Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List and Trade Shares of the Fidelity Investment Grade Bond ETF, Fidelity Limited Term Bond ETF, and Fidelity Total Bond ETF Under NYSE Arca Equities Rule 8.600, 46484-46489 [2014-18746]
Download as PDF
46484
Federal Register / Vol. 79, No. 153 / Friday, August 8, 2014 / Notices
basis pursuant to Section 19(b)(2)(C)(iii)
of the Act.23
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the
Act 24 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,25 that the
proposed rule change (SR–ICEEU–2014–
09) be, and hereby is, approved on an
accelerated basis.26
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.27
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–18751 Filed 8–7–14; 8:45 am]
Amendment No. 1 to the proposed rule
change, which amended and replaced
the proposed rule change in its entirety.
The proposed rule change was
published for comment in the Federal
Register on May 6, 2014.3 On June 18,
2014, the Commission designated a
longer period for Commission action on
the proposed rule change.4 On July 28,
2014, the Exchange filed Amendment
No. 2 to the proposed rule change,5
which amended and replaced the
proposed rule change in its entirety. The
Commission received no comments on
the proposed rule change. The
Commission is publishing this notice to
solicit comments on Amendment No. 2
from interested persons and is
approving the proposed rule change, as
modified by Amendment Nos. 1 and 2,
on an accelerated basis.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72748; File No. SR–
NYSEArca–2014–46]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment Nos. 1 and 2, To List and
Trade Shares of the Fidelity Investment
Grade Bond ETF, Fidelity Limited Term
Bond ETF, and Fidelity Total Bond ETF
Under NYSE Arca Equities Rule 8.600
August 4, 2014.
mstockstill on DSK4VPTVN1PROD with NOTICES
I. Introduction
On April 16, 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’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
Fidelity Investment Grade Bond ETF,
Fidelity Limited Term Bond ETF, and
Fidelity Total Bond ETF (each a
‘‘Fund,’’ and collectively ‘‘Funds’’)
under NYSE Arca Equities Rule 8.600.
On May 1, 2014, the Exchange filed
23 15
U.S.C. 78s(b)(2)(C)(iii).
U.S.C. 78q–1.
25 15 U.S.C. 78s(b)(2).
26 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
27 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
24 15
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3 See Securities Exchange Act Release No. 72064
(May 1, 2014), 79 FR 25908 (‘‘Notice’’).
4 See Securities Exchange Act Release No. 72422,
79 FR 25908 (June 24, 2014).
5 In Amendment No. 2, the Exchange: (1) Noted
the replacement of Fidelity Management & Research
Company with Fidelity Investments Money
Management, Inc. as the Funds’ manager
(‘‘Manager’’); (2) stated that the Manager will have
overall responsibility for directing each Fund’s
investments and handling each Fund’s business
affairs; (3) disclosed that FMR Co., Inc. (‘‘FMRC’’)
is affiliated with the Manager; (4) disclosed that
other investment advisors are affiliated with the
Manager; (5) specified that only senior loans would
be included in the definition of ‘‘Debt Securities,’’
one of the primary investments of the Funds; (6)
designated structured securities, junior loans, and
other securities believed to have debt-like
characteristics, including hybrid securities, as nonprimary investments; (7) specified that the Funds’
junior loans, structured securities, and hybrid
securities would be valued based on price
quotations obtained from a broker-dealer who
makes markets in such securities or other
equivalent indications of value provided by a thirdparty pricing service; (8) stated that the Funds’
derivative investments also may overlie hybrid
securities; (9) specified that, in computing each
Fund’s net asset value (‘‘NAV’’), junior loans,
structured securities, and hybrid securities would
be valued based on price quotations obtained from
a broker-dealer who makes markets in such
securities or other equivalent indications of value
provided by a third-party pricing service; (10)
expanded the information to disclosed daily about
the portfolio of each Fund on the Funds’ Web site
to include: ticker symbol, CUSIP number or other
identifier, if any; a description of the holding
(including the type of holding, such as the type of
swap); the identity of the security, commodity,
index, or other asset or instrument underlying the
holding, if any; for options, the option strike price;
quantity held (as measured by, for example, par
value, notional value, or number of shares,
contracts, or units); maturity date, if any; coupon
rate, if any; effective date, if any; market value of
the holding; and the percentage weighting of the
holding in the Fund’s portfolio; and (11) stated that
quotation information for OTC-traded derivative
instruments may be obtained from brokers and
dealers who make markets in such instruments or
through nationally recognized pricing services
through subscription agreements.
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II. Description of the Proposed Rule
Change
A. In General
The Exchange proposes to list and
trade the Shares pursuant to NYSE Arca
Equities Rule 8.600, which governs the
listing and trading of Managed Fund
Shares. The Funds are offered by
Fidelity Merrimack Street Trust
(‘‘Trust’’), a Massachusetts business
trust.6 Fidelity Investments Money
Management, Inc. will be the Funds’
manager and will have overall
responsibility for directing each Fund’s
investments and handling each Fund’s
business affairs. 7 FMRC, which is
affiliated with the Manager, will serve
as a sub-adviser for the Fidelity Total
Bond ETF, and other investment
advisers will serve as sub-advisers for
the Funds (together with FMRC, ‘‘SubAdvisers’’).8 Other investment advisers,
which also are affiliates of the Manager,
will assist the Manager with foreign
investments; these investment advisers
include Fidelity Management &
Research (U.K.) Inc., Fidelity
Management & Research (Hong Kong)
Limited, and Fidelity Management &
Research (Japan) Inc. Fidelity
Distributors Corporation (‘‘FDC’’) will
be the distributor for the Shares.9
Fidelity Distributors Corporation
(‘‘FDC’’) will be the distributor for the
Funds’ Shares.10
The Exchange represents that the
Manager and the Sub-Advisers are not
broker-dealers but are affiliated with
one or more broker-dealers, and that
each (1) has implemented a fire wall
with respect to affiliated broker-dealers
regarding access to information
concerning the composition of or
changes to the portfolios, and (2) will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding the portfolios.11
6 The Trust is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a–1) (‘‘1940
Act’’). On April 17, 2014, the Trust filed with the
Commission an amendment to its registration
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a) (‘‘1933 Act’’) and the 1940
Act relating to the Funds (File Nos. 333–186372 and
811–22796) (the ‘‘Registration Statement’’). In
addition, the Commission has issued an order
granting certain exemptive relief to the Trust under
the 1940 Act. See Investment Company Act Release
No. 30513 (May 10, 2013) (‘‘Exemptive Order’’)
(File No. 812–14104).
7 See Amendment No. 2, supra note 5.
8 See id.
9 See id.
10 See id.
11 See Commentary .06 to Rule 8.600. In the event
(a) the Manager or any of the Sub-Advisers becomes
a registered broker-dealer or becomes newly
affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser is a registered broker-dealer
or becomes affiliated with a broker-dealer, the
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B. The Exchange’s Description of the
Funds
The Exchange has made the following
representations concerning the Fund.
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Fidelity Investment Grade Bond ETF
The Exchange states that the Fidelity
Investment Grade Bond ETF would seek
a high level of current income. The
Manager would use the Barclays U.S.
Aggregate Bond Index (‘‘Aggregate
Index’’) as a guide in structuring the
Fund and selecting its investments. The
Manager would manage the Fund to
have similar overall interest rate risk to
the Aggregate Index.
