Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to Listing and Trading of Shares of PIMCO Short-Term Exchange-Traded Fund and PIMCO Municipal Bond Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600, 50964-50971 [2014-20208]
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50964
Federal Register / Vol. 79, No. 165 / Tuesday, August 26, 2014 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective upon filing pursuant to Section
19(b)(3)(A) 10 of the Act and Rule 19b–
4(f)(4)(ii) 11 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
tkelley on DSK3SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml), or
• Send an email to rulecomments@sec.gov. Please include File
No. SR–CME–2014–32 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC, 20549–1090.
All submissions should refer to File
Number SR–CME–2014–32. 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
10 15
11 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(4)(ii).
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21:48 Aug 25, 2014
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a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of CME
and on CME’s Web site at https://
www.cmegroup.com/market-regulation/
rule-filings.html.
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–CME–2014–32 and should
be submitted on or before September 16,
2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–20210 Filed 8–25–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72882; File No. SR–
NYSEArca–2014–58]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change, as Modified by
Amendment No. 1 Thereto, Relating to
Listing and Trading of Shares of
PIMCO Short-Term Exchange-Traded
Fund and PIMCO Municipal Bond
Exchange-Traded Fund Under NYSE
Arca Equities Rule 8.600
August 20, 2014.
I. Introduction
On June 25, 2014, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘Exchange’’) 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 the shares (‘‘Shares’’) of
PIMCO Short-Term Exchange-Traded
Fund and PIMCO Municipal Bond
Exchange-Traded Fund (individually,
‘‘Fund,’’ and collectively, ‘‘Funds’’)
under NYSE Arca Equities Rule 8.600.
The proposed rule change was
published for comment in the Federal
Register on July 8, 2014.3 On July 16,
2014, NYSE Arca filed Amendment No.
1 to the proposal.4 The Commission
12 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 72509
(July 1, 2014), 79 FR 38605 (‘‘Notice’’).
4 In Amendment No. 1, the Exchange amended
the proposed rule change to: (a) clarify how certain
1 15
2 17
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received no comments on the proposal.
This order grants approval of the
proposed rule change, as modified by
Amendment No. 1 thereto.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade the Shares under NYSE Arca
Equities Rule 8.600, which governs the
listing and trading of Managed Fund
Shares on the Exchange. The Shares will
be offered by PIMCO ETF Trust
(‘‘Trust’’). The Trust is registered with
the Commission as an investment
company.5 The Funds are series of the
Trust.
The investment manager to the Funds
will be Pacific Investment Management
Company LLC (‘‘PIMCO’’ or ‘‘Adviser’’).
PIMCO Investments LLC will serve as
the distributor for the Funds. State
Street Bank & Trust Co. will serve as the
custodian and transfer agent to the
Funds. The Exchange represents that,
while the Adviser is not registered as a
broker-dealer, the Adviser is affiliated
with a broker-dealer and will implement
a fire wall with respect to its brokerdealer affiliate regarding access to
information concerning the composition
and changes to the portfolio.6 The
Exchange has made the following
representations and statements
describing the Funds and their
respective investment strategies,
including portfolio holdings and
investment restrictions.7
Fund assets would be valued; and (b) specify where
price information can be obtained for certain Fund
holdings. Amendment No. 1 provided clarification
to the proposed rule change, and because it does
not materially affect the substance of the proposed
rule change or raise novel or unique regulatory
issues, Amendment No. 1 is not subject to notice
and comment.
5 According to the Exchange, the Trust filed an
amendment to its registration statement on Form N–
1A under the Securities Act of 1933 and the
Investment Company Act of 1940 (‘‘1940 Act’’)
relating to the Funds (File Nos. 333–155395 and
811–22250) (‘‘Registration Statement’’). In addition,
the Exchange notes that the Trust has obtained
certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 28993
(November 10, 2009) (File No. 812–13571).
6 See Commentary .06 to NYSE Arca Equities
Rule 8.600. The Exchange represents that in the
event (a) the Adviser becomes registered as a
broker-dealer or newly affiliated with a brokerdealer, or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes affiliated with
a broker-dealer, such Adviser, new adviser, or new
sub-adviser will implement a fire wall with respect
to its relevant personnel or its broker-dealer
affiliate, as applicable, regarding access to
information concerning the composition of and
changes to the portfolio, and will be subject to
procedures designed to prevent the use and
dissemination of material, non-public information
regarding such portfolio.
7 Additional information regarding the Trust, the
Funds, and the Shares, investment strategies,
investment restrictions, risks, net asset value
(‘‘NAV’’) calculation, creation and redemption
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Federal Register / Vol. 79, No. 165 / Tuesday, August 26, 2014 / Notices
Characteristics of the Funds
In selecting investments for each
Fund, PIMCO will develop an outlook
for interest rates, currency exchange
rates and the economy, analyze credit
and call risks, and use other investment
selection techniques. The proportion of
each Fund’s assets committed to
investment in securities with particular
characteristics (such as quality, sector,
interest rate, or maturity) will vary
based on PIMCO’s outlook for the U.S.
economy and the economies of other
countries in the world, the financial
markets, and other factors.
With respect to each Fund, in seeking
to identify undervalued currencies,
PIMCO may consider many factors,
including but not limited to, longer-term
analysis of relative interest rates,
inflation rates, real exchange rates,
purchasing power parity, trade account
balances, and current account balances,
as well as other factors that influence
exchange rates such as flows, market
technical trends, and government
policies. With respect to fixed income
investing, PIMCO will attempt to
identify areas of the bond market that
are undervalued relative to the rest of
the market. PIMCO will identify these
areas by grouping fixed income
investments into sectors such as money
markets, governments, corporates,
mortgages, asset-backed, and
international. Sophisticated proprietary
software will then assist in evaluating
sectors and pricing specific investments.
Once investment opportunities are
identified, PIMCO will shift assets
among sectors depending upon changes
in relative valuations, credit spreads,
and other factors.
tkelley on DSK3SPTVN1PROD with NOTICES
Fixed Income Instruments
Among other investments described
in more detail herein, each Fund may
invest in Fixed Income Instruments,
which include:
• Securities issued or guaranteed by
the U.S. Government, its agencies, or
government-sponsored enterprises
(‘‘U.S. Government Securities’’);
• corporate debt securities of U.S. and
non-U.S. issuers, including convertible
securities and corporate commercial
paper; 8
procedures, fees, portfolio holdings, disclosure
policies, distributions, and taxes, among other
information, is included in the Notice and the
Registration Statement, as applicable. See Notice
and Registration Statement, supra notes 3 and 5,
respectively.
8 With respect to each of the Funds, while nonemerging markets corporate debt securities
(excluding commercial paper) generally must have
$100 million or more par amount outstanding and
significant par value traded to be considered as an
eligible investment for each of the Funds, at least
80% of issues of such securities held by a Fund
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• mortgage-backed and other assetbacked securities; 9
• inflation-indexed bonds issued both
by governments and corporations; 10
• structured notes, including hybrid
or ‘‘indexed’’ securities and eventlinked bonds; 11
• bank capital and trust preferred
securities; 12
• loan participations and
assignments; 13
• delayed funding loans and
revolving credit facilities;
• bank certificates of deposit, fixed
time deposits, and bankers’ acceptances;
• repurchase agreements on Fixed
Income Instruments and reverse
repurchase agreements on Fixed Income
Instruments;
must have $100 million or more par amount
outstanding at the time of investment. See also infra
note 22.
9 Mortgage-related and other asset-backed
securities include collateralized mortgage
obligations (‘‘CMO’’s), commercial mortgage-backed
securities, mortgage dollar rolls, CMO residuals,
stripped mortgage-backed securities, and other
securities that directly or indirectly represent a
participation in, or are secured by and payable
from, mortgage loans on real property. A to-beannounced (‘‘TBA’’) transaction is a method of
trading mortgage-backed securities. In a TBA
transaction, the buyer and seller agree upon general
trade parameters such as agency, settlement date,
par amount, and price. The actual pools delivered
generally are determined two days prior to the
settlement date.
10 Inflation-indexed bonds (other than municipal
inflation-indexed bonds and certain corporate
inflation-indexed bonds) are fixed income securities
whose principal value is periodically adjusted
according to the rate of inflation (e.g., Treasury
Inflation Protected Securities (TIPS)). Municipal
inflation-indexed securities are municipal bonds
that pay coupons based on a fixed rate, plus the
Consumer Price Index for All Urban Consumers
(CPI). With regard to municipal inflation-indexed
bonds and certain corporate inflation-indexed
bonds, the inflation adjustment is reflected in the
semi-annual coupon payment.
11 The Funds may obtain event-linked exposure
by investing in ‘‘event-linked bonds’’ or ‘‘eventlinked swaps’’ or by implementing ‘‘event-linked
strategies.’’ Event-linked exposure results in gains
or losses that typically are contingent upon, or
formulaically related to, defined trigger events.
Examples of trigger events include hurricanes,
earthquakes, weather-related phenomena, or
statistics relating to such events. Some event-linked
bonds are commonly referred to as ‘‘catastrophe
bonds.’’ If a trigger event occurs, a Fund may lose
all or a portion of its principal invested in the bond
or notional amount on a swap.
12 There are two common types of bank capital:
Tier I and Tier II. Bank capital is generally, but not
always, of investment grade quality. According to
the Exchange, Tier I securities often take the form
of trust preferred securities. Tier II securities are
commonly thought of as hybrids of debt and
preferred stock, are often perpetual (with no
maturity date), callable, and, under certain
conditions, allow for the issuer bank to withhold
payment of interest until a later date. However,
such deferred interest payments generally earn
interest.
13 The Funds may invest in fixed- and floatingrate loans, which investments generally will be in
the form of loan participations and assignments of
portions of such loans.
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50965
• debt securities issued by states or
local governments and their agencies,
authorities, and other governmentsponsored enterprises (‘‘Municipal
Bonds’’);
• obligations of non-U.S.
governments or their subdivisions,
agencies, and government-sponsored
enterprises; and
• obligations of international agencies
or supranational entities.
Use of Derivatives by the Funds
A Fund’s investments in derivative
instruments will be made in accordance
with the 1940 Act and consistent with
each Fund’s investment objective and
policies. With respect to each Fund,
derivative instruments will include
forwards; 14 exchange-traded and overthe-counter (‘‘OTC’’) options contracts;
exchange-traded futures contracts;
exchange-traded and OTC swap
agreements; exchange-traded options on
futures contracts; and OTC options on
swap agreements.15 Generally, a
derivative is a financial contract whose
value depends upon, or is derived from,
the value of an underlying asset,
reference rate, or index, and may relate
to stocks, bonds, interest rates,
currencies or currency exchange rates,
commodities, and related indexes. A
Fund may, but is not required to, use
derivative instruments for risk
management purposes or as part of its
investment strategies.16
According to the Exchange, each
Fund will typically use derivative
instruments as a substitute for taking a
position in the underlying asset and/or
as part of a strategy designed to reduce
exposure to other risks, such as interest
rate or currency risk. A Fund may also
use derivative instruments to enhance
returns. To limit the potential risk
associated with such transactions, a
Fund will segregate or ‘‘earmark’’ assets
determined to be liquid by PIMCO in
accordance with procedures established
14 Forwards are contracts to purchase or sell
securities for a fixed price at a future date beyond
normal settlement time (forward commitments).
