an
investment adviser to an open-end fund is required
to be registered under the Investment Advisers Act
of 1940 (‘‘Advisers Act’’). As a result, the Adviser
and its related personnel are subject to the
provisions of Rule 204A–1 under the Advisers Act
relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that
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Exchange represents that trading in the
Shares will be subject to the existing
trading surveillances, administered by
the Financial Industry Regulatory
Authority (‘‘FINRA’’) on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws.42 The
Exchange further 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. Moreover,
prior to the commencement of trading,
the Exchange states that it will inform
its Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares.
The Exchange represents that the
Shares are deemed to be equity
securities, thus rendering trading in the
Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange has made
representations, including the
following:
(1) The Shares will conform to the
initial and continued listing criteria
under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and underlying
Exchange Traded Equities, exchange
traded options and futures with other
markets and other entities that are
members of the ISG, and FINRA, on
behalf of the Exchange, may obtain
trading information regarding trading in
the Shares and underlying Exchange
reflects the fiduciary nature of the relationship to
clients, as well as compliance with other applicable
securities laws. Accordingly, procedures designed
to prevent the communication and misuse of nonpublic information by an investment adviser must
be consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
42 The Exchange states that FINRA surveils
trading on the Exchange pursuant to a regulatory
services agreement and that the Exchange is
responsible for FINRA’s performance under this
regulatory services agreement.
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43113
Traded Equities, exchange traded
options and futures from such markets
and other entities. In addition, the
Exchange may obtain information
regarding trading in the Shares and
underlying Exchange Traded Equities,
exchange traded options and futures
from markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
(4) At least 90% of each Fund’s
investments in equity securities
(including GDRs and ADRs) will be in
securities that trade in markets that are
members of the ISG or are parties to a
comprehensive surveillance sharing
agreement with the Exchange. The
exchange-traded options in which the
Funds may invest will trade on markets
that are members of the ISG or parties
to a comprehensive surveillance sharing
agreement with the Exchange. Each
Fund will not invest more than 10% of
its assets in futures that trade in markets
that are not members of the ISG or
parties to a comprehensive surveillance
sharing agreement with the Exchange.
(5) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Information Bulletin will discuss the
following: (a) The procedures for
purchases and redemptions of Shares in
creation units (and that Shares are not
individually redeemable); (b) NYSE
Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its
Equity Trading Permit Holders to learn
the essential facts relating to every
customer prior to trading the Shares; (c)
the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated Portfolio
Indicative Value will not be calculated
or publicly disseminated; (d) how
information regarding the Portfolio
Indicative Value is disseminated; (e) the
requirement that Equity Trading Permit
Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(6) For initial and continued listing,
the Funds will be in compliance with
Rule 10A–3 under the Act,43 as
provided by NYSE Arca Equities Rule
5.3.
(7) Each Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment), including Rule
144A securities deemed illiquid by the
43 17
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24JYN1
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Adviser consistent with Commission
guidance.
(8) Under normal market
circumstances, ARK Genomic
Revolution ETF, ARK Industrial
Innovation ETF, and ARK Web x.0 ETF
will each invest at least 80% of its assets
in equity securities. Under normal
market circumstances, ARK Innovation
ETF will invest at least 65% of its assets
in equity securities.
(9) Investments in emerging markets
equity securities will not exceed 20% of
a Fund’s total assets.
(10) Each Fund’s investments will be
consistent with its respective
investment objective in accordance with
the 1940 Act and will not be used to
enhance leverage. Each Fund’s
investments will not be used to seek
performance that is the multiple or
inverse multiple (i.e., 2Xs or 3Xs) of the
Fund’s broad-based securities market
index (as defined in Form N–1A).
(11) The Funds will only enter into
transactions in derivative instruments
with counterparties that the Adviser
reasonably believes are capable of
performing under the contract and will
post as collateral as required by the
counterparty. The Funds will seek,
where possible, to use counterparties, as
applicable, whose financial status is
such that the risk of default is reduced;
however, the risk of losses resulting
from default is still possible. The
Adviser will evaluate the
creditworthiness of counterparties on a
regular basis. In addition to information
provided by credit agencies, the Adviser
will review approved counterparties
using various factors, which may
include the counterparty’s reputation,
the Adviser’s past experience with the
counterparty and the price/market
actions of debt of the counterparty.
(12) A minimum of 100,000 Shares for
each Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice, and the Exchange’s
description of the Funds.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 44 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,45 that the
44 15
U.S.C. 78f(b)(5).
45 15
proposed rule change (SR–NYSEArca–
2014–64) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–17398 Filed 7–23–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 72645; File No. SR–NYSEArca–
2014–44]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Relating To
Listing and Trading Shares of First
Trust Long/Short Equity ETF Under
NYSE Arca Equities Rule 8.600
July 18, 2014.
I. Introduction
On May 21, 2014, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the First Trust Long/Short
Equity ETF (‘‘Fund’’) under NYSE Arca
Equities Rule 8.600. The proposed rule
change was published for comment in
the Federal Register on June 9, 2014.3
The Commission received no comments
on the proposed rule change. This order
grants approval of the proposed rule
change.
II. Description of Proposed Rule Change
The Exchange proposes to list and
trade Shares of the Fund under NYSE
Arca Equities Rule 8.600, which governs
the listing and trading of Managed Fund
Shares 4 on the Exchange. The Fund will
be a series of First Trust Exchange45 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 72299
(Jun. 3, 2014), 79 FR 33018 (‘‘Notice’’).