Normally,12 the Manager would
invest at least 80% of the Fund’s assets
in investment-grade debt securities
(those of medium and high quality).13
The debt securities in which the Fund
may invest are: Corporate debt
securities; U.S. Government securities;
repurchase agreements and reverse
repurchase agreements; 14 money market
securities; mortgage and other assetbacked securities; 15 senior loans; loan
participations and loan assignments and
other evidences of indebtedness,
including letters of credit, revolving
Manager or Sub-Adviser will implement a fire wall
with respect to its relevant personnel or brokerdealer affiliate regarding access to information
concerning the composition of or changes to the
portfolio and will be subject to procedures designed
to prevent the use and dissemination of material
non-public information regarding the portfolio. See
Notice, supra note 3, 79 FR at 25909.
12 The term ‘‘normally’’ includes, but is not
limited to, the absence of adverse market,
economic, political, or other conditions, including
extreme volatility or trading halts in the fixed
income markets or the financial markets generally;
operational issues causing dissemination of
inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar
intervening circumstance. According to the
Registration Statement, each Fund reserves the right
to invest without limitation in investment-grade
money market or short-term debt instruments for
temporary, defensive purposes.
13 Investment-grade debt securities include all
types of debt instruments that are of medium and
high-quality. An investment-grade rating means the
security or issuer is rated investment-grade by a
credit rating agency registered as a nationally
recognized statistical rating organization with the
Commission (for example, Moody’s Investors
Service, Inc.), or is unrated but considered to be of
equivalent quality by the relevant Fund’s Manager
or Sub-Adviser.
14 Investment-grade debt securities include
repurchase agreements collateralized by U.S.
Government securities as well as repurchase
agreements collateralized by equity securities, noninvestment-grade debt, and all other instruments in
which a Fund can perfect a security interest,
provided that the repurchase agreement
counterparty has an investment-grade rating.
15 Each Fund may invest up to 20% of its total
assets in mortgage-backed securities or in other
asset-backed securities, although this 20%
limitation will not apply to U.S. Government
securities.
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credit facilities, and other standby
financing commitments; stripped
securities; municipal securities;
sovereign debt obligations; and
obligations of international agencies or
supranational entities (collectively,
‘‘Debt Securities’’).16
The Fund may hold uninvested cash
or may invest it in cash equivalents
such as: Repurchase agreements; shares
of investment companies, including
exchange traded funds registered under
the 1940 Act that primarily hold shortterm bonds; or money market funds,
including Fidelity central funds (special
types of investment vehicles created by
Fidelity for use by the Fidelity funds
and other advisory clients).17 The
Manager may invest the Fund’s assets in
Debt Securities of foreign issuers in
addition to securities of domestic
issuers.18
Fidelity Limited Term Bond ETF
The Fidelity Limited Term Bond ETF
would seek to provide a high rate of
income. The Manager would use the
Fidelity Limited Term Composite Index
(‘‘Composite Index’’) as a guide in
structuring the Fund and selecting its
investments. The Manager would
manage the Fund to have similar overall
interest rate risk to the Composite Index.
Normally, the Manager would invest
at least 80% of the Fund’s assets in
investment-grade Debt Securities (those
of medium and high quality). The
Manager may invest the Fund’s assets in
Debt Securities of foreign issuers in
addition to securities of domestic
issuers. Additionally, the Fund may
hold uninvested cash or may invest it in
cash equivalents such as repurchase
agreements, shares of short-term bond
ETFs or mutual funds, or money market
funds, including Fidelity central funds
(special types of investment vehicles
created by Fidelity for use by the
16 See Amendment No. 2, supra note 5. Debt
Securities may be fixed, variable, or floating rate
securities. Variable rate securities provide for a
specific periodic adjustment in the interest rate,
while floating rate securities have interest rates that
change whenever there is a change in a designated
benchmark rate or the issuer’s credit quality,
sometimes subject to a cap or floor on the interest
rate. Some variable or floating rate securities are
structured with put features that permit holders to
demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain
financial intermediaries. In addition, Debt
Securities may include zero coupon bonds.
Investments in Debt Securities may have a
leveraging effect on a Fund.
17 The Exchange states that currently it is
expected that the Funds will only invest in Fidelity
central funds that are money market funds. See
Notice, supra note 3, 79 FR at 25910, n.22.
18 The Exchange states that the Fund’s holdings
generally are expected to be U.S. dollar
denominated. See id. at 25910, n.23.
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46485
Fidelity funds and other advisory
clients).
Fidelity Total Bond ETF
According to the Registration
Statement, Fidelity Total Bond ETF
would seek a high level of current
income. The Manager would use the
Barclays U.S. Universal Bond Index
(‘‘Universal Index’’) as a guide in
structuring the Fund and selecting its
investments. The Manager would use
the Universal Index as a guide in
allocating the Fund’s assets across the
investment-grade, high yield, and
emerging market asset classes (as
discussed below). The Manager would
manage the Fund to have similar overall
interest rate risk to the Universal Index.
Normally, the Manager would invest
at least 80% of the Fund’s assets in Debt
Securities. The Manager would allocate
the Fund’s assets across investmentgrade, high yield, and emerging market
Debt Securities. The Manager may
invest up to 20% of the Fund’s assets in
lower-quality Debt Securities.19 The
Manager may invest the Fund’s assets in
Debt Securities of foreign issuers in
addition to securities of domestic
issuers.20
According to the Registration
Statement, the Fund may hold
uninvested cash or may invest it in cash
equivalents such as repurchase
agreements, shares of short-term bond
ETFs or mutual funds, or money market
funds, including Fidelity central funds
(special types of investment vehicles
created by Fidelity for use by the
Fidelity funds and other advisory
clients).
According to the Registration
Statement, the Manager would allocate
the Fund’s assets among different asset
classes, using the composition of the
Universal Index as a guide, and among
different market sectors (for example,
corporate, asset-backed, or government
securities) and different maturities
based on its view of the relative value
of each sector or maturity.
Other Investments
As described above, although the
Manager would normally invest at least
80% of assets of the Fidelity Investment
Grade Bond ETF and Fidelity Limited
Term Bond ETF in investment-grade
Debt Securities and would normally
invest at least 80% of assets of the
Fidelity Total Bond ETF in Debt
Securities, the Manager may invest up
to 20% of a Fund’s assets in other
19 Lower-quality debt securities, also referred to
as high yield debt securities, are those of less than
investment-grade quality.
20 The Fund’s holdings may be U.S. dollar
denominated and non-dollar denominated.
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mstockstill on DSK4VPTVN1PROD with NOTICES
securities and financial instruments, as
summarized below.
According to the Registration
Statement, the Funds may invest in
securities of other investment
companies (other than the short-term
bond investment companies described
above). In addition, the Funds may
invest in other exchange-traded
products (‘‘ETPs’’)—other than the
short-term bond ETFs described above—
such as commodity pools, or in other
entities that are traded on an exchange.
According to the Registration
Statement, the Funds may invest in
inverse ETFs (also called ‘‘short ETFs’’
or ‘‘bear ETFs’’), shares of which are
expected to increase in value as the
value of the underlying benchmark
decreases.
According to the Registration
Statement, the Funds also may invest in
leveraged and inverse leveraged ETFs,
which seek to deliver multiples or
inverse multiples of the performance of
an index or other benchmark they track
and which use derivatives in an effort
to amplify the returns of the underlying
index or benchmark.
According to the Registration
Statement, the Funds may invest in
exchange traded notes (‘‘ETNs’’), which
are a type of senior, unsecured,
unsubordinated debt security issued by
financial institutions and which
combine aspects of both bonds and
ETFs. The Funds may invest in
leveraged ETNs.