15 In the future, in the event that there are
exchange-traded options on swaps, the Fund may
invest in these instruments. See Notice, supra, note
3 at 38607.
16 According to the Exchange, each Fund will
seek, where possible, to use counterparties whose
financial status is such that the risk of default is
reduced; however, the risk of losses resulting from
default is still possible. PIMCO’s Counterparty Risk
Committee evaluates the creditworthiness of
counterparties on an ongoing basis. In addition to
information provided by credit agencies, PIMCO
credit analysts evaluate each approved counterparty
using various methods of analysis, including
company visits, earnings updates, the brokerdealer’s reputation, PIMCO’s past experience with
the broker-dealer, market levels for the
counterparty’s debt and equity, the counterparty’s
liquidity, and its share of market participation.
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Federal Register / Vol. 79, No. 165 / Tuesday, August 26, 2014 / Notices
by the Trust’s Board of Trustees
(‘‘Board’’) and in accordance with the
1940 Act (or, as permitted by applicable
regulation, enter into certain offsetting
positions) to cover its obligations under
derivative instruments. These
procedures have been adopted
consistent with Section 18 of the 1940
Act and related Commission guidance.
In addition, each Fund will include
appropriate risk disclosure in its
offering documents, including
leveraging risk. Leveraging risk is the
risk that certain transactions of the
Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.17 The
Exchange notes that the markets for
certain securities, or the securities
themselves, may be unavailable or cost
prohibitive as compared to derivative
instruments, so suitable derivative
transactions may be an efficient
alternative for a Fund to obtain the
desired asset exposure.
PIMCO Short-Term Exchange-Traded
Fund—Principal Investments
tkelley on DSK3SPTVN1PROD with NOTICES
According to the Exchange, the
PIMCO Short-Term Exchange-Traded
Fund will seek maximum current
income, consistent with preservation of
capital and daily liquidity. This Fund
will seek to achieve its investment
objective by investing under normal
circumstances 18 at least 65% of its total
assets in a diversified portfolio of Fixed
Income Instruments of varying
maturities, and derivatives based on
Fixed Income Instruments. The average
portfolio duration of the Fund will vary
based on PIMCO’s forecast for interest
rates and will normally not exceed one
year. In addition, the dollar weighted
average portfolio maturity of the Fund,
under normal circumstances, is
expected not to exceed three years.
According to the Exchange, the Fund
will invest primarily in investment
grade debt securities, but may invest up
to 10% of its total assets in high yield
securities rated B or higher by Moody’s,
or equivalently rated by S&P or Fitch,
17 To mitigate leveraging risk, the Adviser will
segregate or ‘‘earmark’’ liquid assets or otherwise
cover the transactions that may give rise to such
risk.
18 With respect to each Fund, the term ‘‘under
normal circumstances’’ includes, but is not limited
to, the absence of 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.
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21:48 Aug 25, 2014
Jkt 232001
or, if unrated, determined by PIMCO to
be of comparable quality.19
In furtherance of the Fund’s 65%
policy, or with respect to the Fund’s
other investments, the Fund may invest
in derivative instruments, subject to
applicable law and any other
restrictions described herein.
The Fund may invest up to 20% of its
assets in mortgage-related and other
asset-backed securities, although this
20% limitation does not apply to
securities issued or guaranteed by
Federal agencies and/or U.S.
government sponsored
instrumentalities.
According to the Exchange, the Fund
may invest in securities and instruments
that are economically tied to foreign
(non-U.S.) countries.20
The Fund may invest up to 10% of its
total assets in securities denominated in
foreign currencies, and may invest
beyond this limit in U.S. dollardenominated securities of foreign
issuers.21 According to the Exchange,
19 With respect to each Fund, securities rated Ba
or lower by Moody’s, or equivalently rated by S&P
or Fitch, are sometimes referred to as ‘‘high yield
securities’’ or ‘‘junk bonds,’’ while securities rated
Baa or higher are referred to as ‘‘investment grade.’’
Unrated securities may be less liquid than
comparably rated securities and involve the risk
that a Fund’s portfolio manager may not accurately
evaluate the security’s comparative credit rating. To
the extent that a Fund invests in unrated securities,
a Fund’s success in achieving its investment
objective may depend more heavily on the portfolio
manager’s creditworthiness analysis than if that
Fund invested exclusively in rated securities. In
determining whether a security is of comparable
quality, the Adviser will consider, for example,
whether the issuer of the security has issued other
rated securities; whether the obligations under the
security are guaranteed by another entity and the
rating of such guarantor (if any); whether and (if
applicable) how the security is collateralized; other
forms of credit enhancement (if any); the security’s
maturity date; liquidity features (if any); relevant
cash flow(s); valuation features; other structural
analysis; macroeconomic analysis; and sector or
industry analysis.
20 PIMCO will generally consider an instrument
to be economically tied to a non-U.S. country if the
issuer is a foreign government (or any political
subdivision, agency, authority, or instrumentality of
such government), or if the issuer is organized
under the laws of a non-U.S. country. With respect
to each Fund, in the case of certain money market
instruments, such instruments will be considered
economically tied to a non-U.S. country if either the
issuer or the guarantor of such money market
instrument is organized under the laws of a nonU.S. country. With respect to derivative
instruments, PIMCO will generally consider such
instruments to be economically tied to non-U.S.
countries if the underlying assets are foreign
currencies (or baskets or indexes of such
currencies), or instruments or securities that are
issued by foreign governments or issuers organized
under the laws of a non-U.S. country (or if the
underlying assets are certain money market
instruments, if either the issuer or the guarantor of
such money market instruments is organized under
the laws of a non-U.S. country).
21 According to the Exchange, the Fund may have
greater exposure (i.e., up to 20% of its total assets)
to foreign currencies through: (i) investments in
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Frm 00083
Fmt 4703
Sfmt 4703
the Fund will normally limit its foreign
currency exposure (from non-U.S.
dollar-denominated securities or
currencies) to 20% of its total assets.
The Fund may invest up to 5% of its
total assets in securities and instruments
that are economically tied to emerging
market countries.22
The Fund may engage in foreign
currency transactions on a spot (cash)
basis and forward basis, and invest in
foreign currency futures and exchangetraded and OTC options contracts.23 The
Fund may enter into these contracts to
hedge against foreign exchange risk, to
increase exposure to a foreign currency,
or to shift exposure to foreign currency
fluctuations from one currency to
another. Suitable hedging transactions
may not be available in all
circumstances, and there can be no
assurance that the Fund will engage in
such transactions at any given time or
from time to time. The Fund may
purchase or sell securities on a whenissued, delayed delivery, or forward
securities denominated in such currencies, and (ii)
direct investments in foreign currencies, including
currency forwards. See Notice, supra, note 3 at
38607.
22 PIMCO will generally consider an instrument
to be economically tied to an emerging market
country if the security’s ‘‘country of exposure’’ is
an emerging market country, as determined by the
criteria set forth in the Registration Statement.
Alternatively, such as when a ‘‘country of
exposure’’ is not available or when PIMCO believes
the following tests more accurately reflect to which
country the security is economically tied, PIMCO
may consider an instrument to be economically tied
to an emerging market country if the issuer or
guarantor is a government of an emerging market
country (or any political subdivision, agency,
authority, or instrumentality of such government),
if the issuer or guarantor is organized under the
laws of an emerging market country, or if the
currency of settlement of the security is a currency
of an emerging market country. With respect to
derivative instruments, PIMCO will generally
consider such instruments to be economically tied
to emerging market countries if the underlying
assets are currencies of emerging market countries
(or baskets or indices of such currencies), or
instruments or securities that are issued or
guaranteed by governments of emerging market
countries or by entities organized under the laws of
emerging market countries. While emerging markets
corporate debt securities (excluding commercial
paper) generally must have $200 million or more
par amount outstanding and significant par value
traded to be considered as an eligible investment for
each of the Funds, at least 80% of issues of such
securities held by a Fund must have $200 million
or more par amount outstanding at the time of
investment.
23 The Fund will limit its investments in
currencies to those currencies with a minimum
average daily foreign exchange turnover of USD $1
billion as determined by the Bank for International
Settlements (‘‘BIS’’) Triennial Central Bank Survey.
As of the most recent BIS Triennial Central Bank
Survey, at least 52 separate currencies had
minimum average daily foreign exchange turnover
of USD $1 billion. For a list of eligible currencies,
see www.bis.org.
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Federal Register / Vol. 79, No. 165 / Tuesday, August 26, 2014 / Notices
commitment basis and may engage in
short sales.24
The Fund may, without limitation,
seek to obtain market exposure to the
securities in which it primarily invests
by entering into a series of purchase and
sale contracts or by using other
investment techniques (such as buy
backs or dollar rolls).25
PIMCO Short-Term Exchange-Traded
Fund—Other (Non-Principal)
Investments
tkelley on DSK3SPTVN1PROD with NOTICES
The PIMCO Short-Term ExchangeTraded Fund may invest up to 10% of
its total assets in preferred stock,
convertible securities, and other equityrelated securities.26
The Fund may invest in variable and
floating rate securities that are not Fixed
Income Instruments. The Fund may
invest in floaters and inverse floaters
that are not Fixed Income Instruments
and may engage in credit spread trades.
The Fund may invest in trade
claims,27 privately placed and
unregistered securities, and exchange24 Each of the Funds may make short sales of
securities: (i) To offset potential declines in long
positions in similar securities; (ii) to increase the
flexibility of the Fund; (iii) for investment return;
and (iv) as part of a risk arbitrage strategy.
25 A dollar roll is similar except that the
counterparty is not obligated to return the same
securities as those originally sold by the Fund but
only securities that are ‘‘substantially identical.’’
26 Convertible securities are generally preferred
stocks and other securities, including fixed income
securities and warrants, that are convertible into or
exercisable for common stock at a stated price or
rate. Equity-related investments may include
investments in small-capitalization (‘‘small-cap’’),
mid-capitalization (‘‘mid-cap’’), and largecapitalization (‘‘large-cap’’) companies. With
respect to each Fund, a small-cap company will be
defined as a company with a market capitalization
of up to $1.5 billion, a mid-cap company will be
defined as a company with a market capitalization
of between $1.5 billion and $10 billion, and a largecap company will be defined as a company with a
market capitalization above $10 billion. Not more
than 10% of the net assets of a Fund in the
aggregate invested in exchange-traded equity
securities shall consist of equity securities,
including stocks into which a convertible security
is converted, whose principal market is not a
member of the Intermarket Surveillance Group
(‘‘ISG’’) or is a market with which the Exchange
does not have a comprehensive surveillance sharing
agreement. Furthermore, not more than 10% of the
net assets of a Fund in the aggregate invested in
futures contracts or exchange-traded options
contracts 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.