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (‘‘1940 Act’’), organized as an open-end
investment company or similar entity that invests
in a portfolio of securities selected by its investment
adviser consistent with its investment objectives
and policies. In contrast, an open-end investment
company that issues Investment Company Units,
listed and traded on the Exchange under NYSE
Arca Equities Rule 5.2(j)(3), seeks to provide
investment results that correspond generally to the
price and yield performance of a specific foreign or
46 17
U.S.C. 78s(b)(2).
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Traded Fund III (‘‘Trust’’),5 a registered
management investment company. The
Fund will be an actively-managed
exchange-traded fund (‘‘ETF’’) and will
not seek to replicate the performance of
a specified index. First Trust Advisors
L.P. (‘‘Adviser’’) will be the investment
adviser for the Fund.6 Brown Brothers
Harriman & Co. will be the
administrator, accounting agent,
custodian, and transfer agent for the
Fund, and First Trust Portfolios L.P.
will be the principal underwriter and
distributor for the Fund.
The Exchange has made the following
representations and statements in
describing the Fund and its investment
strategies, including other portfolio
holdings and investment restrictions.7
Principal Investments of the Fund
According to the Exchange, the Fund
will seek to provide investors with longterm total return. The Fund intends to
pursue its investment objective by
establishing long and short positions in
a portfolio of Equity Securities (as
defined below). Under normal market
conditions,8 at least 80% of the Fund’s
5 The Trust is registered under the 1940 Act.
According to the Exchange, on April 1, 2014, the
Trust filed with the Commission an amendment to
its registration statement on Form N–1A relating to
the Fund (File Nos. 333–176976 and 811–22245)
(‘‘Registration Statement’’). In addition, the
Exchange states that the Trust has obtained certain
certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 28468 (Oct.
27, 2008) (File No. 812–13477).
6 The Exchange represents that the Adviser is not
registered as a broker-dealer, but is affiliated with
First Trust Portfolios L.P., a broker dealer. The
Exchange further represents that the Adviser has
implemented a ‘‘fire wall’’ with respect to its
broker-dealer affiliate regarding access to
information concerning the composition and
changes to the Fund’s portfolio. In addition,
according to the Exchange, in the event (a) the
Adviser or any sub-adviser becomes, or becomes
newly affiliated with, a broker-dealer, or (b) any
new adviser or sub-adviser is, or becomes affiliated
with, a broker-dealer, the Adviser or any new
adviser or sub-adviser, as applicable, will
implement a fire wall with respect to its relevant
personnel or its broker-dealer affiliate regarding
access to information concerning the composition
and changes to the Fund’s portfolio, and will be
subject to procedures designed to prevent the use
and dissemination of material, non-public
information regarding such portfolio.
7 The Commission notes that additional
information regarding the Trust, the Fund, and the
Shares, including investment strategies, 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 3 and 5,
respectively.
8 The term ‘‘under normal market conditions’’ or
‘‘under normal circumstances’’ includes, but is not
limited to, the absence of adverse market,
economic, political, or other conditions, including
extreme volatility or trading halts in the equities
markets or the financial markets generally;
operational issues causing dissemination of
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Agencies
[Federal Register Volume 79, Number 142 (Thursday, July 24, 2014)]
[Notices]
[Pages 43108-43114]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17398]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72641; File No. SR-NYSEArca-2014-64]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change To List and Trade Shares of the ARK
Innovation ETF, ARK Genomic Revolution ETF, ARK Industrial Innovation
ETF, and ARK Web x.0 ETF Under NYSE Arca Equities Rule 8.600
July 18, 2014.
I. Introduction
On May 28, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the following under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares on the Exchange: ARK Innovation ETF, ARK Genomic Revolution
ETF, ARK Industrial Innovation ETF, and ARK Web x.0 ETF (individually,
``Fund'' and, collectively, ``Funds''). The proposed rule change was
published for comment in the Federal Register on June 10, 2014.\3\ The
Commission received no comments on the proposed rule change. This order
grants approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 72314 (Jun. 4,
2014), 79 FR 33229 (``Notice'').
---------------------------------------------------------------------------
II. Description of Proposed Rule Change
The Exchange has made the following representations and statements
in describing each Fund and its respective investment strategies,
including other portfolio holdings and investment restrictions.\4\
---------------------------------------------------------------------------
\4\ The Commission notes that additional information regarding
the Trust, the Funds, and the Shares, including investment
strategies, 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 note 3 and
infra note 5, respectively.
---------------------------------------------------------------------------
General
The Shares will be offered by ARK ETF Trust (``Trust''), which is
organized as a Delaware statutory trust and is registered with the
Commission as an open-end management investment company.\5\ ARK
Investment Management LLC (``Adviser'') will serve as the investment
adviser to the Funds.\6\ Foreside Fund Services, LLC will be the
principal underwriter and distributor of the Funds' Shares. The Bank of
New York Mellon will serve as administrator, custodian and transfer
agent.
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\5\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). The Exchange states that on March 31, 2014, the
Trust filed with the Commission its registration statement on Form
N-1A under the Securities Act of 1933 (``Securities Act'') and under
the 1940 Act relating to the Funds (File Nos. 333-191019 and 811-
22883) (``Registration Statement''). In addition, according to the
Exchange, the Trust has obtained certain exemptive relief under the
1940 Act. See Investment Company Act Release No. 31009 (April 7,
2014) (File No. 812-14172).