According to the Registration
Statement, the Funds may invest in
American Depositary Receipts (‘‘ADRs’’)
as well as other ‘‘hybrid’’ forms of
ADRs, including European Depositary
Receipts (‘‘EDRs’’) and Global
Depositary Receipts (‘‘GDRs’’), which
are certificates evidencing ownership of
shares of a foreign issuer.21
The Funds may invest in: junior
loans, by buying an assignment of all or
a portion of the junior loan from a
lender or by purchasing a loan
participation from a lender or other
purchaser of a participation; structured
securities; 22 and other securities
believed to have debt-like
characteristics, including hybrid
21 The Funds will invest only in ADRs, EDRs, and
GDRs that are traded on an exchange that is a
member of the Intermarket Surveillance Group
(‘‘ISG’’) or with which the Exchange has in place
a comprehensive surveillance sharing agreement.
22 Structured securities (also called ‘‘structured
notes’’) are derivative debt securities, the interest
rate on or principal of which is determined by an
unrelated indicator. The Funds may invest in
‘‘indexed securities,’’ which are instruments whose
prices are indexed to the prices of other securities,
securities indexes, or other financial indicators.
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securities,23 which may offer
characteristics similar to those of a bond
security (such as stated maturity and
preference over equity in bankruptcy).24
In addition to the investment-grade
Debt Securities described above,
Fidelity Investment Grade Bond ETF
and Fidelity Limited Term Bond ETF
may invest in lower-quality Debt
Securities. The Manager may invest up
to 10% of the Fidelity Investment Grade
Bond ETF’s assets in lower-quality Debt
Securities. Lower-quality Debt
Securities include all types of debt
instruments that have poor protection
with respect to the payment of interest
and repayment of principal, or may be
in default.
In addition to the investment grade
repurchase agreements described above,
Investment Grade Bond ETF and
Limited Term Bond ETF may invest in
repurchase agreements with repurchase
agreement counterparties that do not
have an investment-grade rating, if those
repurchase agreements are collateralized
by U.S. Government securities as well as
repurchase agreements collateralized by
equity securities, non-investment-grade
debt, and all other instruments in which
a Fund can perfect a security interest.
The Funds may invest in exchangelisted and non-exchange-listed preferred
securities, exchange-listed or nonexchange-listed real estate investment
trusts, and restricted securities,
The Manager may make investments
in the following types of derivatives:
Futures (both long and short positions);
U.S. exchange-traded as well as overthe-counter (‘‘OTC’’) options (including
options on futures and swaps); 25
forwards; and swaps,26 including
interest rate swaps (exchanging a
floating rate for a fixed rate), total return
swaps (exchanging a floating rate for the
total return of an index, security, or
other instrument or investment), and
credit default swaps (buying or selling
credit default protection).27 The Funds’
23 A hybrid security generally combines both debt
and equity characteristics. A common type of
hybrid security is a convertible bond that has
features of a debt security, until a certain date or
triggering event, at which point the security may be
converted into an equity security. A hybrid security
may also be a warrant, convertible security,
certificate of deposit, or other evidence of
indebtedness.
24 See Amendment No. 2, supra note 5.
25 The Funds may also buy and sell options on
swaps (swaptions), which are generally options on
interest rate swaps.
26 To limit the counterparty risk involved in swap
agreements, a Fund will enter into swap agreements
only with counterparties that meet certain
standards of creditworthiness.
27 Investments in derivatives may have a
leveraging effect on a Fund. Not more than 10% of
the net assets of a Fund in the aggregate shall
consist of futures contracts or exchange-traded
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Sfmt 4703
derivative investments would overlie
Debt Securities, hybrid securities,28
interest rates, currencies, or related
indexes. Currency-related derivatives
include foreign exchange (‘‘FX’’)
transactions such as FX forwards, nondeliverable forwards, and crosscurrency FX trades (‘‘Currency-related
Derivatives’’).
The Funds may conduct foreign
currency transactions on a spot (i.e.,
cash) basis or forward basis (i.e., by
entering into forward contracts to
purchase or sell foreign currencies). The
Funds may invest in options and futures
relating to foreign currencies.29
The Funds may engage in transactions
with financial institutions that are, or
may be considered to be, ‘‘affiliated
persons’’ of the Funds under the 1940
Act.30 These transactions may involve
repurchase agreements with custodian
banks; short-term obligations of, and
repurchase agreements with, the 50
largest U.S. banks (measured by
deposits); municipal securities; U.S.
Government securities with affiliated
financial institutions that are primary
dealers in these securities; short-term
currency transactions; and short-term
borrowings.
Additional Limitations on Investments
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
Manager or Sub-Advisers.31 Each Fund
options contracts whose principal market is not a
member of ISG or is a market with which the
Exchange does not have a comprehensive
surveillance sharing agreement.
28 See Amendment No. 2, supra note 5.
29 The Funds’ investments in foreign currency
options will be exchange-listed.
30 The Exchange states that, in accordance with
exemptive orders issued by the Commission, each
Fund’s Board of Trustees has established and
periodically reviews procedures applicable to
transactions involving affiliated financial
institutions. See Notice, supra note 3, 79 FR at
25913.
31 The Exchange states that each Fund currently
does not intend to purchase any asset if, as a result,
more than 10% of its net assets would be invested
in assets that are deemed to be illiquid because they
are subject to legal or contractual restrictions on
resale or because they cannot be sold or disposed
of in the ordinary course of business at
approximately the prices at which they are valued.
For purposes of a Fund’s illiquid assets limitation
discussed above, if through a change in values, net
assets, or other circumstances, the Fund were in a
position where more than 10% of its net assets were
invested in illiquid assets, it would consider
appropriate steps to protect liquidity. According to
the Registration Statement, various factors may be
considered in determining the liquidity of the
Fund’s investments, including: (1) The frequency of
trades and quotes for the asset; (2) the number of
dealers wishing to purchase or sell the asset and the
number of other potential purchasers; (3) dealer
undertakings to make a market in the asset; and (4)
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would 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 would consider taking
appropriate steps in order to maintain
adequate liquidity if, through a change
in values, net assets, or other
circumstances, more than 15% of the
Fund’s net assets are held in illiquid
assets. Illiquid assets include 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.
Any foreign equity securities in which
a Fund may invest would be limited to
securities that trade in markets that are
members of ISG, which includes all U.S.
national securities exchanges and
certain foreign exchanges, or that are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
mstockstill on DSK4VPTVN1PROD with NOTICES
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 proposed rule change is consistent
with Section 6(b)(5) of the Act,34 which
requires, among other things, that the
Exchange’s rules be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and 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 requirements of 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’s finding that it is in the
the nature of the asset and the nature of the
marketplace in which it trades (including any
demand, put or tender features, the mechanics and
other requirements for transfer, any letters of credit
or other credit enhancement features, any ratings,
the number of holders, the method of soliciting
offers, the time required to dispose of the security,
and the ability to assign or offset the rights and
obligations of the asset).
32 15 U.S.C. 78f.
33 In approving this proposed rule change, the
Commission notes that it 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).
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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. According to
the Exchange, quotation and last-sale
information for the Shares and
underlying securities that are U.S.
exchange listed, including ETFs, ETPs,
ETNs, ADRs, EDRs, GDRs, exchangetraded REITs, exchange-traded preferred
securities, and exchange-traded
convertible securities, will be available
via the Consolidated Tape Association
(‘‘CTA’’) high-speed line.36 Quotation
and last-sale information for such U.S.
exchange-listed securities as well as
futures will be available from the
exchange on which they are listed.37
Quotation and last-sale information for
exchange-listed options will be
available via the Options Price
Reporting Authority.38 Quotation
information for OTC-Traded Securities
and investment company securities
(excluding ETFs), as well as for OTCtraded derivative instruments (such as
options, swaps, forwards, and Currencyrelated Derivatives), may be obtained
from brokers and dealers who make
markets in such securities or through
nationally recognized pricing services
through subscription agreements.39 In
addition, the Portfolio Indicative Value,
as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated
at least every 15 seconds during the
Core Trading Session by one or more
major market data vendors.40 On each
business day, before commencement of
trading in Shares in the Core Trading
Session on the Exchange, each Fund
would disclose on its Web site the
Disclosed Portfolio, as defined in NYSE
Arca Equities Rule 8.600(c)(2), that
would form the basis for such Fund’s
calculation of NAV at the end of the
business day.41 The NAV of each Fund
36 See
Notice, supra note 3, 79 FR at 25916.
id.