27 Trade claims are non-securitized rights of
payment arising from obligations that typically arise
when vendors and suppliers extend credit to a
company by offering payment terms for products
and services. If the company files for bankruptcy,
payments on these trade claims stop, and the claims
are subject to compromise along with the other
debts of the company. Trade claims may be
purchased directly from the creditor or through
brokers.
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21:48 Aug 25, 2014
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traded and OTC-traded structured
products, including credit-linked
securities, commodity-linked notes, and
structured notes. The Fund may invest
in Brady Bonds.
The Fund may enter into repurchase
agreements on instruments other than
Fixed Income Instruments, in addition
to repurchase agreements on Fixed
Income Instruments mentioned above,
in which the Fund purchases a security
from a bank or broker-dealer, which
agrees to purchase the security at the
Fund’s cost, plus interest within a
specified time. Repurchase agreements
maturing in more than seven days and
which may not be terminated within
seven days at approximately the amount
at which the Fund has valued the
agreements will be considered illiquid
securities. The Fund may enter into
reverse repurchase agreements on
instruments other than Fixed Income
Instruments, in addition to reverse
repurchase agreements on Fixed Income
Instruments mentioned above, subject to
the Fund’s limitations on borrowings.28
The Fund will segregate or ‘‘earmark’’
assets determined to be liquid by
PIMCO in accordance with procedures
established by the Board to cover its
obligations under reverse repurchase
agreements.
PIMCO Municipal Bond ExchangeTraded Fund—Principal Investments
According to the Exchange, the
PIMCO Municipal Bond ExchangeTraded Fund will seek high current
income exempt from federal income tax,
consistent with preservation of capital;
capital appreciation is a secondary
objective. This Fund will seek to
achieve its investment objective by
investing under normal circumstances
at least 80% of its assets in debt
securities (Municipal Bonds) whose
interest is, in the opinion of bond
counsel for the issuer at the time of the
issuance, exempt from federal income
tax. Municipal Bonds are generally
issued by or on behalf of states and local
governments and their agencies,
authorities, and other instrumentalities.
Municipal Bonds include municipal
lease obligations, municipal general
obligation bonds, municipal cash
equivalents, and pre-refunded and
escrowed to maturity bonds. The Fund
may invest in industrial development
bonds, which are Municipal Bonds
issued by a government agency on
behalf of a private sector company and,
in most cases, are not backed by the
28 With respect to each Fund, a reverse
repurchase agreement involves the sale of a security
by the Fund and its agreement to repurchase the
instrument at a specified time and price.
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50967
credit of the issuing municipality. The
Fund may also invest in securities
issued by entities whose underlying
assets are Municipal Bonds.
The Fund may invest more than 25%
of its total assets in bonds of issuers in
California and New York; may invest
25% of more of its total assets in
Municipal Bonds that finance
education, health care, housing,
transportation, utilities, and other
similar projects; and may invest 25% or
more of its total assets in industrial
development bonds. The average
portfolio duration of the Fund will
normally vary from three to twelve years
based on PIMCO’s forecast for interest
rates.
According to the Exchange, the Fund
will invest primarily in investment
grade debt securities, but may invest up
to 10% of its total assets in Municipal
Bonds or private activity bonds that are
high yield securities rated Ba or higher
by Moody’s, or equivalently rated by
S&P or Fitch, or, if unrated, determined
by PIMCO to be of comparable quality.
The Fund may invest in residual
interest bonds (‘‘RIBs’’), which brokers
create by depositing a Municipal Bond
in a trust. The trust in turn would issue
a variable rate security and RIBs. The
interest rate for the variable rate security
will be determined by the remarketing
broker-dealer, while the RIB holder will
receive the balance of the income from
the underlying municipal bond.
In furtherance of the Fund’s 80%
policy the Fund may invest in
derivative instruments on Municipal
Bonds, subject to applicable law and
any other restrictions described herein.
The Fund may, without limitation,
seek to obtain market exposure to the
securities in which it primarily invests
by entering into a series of purchase and
sale contracts or by using other
investment techniques (such as buy
backs or dollar rolls). The Fund may
purchase or sell securities on a whenissued, delayed delivery, or forward
commitment basis and may engage in
short sales.
PIMCO Municipal Bond ExchangeTraded Fund—Other (Non-Principal)
Investments
According to the Exchange, the
PIMCO Municipal Bond ExchangeTraded Fund may invest up to 20% of
its net assets in U.S. government
securities, money market instruments,
‘‘private activity’’ bonds, and/or Fixed
Income Instruments (other than
Municipal Bonds), including derivative
instruments related to such instruments,
subject to applicable law and any other
restrictions described herein.
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The Fund may invest up to 10% of its
total assets in preferred stock,
convertible securities, and other equityrelated securities.
The Fund may invest in variable and
floating rate securities. The Fund may
invest in floaters and inverse floaters
and may engage in credit spread trades.
The Fund may invest in trade claims,
privately placed and unregistered
securities, and exchange-traded and
OTC-traded structured products,
including credit-linked securities,
commodity-linked notes, and structured
notes. The Fund may invest in Brady
Bonds.
The Fund may enter into repurchase
agreements on instruments other than
Fixed Income Instruments, in addition
to repurchase agreements on Fixed
Income Instruments mentioned above,
in which the Fund purchases a security
from a bank or broker-dealer, which
agrees to purchase the security at the
Fund’s cost, plus interest within a
specified time. Repurchase agreements
maturing in more than seven days and
which may not be terminated within
seven days at approximately the amount
at which the Fund has valued the
agreements will be considered illiquid
securities. The Fund may enter into
reverse repurchase agreements on
instruments other than Fixed Income
Instruments, in addition to reverse
repurchase agreements on Fixed Income
Instruments mentioned above, subject to
the Fund’s limitations on borrowings.
Other Investments (Both Funds)
The Funds may invest without limit,
for temporary or defensive purposes, in
U.S. debt securities, including taxable
securities and short-term money market
securities, if PIMCO deems it
appropriate to do so. If PIMCO believes
that economic or market conditions are
unfavorable to investors, PIMCO may
temporarily invest up to 100% of a
Fund’s assets in certain defensive
strategies, including holding a
substantial portion of a Fund’s assets in
cash, cash equivalents, or other highly
rated short-term securities, including
securities issued or guaranteed by the
U.S. government, its agencies, or
instrumentalities. The Funds may invest
in, to the extent permitted by Section
12(d)(1)(A) of the 1940 Act, other
affiliated and unaffiliated funds, such as
open-end or closed-end management
investment companies, including other
exchange-traded funds, provided that
each of a Fund’s investment in units or
shares of investment companies and
other open-end collective investment
vehicles will not exceed 10% of that
Fund’s total assets. Each Fund may
invest in securities lending collateral in
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one or more money market funds to the
extent permitted by Rule 12d1–1 under
the 1940 Act, including series of PIMCO
funds.
Investment Restrictions (Both Funds)
Each Fund’s investments, including
investments in derivative instruments,
will be subject to all of the restrictions
under the 1940 Act, including
restrictions with respect to illiquid
assets, that is, the limitation that a Fund
may hold up to an aggregate amount of
15% of its net assets in illiquid assets
(calculated at the time of investment),
including Rule 144A securities deemed
illiquid by the Adviser, consistent with
Commission guidance. Each Fund will
monitor its respective portfolio liquidity
on an ongoing basis to determine
whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of a Fund’s net assets are held in
illiquid assets. Illiquid assets include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.
Each Fund will be diversified within
the meaning of the 1940 Act. Each Fund
intends to qualify annually and elect to
be treated as a regulated investment
company under Subchapter M of the
Internal Revenue Code. None of the
Funds will concentrate its investments
in a particular industry, as that term is
used in the 1940 Act, and as interpreted,
modified, or otherwise permitted by a
regulatory authority having jurisdiction
from time to time. Each Fund’s
investments, including derivatives, will
be consistent with that Fund’s
investment objective, and each Fund’s
use of derivatives may be used to
enhance leverage. However, each Fund’s
investments will not be used to seek
performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of a
Fund’s broad-based securities market
index (as defined in Form N–1A).29
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600.
Consistent with NYSE Arca Equities
Rule 8.600(d)(2)(B)(ii), each Fund’s
Reporting Authority will implement and
maintain, or be subject to, procedures
designed to prevent the use and
29 According to the Exchange, each Fund’s broadbased securities market index will be identified in
a future amendment to the Registration Statement
following a Fund’s first full calendar year of
performance. See Notice, supra, note 3 at 38610.
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Fmt 4703
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dissemination of material, non-public
information regarding the actual
components of the Fund’s portfolio. The
Exchange represents that, for initial
and/or continued listing, the Funds will
be in compliance with Rule 10A–3
under the Act,30 as provided by NYSE
Arca Equities Rule 5.3. A minimum of
100,000 Shares for each Fund will be
outstanding at the commencement of
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares of each Fund that
the NAV per Share will be calculated
daily and that the NAV and the
Disclosed Portfolio will be made
available to all market participants at
the same time.
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of
Section 6 of the Act 31 and the rules and
regulations thereunder applicable to a
national securities exchange.32 In
particular, the Commission finds that
the proposed rule change is consistent
with the requirements of Section 6(b)(5)
of the Act,33 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 foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, 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 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,34 which sets
forth Congress’ finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. Quotation
and last-sale information for the Shares
30 17
CFR 240.10A–3.
U.S.C. 78(f).
32 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).
33 15 U.S.C. 78f(b)(5).
34 15 U.S.C. 78k–1(a)(1)(C)(iii).
31 15
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will be available via the Consolidated
Tape Association (‘‘CTA’’) high-speed
line.35 In addition, the Portfolio
Indicative Value (‘‘PIV’’), as defined in
NYSE Arca Equities Rule 8.600 (c)(3),
will be widely disseminated by one or
more major market data vendors at least
every 15 seconds during the Core
Trading Session.36 On each business
day, before commencement of trading in
Shares in the Core Trading Session on
the Exchange, each of the Funds will
disclose on the Trust’s Web site the
Disclosed Portfolio, as defined in NYSE
Arca Equities Rule 8.600(c)(2), that will
form the basis for such Fund’s
calculation of NAV at the end of the
business day.37 The NAV of each of the
Funds will normally be determined as
of the close of the regular trading
session on the Exchange (ordinarily 4:00
p.m. Eastern time) on each business
day.38 In addition, a basket composition
35 See
Notice, supra, note 3 at 38613.
to the Exchange, several major
market data vendors display and/or make widely
available PIVs taken from the CTA or other data
feeds.