\6\ The Exchange states that the Adviser is not registered as a
broker-dealer and is not affiliated with a broker-dealer. The
Exchange states that in the event (a) the Adviser or any sub-adviser
becomes, or becomes newly affiliated with, a broker-dealer, or (b)
any new adviser or sub-adviser is, or becomes affiliated with, a
broker-dealer, it will implement a fire wall with respect to its
relevant personnel or broker-dealer affiliate, as applicable,
regarding access to information concerning the composition and/or
changes to a portfolio, and will be subject to procedures designed
to prevent the use and dissemination of material, non-public
information regarding such portfolio.
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ARK Genomic Revolution ETF
The ARK Genomic Revolution ETF's investment objective will be long-
term growth of capital.
The Fund will invest, under normal circumstances,\7\ primarily (at
least 80% of its assets) in domestic and foreign equity securities of
companies that are relevant to the Fund's investment theme of genomics.
Companies relevant to this theme are those that are focused on and are
expected to benefit from extending and enhancing the quality of human
and other life by incorporating technological and scientific
developments, improvements and advancements in genetics into their
business, such as by offering new products or services that rely on
genetic sequencing, analysis, synthesis, or instrumentation. These
companies may include ones that develop, produce, manufacture, or
significantly rely on bionic devices, bio-inspired computing,
bioinformatics, molecular medicine, and agricultural biology.
---------------------------------------------------------------------------
\7\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the equity markets or the financial markets generally; operational
issues causing dissemination of inaccurate market information; or
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption, or any similar intervening circumstance.
---------------------------------------------------------------------------
In selecting companies that the Adviser believes are relevant to a
particular investment theme, it will seek
[[Page 43109]]
to identify, using its own internal research and analysis, companies
capitalizing on disruptive innovation or that are enabling the further
development of a theme in the markets in which they operate. The
Adviser's internal research and analysis will leverage insights from
diverse sources, including external research, to develop and refine its
investment themes and identify and take advantage of trends that have
ramifications for individual companies or entire industries. The
Adviser will use both ``top down'' (macro-economic and business cycle
analysis) and ``bottom up'' (valuation, fundamental, and quantitative
measures) approaches to select investments for the Fund.
Under normal circumstances, substantially all of the Fund's assets
will be invested in equity securities, including common stocks,
partnership interests, business trust shares, and other equity
investments or ownership interests in business enterprises.\8\
---------------------------------------------------------------------------
\8\ At least 90% of each Fund's investments in equity securities
(including Global Depositary Receipts (``GDRs''), American
Depositary Receipts (``ADRs''), rights, warrants, and preferred
securities, discussed under ``Other Investments,'' below) will be in
securities that trade in markets that are members of the Intermarket
Surveillance Group (``ISG'') or are parties to a comprehensive
surveillance sharing agreement with the Exchange.
---------------------------------------------------------------------------
The Fund's investments will include issuers of micro-, small-,
medium-, and large-capitalizations. The Fund's investments in foreign
equity securities will be in both developed and emerging markets.\9\
---------------------------------------------------------------------------
\9\ The Adviser generally considers emerging market countries to
be developing market countries whose gross domestic product per
person is classified below ``high income'' by the World Bank.
Investments in emerging markets equity securities will not exceed
20% of a Fund's total assets.
---------------------------------------------------------------------------
The Fund will be concentrated in issuers in any industry or group
of industries in the health care sector. Issuers in the health care
sector include manufacturers and distributors of health care equipment
and supplies, owners and operators of health care facilities, health
maintenance organizations and managed health care plans, health care
providers, and issuers that provide services to health care providers.
ARK Industrial Innovation ETF
The ARK Industrial Innovation ETF's investment objective will be
long-term growth of capital.
The Fund will invest, under normal circumstances,\10\ primarily (at
least 80% of its assets) in domestic and foreign equity securities of
companies that are relevant to the Fund's investment theme of
industrial innovation. Companies relevant to this theme are those that
are expected to focus on and benefit from the development of new
products or services, technological improvements, and advancements in
scientific research related to, among other things, disruptive
innovation in energy (``energy transformation companies''), automation
and manufacturing (``automation transformation companies''), materials,
and transportation.\11\
---------------------------------------------------------------------------
\10\ See supra note 7.
\11\ The Adviser will consider a company to be an energy
transformation company if it seeks to capitalize on innovations or
evolutions in: (i) Ways that energy is stored or used; (ii) the
discovery, collection and/or implementation of new sources of
energy, including unconventional sources of oil or natural gas; and/
or (iii) the production or development of new materials for use in
commercial applications of energy production, use or storage. The
Adviser will consider a company to be an automation transformation
company if it is focused on man capitalizing on the productivity of
machines, such as through the automation of functions, processes or
activities previously performed by human labor, or the use of
robotics to perform other functions, activities, or processes.
---------------------------------------------------------------------------
In selecting companies that the Adviser believes are relevant to a
particular investment theme, it will seek to identify, using its own
internal research and analysis, companies capitalizing on disruptive
innovation or that are enabling the further development of a theme in
the markets in which they operate. The Adviser's internal research and
analysis will leverage insights from diverse sources, including
external research, to develop and refine its investment themes and
identify and take advantage of trends that have ramifications for
individual companies or entire industries. The Adviser will use both
``top down'' (macro-economic and business cycle analysis) and ``bottom
up'' (valuation, fundamental, and quantitative measures) approaches to
select investments for the Fund.