38 See id.
39 See Amendment No. 2, supra note 5.
40 The Exchange states that several major market
data vendors display or make widely available
Portfolio Indicative Values taken from the CTA or
other data feeds. See Notice, supra note 3, 79 FR
at 25916, n.58.
41 On a daily basis, each Fund will disclose for
each portfolio security and other financial
instrument of the Fund the following information:
Ticker symbol, CUSIP number or other identifier, if
any; a description of the holding (including the type
of holding, such as the type of swap); the identity
of the security, commodity, index, or other asset or
instrument underlying the holding, if any; for
options, the option strike price; quantity held (as
measured by, for example, par value, notional
value, or number of shares, contracts or units);
maturity date, if any; coupon rate, if any; effective
37 See
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46487
normally would be determined once
daily Monday through Friday, generally
as of the regularly scheduled close of
business of the New York Stock
Exchange (normally 4:00 p.m. Eastern
Time) on each day the New York Stock
Exchange is open for trading. A basket
composition file, which would include
the security names and share quantities
required to be delivered in exchange for
each Fund’s Shares, together with
estimates and actual cash components,
would be publicly disseminated daily
prior to the opening of the New York
Stock Exchange via the National
Securities Clearing Corporation.
Information regarding market price and
trading volume of the Shares would 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
would be published daily in the
financial section of newspapers. The
Web site for the Funds would include
a form of the prospectus for the Funds
and additional data relating to NAV and
other applicable quantitative
information.
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
Commission notes that the Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share of each Fund will be calculated
daily and that the NAV and the
Disclosed Portfolio will be made
available to all market participants at
the same time.42 In addition, trading in
the Shares would be subject to NYSE
Arca Equities Rule 8.600(d)(2)(D), which
sets forth circumstances under which
Shares of a Fund may be halted. The
Exchange may halt trading in the Shares
if trading is not occurring in the
securities or financial instruments
constituting the Disclosed Portfolio of a
Fund, or if other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present.43 Further, the
date, if any; market value of the holding; and the
percentage weighting of the holding in the Fund’s
portfolio. See Amendment No. 2, supra note 5. The
Web site information will be publicly available at
no charge. See Notice, supra note 3, 79 FR at 25916.
42 See NYSE Arca Equities Rule 8.600(d)(1)(B).
43 See NYSE Arca Equities Rule 8.600(d)(2)(C)
(providing additional considerations for the
suspension of trading in or removal from listing of
E:\FR\FM\08AUN1.SGM
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Commission notes that the Reporting
Authority that provides the Disclosed
Portfolio of each Fund must implement
and maintain, or be subject to,
procedures designed to prevent the use
and dissemination of material, nonpublic information regarding the actual
components of the portfolio.44 In
addition, the Exchange may obtain
information regarding trading in the
Shares and underlying exchange-traded
options, futures, exchange traded-equity
securities (including ADRs, EDRs, and
GDRs), and other exchange-traded
instruments from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. The Commission also notes
that FINRA, on behalf of the Exchange,
is able to access, as needed, trade
information for certain fixed income
securities held by the Funds reported to
FINRA’s Trade Reporting and
Compliance Engine.45 The Exchange
states that it has a general policy
prohibiting the distribution of material,
non-public information by its
employees.46 The Exchange represents
that the Manager and the Sub-Advisers
are not broker-dealers but are affiliated
with one or more broker-dealers, and
that each (1) has implemented a firewall
with respect to affiliated broker-dealers
regarding access to information
concerning the composition of or
changes to the portfolios, and (2) would
be subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding the portfolios.47
Managed Fund Shares on the Exchange). 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 each Fund.
Trading in Shares of a Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be
halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in
the Shares inadvisable.
44 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
45 See Notice, supra note 3, 79 FR at 25917.
46 See id.
47 See supra note 11. 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
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16:51 Aug 07, 2014
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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 the following
representations:
(1) The Shares of each Fund 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) Trading in the Shares will be
subject to the existing surveillance
procedures administered by FINRA on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws, and 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.
(4) 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.
(5) For initial and continued listing,
the Funds will be in compliance with
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.
PO 00000
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Fmt 4703
Sfmt 4703
Rule 10A–3 under the Exchange Act,48
as provided by NYSE Arca Equities Rule
5.3.
(6) A Fund may hold up to an
aggregate amount of 15% of its net
assets (calculated at the time of
investment) in assets deemed illiquid by
the Adviser, consistent with
Commission guidance.
(7) A minimum of 100,000 Shares of
each Fund will be outstanding at the
commencement of trading on the
Exchange.
(8) Each Fund will invest no more
than 20% of its total assets in mortgagebacked securities or in other assetbacked securities, provided that this
limitation does not apply to U.S.
Government securities.
(9) The Funds will invest only in
ADRs, EDRs, and GDRs that are traded
on an exchange that is a member of the
ISG or with which the Exchange has in
place a comprehensive surveillance
sharing agreement.
(10) Not more than 10% of the net
assets of a Fund in the aggregate shall
consist of futures contracts or exchangetraded options contracts whose
principal market is not a member of ISG
or is a market with which the Exchange
does not have a comprehensive
surveillance sharing agreement.
(11) The Funds’ investments in
foreign currency options will be
exchange-listed. This approval order is
based on all of the Exchange’s
representations and description of the
Funds, including those set forth above
and in the Notice.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
Nos. 1 and 2, is consistent with Section
6(b)(5) of the Act 49 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Solicitation of Comments on
Amendment No. 2
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 2 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2014–46 on the subject line.
48 17
49 15
E:\FR\FM\08AUN1.SGM
CFR 240.10A–3.
U.S.C. 78f(b)(5).
08AUN1
Federal Register / Vol. 79, No. 153 / Friday, August 8, 2014 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2014–46. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml ). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2014–46 and should be
submitted on or before August 29, 2014.
V. Accelerated Approval of Proposed
Rule Change as Modified by
Amendment Nos. 1 and 2
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment Nos. 1 and 2,
prior to the thirtieth day after the date
of publication of notice of Amendment
No. 2 in the Federal Register.
Amendment No. 2 supplements the
proposed rule change by, among other
things: (1) Re-designating certain asset
classes (i.e., junior loans, structured
securities, and securities believed to
have debt-like characteristics, including
hybrid securities) as non-primary
investments; (2) providing additional
information regarding the NAV
valuation of Funds’ junior loans,
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Jkt 232001
structured securities, and hybrid
securities; (3) expanding the
information to be disclosed daily about
the portfolio of each Fund on the Funds’
Web site; and (4) providing information
regarding the availability of price
information for OTC-traded derivative
instruments, which may be held by the
Funds. The Commission believes that
this additional information should aid
in the pricing of the Shares.
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Act,50 to approve the proposed
rule change, as modified by Amendment
Nos. 1 and 2, on an accelerated basis.
VI. Conclusion
IT IS THEREFORE ORDERED,
pursuant to Section 19(b)(2) of the
Act,51 that the proposed rule change
(SR–NYSEArca–2014–46), as modified
by Amendment Nos. 1 and 2, be, and it
hereby is, approved on an accelerated
basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.52
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–18746 Filed 8–7–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72747; File No. SR–MIAX–
2014–28]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Order Approving Proposed Rule
Change To Amend Rule 515 To
Terminate the Liquidity Refresh Pause
Early in Certain Situations
August 4, 2014.