37 On a daily basis, the Funds will disclose the
following information regarding each portfolio
holding, as applicable to the type of holding: ticker
symbol, CUSIP number or other identifier, if any;
a description of the holding (including the type of
holding, such as the type of swap); the identity of
the security, commodity, index, or other asset or
instrument underlying the holding, if any; for
options, the option strike price; quantity held (as
measured by, for example, par value, notional value
or number of shares, contracts, or units); maturity
date, if any; coupon rate, if any; effective date, if
any; market value of the holding; and the
percentage weighting of the holding in a Fund’s
portfolio. The Web site information will be publicly
available at no charge.
38 The Exchange represents that for purposes of
calculating NAV, portfolio securities, and other
assets for which market quotes are readily available
will be valued at market value. Market value will
generally be determined on the basis of last
reported sales prices, or if no sales are reported,
based on quotes obtained from a quotation reporting
system, established market makers, or pricing
services. Fixed Income Instruments, including those
to be purchased under firm commitment
agreements/delayed delivery basis, will generally be
valued on the basis of quotes obtained from brokers
and dealers or independent pricing services.
Foreign fixed income securities will generally be
valued on the basis of quotes obtained from brokers
and dealers or pricing services using data reflecting
the earlier closing of the principal markets for those
assets. Short-term debt instruments having a
remaining maturity of 60 days or less will generally
be valued at amortized cost, which approximates
market value. Derivatives will generally be valued
on the basis of quotes obtained from brokers and
dealers or pricing services using data reflecting the
earlier closing of the principal markets for those
assets. Local closing prices will be used for all
instrument valuation purposes. Foreign currencydenominated derivatives will generally be valued as
of the respective local region’s market close.
Exchange-traded equity securities will be valued at
the official closing price or the last trading price on
the exchange or market on which the security is
primarily traded at the time of valuation. If no sales
or closing prices are reported during the day,
exchange-traded equity securities will generally be
tkelley on DSK3SPTVN1PROD with NOTICES
36 According
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file, which includes the security names
and share quantities, if applicable,
required to be delivered in exchange for
a Fund’s Shares, together with estimates
and actual cash components, will be
publicly disseminated daily prior to the
opening of the Exchange via the
National Securities Clearing
Corporation. Information regarding
market price and volume of the Shares
will be continually available on a realtime basis throughout the day on
brokers’ computer screens and other
electronic services. Information
regarding the previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Intra-day and closing price information
regarding exchange-traded equity
securities, including common stocks,
preferred stocks, securities convertible
into stocks, closed-end funds, exchange
traded funds, exchange-traded
structured products and other equityrelated securities, will be available from
the exchange on which such securities
are traded. Intra-day and closing price
information regarding exchange traded
options (including options on futures),
exchange-traded swaps and futures will
be available from the exchange on
which such instruments are traded.
Intra-day and closing price information
regarding Fixed Income Instruments
also will be available from major market
data vendors.39 Price information
relating to forwards, spot currency, OTC
options, and swaps will be available
from major market data vendors. Price
information regarding RIBs, money
market instruments, Brady Bonds,
repurchase and reverse repurchase
agreements other than those included in
Fixed Income Instruments, private
activity bonds, trade claims, privately
placed and unregistered securities, and
valued at the mean of the last available bid and ask
quotation on the exchange or market on which the
security is primarily traded, or using other market
information obtained from quotation reporting
systems, established market makers, or pricing
services. Investment company securities that are not
exchange-traded will be valued at NAV. Equity
securities traded OTC will 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. OTC options on swaps will
be valued by a third party pricing service. RIBs,
money market instruments, trade claims, privately
placed and unregistered securities, structured
products, repurchase agreements, reverse
repurchase agreements, private activity bonds and
other types of debt securities will generally be
valued on the basis of independent pricing services
or quotes obtained from brokers and dealers.
39 According to the Exchange, major market data
vendors may include, but are not limited to:
Thomson Reuters, JPMorgan Chase PricingDirect
Inc., Markit Group Limited, Bloomberg, and
Interactive Data Corporation, among other major
data vendors.
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50969
OTC structured products will be
available from major market data
vendors. Price information regarding
other investment company securities
will be available from on-line
information services and from the Web
site for the applicable investment
company security. The Trust’s Web site
will include a form of the prospectus for
each of 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 representation from the
issuer of the Shares of each Fund that
the NAV per Share will be calculated
daily and that the NAV and the
Disclosed Portfolio will be made
available to all market participants at
the same time. The Exchange may halt
trading in the Shares if trading is not
occurring in the securities or the
financial instruments constituting the
Disclosed Portfolio of the Fund, or if
other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present.40 In addition,
trading in the Shares will be subject to
NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under
which Shares of the Fund may be
halted. Further, the 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.41 The Commission further
notes that the Financial Industry
Regulatory Authority (‘‘FINRA’’), on
behalf of the Exchange,42 will
40 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 either 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.
41 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
42 The Exchange states that, while FINRA surveils
trading on the Exchange pursuant to a regulatory
services agreement, the Exchange is responsible for
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communicate as needed regarding
trading in the Shares, exchange-traded
equities, exchange-traded options,
futures contracts, and options on futures
contracts with other markets or other
entities that are members of the ISG, and
FINRA, on behalf of the Exchange, may
obtain trading information regarding
trading in the Shares, exchange-traded
equities, exchange-traded options,
futures contracts, and options on futures
contracts from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares, exchange-traded equities,
exchange-traded options, futures
contracts, and options on futures
contracts from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement.43 FINRA, on behalf of the
Exchange, also is able to access, as
needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s Trade
Reporting and Compliance Engine.
FINRA also can access data obtained
from the Municipal Securities
Rulemaking Board relating to municipal
bond trading activity for surveillance
purposes in connection with trading in
the Shares. The Exchange states that it
has a general policy prohibiting the
distribution of material, non-public
information by its employees. The
Exchange also states that the Adviser is
not a registered broker-dealer, but is
affiliated with a broker-dealer and will
implement and maintain a fire wall with
respect to its broker-dealer affiliate
regarding access to information
concerning the composition of or
changes to the portfolios.44
FINRA’s performance under this regulatory services
agreement.
43 For a list of the current members of ISG, see
https://www.isgportal.org. The Exchange notes that
not all components of the Disclosed Portfolio for the
Fund may trade on markets that are members of ISG
or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
44 See supra note 6. 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
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The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange has made
representations, including:
(1) The Shares will conform to the
initial and continuing 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 trading
surveillances, administered by FINRA
on behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws. The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange.
(4) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit (‘‘ETP’’) Holders
in an Information Bulletin (‘‘Bulletin’’)
of the special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (a) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(b) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its ETP Holders to learn the essential
facts relating to every customer prior to
trading the Shares; (c) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated PIV will not be
calculated or publicly disseminated; (d)
how information regarding the PIV and
the Disclosed Portfolio is disseminated;
(e) the requirement that ETP Holders
deliver a prospectus to investors
purchasing newly issued Shares prior to
or concurrently with the confirmation of
a transaction; and (f) trading
information.
(5) For initial and continued listing,
each Fund must be in compliance with
Rule 10A–3 under the Exchange Act.45
(6) While non-emerging markets
corporate debt securities (excluding
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.
45 17 CFR 240.10A–3.
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commercial paper) generally must have
$100 million or more par amount
outstanding and significant par value
traded to be considered as an eligible
investment for the Funds, at least 80%
of issues of such securities held by the
Funds must have $100 million or more
par amount outstanding at the time of
investment. While emerging markets
corporate debt securities (excluding
commercial paper) generally must have
$200 million or more par amount
outstanding and significant par value
traded to be considered as an eligible
investment for the Funds, at least 80%
of issues of such securities held by the
Funds must have $200 million or more
par amount outstanding at the time of
investment.
(7) Not more than 10% of the net
assets of a Fund in the aggregate
invested in exchange-traded equity
securities shall consist of equity
securities, including stocks into which a
convertible security is converted, 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.
Furthermore, not more than 10% of the
net assets of a Fund in the aggregate
invested in futures contracts or
exchange-traded options contracts 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.
(8) The PIMCO Short-Term ExchangeTraded Fund may invest up to 20% of
its assets in mortgage-related and other
asset-backed securities, although this
20% limitation does not apply to
securities issued or guaranteed by
Federal agencies and/or U.S.
government sponsored
instrumentalities.
(9) Each Fund’s investments,
including investments in derivative
instruments, will be subject to all of the
restrictions under the 1940 Act,
including restrictions with respect to
investments in illiquid assets, that is,
the limitation that a fund may hold up
to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment), including Rule
144A securities deemed illiquid by the
Adviser, in accordance with
Commission guidance.
(10) To limit the potential risk
associated with such transactions, a
Fund will segregate or ‘‘earmark’’ assets
determined to be liquid by PIMCO in
accordance with procedures established
by the Trust’s Board and in accordance
with the 1940 Act (or, as permitted by
applicable regulation, enter into certain
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offsetting positions) to cover its
obligations under derivative
instruments. These procedures have
been adopted consistent with Section 18
of the 1940 Act and related Commission
guidance. In addition, each Fund will
include appropriate risk disclosure in
its offering documents, including
leveraging risk. Leveraging risk is the
risk that certain transactions of a Fund,
including a Fund’s use of derivatives,
may give rise to leverage, causing a
Fund to be more volatile than if it had
not been leveraged. To mitigate
leveraging risk, the Adviser will
segregate or ‘‘earmark’’ liquid assets or
otherwise cover the transactions that
may give rise to such risk.
(11) The Funds will seek, where
possible, to use counterparties whose
financial status is such that the risk of
default is reduced.
(12) A minimum of 100,000 Shares for
each Fund will be outstanding at the
commencement of trading on the
Exchange.
(13) Each Fund’s investments,
including derivatives, will be consistent
with each Fund’s respective investment
objective, and each Fund’s use of
derivatives may be used to enhance
leverage. However, each Fund’s
investments will not be used to seek
performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
such Fund’s broad-based securities
market index (as defined in Form N–
1A).
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
No. 1 thereto, is consistent with Section
6(b)(5) of the Act 46 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
tkelley on DSK3SPTVN1PROD with NOTICES
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,47 that the
proposed rule change (SR–NYSEArca–
2014–58), as modified by Amendment
No. 1 thereto, be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–20208 Filed 8–25–14; 8:45 am]
On June 19, 2014, NASDAQ OMX BX,
Inc. (‘‘BX’’ or the ‘‘Exchange’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change relating to market maker quoting
obligations and the introduction of a
lead market maker. The proposed rule
change was published for public
comment in the Federal Register on July
8, 2014.3 The Commission received no
comment letters on the proposed rule
change. This order approves the
proposed rule change.
of the total number of minutes in such
trading day).