Under normal circumstances, substantially all of the Fund's assets
will be invested in equity securities, including common stocks,
partnership interests, business trust shares, and other equity
investments or ownership interests in business enterprises.\12\
---------------------------------------------------------------------------
\12\ See supra note 8.
---------------------------------------------------------------------------
The Fund's investments will include issuers of micro-, small-,
medium-, and large-capitalizations. The Fund's investments in foreign
equity securities will be in both developed and emerging markets.\13\
---------------------------------------------------------------------------
\13\ See supra note 9.
---------------------------------------------------------------------------
The Fund will be concentrated in issuers in any industry or group
of industries in the industrials \14\ and information technology
sectors.\15\
---------------------------------------------------------------------------
\14\ The industrials sector includes companies engaged in the
manufacture and distribution of capital goods, such as those used in
defense, construction and engineering, companies that manufacture
and distribute electrical equipment and industrial machinery, and
those that provide commercial and transportation services and
supplies.
\15\ The information technology sector includes software
developers, providers of information technology consulting and
services, and manufacturers and distributors of computers,
peripherals, communications equipment, and semiconductors.
---------------------------------------------------------------------------
ARK Innovation ETF
The ARK Innovation ETF's investment objective will be long-term
growth of capital.
The Fund will invest, under normal circumstances,\16\ primarily (at
least 65% of its assets) in domestic and foreign equity securities of
companies that are relevant to the Fund's investment theme of
disruptive innovation. Companies relevant to this theme are those that
rely on or benefit from the development of new products or services,
technological improvements, and advancements in scientific research
relating to the areas of genomics (``genomic companies''), industrial
innovation (``industrial innovation companies''), or the increased use
of shared technology, infrastructure, and services (``Web x.0
companies'').
---------------------------------------------------------------------------
\16\ See supra note 7.
---------------------------------------------------------------------------
In selecting companies that the Adviser believes are relevant to a
particular investment theme, it will seek to identify, using its own
internal research and analysis, companies capitalizing on disruptive
innovation or that are enabling the further development of a theme in
the markets in which they operate. The Adviser's internal research and
analysis will leverage insights from diverse sources, including
external research, to develop and refine its investment themes and
identify and take advantage of trends that have ramifications for
individual companies or entire industries. The types of companies that
the Adviser believes are genomic companies, industrial innovation
companies, or Web x.0 companies are listed below:
Genomics companies are companies that are focused on and
are expected to benefit from extending and enhancing the quality of
human and other life by incorporating technological and scientific
developments in genetics into their business, such as by offering
products or services that rely on genetic sequencing, analysis,
synthesis, or instrumentation. These companies may include ones that
develop, produce,
[[Page 43110]]
manufacture, or significantly rely on bionic devices, bio-inspired
computing, bioinformatics, molecular medicine, and agricultural
biology.
Industrial innovation companies are companies that are
focused on and are expected to benefit from the development of new
products or services, technological improvements, and advancements in
scientific research related to, among other things, disruptive
innovation in energy (energy transformation companies), automation and
manufacturing (automation transformation companies), materials, and
transportation.\17\
---------------------------------------------------------------------------
\17\ See supra note 11.
---------------------------------------------------------------------------
Web x.0 companies are companies that are focused on and
expected to benefit from shifting the bases of technology
infrastructure from hardware and software to the cloud, enabling mobile
and local services, such as companies that rely on or benefit from the
increased use of shared technology, infrastructure, and services. These
companies may also include ones that develop, use, or rely on
innovative payment methodologies, big data, the internet of things, and
social distribution and media.
The Adviser will select investments for the Fund that represent its
highest-conviction investment ideas within the theme of disruptive
innovation, as described above, in constructing the Fund's portfolio.
The Adviser's process for identifying genomic companies, industrial
innovation companies, and Web x.0 companies will use both ``top down''
(macro-economic and business cycle analysis) and ``bottom up''
(valuation, fundamental, and quantitative measures) approaches. The
Adviser's highest-conviction investment ideas are those that it
believes present the best risk-reward opportunities.
Under normal circumstances, substantially all of the Fund's assets
will be invested in equity securities, including common stocks,
partnership interests, business trust shares, and other equity
investments or ownership interests in business enterprises.\18\
---------------------------------------------------------------------------
\18\ See supra note 8.
---------------------------------------------------------------------------
The Fund's investments will include issuers of micro-, small-,
medium-, and large-capitalizations. The Fund's investments in foreign
equity securities will be in both developed and emerging markets.\19\
---------------------------------------------------------------------------
\19\ See supra note 9.
---------------------------------------------------------------------------
The Fund will be concentrated in issuers in any industry or group
of industries in the industrials \20\ and information technology \21\
sectors.
---------------------------------------------------------------------------
\20\ See supra note 14.
\21\ See supra note 15.
---------------------------------------------------------------------------
ARK Web x.0 ETF
The ARK Web x.0 ETF's investment objective will be long-term growth
of capital.
The Fund will invest, under normal circumstances,\22\ primarily (at
least 80% of its assets) in domestic and foreign equity securities of
companies that are relevant to the Fund's investment theme of Web x.0.