I. Introduction
On June 5, 2014, Miami International
Securities Exchange LLC (‘‘MIAX’’ or
‘‘Exchange’’) 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
amend MIAX Rule 515. The proposed
rule change was published for comment
50 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
52 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
51 15
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46489
in the Federal Register on June 23,
2014.3 The Commission did not receive
any comments on the proposal. This
order approves the proposed rule
change.
II. Description of the Proposal
The Liquidity Refresh Pause, set forth
in MIAX Rule 515(c)(2), provides an
opportunity for additional orders or
quotes to be received where an
incoming order (‘‘initiating order’’)
exhausts a Market Maker’s quote that
was all or part of the MIAX best bid or
offer (‘‘MBBO’’) when MIAX was alone
at the national best bid or offer
(‘‘NBBO’’) and there are unexecuted
contracts remaining from the initiating
order. Specifically, the Liquidity
Refresh Pause is utilized in instances
where (a) either the initiating order is a
limit order that crosses the NBBO or the
initiating order is a market order, and
the limit order or market order could
only be partially executed; (b) a Market
Maker quote was all or part of the
MBBO when the MBBO is alone at the
NBBO; and (c) the Market Maker quote
was exhausted.4
The Exchange proposes to amend
MIAX Rule 515(c)(2) in order to address
the case where, during the Liquidity
Refresh Pause, an Away Best Bid or
Offer (‘‘ABBO’’) on the same side of the
market as the initiating order (a ‘‘sameside ABBO’’) crosses the original NBBO
price on the opposite side of the market.
The proposed rule change would
provide that, in such a situation, the
Liquidity Refresh Pause will be
terminated early and normal trading
will resume. The Exchange states that
the proposed change is designed to
codify existing functionality during the
liquidity refresh pause.5
The following examples describe how
a new revised same-side ABBO that
crosses the original NBBO on the
opposite side of the market will
terminate the Liquidity Refresh Pause
early.
3 See Securities Exchange Act Release No. 72408
(June 17, 2014), 79 FR 35625.
4 At the start of the Liquidity Refresh Pause, the
system broadcasts a ‘‘liquidity refresh message’’ to
subscribers of the Exchange’s data feeds, providing
a description of the option and the size and side
of the order and the exhausted MBBO price. During
the pause, the system displays the unexecuted
remainder of the initiating order at the original
NBBO price (i.e., the exhausted MBBO price) and
MIAX’s next bid or offer on the opposite side is
displayed as non-firm.
5 See Notice, supra note 3, at 35625.
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Agencies
[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)]
[Notices]
[Pages 46484-46489]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18746]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72748; File No. SR-NYSEArca-2014-46]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 2 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List
and Trade Shares of the Fidelity Investment Grade Bond ETF, Fidelity
Limited Term Bond ETF, and Fidelity Total Bond ETF Under NYSE Arca
Equities Rule 8.600
August 4, 2014.
I. Introduction
On April 16, 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'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
Fidelity Investment Grade Bond ETF, Fidelity Limited Term Bond ETF, and
Fidelity Total Bond ETF (each a ``Fund,'' and collectively ``Funds'')
under NYSE Arca Equities Rule 8.600. On May 1, 2014, the Exchange filed
Amendment No. 1 to the proposed rule change, which amended and replaced
the proposed rule change in its entirety. The proposed rule change was
published for comment in the Federal Register on May 6, 2014.\3\ On
June 18, 2014, the Commission designated a longer period for Commission
action on the proposed rule change.\4\ On July 28, 2014, the Exchange
filed Amendment No. 2 to the proposed rule change,\5\ which amended and
replaced the proposed rule change in its entirety. The Commission
received no comments on the proposed rule change. The Commission is
publishing this notice to solicit comments on Amendment No. 2 from
interested persons and is approving the proposed rule change, as
modified by Amendment Nos. 1 and 2, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 72064 (May 1, 2014),
79 FR 25908 (``Notice'').
\4\ See Securities Exchange Act Release No. 72422, 79 FR 25908
(June 24, 2014).
\5\ In Amendment No. 2, the Exchange: (1) Noted the replacement
of Fidelity Management & Research Company with Fidelity Investments
Money Management, Inc. as the Funds' manager (``Manager''); (2)
stated that the Manager will have overall responsibility for
directing each Fund's investments and handling each Fund's business
affairs; (3) disclosed that FMR Co., Inc. (``FMRC'') is affiliated
with the Manager; (4) disclosed that other investment advisors are
affiliated with the Manager; (5) specified that only senior loans
would be included in the definition of ``Debt Securities,'' one of
the primary investments of the Funds; (6) designated structured
securities, junior loans, and other securities believed to have
debt-like characteristics, including hybrid securities, as non-
primary investments; (7) specified that the Funds' junior loans,
structured securities, and hybrid securities would be valued based
on price quotations obtained from a broker-dealer who makes markets
in such securities or other equivalent indications of value provided
by a third-party pricing service; (8) stated that the Funds'
derivative investments also may overlie hybrid securities; (9)
specified that, in computing each Fund's net asset value (``NAV''),
junior loans, structured securities, and hybrid securities would be
valued based on price quotations obtained from a broker-dealer who
makes markets in such securities or other equivalent indications of
value provided by a third-party pricing service; (10) expanded the
information to disclosed daily about the portfolio of each Fund on
the Funds' Web site to include: ticker symbol, CUSIP number or other
identifier, if any; a description of the holding (including the type
of holding, such as the type of swap); the identity of the security,
commodity, index, or other asset or instrument underlying the
holding, if any; for options, the option strike price; quantity held
(as measured by, for example, par value, notional value, or number
of shares, contracts, or units); maturity date, if any; coupon rate,
if any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in the Fund's portfolio; and
(11) stated that quotation information for OTC-traded derivative
instruments may be obtained from brokers and dealers who make
markets in such instruments or through nationally recognized pricing
services through subscription agreements.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
A. In General
The Exchange proposes to list and trade the Shares pursuant to NYSE
Arca Equities Rule 8.600, which governs the listing and trading of
Managed Fund Shares. The Funds are offered by Fidelity Merrimack Street
Trust (``Trust''), a Massachusetts business trust.\6\ Fidelity
Investments Money Management, Inc. will be the Funds' manager and will
have overall responsibility for directing each Fund's investments and
handling each Fund's business affairs. \7\ FMRC, which is affiliated
with the Manager, will serve as a sub-adviser for the Fidelity Total
Bond ETF, and other investment advisers will serve as sub-advisers for
the Funds (together with FMRC, ``Sub-Advisers'').\8\ Other investment
advisers, which also are affiliates of the Manager, will assist the
Manager with foreign investments; these investment advisers include
Fidelity Management & Research (U.K.) Inc., Fidelity Management &
Research (Hong Kong) Limited, and Fidelity Management & Research
(Japan) Inc. Fidelity Distributors Corporation (``FDC'') will be the
distributor for the Shares.\9\ Fidelity Distributors Corporation
(``FDC'') will be the distributor for the Funds' Shares.\10\
---------------------------------------------------------------------------
\6\ The Trust is registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (``1940 Act''). On April 17, 2014, the Trust
filed with the Commission an amendment to its registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a)
(``1933 Act'') and the 1940 Act relating to the Funds (File Nos.
333-186372 and 811-22796) (the ``Registration Statement''). In
addition, the Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act. See Investment
Company Act Release No. 30513 (May 10, 2013) (``Exemptive Order'')
(File No. 812-14104).
\7\ See Amendment No. 2, supra note 5.
\8\ See id.
\9\ See id.
\10\ See id.