BX proposes to reduce the quoting
requirement for BX Options Market
Makers so a Market Maker must quote
the options in which it is registered
60% of the trading day (as a percentage
of the total number of minutes in such
trading day) or such higher percentage
as BX may announce in advance. In
addition, this quoting obligation would
apply to all of a Market Maker’s
registered options collectively on a daily
basis. This quoting obligation would be
reviewed on a monthly basis, and would
allow the Exchange to review the
Market Maker’s daily compliance in the
aggregate and determine the appropriate
disciplinary action for single or multiple
failures to comply with the continuous
quoting requirement during the month
period. However, determining
compliance with the continuous quoting
requirement on a monthly basis would
not relieve a Market Maker of the
obligation to provide continuous twosided quotes on a daily basis, nor would
it prohibit the Exchange from taking
disciplinary action against a Market
Maker for failing to meet the continuous
quoting obligation each trading day.
II. Description of the Proposal
B. Lead Market Maker Allocation
The Exchange proposes to amend the
current BX Market Maker quoting
obligations and adopt rules to permit BX
Market Makers to act as Lead Market
Makers (‘‘LMMs’’), provided the LMM
meets certain obligations and quoting
requirements. In addition, the Exchange
proposes to provide assigned LMMs
with certain participation entitlements.
Finally, the Exchange proposes to
provide Public Customers with priority
when the Price/Time execution
algorithm is in effect.
Currently, there are two types of
Options Participants on BX: Options
Order Entry Firms and Options Market
Makers. The Exchange proposes to add
a third type of Options Participant: an
LMM. An approved BX Options Market
Maker 4 may become an LMM in one or
more listed options. Under the proposal,
initial application(s) to become an LMM
would be in a form and/or format
prescribed by the Exchange and would
include: (1) Background information on
the LMM, including experience in
trading options; (2) the LMM’s clearing
arrangements; (3) adequacy of capital;
and (4) adherence to Exchange rules and
ability to meet the obligations of an
LMM.5 Subsequent applications would
be in a form and/or format prescribed by
the Exchange and would include the
information requested therein,
including, but not limited to, an account
of the abilities and background of the
applicant as well as any other special
requirements that the Exchange may
require.6 Once an applicant is approved
by the Exchange as an LMM, any
material change in capital would be
reported in writing to the Exchange
within two business days after the
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72883; File No. SR–BX–
2014–035]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Order
Approving Proposed Rule Change
Relating to Market Maker Quoting
Obligations and the Introduction of a
Lead Market Maker
August 20, 2014.
I. Introduction
A. BX Market Maker Quoting
Obligations
Currently, Chapter VII, Section 6(d)(i)
of the BX Options Rules provides that
on a daily basis, a Market Maker must
during regular market hours make
markets consistent with the applicable
quoting requirements specified in the
BX Options Rules, on a continuous basis
in at least sixty percent (60%) of the
series in options in which the Market
Maker is registered. Chapter VII, Section
6(d)(i)(1) of the BX Options Rules
provides that, to satisfy this requirement
with respect to quoting a series, a
Market Maker must quote such series
90% of the trading day (as a percentage
BILLING CODE 8011–01–P
4 See
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 72502 (Jul.
1, 2014), 79 FR 38620 (‘‘Notice’’).
46 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
48 17 CFR 200.30–3(a)(12).
47 15
VerDate Mar<15>2010
21:48 Aug 25, 2014
Jkt 232001
50971
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
Chapter VII, Section 2.
proposed BX Options Rules at Chapter VII,
Section 13(A)(b).
6 See proposed BX Options Rules at Chapter VII,
Section 13(A)(c).
5 See
E:\FR\FM\26AUN1.SGM
26AUN1
]]>Agencies
[Federal Register Volume 79, Number 165 (Tuesday, August 26, 2014)]
[Notices]
[Pages 50964-50971]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20208]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72882; File No. SR-NYSEArca-2014-58]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change, as Modified by Amendment No. 1
Thereto, Relating to Listing and Trading of Shares of PIMCO Short-Term
Exchange-Traded Fund and PIMCO Municipal Bond Exchange-Traded Fund
Under NYSE Arca Equities Rule 8.600
August 20, 2014.
I. Introduction
On June 25, 2014, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
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 the shares (``Shares'') of PIMCO
Short-Term Exchange-Traded Fund and PIMCO Municipal Bond Exchange-
Traded Fund (individually, ``Fund,'' and collectively, ``Funds'') under
NYSE Arca Equities Rule 8.600. The proposed rule change was published
for comment in the Federal Register on July 8, 2014.\3\ On July 16,
2014, NYSE Arca filed Amendment No. 1 to the proposal.\4\ The
Commission received no comments on the proposal. This order grants
approval of the proposed rule change, as modified by Amendment No. 1
thereto.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 72509 (July 1,
2014), 79 FR 38605 (``Notice'').
\4\ In Amendment No. 1, the Exchange amended the proposed rule
change to: (a) clarify how certain Fund assets would be valued; and
(b) specify where price information can be obtained for certain Fund
holdings. Amendment No. 1 provided clarification to the proposed
rule change, and because it does not materially affect the substance
of the proposed rule change or raise novel or unique regulatory
issues, Amendment No. 1 is not subject to notice and comment.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to list and trade the Shares under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares on the Exchange. The Shares will be offered by PIMCO ETF
Trust (``Trust''). The Trust is registered with the Commission as an
investment company.\5\ The Funds are series of the Trust.
---------------------------------------------------------------------------
\5\ According to the Exchange, the Trust filed an amendment to
its registration statement on Form N-1A under the Securities Act of
1933 and the Investment Company Act of 1940 (``1940 Act'') relating
to the Funds (File Nos. 333-155395 and 811-22250) (``Registration
Statement''). In addition, the Exchange notes that the Trust has
obtained certain exemptive relief under the 1940 Act. See Investment
Company Act Release No. 28993 (November 10, 2009) (File No. 812-
13571).
---------------------------------------------------------------------------
The investment manager to the Funds will be Pacific Investment
Management Company LLC (``PIMCO'' or ``Adviser''). PIMCO Investments
LLC will serve as the distributor for the Funds. State Street Bank &
Trust Co. will serve as the custodian and transfer agent to the Funds.
The Exchange represents that, while the Adviser is not registered as a
broker-dealer, the Adviser is affiliated with a broker-dealer and will
implement a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and changes
to the portfolio.\6\ The Exchange has made the following
representations and statements describing the Funds and their
respective investment strategies, including portfolio holdings and
investment restrictions.\7\
---------------------------------------------------------------------------
\6\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The
Exchange represents that in the event (a) the Adviser becomes
registered as a broker-dealer or 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, such
Adviser, new adviser, or new sub-adviser will implement a fire wall
with respect to its relevant personnel or its broker-dealer
affiliate, as applicable, regarding access to information concerning
the composition of and changes to the portfolio, and will be subject
to procedures designed to prevent the use and dissemination of
material, non-public information regarding such portfolio.
\7\ Additional information regarding the Trust, the Funds, and
the Shares, investment strategies, investment restrictions, risks,
net asset value (``NAV'') calculation, creation and redemption
procedures, fees, portfolio holdings, disclosure policies,
distributions, and taxes, among other information, is included in
the Notice and the Registration Statement, as applicable. See Notice
and Registration Statement, supra notes 3 and 5, respectively.
---------------------------------------------------------------------------
[[Page 50965]]
Characteristics of the Funds
In selecting investments for each Fund, PIMCO will develop an
outlook for interest rates, currency exchange rates and the economy,
analyze credit and call risks, and use other investment selection
techniques. The proportion of each Fund's assets committed to
investment in securities with particular characteristics (such as
quality, sector, interest rate, or maturity) will vary based on PIMCO's
outlook for the U.S. economy and the economies of other countries in
the world, the financial markets, and other factors.
With respect to each Fund, in seeking to identify undervalued
currencies, PIMCO may consider many factors, including but not limited
to, longer-term analysis of relative interest rates, inflation rates,
real exchange rates, purchasing power parity, trade account balances,
and current account balances, as well as other factors that influence
exchange rates such as flows, market technical trends, and government
policies. With respect to fixed income investing, PIMCO will attempt to
identify areas of the bond market that are undervalued relative to the
rest of the market. PIMCO will identify these areas by grouping fixed
income investments into sectors such as money markets, governments,
corporates, mortgages, asset-backed, and international. Sophisticated
proprietary software will then assist in evaluating sectors and pricing
specific investments. Once investment opportunities are identified,
PIMCO will shift assets among sectors depending upon changes in
relative valuations, credit spreads, and other factors.
Fixed Income Instruments
Among other investments described in more detail herein, each Fund
may invest in Fixed Income Instruments, which include:
Securities issued or guaranteed by the U.S. Government,
its agencies, or government-sponsored enterprises (``U.S. Government
Securities'');
corporate debt securities of U.S. and non-U.S. issuers,
including convertible securities and corporate commercial paper; \8\
---------------------------------------------------------------------------
\8\ With respect to each of the Funds, while non-emerging
markets corporate debt securities (excluding commercial paper)
generally must have $100 million or more par amount outstanding and
significant par value traded to be considered as an eligible
investment for each of the Funds, at least 80% of issues of such
securities held by a Fund must have $100 million or more par amount
outstanding at the time of investment. See also infra note 22.
---------------------------------------------------------------------------
mortgage-backed and other asset-backed securities; \9\
---------------------------------------------------------------------------
\9\ Mortgage-related and other asset-backed securities include
collateralized mortgage obligations (``CMO''s), commercial mortgage-
backed securities, mortgage dollar rolls, CMO residuals, stripped
mortgage-backed securities, and other securities that directly or
indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. A to-be-announced
(``TBA'') transaction is a method of trading mortgage-backed
securities. In a TBA transaction, the buyer and seller agree upon
general trade parameters such as agency, settlement date, par
amount, and price. The actual pools delivered generally are
determined two days prior to the settlement date.
---------------------------------------------------------------------------
inflation-indexed bonds issued both by governments and
corporations; \10\
---------------------------------------------------------------------------
\10\ Inflation-indexed bonds (other than municipal inflation-
indexed bonds and certain corporate inflation-indexed bonds) are
fixed income securities whose principal value is periodically
adjusted according to the rate of inflation (e.g., Treasury
Inflation Protected Securities (TIPS)). Municipal inflation-indexed
securities are municipal bonds that pay coupons based on a fixed
rate, plus the Consumer Price Index for All Urban Consumers (CPI).
With regard to municipal inflation-indexed bonds and certain
corporate inflation-indexed bonds, the inflation adjustment is
reflected in the semi-annual coupon payment.
---------------------------------------------------------------------------
structured notes, including hybrid or ``indexed''
securities and event-linked bonds; \11\
---------------------------------------------------------------------------
\11\ The Funds may obtain event-linked exposure by investing in
``event-linked bonds'' or ``event-linked swaps'' or by implementing
``event-linked strategies.'' Event-linked exposure results in gains
or losses that typically are contingent upon, or formulaically
related to, defined trigger events. Examples of trigger events
include hurricanes, earthquakes, weather-related phenomena, or
statistics relating to such events. Some event-linked bonds are
commonly referred to as ``catastrophe bonds.'' If a trigger event
occurs, a Fund may lose all or a portion of its principal invested
in the bond or notional amount on a swap.