Companies relevant to this theme are focused on and expected to benefit
from shifting the bases of technology infrastructure from hardware and
software to the cloud, enabling mobile and local services, such as
companies that rely on or benefit from the increased use of shared
technology, infrastructure, and services. These companies may also
include ones that develop, use, or rely on innovative payment
methodologies, big data, the internet of things, and social
distribution and media.
---------------------------------------------------------------------------
\22\ See supra note 7.
---------------------------------------------------------------------------
In selecting companies that the Adviser believes are relevant to a
particular investment theme, it will seek to identify, using its own
internal research and analysis, companies capitalizing on disruptive
innovation or that are enabling the further development of a theme in
the markets in which they operate. The Adviser's internal research and
analysis will leverage insights from diverse sources, including
internal and external research, to develop and refine its investment
themes and identify and take advantage of trends that have
ramifications for individual companies or entire industries. The
Adviser will use both ``top down'' (macro-economic and business cycle
analysis) and ``bottom up'' (valuation, fundamental, and quantitative
measures) approaches to select investments for the Fund.
Under normal circumstances, substantially all of the Fund's assets
will be invested in equity securities, including common stocks,
partnership interests, business trust shares, and other equity
investments or ownership interests in business enterprises.\23\
---------------------------------------------------------------------------
\23\ See supra note 8.
---------------------------------------------------------------------------
The Fund's investments will include issuers of micro-, small-,
medium-, and large-capitalizations. The Fund's investments in foreign
equity securities will be in both developed and emerging markets.\24\
---------------------------------------------------------------------------
\24\ See supra note 9.
---------------------------------------------------------------------------
The Fund will be concentrated in issuers in any group of industries
in the information technology sector.\25\ The Fund's investments may
include issuers in the telecommunications services sector.\26\
---------------------------------------------------------------------------
\25\ See supra note 15.
\26\ The telecommunications services sector includes companies
that provide fixed-line or wireless telecommunication and data
transmission services.
---------------------------------------------------------------------------
Other Investments
While each Fund will invest, under normal circumstances, primarily
in the equity securities described above, each Fund may invest in other
investments, as described below. With the exception of the ARK
Innovation ETF, under normal circumstances, such other investments will
not exceed 20% of a Fund's assets. Regarding the ARK Innovation ETF,
under normal circumstances, such other investments will not exceed 35%
of the Fund's investments.
Each Fund may invest no more than 35% of its assets in depositary
receipts (i.e., ADRs and GDRs), rights, warrants, preferred securities,
and convertible securities.
ADRs and GDRs are securities typically issued by a bank or trust
company that evidence ownership of underlying securities issued by a
foreign corporation and entitle the holder to all dividends and capital
gains that are paid out on the underlying foreign securities. Rights
and warrants are option securities permitting their holders to
subscribe for other securities. Preferred securities are contractual
obligations that entail rights to distributions declared by the
issuer's board of directors, but may permit the issuer to defer or
suspend distributions for a certain period of time. ADRs may be traded
over the counter (``OTC'').\27\
---------------------------------------------------------------------------
\27\ See supra note 8.
---------------------------------------------------------------------------
Each Fund may invest in the securities of open-end or closed-end
investment companies, subject to applicable limitations under the 1940
Act. A Fund's investment in other investment companies may include
shares of exchange traded funds registered under the 1940 Act
(``ETFs''),\28\ closed-end investment companies (which include business
development companies), unit investment trusts, and other open-end
investment companies. In addition, the Funds may invest in other
exchange-traded products (``ETPs''), such as commodity pools,\29\ or
other entities that are traded on an exchange.
---------------------------------------------------------------------------
\28\ For purposes of this filing, ETFs, which will be listed on
a national securities exchange, include the following: Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3));
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600).
\29\ For purposes of this filing, ETPs include Trust Issued
Receipts (as described in NYSE Arca Equities Rule 8.200); Commodity-
Based Trust Shares (as described in NYSE Arca Equities Rule 8.201);
Currency Trust Shares (as described in NYSE Arca Equities Rule
8.202); Commodity Index Trust Shares (as described in NYSE Arca
Equities Rule 8.203); and Trust Units (as described in NYSE Arca
Equities Rule 8.500).
---------------------------------------------------------------------------
[[Page 43111]]
In addition, each Fund may use derivative instruments.
Specifically, the Funds may use options, futures, swaps, and forwards,
for hedging or risk management purposes or as part of its investment
practices. Derivative instruments are contracts whose value depends on,
or is derived from, the value of an underlying asset, reference rate,
or index. These underlying assets, reference rates, or indices may be
any one of the following: stocks, interest rates, currency exchange
rates, and stock indices.
The options in which the Funds may invest may be exchanged-traded
or OTC. The exchange-traded options in which the Funds may invest will
trade on markets that are members of the ISG or parties to a
comprehensive surveillance sharing agreement with the Exchange. The
futures in which the Funds may invest will be exchange-traded. Each
Fund will not invest more than 10% of its assets in futures that trade
in markets that are not members of the ISG or parties to a
comprehensive surveillance sharing agreement with the Exchange. The
swaps in which the Funds will invest may be cleared swaps or non-
cleared. The Funds will collateralize their obligations with liquid
assets consistent with the 1940 Act and interpretations thereunder.
