Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Shares of the PIMCO Low Duration Investment Grade Corporate Bond Active Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600, 68330-68341 [2014-26944]
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Quotation and last-sale information
for the Coal Futures will be widely
disseminated through a variety of major
market data vendors worldwide.18 The
spot price of coal is also available on a
24-hour basis from major market
vendors. The Exchange further
represents that complete real-time price
(and volume) data for such contracts is
available by subscription from certain
market data vendors.19 For Coal
Futures, the CME also provides delayed
futures price (and volume) information
on current and past trading sessions and
market news free of charge on its Web
site.20 The closing price and settlement
prices of Coal Futures are also readily
available from the CME.21
The Commission believes that the
proposal to list and trade Shares is
reasonably designed to promote fair
disclosure of information that may be
necessary to price Shares appropriately
and to prevent trading when a
reasonable degree of transparency
cannot be assured. If the Exchange
becomes aware that the NAV with
respect to the Shares is not
disseminated to all market participants
at the same time, it will halt trading in
the Shares until such time as the NAV
is available to all market participants.22
If the IFV or value of Coal Futures is not
being disseminated as required, the
Exchange may halt trading during the
day in which the disruption occurs; if
the interruption persists past the trading
day in which it occurred, the Exchange
will halt trading no later than the
beginning of the trading day following
the interruption.23 The Exchange will
also consider halting trading for the
following reasons: (1) The extent to
which trading is not occurring in the
Coal Futures; (2) if the creation or
redemption of Shares is suspended for
a period that, in the judgment of the
Exchange, may detrimentally impact
Exchange trading of the Shares; or (3)
whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present.24
Moreover, the trading of the Shares
will be subject to NYSE Arca Equities
Rule 8.200, Commentary .02(e), which
18 See
id.
id.
20 See id.
21 See id.
22 See id. at 57646.
23 The Exchange also notes that the Exchange may
halt trading during the day in which an interruption
of the dissemination of the IFV or the value of the
applicable futures contracts occurs. See id.
24 See id. Additionally, trading in Shares will be
subject to trading halts caused by extraordinary
market volatility pursuant to the Exchange’s
‘‘circuit breaker’’ rule. See NYSE Arca Equities Rule
7.12.
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19 See
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sets forth certain restrictions on Equity
Trading Permit (‘‘ETP’’) Holders acting
as registered market makers in TIRs to
facilitate surveillance. The Commission
notes that the Financial Industry
Regulatory Authority (‘‘FINRA’’), on
behalf of the Exchange, will
communicate as needed regarding
trading in the Shares and the Coal
Futures with other markets and other
entities that are members of the
Intermarket Surveillance Group (‘‘ISG’’),
and FINRA may obtain trading
information regarding trading in the
Shares and the Coal Futures from such
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.25
In support of this proposal, the
Exchange has made representations,
including that:
(1) A minimum of 100,000 Shares for
the Fund will be outstanding as of the
start of trading on the Exchange.26
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.27
(3) Its trading surveillance 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
applicable federal securities laws.28
(4) CME is a member of the ISG.29
(5) Prior to commencement of trading,
the Exchange will inform its ETP
Holders in an Information Bulletin of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Bulletin
will discuss the following: (1) The risks
involved in trading the Shares during
the Opening and Late Trading Sessions,
or a portion of the Core Trading Session,
when an updated IFV will not be
calculated or publicly disseminated; (2)
the procedures for purchases and
redemptions of Shares in Basket size
(and that Shares are not individually
redeemable); (3) 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; (4)
how information regarding the IFV is
disseminated; (5) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.30
Notice, supra note 3, 79 FR at 57646.
id. at 57645.
27 See id. at 57646.
28 See id.
29 See id.
This order is based on the Exchange’s
representations.
For the forgoing reasons, the
Commission believes the Exchange’s
proposal to list and trade the Shares is
consistent with the Exchange Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,31
that the proposed rule change (SR–
NYSEArca–2014–102), 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.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–26948 Filed 11–13–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73556; File No. SR–
NYSEArca–2014–85]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of Shares of the PIMCO
Low Duration Investment Grade
Corporate Bond Active ExchangeTraded Fund Under NYSE Arca
Equities Rule 8.600
November 7, 2014.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on October
23, 2014, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the following under
NYSE Arca Equities Rule 8.600
(‘‘Managed Fund Shares’’): PIMCO Low
Duration Investment Grade Corporate
Bond Active Exchange-Traded Fund.