---------------------------------------------------------------------------
bank capital and trust preferred securities; \12\
---------------------------------------------------------------------------
\12\ There are two common types of bank capital: Tier I and Tier
II. Bank capital is generally, but not always, of investment grade
quality. According to the Exchange, Tier I securities often take the
form of trust preferred securities. Tier II securities are commonly
thought of as hybrids of debt and preferred stock, are often
perpetual (with no maturity date), callable, and, under certain
conditions, allow for the issuer bank to withhold payment of
interest until a later date. However, such deferred interest
payments generally earn interest.
---------------------------------------------------------------------------
loan participations and assignments; \13\
---------------------------------------------------------------------------
\13\ The Funds may invest in fixed- and floating-rate loans,
which investments generally will be in the form of loan
participations and assignments of portions of such loans.
---------------------------------------------------------------------------
delayed funding loans and revolving credit facilities;
bank certificates of deposit, fixed time deposits, and
bankers' acceptances;
repurchase agreements on Fixed Income Instruments and
reverse repurchase agreements on Fixed Income Instruments;
debt securities issued by states or local governments and
their agencies, authorities, and other government-sponsored enterprises
(``Municipal Bonds'');
obligations of non-U.S. governments or their subdivisions,
agencies, and government-sponsored enterprises; and
obligations of international agencies or supranational
entities.
Use of Derivatives by the Funds
A Fund's investments in derivative instruments will be made in
accordance with the 1940 Act and consistent with each Fund's investment
objective and policies. With respect to each Fund, derivative
instruments will include forwards; \14\ exchange-traded and over-the-
counter (``OTC'') options contracts; exchange-traded futures contracts;
exchange-traded and OTC swap agreements; exchange-traded options on
futures contracts; and OTC options on swap agreements.\15\ Generally, a
derivative is a financial contract whose value depends upon, or is
derived from, the value of an underlying asset, reference rate, or
index, and may relate to stocks, bonds, interest rates, currencies or
currency exchange rates, commodities, and related indexes. A Fund may,
but is not required to, use derivative instruments for risk management
purposes or as part of its investment strategies.\16\
---------------------------------------------------------------------------
\14\ Forwards are contracts to purchase or sell securities for a
fixed price at a future date beyond normal settlement time (forward
commitments).
\15\ In the future, in the event that there are exchange-traded
options on swaps, the Fund may invest in these instruments. See
Notice, supra, note 3 at 38607.
\16\ According to the Exchange, each Fund will seek, where
possible, to use counterparties whose financial status is such that
the risk of default is reduced; however, the risk of losses
resulting from default is still possible. PIMCO's Counterparty Risk
Committee evaluates the creditworthiness of counterparties on an
ongoing basis. In addition to information provided by credit
agencies, PIMCO credit analysts evaluate each approved counterparty
using various methods of analysis, including company visits,
earnings updates, the broker-dealer's reputation, PIMCO's past
experience with the broker-dealer, market levels for the
counterparty's debt and equity, the counterparty's liquidity, and
its share of market participation.
---------------------------------------------------------------------------
According to the Exchange, each Fund will typically use derivative
instruments as a substitute for taking a position in the underlying
asset and/or as part of a strategy designed to reduce exposure to other
risks, such as interest rate or currency risk. A Fund may also use
derivative instruments to enhance returns. To limit the potential risk
associated with such transactions, a Fund will segregate or ``earmark''
assets determined to be liquid by PIMCO in accordance with procedures
established
[[Page 50966]]
by the Trust's Board of Trustees (``Board'') and in accordance with the
1940 Act (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under derivative
instruments. These procedures have been adopted consistent with Section
18 of the 1940 Act and related Commission guidance. In addition, each
Fund will include appropriate risk disclosure in its offering
documents, including leveraging risk. Leveraging risk is the risk that
certain transactions of the Fund, including the Fund's use of
derivatives, may give rise to leverage, causing the Fund to be more
volatile than if it had not been leveraged.\17\ The Exchange notes that
the markets for certain securities, or the securities themselves, may
be unavailable or cost prohibitive as compared to derivative
instruments, so suitable derivative transactions may be an efficient
alternative for a Fund to obtain the desired asset exposure.
---------------------------------------------------------------------------
\17\ To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that
may give rise to such risk.
---------------------------------------------------------------------------
PIMCO Short-Term Exchange-Traded Fund--Principal Investments
According to the Exchange, the PIMCO Short-Term Exchange-Traded
Fund will seek maximum current income, consistent with preservation of
capital and daily liquidity. This Fund will seek to achieve its
investment objective by investing under normal circumstances \18\ at
least 65% of its total assets in a diversified portfolio of Fixed
Income Instruments of varying maturities, and derivatives based on
Fixed Income Instruments. The average portfolio duration of the Fund
will vary based on PIMCO's forecast for interest rates and will
normally not exceed one year. In addition, the dollar weighted average
portfolio maturity of the Fund, under normal circumstances, is expected
not to exceed three years.
---------------------------------------------------------------------------
\18\ With respect to each Fund, the term ``under normal
circumstances'' includes, but is not limited to, the absence of
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 Exchange, the Fund will invest primarily in
investment grade debt securities, but may invest up to 10% of its total
assets in high yield securities rated B or higher by Moody's, or
equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO
to be of comparable quality.\19\
---------------------------------------------------------------------------
\19\ With respect to each Fund, securities rated Ba or lower by
Moody's, or equivalently rated by S&P or Fitch, are sometimes
referred to as ``high yield securities'' or ``junk bonds,'' while
securities rated Baa or higher are referred to as ``investment
grade.'' Unrated securities may be less liquid than comparably rated
securities and involve the risk that a Fund's portfolio manager may
not accurately evaluate the security's comparative credit rating. To
the extent that a Fund invests in unrated securities, a Fund's
success in achieving its investment objective may depend more
heavily on the portfolio manager's creditworthiness analysis than if
that Fund invested exclusively in rated securities. In determining
whether a security is of comparable quality, the Adviser will
consider, for example, whether the issuer of the security has issued
other rated securities; whether the obligations under the security
are guaranteed by another entity and the rating of such guarantor
(if any); whether and (if applicable) how the security is
collateralized; other forms of credit enhancement (if any); the
security's maturity date; liquidity features (if any); relevant cash
flow(s); valuation features; other structural analysis;
macroeconomic analysis; and sector or industry analysis.
---------------------------------------------------------------------------
In furtherance of the Fund's 65% policy, or with respect to the
Fund's other investments, the Fund may invest in derivative
instruments, subject to applicable law and any other restrictions
described herein.
The Fund may invest up to 20% of its assets in mortgage-related and
other asset-backed securities, although this 20% limitation does not
apply to securities issued or guaranteed by Federal agencies and/or
U.S. government sponsored instrumentalities.
According to the Exchange, the Fund may invest in securities and
instruments that are economically tied to foreign (non-U.S.)
countries.\20\
---------------------------------------------------------------------------
\20\ PIMCO will generally consider an instrument to be
economically tied to a non-U.S. country if the issuer is a foreign
government (or any political subdivision, agency, authority, or
instrumentality of such government), or if the issuer is organized
under the laws of a non-U.S. country. With respect to each Fund, in
the case of certain money market instruments, such instruments will
be considered economically tied to a non-U.S. country if either the
issuer or the guarantor of such money market instrument is organized
under the laws of a non-U.S. country. With respect to derivative
instruments, PIMCO will generally consider such instruments to be
economically tied to non-U.S. countries if the underlying assets are
foreign currencies (or baskets or indexes of such currencies), or
instruments or securities that are issued by foreign governments or
issuers organized under the laws of a non-U.S. country (or if the
underlying assets are certain money market instruments, if either
the issuer or the guarantor of such money market instruments is
organized under the laws of a non-U.S. country).
---------------------------------------------------------------------------
The Fund may invest up to 10% of its total assets in securities
denominated in foreign currencies, and may invest beyond this limit in
U.S. dollar-denominated securities of foreign issuers.\21\ According to
the Exchange, the Fund will normally limit its foreign currency
exposure (from non-U.S. dollar-denominated securities or currencies) to
20% of its total assets. The Fund may invest up to 5% of its total
assets in securities and instruments that are economically tied to
emerging market countries.\22\
---------------------------------------------------------------------------
\21\ According to the Exchange, the Fund may have greater
exposure (i.e., up to 20% of its total assets) to foreign currencies
through: (i) investments in securities denominated in such
currencies, and (ii) direct investments in foreign currencies,
including currency forwards. See Notice, supra, note 3 at 38607.
\22\ PIMCO will generally consider an instrument to be
economically tied to an emerging market country if the security's
``country of exposure'' is an emerging market country, as determined
by the criteria set forth in the Registration Statement.
Alternatively, such as when a ``country of exposure'' is not
available or when PIMCO believes the following tests more accurately
reflect to which country the security is economically tied, PIMCO
may consider an instrument to be economically tied to an emerging
market country if the issuer or guarantor is a government of an
emerging market country (or any political subdivision, agency,
authority, or instrumentality of such government), if the issuer or
guarantor is organized under the laws of an emerging market country,
or if the currency of settlement of the security is a currency of an
emerging market country. With respect to derivative instruments,
PIMCO will generally consider such instruments to be economically
tied to emerging market countries if the underlying assets are
currencies of emerging market countries (or baskets or indices of
such currencies), or instruments or securities that are issued or
guaranteed by governments of emerging market countries or by
entities organized under the laws of emerging market countries.
While emerging markets corporate debt securities (excluding
commercial paper) generally must have $200 million or more par
amount outstanding and significant par value traded to be considered
as an eligible investment for each of the Funds, at least 80% of
issues of such securities held by a Fund must have $200 million or
more par amount outstanding at the time of investment.
---------------------------------------------------------------------------
The Fund may engage in foreign currency transactions on a spot
(cash) basis and forward basis, and invest in foreign currency futures
and exchange-traded and OTC options contracts.\23\ The Fund may enter
into these contracts to hedge against foreign exchange risk, to
increase exposure to a foreign currency, or to shift exposure to
foreign currency fluctuations from one currency to another. Suitable
hedging transactions may not be available in all circumstances, and
there can be no assurance that the Fund will engage in such
transactions at any given time or from time to time. The Fund may
purchase or sell securities on a when-issued, delayed delivery, or
forward
[[Page 50967]]
commitment basis and may engage in short sales.\24\
---------------------------------------------------------------------------
\23\ The Fund will limit its investments in currencies to those
currencies with a minimum average daily foreign exchange turnover of
USD $1 billion as determined by the Bank for International
Settlements (``BIS'') Triennial Central Bank Survey. As of the most
recent BIS Triennial Central Bank Survey, at least 52 separate
currencies had minimum average daily foreign exchange turnover of
USD $1 billion. For a list of eligible currencies, see www.bis.org.