The Funds will only enter into transactions in derivative
instruments with counterparties that the Adviser reasonably believes
are capable of performing under the contract and will post as
collateral as required by the counterparty. The Funds will seek, where
possible, to use counterparties, as applicable, whose financial status
is such that the risk of default is reduced; however, the risk of
losses resulting from default is still possible. The Adviser will
evaluate the creditworthiness of counterparties on a regular basis. In
addition to information provided by credit agencies, the Adviser will
review approved counterparties using various factors, which may include
the counterparty's reputation, the Adviser's past experience with the
counterparty, and the price/market actions of debt of the counterparty.
The Funds may invest in currency forwards. A currency forward
transaction is a contract to buy or sell a specified quantity of
currency at a specified date in the future at a specified price, which
may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract.
Currency forward contracts may be used to increase or reduce exposure
to currency price movements.
The Funds may enter into futures contracts and options, including
options on futures contracts. Futures contracts generally provide for
the future sale by one party and purchase by another party of a
specified instrument, index, or commodity at a specified future time
and at a specified price. Futures contracts are standardized as to
maturity date and underlying instrument and are traded on futures
exchanges. An option is a contract that provides the holder the right
to buy or sell shares or futures at a fixed price, within a specified
period of time.
The Funds may invest in participation notes (``P-Notes''). P-Notes
are issued by banks or broker-dealers and are designed to offer a
return linked to the performance of a particular underlying equity
security or market. P-Notes can have the characteristics or take the
form of various instruments, including, but not limited to,
certificates or warrants.
Each Fund may invest in repurchase agreements with commercial
banks, brokers, or dealers and invest securities lending cash
collateral. A repurchase agreement is an agreement under which a Fund
acquires a money market instrument from a seller, subject to resale to
the seller at an agreed upon price and date.
The Funds may invest in structured notes. A structured note is a
derivative security for which the amount of principal repayment and/or
interest payments is based on the movement of one or more ``factors.''
These factors include, but are not limited to, currency exchange rates,
interest rates (such as the prime lending rate or LIBOR), referenced
bonds, and stock indices.
Each Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser
consistent with Commission guidance.\30\ Each Fund will monitor its
portfolio liquidity on an ongoing basis to determine whether, in light
of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of each Fund's net assets are
held in illiquid assets. Illiquid assets include assets subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets, as determined in accordance with
Commission staff guidance.
---------------------------------------------------------------------------
\30\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
asset; the number of dealers wishing to purchase or sell the asset
and the number of other potential purchasers; dealer undertakings to
make a market in the asset; and the nature of the asset and the
nature of the marketplace in which it trades (e.g., the time needed
to dispose of the asset, the method of soliciting offers, and the
mechanics of transfer).
---------------------------------------------------------------------------
Each Fund will be classified as a ``non-diversified'' investment
company under the 1940 Act and therefore may concentrate its
investments in any particular industry or group of industries, such
that: (i) ARK Genomic Revolution ETF will concentrate in securities of
issuers having their principal business activities in any industry or
group of industries in the health care sector; (ii) ARK Innovation ETF
will concentrate in securities of issuers having their principal
business activities in any industry or group of industries in the
health care sector, the industrials sector, the information technology
sector, or the telecommunications services sector; (iii) ARK Industrial
Innovation ETF will concentrate in securities of issuers having their
principal business activities in any industry or group of industries in
the industrials sector or the information technology sector; and (iv)
ARK Web x.0 ETF will concentrate in securities of issuers having their
principal business activities in any industry or group of industries in
the information technology sector or the telecommunications services
sector. Each Fund will consider an issuer to have its ``principal
business activities'' in an industry or group of industries if the
issuer derives more than 50% of its revenues from a business considered
to be a part of such industry or group of industries according to a
third party's industry classification system or that of the Adviser.
The Funds intend to qualify for and to elect treatment as a
separate regulated investment company under Subchapter M of the
Internal Revenue Code.
Each Fund may take a temporary defensive position (investments in
cash or cash equivalents) in response to adverse market, economic,
political, or other conditions.\31\ Cash equivalents
[[Page 43112]]
include short-term high quality debt securities and money market
instruments, such as commercial paper, certificates of deposit,
bankers' acceptances, U.S. Government securities, repurchase agreements
and bonds that are rated BBB or higher, and shares of short-term fixed
income or money market funds.
---------------------------------------------------------------------------
\31\ Circumstances under which a Fund may temporarily depart
from its normal investment process include, but are not limited to,
extreme volatility or trading halts in the equity markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
---------------------------------------------------------------------------
III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \32\
and the rules and regulations thereunder applicable to a national
securities exchange.\33\ In particular, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act,\34\ which
requires, among other things, that the Exchange's rules be designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest. The Commission notes that the Funds and the Shares must
comply with the initial and continued listing criteria in NYSE Arca
Equities Rule 8.600 for the Shares to be listed and traded on the
Exchange.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78f.