---------------------------------------------------------------------------
The Exchange represents that the Manager and the Sub-Advisers are
not broker-dealers but are affiliated with one or more broker-dealers,
and that each (1) has implemented a fire wall with respect to
affiliated broker-dealers regarding access to information concerning
the composition of or changes to the portfolios, and (2) will be
subject to procedures designed to prevent the use and dissemination of
material non-public information regarding the portfolios.\11\
---------------------------------------------------------------------------
\11\ See Commentary .06 to Rule 8.600. In the event (a) the
Manager or any of the Sub-Advisers becomes a registered broker-
dealer or becomes newly affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, the Manager or Sub-Adviser will
implement a fire wall with respect to its relevant personnel or
broker-dealer affiliate regarding access to information concerning
the composition of or changes to the portfolio and will be subject
to procedures designed to prevent the use and dissemination of
material non-public information regarding the portfolio. See Notice,
supra note 3, 79 FR at 25909.
---------------------------------------------------------------------------
[[Page 46485]]
B. The Exchange's Description of the Funds
The Exchange has made the following representations concerning the
Fund.
Fidelity Investment Grade Bond ETF
The Exchange states that the Fidelity Investment Grade Bond ETF
would seek a high level of current income. The Manager would use the
Barclays U.S. Aggregate Bond Index (``Aggregate Index'') as a guide in
structuring the Fund and selecting its investments. The Manager would
manage the Fund to have similar overall interest rate risk to the
Aggregate Index.
Normally,\12\ the Manager would invest at least 80% of the Fund's
assets in investment-grade debt securities (those of medium and high
quality).\13\ The debt securities in which the Fund may invest are:
Corporate debt securities; U.S. Government securities; repurchase
agreements and reverse repurchase agreements; \14\ money market
securities; mortgage and other asset-backed securities; \15\ senior
loans; loan participations and loan assignments and other evidences of
indebtedness, including letters of credit, revolving credit facilities,
and other standby financing commitments; stripped securities; municipal
securities; sovereign debt obligations; and obligations of
international agencies or supranational entities (collectively, ``Debt
Securities'').\16\
---------------------------------------------------------------------------
\12\ The term ``normally'' includes, but is not limited to, the
absence of adverse market, economic, political, or other conditions,
including extreme volatility or trading halts in the fixed income
markets or the financial markets generally; operational issues
causing dissemination of inaccurate market information; or force
majeure type events such as systems failure, natural or man-made
disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption, or any similar intervening circumstance. According
to the Registration Statement, each Fund reserves the right to
invest without limitation in investment-grade money market or short-
term debt instruments for temporary, defensive purposes.
\13\ Investment-grade debt securities include all types of debt
instruments that are of medium and high-quality. An investment-grade
rating means the security or issuer is rated investment-grade by a
credit rating agency registered as a nationally recognized
statistical rating organization with the Commission (for example,
Moody's Investors Service, Inc.), or is unrated but considered to be
of equivalent quality by the relevant Fund's Manager or Sub-Adviser.
\14\ Investment-grade debt securities include repurchase
agreements collateralized by U.S. Government securities as well as
repurchase agreements collateralized by equity securities, non-
investment-grade debt, and all other instruments in which a Fund can
perfect a security interest, provided that the repurchase agreement
counterparty has an investment-grade rating.
\15\ Each Fund may invest up to 20% of its total assets in
mortgage-backed securities or in other asset-backed securities,
although this 20% limitation will not apply to U.S. Government
securities.
\16\ See Amendment No. 2, supra note 5. Debt Securities may be
fixed, variable, or floating rate securities. Variable rate
securities provide for a specific periodic adjustment in the
interest rate, while floating rate securities have interest rates
that change whenever there is a change in a designated benchmark
rate or the issuer's credit quality, sometimes subject to a cap or
floor on the interest rate. Some variable or floating rate
securities are structured with put features that permit holders to
demand payment of the unpaid principal balance plus accrued interest
from the issuers or certain financial intermediaries. In addition,
Debt Securities may include zero coupon bonds. Investments in Debt
Securities may have a leveraging effect on a Fund.
---------------------------------------------------------------------------
The Fund may hold uninvested cash or may invest it in cash
equivalents such as: Repurchase agreements; shares of investment
companies, including exchange traded funds registered under the 1940
Act that primarily hold short-term bonds; or money market funds,
including Fidelity central funds (special types of investment vehicles
created by Fidelity for use by the Fidelity funds and other advisory
clients).\17\ The Manager may invest the Fund's assets in Debt
Securities of foreign issuers in addition to securities of domestic
issuers.\18\
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\17\ The Exchange states that currently it is expected that the
Funds will only invest in Fidelity central funds that are money
market funds. See Notice, supra note 3, 79 FR at 25910, n.22.
\18\ The Exchange states that the Fund's holdings generally are
expected to be U.S. dollar denominated. See id. at 25910, n.23.
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Fidelity Limited Term Bond ETF
The Fidelity Limited Term Bond ETF would seek to provide a high
rate of income. The Manager would use the Fidelity Limited Term
Composite Index (``Composite Index'') as a guide in structuring the
Fund and selecting its investments. The Manager would manage the Fund
to have similar overall interest rate risk to the Composite Index.
Normally, the Manager would invest at least 80% of the Fund's
assets in investment-grade Debt Securities (those of medium and high
quality). The Manager may invest the Fund's assets in Debt Securities
of foreign issuers in addition to securities of domestic issuers.
Additionally, the Fund may hold uninvested cash or may invest it in
cash equivalents such as repurchase agreements, shares of short-term
bond ETFs or mutual funds, or money market funds, including Fidelity
central funds (special types of investment vehicles created by Fidelity
for use by the Fidelity funds and other advisory clients).
Fidelity Total Bond ETF
According to the Registration Statement, Fidelity Total Bond ETF
would seek a high level of current income. The Manager would use the
Barclays U.S. Universal Bond Index (``Universal Index'') as a guide in
structuring the Fund and selecting its investments. The Manager would
use the Universal Index as a guide in allocating the Fund's assets
across the investment-grade, high yield, and emerging market asset
classes (as discussed below). The Manager would manage the Fund to have
similar overall interest rate risk to the Universal Index.
Normally, the Manager would invest at least 80% of the Fund's
assets in Debt Securities. The Manager would allocate the Fund's assets
across investment-grade, high yield, and emerging market Debt
Securities. The Manager may invest up to 20% of the Fund's assets in
lower-quality Debt Securities.\19\ The Manager may invest the Fund's
assets in Debt Securities of foreign issuers in addition to securities
of domestic issuers.\20\
---------------------------------------------------------------------------
\19\ Lower-quality debt securities, also referred to as high
yield debt securities, are those of less than investment-grade
quality.
\20\ The Fund's holdings may be U.S. dollar denominated and non-
dollar denominated.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund may hold
uninvested cash or may invest it in cash equivalents such as repurchase
agreements, shares of short-term bond ETFs or mutual funds, or money
market funds, including Fidelity central funds (special types of
investment vehicles created by Fidelity for use by the Fidelity funds
and other advisory clients).
According to the Registration Statement, the Manager would allocate
the Fund's assets among different asset classes, using the composition
of the Universal Index as a guide, and among different market sectors
(for example, corporate, asset-backed, or government securities) and
different maturities based on its view of the relative value of each
sector or maturity.
Other Investments
As described above, although the Manager would normally invest at
least 80% of assets of the Fidelity Investment Grade Bond ETF and
Fidelity Limited Term Bond ETF in investment-grade Debt Securities and
would normally invest at least 80% of assets of the Fidelity Total Bond
ETF in Debt Securities, the Manager may invest up to 20% of a Fund's
assets in other
[[Page 46486]]
securities and financial instruments, as summarized below.