\24\ Each of the Funds may make short sales of securities: (i)
To offset potential declines in long positions in similar
securities; (ii) to increase the flexibility of the Fund; (iii) for
investment return; and (iv) as part of a risk arbitrage strategy.
---------------------------------------------------------------------------
The Fund may, without limitation, seek to obtain market exposure to
the securities in which it primarily invests by entering into a series
of purchase and sale contracts or by using other investment techniques
(such as buy backs or dollar rolls).\25\
---------------------------------------------------------------------------
\25\ A dollar roll is similar except that the counterparty is
not obligated to return the same securities as those originally sold
by the Fund but only securities that are ``substantially
identical.''
---------------------------------------------------------------------------
PIMCO Short-Term Exchange-Traded Fund--Other (Non-Principal)
Investments
The PIMCO Short-Term Exchange-Traded Fund may invest up to 10% of
its total assets in preferred stock, convertible securities, and other
equity-related securities.\26\
---------------------------------------------------------------------------
\26\ Convertible securities are generally preferred stocks and
other securities, including fixed income securities and warrants,
that are convertible into or exercisable for common stock at a
stated price or rate. Equity-related investments may include
investments in small-capitalization (``small-cap''), mid-
capitalization (``mid-cap''), and large-capitalization (``large-
cap'') companies. With respect to each Fund, a small-cap company
will be defined as a company with a market capitalization of up to
$1.5 billion, a mid-cap company will be defined as a company with a
market capitalization of between $1.5 billion and $10 billion, and a
large-cap company will be defined as a company with a market
capitalization above $10 billion. Not more than 10% of the net
assets of a Fund in the aggregate invested in exchange-traded equity
securities shall consist of equity securities, including stocks into
which a convertible security is converted, whose principal market is
not a member of the Intermarket Surveillance Group (``ISG'') or is a
market with which the Exchange does not have a comprehensive
surveillance sharing agreement. Furthermore, not more than 10% of
the net assets of a Fund in the aggregate invested in futures
contracts or exchange-traded options contracts 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.
---------------------------------------------------------------------------
The Fund may invest in variable and floating rate securities that
are not Fixed Income Instruments. The Fund may invest in floaters and
inverse floaters that are not Fixed Income Instruments and may engage
in credit spread trades.
The Fund may invest in trade claims,\27\ privately placed and
unregistered securities, and exchange-traded and OTC-traded structured
products, including credit-linked securities, commodity-linked notes,
and structured notes. The Fund may invest in Brady Bonds.
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\27\ Trade claims are non-securitized rights of payment arising
from obligations that typically arise when vendors and suppliers
extend credit to a company by offering payment terms for products
and services. If the company files for bankruptcy, payments on these
trade claims stop, and the claims are subject to compromise along
with the other debts of the company. Trade claims may be purchased
directly from the creditor or through brokers.
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The Fund may enter into repurchase agreements on instruments other
than Fixed Income Instruments, in addition to repurchase agreements on
Fixed Income Instruments mentioned above, in which the Fund purchases a
security from a bank or broker-dealer, which agrees to purchase the
security at the Fund's cost, plus interest within a specified time.
Repurchase agreements maturing in more than seven days and which may
not be terminated within seven days at approximately the amount at
which the Fund has valued the agreements will be considered illiquid
securities. The Fund may enter into reverse repurchase agreements on
instruments other than Fixed Income Instruments, in addition to reverse
repurchase agreements on Fixed Income Instruments mentioned above,
subject to the Fund's limitations on borrowings.\28\ The Fund will
segregate or ``earmark'' assets determined to be liquid by PIMCO in
accordance with procedures established by the Board to cover its
obligations under reverse repurchase agreements.
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\28\ With respect to each Fund, a reverse repurchase agreement
involves the sale of a security by the Fund and its agreement to
repurchase the instrument at a specified time and price.
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PIMCO Municipal Bond Exchange-Traded Fund--Principal Investments
According to the Exchange, the PIMCO Municipal Bond Exchange-Traded
Fund will seek high current income exempt from federal income tax,
consistent with preservation of capital; capital appreciation is a
secondary objective. This Fund will seek to achieve its investment
objective by investing under normal circumstances at least 80% of its
assets in debt securities (Municipal Bonds) whose interest is, in the
opinion of bond counsel for the issuer at the time of the issuance,
exempt from federal income tax. Municipal Bonds are generally issued by
or on behalf of states and local governments and their agencies,
authorities, and other instrumentalities. Municipal Bonds include
municipal lease obligations, municipal general obligation bonds,
municipal cash equivalents, and pre-refunded and escrowed to maturity
bonds. The Fund may invest in industrial development bonds, which are
Municipal Bonds issued by a government agency on behalf of a private
sector company and, in most cases, are not backed by the credit of the
issuing municipality. The Fund may also invest in securities issued by
entities whose underlying assets are Municipal Bonds.
The Fund may invest more than 25% of its total assets in bonds of
issuers in California and New York; may invest 25% of more of its total
assets in Municipal Bonds that finance education, health care, housing,
transportation, utilities, and other similar projects; and may invest
25% or more of its total assets in industrial development bonds. The
average portfolio duration of the Fund will normally vary from three to
twelve years based on PIMCO's forecast for interest rates.
According to the Exchange, the Fund will invest primarily in
investment grade debt securities, but may invest up to 10% of its total
assets in Municipal Bonds or private activity bonds that are high yield
securities rated Ba or higher by Moody's, or equivalently rated by S&P
or Fitch, or, if unrated, determined by PIMCO to be of comparable
quality.
The Fund may invest in residual interest bonds (``RIBs''), which
brokers create by depositing a Municipal Bond in a trust. The trust in
turn would issue a variable rate security and RIBs. The interest rate
for the variable rate security will be determined by the remarketing
broker-dealer, while the RIB holder will receive the balance of the
income from the underlying municipal bond.
In furtherance of the Fund's 80% policy the Fund may invest in
derivative instruments on Municipal Bonds, subject to applicable law
and any other restrictions described herein.
The Fund may, without limitation, seek to obtain market exposure to
the securities in which it primarily invests by entering into a series
of purchase and sale contracts or by using other investment techniques
(such as buy backs or dollar rolls). The Fund may purchase or sell
securities on a when-issued, delayed delivery, or forward commitment
basis and may engage in short sales.
PIMCO Municipal Bond Exchange-Traded Fund--Other (Non-Principal)
Investments
According to the Exchange, the PIMCO Municipal Bond Exchange-Traded
Fund may invest up to 20% of its net assets in U.S. government
securities, money market instruments, ``private activity'' bonds, and/
or Fixed Income Instruments (other than Municipal Bonds), including
derivative instruments related to such instruments, subject to
applicable law and any other restrictions described herein.
[[Page 50968]]
The Fund may invest up to 10% of its total assets in preferred
stock, convertible securities, and other equity-related securities.
The Fund may invest in variable and floating rate securities. The
Fund may invest in floaters and inverse floaters and may engage in
credit spread trades.
The Fund may invest in trade claims, privately placed and
unregistered securities, and exchange-traded and OTC-traded structured
products, including credit-linked securities, commodity-linked notes,
and structured notes. The Fund may invest in Brady Bonds.
The Fund may enter into repurchase agreements on instruments other
than Fixed Income Instruments, in addition to repurchase agreements on
Fixed Income Instruments mentioned above, in which the Fund purchases a
security from a bank or broker-dealer, which agrees to purchase the
security at the Fund's cost, plus interest within a specified time.
Repurchase agreements maturing in more than seven days and which may
not be terminated within seven days at approximately the amount at
which the Fund has valued the agreements will be considered illiquid
securities. The Fund may enter into reverse repurchase agreements on
instruments other than Fixed Income Instruments, in addition to reverse
repurchase agreements on Fixed Income Instruments mentioned above,
subject to the Fund's limitations on borrowings.
Other Investments (Both Funds)
The Funds may invest without limit, for temporary or defensive
purposes, in U.S. debt securities, including taxable securities and
short-term money market securities, if PIMCO deems it appropriate to do
so. If PIMCO believes that economic or market conditions are
unfavorable to investors, PIMCO may temporarily invest up to 100% of a
Fund's assets in certain defensive strategies, including holding a
substantial portion of a Fund's assets in cash, cash equivalents, or
other highly rated short-term securities, including securities issued
or guaranteed by the U.S. government, its agencies, or
instrumentalities. The Funds may invest in, to the extent permitted by
Section 12(d)(1)(A) of the 1940 Act, other affiliated and unaffiliated
funds, such as open-end or closed-end management investment companies,
including other exchange-traded funds, provided that each of a Fund's
investment in units or shares of investment companies and other open-
end collective investment vehicles will not exceed 10% of that Fund's
total assets. Each Fund may invest in securities lending collateral in
one or more money market funds to the extent permitted by Rule 12d1-1
under the 1940 Act, including series of PIMCO funds.
Investment Restrictions (Both Funds)
Each Fund's investments, including investments in derivative
instruments, will be subject to all of the restrictions under the 1940
Act, including restrictions with respect to illiquid assets, that is,
the limitation that a Fund may hold up to an aggregate amount of 15% of
its net assets in illiquid assets (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser, consistent with Commission guidance. Each Fund will monitor
its respective portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of a Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.
Each Fund will be diversified within the meaning of the 1940 Act.
Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code. None of the Funds will concentrate its investments in a
particular industry, as that term is used in the 1940 Act, and as
interpreted, modified, or otherwise permitted by a regulatory authority
having jurisdiction from time to time. Each Fund's investments,
including derivatives, will be consistent with that Fund's investment
objective, and each Fund's use of derivatives may be used to enhance
leverage. However, each Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (i.e., 2Xs and
3Xs) of a Fund's broad-based securities market index (as defined in
Form N-1A).\29\
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\29\ According to the Exchange, each Fund's broad-based
securities market index will be identified in a future amendment to
the Registration Statement following a Fund's first full calendar
year of performance. See Notice, supra, note 3 at 38610.
---------------------------------------------------------------------------
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), each Fund's Reporting Authority will
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 Fund's portfolio. The Exchange
represents that, for initial and/or continued listing, the Funds will
be in compliance with Rule 10A-3 under the Act,\30\ as provided by NYSE
Arca Equities Rule 5.3. A minimum of 100,000 Shares for each Fund will
be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
each Fund that the NAV per Share will be calculated daily and that the
NAV and the Disclosed Portfolio will be made available to all market
participants at the same time.
---------------------------------------------------------------------------
\30\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of Section 6 of the Act \31\ and the rules and regulations
thereunder applicable to a national securities exchange.\32\ In
particular, the Commission finds that the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act,\33\
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 foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, 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
Rule 8.600 for the Shares to be listed and traded on the Exchange.
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\31\ 15 U.S.C. 78(f).
\32\ 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).
\33\ 15 U.S.C. 78f(b)(5).