\33\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\35\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association (``CTA'') high-speed line. In addition, an indicative
optimized portfolio value (``IOPV''),\36\ which is the Portfolio
Indicative Value as defined in NYSE Arca Equities Rule 8.600(c)(3),
relating to each Fund will be widely disseminated every fifteen seconds
during the NYSE Arca Core Trading Session by one or more major market
data vendors.\37\ On each business day, before commencement of trading
in Shares in the Core Trading Session on the Exchange, the Adviser will
disclose on its Web site the identities and quantities of the portfolio
of securities and other assets (``Disclosed Portfolio'') held by the
Funds that will form the basis for each Fund's calculation of NAV at
the end of the business day.\38\ In addition, a basket composition
file, which includes the security names and share quantities, if
applicable, required to be delivered in exchange for a Fund's Shares,
together with estimates and actual cash components, will be publicly
disseminated daily prior to the opening of the New York Stock Exchange
(``NYSE'') via the National Securities Clearing Corporation. The NAV of
each Fund will be determined each business day as of the close of
trading (ordinarily 4:00 p.m., Eastern Time on the NYSE.\39\
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last-sale information for
underlying securities that are exchange-listed, including equities
(including common stock, partnership interests, and business trust
shares, as well as depositary receipts (excluding ADRs traded OTC and
GDRs), rights, warrants, preferred securities, ETFs, and ETPs
(collectively, ``Exchange Traded Equities'')), will be available via
the CTA high-speed line and from the securities exchange on which they
are listed. Quotation and last-sale information for GDRs will be
available from the securities exchange on which they are listed.
Information relating to futures and options on futures also will be
available from the exchange on which such instruments are traded.
Information relating to exchange-traded options will be available via
the Options Price Reporting Authority. Quotation information from
brokers and dealers or pricing services will be available for ADRs
traded OTC, investment company securities (other than ETFs), including
closed end investment companies, unit investment trusts and open-end
investment companies, non-exchange-traded derivatives, including
forwards, swaps, and certain options, and fixed income securities,
including P-Notes, structured notes, debt securities, money market
instruments, such as commercial paper, certificates of deposit,
bankers' acceptances, U.S. Government securities, repurchase
agreements, bonds and convertible securities, and
[[Page 43113]]
shares of short-term fixed income or money market funds. Pricing
information regarding each asset class in which the Funds will invest
is generally available through nationally recognized data services
providers through subscription agreements. The Funds' Web site will
include a form of the prospectus for the Funds and additional data
relating to NAV and other applicable quantitative information for each
Fund.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\36\ According to the Exchange, the IOPV calculations are
estimates of the value of the Funds' NAV per Share using market data
converted into U.S. dollars at the current currency rates. The IOPV
price is based on quotes and closing prices from the securities'
local market and may not reflect events that occur subsequent to the
local market's close. Premiums and discounts between the IOPV and
the market price may occur. This should not be viewed as a ``real-
time'' update of the NAV per Share of the Funds, which is calculated
only once a day.
\37\ According to the Exchange, several major market data
vendors display and/or make widely available IOPVs published on CTA
or other data feeds.
\38\ On a daily basis, the Adviser will disclose for each
portfolio security and other financial instrument of the Funds the
following information on the Funds' Web site: Ticker symbol (if
applicable), name of security and/or financial instrument, number of
shares, if applicable, and dollar value of financial instruments and
securities held in the portfolio, and percentage weighting of the
security and financial instrument in the portfolio. The Web site
information will be publicly available at no charge.
\39\ The NAV per Share for each Fund will be computed by
dividing the value of the net assets of the Fund (the value of its
total assets less total liabilities) by the total number of Shares
outstanding. Expenses and fees will be accrued daily and taken into
account for purposes of determining NAV. According to the Exchange,
price information for exchange-traded equity securities, including
equity securities of domestic and foreign companies, such as common
stock, partnership interests, business trust shares, ETFs and ETPs,
as well as depositary receipts (excluding ADRs traded OTC), rights,
warrants, and preferred securities, will be taken from the exchange
where the security or asset is primarily traded. ADRs traded OTC
will be valued on the basis of the market closing price on the
exchange where the stock of the foreign issuer that underlies the
ADR is listed. Investment company securities (other than ETFs),
including closed end investment companies, unit investment trusts,
and other open-end investment companies, will be valued at NAV,
utilizing pricing services. Non-exchange-traded derivatives,
including forwards, swaps, and certain options, will normally be
valued on the basis of quotes obtained from brokers and dealers or
independent pricing services using data reflecting the earlier
closing of the principal markets for those assets. Prices obtained
from independent pricing services use information provided by market
makers or estimates of market values obtained from yield data
relating to investments or securities with similar characteristics.
Exchange-traded options (excluding options on futures) will be
valued at market closing price. Futures and options on futures will
be valued at the settlement price determined by the applicable
exchange. Fixed income securities generally trade in the OTC market
rather than on a securities exchange. A Fund will generally value
these portfolio securities, including P-Notes, structured notes,
debt securities, money market instruments, such as commercial paper,
certificates of deposit, bankers' acceptances, U.S. Government
securities, repurchase agreements, bonds and convertible securities,
and shares of short-term fixed income or money market funds by
relying on independent pricing services. A Fund's pricing services
will use valuation models or matrix pricing to determine current
value. In general, pricing services use information with respect to
comparable bond and note transactions, quotations from bond dealers,
or by reference to other securities that are considered comparable
in such characteristics as rating, interest rate, maturity date,
option adjusted spread models, prepayment projections, interest rate
spreads, and yield curves. Matrix price is an estimated price or
value for a fixed-income security and is considered a form of fair
value pricing.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange will obtain a representation from the issuer of
the Shares that the NAV per Share for each Fund will be calculated
daily and that the NAV and the Disclosed Portfolio for each Fund will
be made available to all market participants at the same time. 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,\40\ and trading in the Shares will
be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
additional circumstances under which trading in the Shares of a Fund
may be halted. The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees. Consistent with NYSE Arca Equities Rule 8.600(d)(2)(B)(ii),
the Reporting Authority must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of a Fund's
portfolio. In addition, the Exchange states that the Adviser is not
registered as, nor affiliated with, a broker-dealer.\41\ The Exchange
represents that trading in the Shares will be subject to the existing
trading surveillances, administered by the Financial Industry
Regulatory Authority (``FINRA'') on behalf of the Exchange, which are
designed to detect violations of Exchange rules and applicable federal
securities laws.\42\ The Exchange further 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. Moreover, prior to the commencement of trading, the Exchange
states that it will inform its Equity Trading Permit Holders in an
Information Bulletin of the special characteristics and risks
associated with trading the Shares.