According to the Registration Statement, the Funds may invest in
securities of other investment companies (other than the short-term
bond investment companies described above). In addition, the Funds may
invest in other exchange-traded products (``ETPs'')--other than the
short-term bond ETFs described above--such as commodity pools, or in
other entities that are traded on an exchange.
According to the Registration Statement, the Funds may invest in
inverse ETFs (also called ``short ETFs'' or ``bear ETFs''), shares of
which are expected to increase in value as the value of the underlying
benchmark decreases.
According to the Registration Statement, the Funds also may invest
in leveraged and inverse leveraged ETFs, which seek to deliver
multiples or inverse multiples of the performance of an index or other
benchmark they track and which use derivatives in an effort to amplify
the returns of the underlying index or benchmark.
According to the Registration Statement, the Funds may invest in
exchange traded notes (``ETNs''), which are a type of senior,
unsecured, unsubordinated debt security issued by financial
institutions and which combine aspects of both bonds and ETFs. The
Funds may invest in leveraged ETNs.
According to the Registration Statement, the Funds may invest in
American Depositary Receipts (``ADRs'') as well as other ``hybrid''
forms of ADRs, including European Depositary Receipts (``EDRs'') and
Global Depositary Receipts (``GDRs''), which are certificates
evidencing ownership of shares of a foreign issuer.\21\
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\21\ The Funds will invest only in ADRs, EDRs, and GDRs that are
traded on an exchange that is a member of the Intermarket
Surveillance Group (``ISG'') or with which the Exchange has in place
a comprehensive surveillance sharing agreement.
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The Funds may invest in: junior loans, by buying an assignment of
all or a portion of the junior loan from a lender or by purchasing a
loan participation from a lender or other purchaser of a participation;
structured securities; \22\ and other securities believed to have debt-
like characteristics, including hybrid securities,\23\ which may offer
characteristics similar to those of a bond security (such as stated
maturity and preference over equity in bankruptcy).\24\
---------------------------------------------------------------------------
\22\ Structured securities (also called ``structured notes'')
are derivative debt securities, the interest rate on or principal of
which is determined by an unrelated indicator. The Funds may invest
in ``indexed securities,'' which are instruments whose prices are
indexed to the prices of other securities, securities indexes, or
other financial indicators.
\23\ A hybrid security generally combines both debt and equity
characteristics. A common type of hybrid security is a convertible
bond that has features of a debt security, until a certain date or
triggering event, at which point the security may be converted into
an equity security. A hybrid security may also be a warrant,
convertible security, certificate of deposit, or other evidence of
indebtedness.
\24\ See Amendment No. 2, supra note 5.
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In addition to the investment-grade Debt Securities described
above, Fidelity Investment Grade Bond ETF and Fidelity Limited Term
Bond ETF may invest in lower-quality Debt Securities. The Manager may
invest up to 10% of the Fidelity Investment Grade Bond ETF's assets in
lower-quality Debt Securities. Lower-quality Debt Securities include
all types of debt instruments that have poor protection with respect to
the payment of interest and repayment of principal, or may be in
default.
In addition to the investment grade repurchase agreements described
above, Investment Grade Bond ETF and Limited Term Bond ETF may invest
in repurchase agreements with repurchase agreement counterparties that
do not have an investment-grade rating, if those repurchase agreements
are collateralized by U.S. Government securities as well as repurchase
agreements collateralized by equity securities, non-investment-grade
debt, and all other instruments in which a Fund can perfect a security
interest.
The Funds may invest in exchange-listed and non-exchange-listed
preferred securities, exchange-listed or non-exchange-listed real
estate investment trusts, and restricted securities,
The Manager may make investments in the following types of
derivatives: Futures (both long and short positions); U.S. exchange-
traded as well as over-the-counter (``OTC'') options (including options
on futures and swaps); \25\ forwards; and swaps,\26\ including interest
rate swaps (exchanging a floating rate for a fixed rate), total return
swaps (exchanging a floating rate for the total return of an index,
security, or other instrument or investment), and credit default swaps
(buying or selling credit default protection).\27\ The Funds'
derivative investments would overlie Debt Securities, hybrid
securities,\28\ interest rates, currencies, or related indexes.
Currency-related derivatives include foreign exchange (``FX'')
transactions such as FX forwards, non-deliverable forwards, and cross-
currency FX trades (``Currency-related Derivatives'').
---------------------------------------------------------------------------
\25\ The Funds may also buy and sell options on swaps
(swaptions), which are generally options on interest rate swaps.
\26\ To limit the counterparty risk involved in swap agreements,
a Fund will enter into swap agreements only with counterparties that
meet certain standards of creditworthiness.
\27\ Investments in derivatives may have a leveraging effect on
a Fund. Not more than 10% of the net assets of a Fund in the
aggregate shall consist of futures contracts or exchange-traded
options contracts whose principal market is not a member of ISG or
is a market with which the Exchange does not have a comprehensive
surveillance sharing agreement.
\28\ See Amendment No. 2, supra note 5.
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The Funds may conduct foreign currency transactions on a spot
(i.e., cash) basis or forward basis (i.e., by entering into forward
contracts to purchase or sell foreign currencies). The Funds may invest
in options and futures relating to foreign currencies.\29\
---------------------------------------------------------------------------
\29\ The Funds' investments in foreign currency options will be
exchange-listed.
---------------------------------------------------------------------------
The Funds may engage in transactions with financial institutions
that are, or may be considered to be, ``affiliated persons'' of the
Funds under the 1940 Act.\30\ These transactions may involve repurchase
agreements with custodian banks; short-term obligations of, and
repurchase agreements with, the 50 largest U.S. banks (measured by
deposits); municipal securities; U.S. Government securities with
affiliated financial institutions that are primary dealers in these
securities; short-term currency transactions; and short-term
borrowings.
---------------------------------------------------------------------------
\30\ The Exchange states that, in accordance with exemptive
orders issued by the Commission, each Fund's Board of Trustees has
established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions. See
Notice, supra note 3, 79 FR at 25913.
---------------------------------------------------------------------------
Additional Limitations on Investments
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 Manager or Sub-
Advisers.\31\ Each Fund
[[Page 46487]]
would 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 would consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid assets. Illiquid assets include 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.
---------------------------------------------------------------------------
\31\ The Exchange states that each Fund currently does not
intend to purchase any asset if, as a result, more than 10% of its
net assets would be invested in assets that are deemed to be
illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of
in the ordinary course of business at approximately the prices at
which they are valued. For purposes of a Fund's illiquid assets
limitation discussed above, if through a change in values, net
assets, or other circumstances, the Fund were in a position where
more than 10% of its net assets were invested in illiquid assets, it
would consider appropriate steps to protect liquidity. According to
the Registration Statement, various factors may be considered in
determining the liquidity of the Fund's investments, including: (1)
The frequency of trades and quotes for the asset; (2) the number of
dealers wishing to purchase or sell the asset and the number of
other potential purchasers; (3) dealer undertakings to make a market
in the asset; and (4) the nature of the asset and the nature of the
marketplace in which it trades (including any demand, put or tender
features, the mechanics and other requirements for transfer, any
letters of credit or other credit enhancement features, any ratings,
the number of holders, the method of soliciting offers, the time
required to dispose of the security, and the ability to assign or
offset the rights and obligations of the asset).
---------------------------------------------------------------------------
Any foreign equity securities in which a Fund may invest would be
limited to securities that trade in markets that are members of ISG,
which includes all U.S. national securities exchanges and certain
foreign exchanges, or that are parties to a comprehensive surveillance
sharing agreement with the Exchange.
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
proposed rule change is consistent with Section 6(b)(5) of the Act,\34\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and 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 requirements of NYSE Arca Equities Rule 8.600 for the
Shares to be listed and traded on the Exchange.