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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,\34\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares
[[Page 50969]]
will be available via the Consolidated Tape Association (``CTA'') high-
speed line.\35\ In addition, the Portfolio Indicative Value (``PIV''),
as defined in NYSE Arca Equities Rule 8.600 (c)(3), will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session.\36\ On each business day,
before commencement of trading in Shares in the Core Trading Session on
the Exchange, each of the Funds will disclose on the Trust's Web site
the Disclosed Portfolio, as defined in NYSE Arca Equities Rule
8.600(c)(2), that will form the basis for such Fund's calculation of
NAV at the end of the business day.\37\ The NAV of each of the Funds
will normally be determined as of the close of the regular trading
session on the Exchange (ordinarily 4:00 p.m. Eastern time) on each
business day.\38\ In addition, a basket composition file, which
includes the security names and share quantities, if applicable,
required to be delivered in exchange for a Fund's Shares, together with
estimates and actual cash components, will be publicly disseminated
daily prior to the opening of the Exchange via the National Securities
Clearing Corporation. Information regarding market price and volume of
the Shares will be continually available on a real-time basis
throughout the day on brokers' computer screens and other electronic
services. Information regarding the previous day's closing price and
trading volume information for the Shares will be published daily in
the financial section of newspapers. Intra-day and closing price
information regarding exchange-traded equity securities, including
common stocks, preferred stocks, securities convertible into stocks,
closed-end funds, exchange traded funds, exchange-traded structured
products and other equity-related securities, will be available from
the exchange on which such securities are traded. Intra-day and closing
price information regarding exchange traded options (including options
on futures), exchange-traded swaps and futures will be available from
the exchange on which such instruments are traded. Intra-day and
closing price information regarding Fixed Income Instruments also will
be available from major market data vendors.\39\ Price information
relating to forwards, spot currency, OTC options, and swaps will be
available from major market data vendors. Price information regarding
RIBs, money market instruments, Brady Bonds, repurchase and reverse
repurchase agreements other than those included in Fixed Income
Instruments, private activity bonds, trade claims, privately placed and
unregistered securities, and OTC structured products will be available
from major market data vendors. Price information regarding other
investment company securities will be available from on-line
information services and from the Web site for the applicable
investment company security. The Trust's Web site will include a form
of the prospectus for each of the Funds and additional data relating to
NAV and other applicable quantitative information.
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\34\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\35\ See Notice, supra, note 3 at 38613.
\36\ According to the Exchange, several major market data
vendors display and/or make widely available PIVs taken from the CTA
or other data feeds.
\37\ On a daily basis, the Funds will disclose the following
information regarding each portfolio holding, as applicable to the
type of holding: ticker symbol, CUSIP number or other identifier, if
any; a description of the holding (including the type of holding,
such as the type of swap); the identity of the security, commodity,
index, or other asset or instrument underlying the holding, if any;
for options, the option strike price; quantity held (as measured by,
for example, par value, notional value or number of shares,
contracts, or units); maturity date, if any; coupon rate, if any;
effective date, if any; market value of the holding; and the
percentage weighting of the holding in a Fund's portfolio. The Web
site information will be publicly available at no charge.
\38\ The Exchange represents that for purposes of calculating
NAV, portfolio securities, and other assets for which market quotes
are readily available will be valued at market value. Market value
will generally be determined on the basis of last reported sales
prices, or if no sales are reported, based on quotes obtained from a
quotation reporting system, established market makers, or pricing
services. Fixed Income Instruments, including those to be purchased
under firm commitment agreements/delayed delivery basis, will
generally be valued on the basis of quotes obtained from brokers and
dealers or independent pricing services. Foreign fixed income
securities will generally be valued on the basis of quotes obtained
from brokers and dealers or pricing services using data reflecting
the earlier closing of the principal markets for those assets.
Short-term debt instruments having a remaining maturity of 60 days
or less will generally be valued at amortized cost, which
approximates market value. Derivatives will generally be valued on
the basis of quotes obtained from brokers and dealers or pricing
services using data reflecting the earlier closing of the principal
markets for those assets. Local closing prices will be used for all
instrument valuation purposes. Foreign currency-denominated
derivatives will generally be valued as of the respective local
region's market close. Exchange-traded equity securities will be
valued at the official closing price or the last trading price on
the exchange or market on which the security is primarily traded at
the time of valuation. If no sales or closing prices are reported
during the day, exchange-traded equity securities will generally be
valued at the mean of the last available bid and ask quotation on
the exchange or market on which the security is primarily traded, or
using other market information obtained from quotation reporting
systems, established market makers, or pricing services. Investment
company securities that are not exchange-traded will be valued at
NAV. Equity securities traded OTC will 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. OTC options on swaps will be valued by
a third party pricing service. RIBs, money market instruments, trade
claims, privately placed and unregistered securities, structured
products, repurchase agreements, reverse repurchase agreements,
private activity bonds and other types of debt securities will
generally be valued on the basis of independent pricing services or
quotes obtained from brokers and dealers.
\39\ According to the Exchange, major market data vendors may
include, but are not limited to: Thomson Reuters, JPMorgan Chase
PricingDirect Inc., Markit Group Limited, Bloomberg, and Interactive
Data Corporation, among other major data vendors.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain
representation from the issuer of the Shares of each Fund that the NAV
per Share will be calculated daily and that the NAV and the Disclosed
Portfolio will be made available to all market participants at the same
time. The Exchange may halt trading in the Shares if trading is not
occurring in the securities or the financial instruments constituting
the Disclosed Portfolio of the Fund, or if other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present.\40\ In addition, trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Fund may be halted. Further,
the 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.\41\ The Commission further notes that the Financial Industry
Regulatory Authority (``FINRA''), on behalf of the Exchange,\42\ will
[[Page 50970]]
communicate as needed regarding trading in the Shares, exchange-traded
equities, exchange-traded options, futures contracts, and options on
futures contracts with other markets or other entities that are members
of the ISG, and FINRA, on behalf of the Exchange, may obtain trading
information regarding trading in the Shares, exchange-traded equities,
exchange-traded options, futures contracts, and options on futures
contracts from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares,
exchange-traded equities, exchange-traded options, futures contracts,
and options on futures contracts from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\43\ FINRA, on behalf of
the Exchange, also is able to access, as needed, trade information for
certain fixed income securities held by the Fund reported to FINRA's
Trade Reporting and Compliance Engine. FINRA also can access data
obtained from the Municipal Securities Rulemaking Board relating to
municipal bond trading activity for surveillance purposes in connection
with trading in the Shares. The Exchange states that it has a general
policy prohibiting the distribution of material, non-public information
by its employees. The Exchange also states that the Adviser is not a
registered broker-dealer, but is affiliated with a broker-dealer and
will implement and maintain a fire wall with respect to its broker-
dealer affiliate regarding access to information concerning the
composition of or changes to the portfolios.\44\
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\40\ 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 either 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.
\41\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
\42\ The Exchange states that, while FINRA surveils trading on
the Exchange pursuant to a regulatory services agreement, the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
\43\ For a list of the current members of ISG, see https://www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
\44\ See supra note 6. 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.
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The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. In support of this
proposal, the Exchange has made representations, including:
(1) The Shares will conform to the initial and continuing 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 trading
surveillances, administered by FINRA on behalf of the Exchange, which
are designed to detect violations of Exchange rules and applicable
federal securities laws. The Exchange represents that these procedures
are adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and federal securities laws applicable to trading on the Exchange.
(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (a) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (c) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated PIV will not be calculated or publicly
disseminated; (d) how information regarding the PIV and the Disclosed
Portfolio is disseminated; (e) the requirement that ETP Holders deliver
a prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (f) trading
information.
(5) For initial and continued listing, each Fund must be in
compliance with Rule 10A-3 under the Exchange Act.\45\
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\45\ 17 CFR 240.10A-3.
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(6) While non-emerging markets corporate debt securities (excluding
commercial paper) generally must have $100 million or more par amount
outstanding and significant par value traded to be considered as an
eligible investment for the Funds, at least 80% of issues of such
securities held by the Funds must have $100 million or more par amount
outstanding at the time of investment. While emerging markets corporate
debt securities (excluding commercial paper) generally must have $200
million or more par amount outstanding and significant par value traded
to be considered as an eligible investment for the Funds, at least 80%
of issues of such securities held by the Funds must have $200 million
or more par amount outstanding at the time of investment.
(7) Not more than 10% of the net assets of a Fund in the aggregate
invested in exchange-traded equity securities shall consist of equity
securities, including stocks into which a convertible security is
converted, 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. Furthermore, not more than 10% of the net assets of
a Fund in the aggregate invested in futures contracts or exchange-
traded options contracts 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.
(8) The PIMCO Short-Term Exchange-Traded Fund may invest up to 20%
of its assets in mortgage-related and other asset-backed securities,
although this 20% limitation does not apply to securities issued or
guaranteed by Federal agencies and/or U.S. government sponsored
instrumentalities.
(9) Each Fund's investments, including investments in derivative
instruments, will be subject to all of the restrictions under the 1940
Act, including restrictions with respect to investments in illiquid
assets, that is, the limitation that a fund may hold up to an aggregate
amount of 15% of its net assets in illiquid assets (calculated at the
time of investment), including Rule 144A securities deemed illiquid by
the Adviser, in accordance with Commission guidance.
(10) To limit the potential risk associated with such transactions,
a Fund will segregate or ``earmark'' assets determined to be liquid by
PIMCO in accordance with procedures established by the Trust's Board
and in accordance with the 1940 Act (or, as permitted by applicable
regulation, enter into certain
[[Page 50971]]
offsetting positions) to cover its obligations under derivative
instruments. These procedures have been adopted consistent with Section
18 of the 1940 Act and related Commission guidance. In addition, each
Fund will include appropriate risk disclosure in its offering
documents, including leveraging risk. Leveraging risk is the risk that
certain transactions of a Fund, including a Fund's use of derivatives,
may give rise to leverage, causing a Fund to be more volatile than if
it had not been leveraged. To mitigate leveraging risk, the Adviser
will segregate or ``earmark'' liquid assets or otherwise cover the
transactions that may give rise to such risk.
(11) The Funds will seek, where possible, to use counterparties
whose financial status is such that the risk of default is reduced.
(12) A minimum of 100,000 Shares for each Fund will be outstanding
at the commencement of trading on the Exchange.
(13) Each Fund's investments, including derivatives, will be
consistent with each Fund's respective investment objective, and each
Fund's use of derivatives may be used to enhance leverage. However,
each Fund's investments will not be used to seek performance that is
the multiple or inverse multiple (i.e., 2Xs and 3Xs) of such Fund's
broad-based securities market index (as defined in Form N-1A).
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 No. 1 thereto, is consistent with
Section 6(b)(5) of the Act \46\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\46\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\47\ that the proposed rule change (SR-NYSEArca-2014-58), as
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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\47\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
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\48\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20208 Filed 8-25-14; 8:45 am]
BILLING CODE 8011-01-P