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\40\ These reasons may include: (1) The extent to which trading
is not occurring in the securities and/or the financial instruments
comprising the Disclosed Portfolio of the Funds; or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. 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.
\41\ See supra note 6. The Exchange states that an investment
adviser to an open-end fund is required to be registered under the
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the
Adviser and its related personnel are subject to the provisions of
Rule 204A-1 under the Advisers Act relating to codes of ethics. This
Rule requires investment advisers to adopt a code of ethics that
reflects the fiduciary nature of the relationship to clients, as
well as compliance with other applicable securities laws.
Accordingly, procedures designed to prevent the communication and
misuse of non-public information by an investment adviser must be
consistent with Rule 204A-1 under the Advisers Act. In addition,
Rule 206(4)-7 under the Advisers Act makes it unlawful for an
investment adviser to provide investment advice to clients unless
such investment adviser has (i) adopted and implemented written
policies and procedures reasonably designed to prevent violation, by
the investment adviser and its supervised persons, of the Advisers
Act and the Commission rules adopted thereunder; (ii) implemented,
at a minimum, an annual review regarding the adequacy of the
policies and procedures established pursuant to subparagraph (i)
above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
\42\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement and that the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including the following:
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and underlying Exchange Traded
Equities, exchange traded options and futures with other markets and
other entities that are members of the ISG, and FINRA, on behalf of the
Exchange, may obtain trading information regarding trading in the
Shares and underlying Exchange Traded Equities, exchange traded options
and futures from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares and
underlying Exchange Traded Equities, exchange traded options and
futures from markets and other entities that are members of ISG or with
which the Exchange has in place a comprehensive surveillance sharing
agreement.
(4) At least 90% of each Fund's investments in equity securities
(including GDRs and ADRs) will be in securities that trade in markets
that are members of the ISG or are parties to a comprehensive
surveillance sharing agreement with the Exchange. The exchange-traded
options in which the Funds may invest will trade on markets that are
members of the ISG or parties to a comprehensive surveillance sharing
agreement with the Exchange. Each Fund will not invest more than 10% of
its assets in futures that trade in markets that are not members of the
ISG or parties to a comprehensive surveillance sharing agreement with
the Exchange.
(5) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (a)
The procedures for purchases and redemptions of Shares in creation
units (and that Shares are not individually redeemable); (b) NYSE Arca
Equities Rule 9.2(a), which imposes a duty of due diligence on its
Equity Trading Permit Holders to learn the essential facts relating to
every customer prior to trading the Shares; (c) the risks involved in
trading the Shares during the Opening and Late Trading Sessions when an
updated Portfolio Indicative Value will not be calculated or publicly
disseminated; (d) how information regarding the Portfolio Indicative
Value is disseminated; (e) the requirement that Equity Trading Permit
Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (f) trading information.
(6) For initial and continued listing, the Funds will be in
compliance with Rule 10A-3 under the Act,\43\ as provided by NYSE Arca
Equities Rule 5.3.
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\43\ 17 CFR 240.10A-3.
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(7) Each Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the
[[Page 43114]]
Adviser consistent with Commission guidance.
(8) Under normal market circumstances, ARK Genomic Revolution ETF,
ARK Industrial Innovation ETF, and ARK Web x.0 ETF will each invest at
least 80% of its assets in equity securities. Under normal market
circumstances, ARK Innovation ETF will invest at least 65% of its
assets in equity securities.
(9) Investments in emerging markets equity securities will not
exceed 20% of a Fund's total assets.
(10) Each Fund's investments will be consistent with its respective
investment objective in accordance with the 1940 Act and will not be
used to enhance leverage. Each Fund's investments will not be used to
seek performance that is the multiple or inverse multiple (i.e., 2Xs or
3Xs) of the Fund's broad-based securities market index (as defined in
Form N-1A).
(11) The Funds will only enter into transactions in derivative
instruments with counterparties that the Adviser reasonably believes
are capable of performing under the contract and will post as
collateral as required by the counterparty. The Funds will seek, where
possible, to use counterparties, as applicable, whose financial status
is such that the risk of default is reduced; however, the risk of
losses resulting from default is still possible. The Adviser will
evaluate the creditworthiness of counterparties on a regular basis. In
addition to information provided by credit agencies, the Adviser will
review approved counterparties using various factors, which may include
the counterparty's reputation, the Adviser's past experience with the
counterparty and the price/market actions of debt of the counterparty.
(12) A minimum of 100,000 Shares for each Fund will be outstanding
at the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations,
including those set forth above and in the Notice, and the Exchange's
description of the Funds.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \44\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\44\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\45\ that the proposed rule change (SR-NYSEArca-2014-64) be, and it
hereby is, approved.
\45\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17398 Filed 7-23-14; 8:45 am]
BILLING CODE 8011-01-P