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\32\ 15 U.S.C. 78f.
\33\ In approving this proposed rule change, the Commission
notes that it 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's 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. According to the
Exchange, quotation and last-sale information for the Shares and
underlying securities that are U.S. exchange listed, including ETFs,
ETPs, ETNs, ADRs, EDRs, GDRs, exchange-traded REITs, exchange-traded
preferred securities, and exchange-traded convertible securities, will
be available via the Consolidated Tape Association (``CTA'') high-speed
line.\36\ Quotation and last-sale information for such U.S. exchange-
listed securities as well as futures will be available from the
exchange on which they are listed.\37\ Quotation and last-sale
information for exchange-listed options will be available via the
Options Price Reporting Authority.\38\ Quotation information for OTC-
Traded Securities and investment company securities (excluding ETFs),
as well as for OTC-traded derivative instruments (such as options,
swaps, forwards, and Currency-related Derivatives), may be obtained
from brokers and dealers who make markets in such securities or through
nationally recognized pricing services through subscription
agreements.\39\ In addition, the Portfolio Indicative Value, as defined
in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated at
least every 15 seconds during the Core Trading Session by one or more
major market data vendors.\40\ On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, each Fund would disclose on its Web site the Disclosed
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that
would form the basis for such Fund's calculation of NAV at the end of
the business day.\41\ The NAV of each Fund normally would be determined
once daily Monday through Friday, generally as of the regularly
scheduled close of business of the New York Stock Exchange (normally
4:00 p.m. Eastern Time) on each day the New York Stock Exchange is open
for trading. A basket composition file, which would include the
security names and share quantities required to be delivered in
exchange for each Fund's Shares, together with estimates and actual
cash components, would be publicly disseminated daily prior to the
opening of the New York Stock Exchange via the National Securities
Clearing Corporation. Information regarding market price and trading
volume of the Shares would 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 would be published
daily in the financial section of newspapers. The Web site for the
Funds would include a form of the prospectus for the Funds and
additional data relating to NAV and other applicable quantitative
information.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\36\ See Notice, supra note 3, 79 FR at 25916.
\37\ See id.
\38\ See id.
\39\ See Amendment No. 2, supra note 5.
\40\ The Exchange states that several major market data vendors
display or make widely available Portfolio Indicative Values taken
from the CTA or other data feeds. See Notice, supra note 3, 79 FR at
25916, n.58.
\41\ On a daily basis, each Fund will disclose for each
portfolio security and other financial instrument of the Fund the
following information: Ticker symbol, CUSIP number or other
identifier, if any; a description of the holding (including the type
of holding, such as the type of swap); the identity of the security,
commodity, index, or other asset or instrument underlying the
holding, if any; for options, the option strike price; quantity held
(as measured by, for example, par value, notional value, or number
of shares, contracts or units); maturity date, if any; coupon rate,
if any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in the Fund's portfolio. See
Amendment No. 2, supra note 5. The Web site information will be
publicly available at no charge. See Notice, supra note 3, 79 FR at
25916.
---------------------------------------------------------------------------
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 Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share of
each Fund will be calculated daily and that the NAV and the Disclosed
Portfolio will be made available to all market participants at the same
time.\42\ In addition, trading in the Shares would be subject to NYSE
Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of a Fund may be halted. The Exchange may halt trading in
the Shares if trading is not occurring in the securities or financial
instruments constituting the Disclosed Portfolio of a Fund, or if other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present.\43\ Further, the
[[Page 46488]]
Commission notes that the Reporting Authority that provides the
Disclosed Portfolio of each Fund 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 the
portfolio.\44\ In addition, the Exchange may obtain information
regarding trading in the Shares and underlying exchange-traded options,
futures, exchange traded-equity securities (including ADRs, EDRs, and
GDRs), and other exchange-traded instruments from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. The Commission
also notes that FINRA, on behalf of the Exchange, is able to access, as
needed, trade information for certain fixed income securities held by
the Funds reported to FINRA's Trade Reporting and Compliance
Engine.\45\ The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees.\46\ The Exchange represents that the Manager and the Sub-
Advisers are not broker-dealers but are affiliated with one or more
broker-dealers, and that each (1) has implemented a firewall with
respect to affiliated broker-dealers regarding access to information
concerning the composition of or changes to the portfolios, and (2)
would be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding the
portfolios.\47\
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\42\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\43\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing
additional considerations for the suspension of trading in or
removal from listing of Managed Fund Shares on the Exchange). 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 each Fund. Trading in Shares of a Fund will be halted
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12
have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
\44\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
\45\ See Notice, supra note 3, 79 FR at 25917.
\46\ See id.
\47\ See supra note 11. 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.
---------------------------------------------------------------------------
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 the following
representations:
(1) The Shares of each Fund 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) Trading in the Shares will be subject to the existing
surveillance procedures administered by FINRA on behalf of the
Exchange, which are designed to detect violations of Exchange rules and
applicable federal securities laws, and 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.
(4) 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.
(5) For initial and continued listing, the Funds will be in
compliance with Rule 10A-3 under the Exchange Act,\48\ as provided by
NYSE Arca Equities Rule 5.3.
---------------------------------------------------------------------------
\48\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
(6) A Fund may hold up to an aggregate amount of 15% of its net
assets (calculated at the time of investment) in assets deemed illiquid
by the Adviser, consistent with Commission guidance.
(7) A minimum of 100,000 Shares of each Fund will be outstanding at
the commencement of trading on the Exchange.
(8) Each Fund will invest no more than 20% of its total assets in
mortgage-backed securities or in other asset-backed securities,
provided that this limitation does not apply to U.S. Government
securities.
(9) The Funds will invest only in ADRs, EDRs, and GDRs that are
traded on an exchange that is a member of the ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
(10) Not more than 10% of the net assets of a Fund in the aggregate
shall consist of futures contracts or exchange-traded options contracts
whose principal market is not a member of ISG or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement.
(11) The Funds' investments in foreign currency options will be
exchange-listed. This approval order is based on all of the Exchange's
representations and description of the Funds, including those set forth
above and in the Notice.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 1 and 2, is consistent with
Section 6(b)(5) of the Act \49\ and the rules and regulations
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------
\49\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
IV. Solicitation of Comments on Amendment No. 2
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 2
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2014-46 on the subject line.
[[Page 46489]]
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2014-46. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2014-46 and should
be submitted on or before August 29, 2014.
V. Accelerated Approval of Proposed Rule Change as Modified by
Amendment Nos. 1 and 2
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment Nos. 1 and 2, prior to the thirtieth
day after the date of publication of notice of Amendment No. 2 in the
Federal Register. Amendment No. 2 supplements the proposed rule change
by, among other things: (1) Re-designating certain asset classes (i.e.,
junior loans, structured securities, and securities believed to have
debt-like characteristics, including hybrid securities) as non-primary
investments; (2) providing additional information regarding the NAV
valuation of Funds' junior loans, structured securities, and hybrid
securities; (3) expanding the information to be disclosed daily about
the portfolio of each Fund on the Funds' Web site; and (4) providing
information regarding the availability of price information for OTC-
traded derivative instruments, which may be held by the Funds. The
Commission believes that this additional information should aid in the
pricing of the Shares. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\50\ to approve the proposed
rule change, as modified by Amendment Nos. 1 and 2, on an accelerated
basis.
---------------------------------------------------------------------------
\50\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the
Act,\51\ that the proposed rule change (SR-NYSEArca-2014-46), as
modified by Amendment Nos. 1 and 2, be, and it hereby is, approved on
an accelerated basis.
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\51\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\52\
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\52\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18746 Filed 8-7-14; 8:45 am]
BILLING CODE 8011-01-P