25 See
26 See
30 See
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31 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
32 17
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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices
The text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
under NYSE Arca Equities Rule 8.600,4
which governs the listing and trading of
Managed Fund Shares: 5 PIMCO Low
Duration Investment Grade Corporate
Bond Active Exchange-Traded Fund
(‘‘Fund’’). The Shares will be offered by
PIMCO ETF Trust (the ‘‘Trust’’), a
statutory trust organized under the laws
of the State of Delaware and registered
with the Commission as an open-end
management investment company.6
4 The Commission has previously approved the
listing and trading on the Exchange of other actively
managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 60981
(November 10, 2009), 74 FR 59594 (November 18,
2009) (SR–NYSEArca–2009–79) (order approving
Exchange listing and trading of five fixed income
funds of the PIMCO ETF Trust); 72666 (July 24,
2014), 79 FR 44224 (July 30, 2014) (SR–NYSEArca–
2013–122) (order approving proposed rule change
relating to use of derivative instruments by the
PIMCO Total Return Exchange Traded Fund).
5 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
6 The Trust is registered under the 1940 Act. On
June 17, 2014, the Trust filed an amendment to its
registration statement on Form N–1A under the
Securities Act of 1933 (15 U.S.C. 77a) (‘‘1933 Act’’)
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The investment manager to the Fund
will be Pacific Investment Management
Company LLC (‘‘PIMCO’’ or the
‘‘Adviser’’). PIMCO Investments LLC
will serve as the distributor for the Fund
(‘‘Distributor’’). State Street Bank &
Trust Co. will serve as the custodian
and transfer agent for the Fund
(‘‘Custodian’’ or ‘‘Transfer Agent’’).
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s portfolio.
The Adviser is not registered as a
broker-dealer, but is affiliated with a
broker-dealer, and will implement a
‘‘fire wall’’ with respect to such brokerdealer affiliate regarding access to
information concerning the composition
and/or changes to the Fund’s portfolio.
If PIMCO elects to hire a sub-adviser for
and the 1940 Act relating to the Fund (File Nos.
333–155395 and 811–22250) (the ‘‘Registration
Statement’’). The description of the operation of the
Trust and the Fund herein is based, in part, on the
Registration Statement. In addition, the
Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act.
See Investment Company Act Release No. 28993
(November 10, 2009) (File No. 812–13571)
(‘‘Exemptive Order’’).
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violations, 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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68331
the Fund that is registered as a brokerdealer or is affiliated with a brokerdealer, such sub-adviser will implement
a fire wall with respect to its relevant
personnel or its broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
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, it will
implement a fire wall with respect to its
relevant personnel or its broker-dealer
affiliate regarding access to information
concerning the composition and/or
changes to a portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
Characteristics of the Fund 8
According to the Registration
Statement, in selecting investments for
the 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 the 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 the 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
8 Many of the investment strategies of the Fund
are discretionary, which means that PIMCO can
decide from time to time whether to use them or
not.
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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.
mstockstill on DSK4VPTVN1PROD with NOTICES
Fixed Income Instruments
Among other investments described
in more detail herein, the Fund may
invest in Fixed Income Instruments,
which include any one or more of the
following:
• 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; 9
• Mortgage-backed and other assetbacked securities; 10
• Inflation-indexed bonds issued both
by governments and corporations; 11
• Structured notes, including hybrid
or ‘‘indexed’’ securities and eventlinked bonds; 12
9 With respect to the Fund, 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 Fund, at least 80% of
issues of such securities held by the Fund must
have $100 million or more par amount outstanding
at the time of investment. See also note 33, infra,
regarding emerging market corporate debt
securities.
10 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.
11 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.
12 The Fund 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, or
formulaically related to defined trigger events.
Examples of trigger events include hurricanes,
earthquakes, weather-related phenomena, or
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• Bank capital and trust preferred
securities; 13
• Loans, including loan participations
and assignments; 14
• 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 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 Fund
The Fund’s investments in derivative
instruments will be made in accordance
with the 1940 Act and consistent with
the Fund’s investment objective and
policies. With respect to the Fund,
derivative instruments will include
forwards; 15 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.16 Generally,
derivatives are financial contracts
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. The
statistics relating to such events. Some event-linked
bonds are commonly referred to as ‘‘catastrophe
bonds.’’ If a trigger event occurs, the Fund may lose
a portion or its entire principal invested in the bond
or notional amount on a swap.
13 There are two common types of bank capital:
Tier I and Tier II. Bank capital is generally, but not
always, of investment grade quality. Tier I securities
are typically exchange-traded and often take the
form of trust preferred securities. Tier II securities
are commonly thought of as hybrids of debt and
preferred stock. Tier II securities are typically
traded over-the-counter, 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.
14 The Fund 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.
15 Forwards are contracts to purchase or sell
securities for a fixed price at a future date beyond
normal settlement time (forward commitments).
16 In the future, in the event that there are
exchange-traded options on swaps, the Fund may
invest in these instruments.
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Fund may, but is not required to, use
derivative instruments for risk
management purposes or as part of its
investment strategies.17
As described further below, the 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. The Fund may also use
derivative instruments to enhance
returns. To limit the potential risk
associated with such transactions, the
Fund will segregate or ‘‘earmark’’ assets
determined to be liquid by PIMCO in
accordance with procedures established
by the Trust’s Board of Trustees and in
accordance with the 1940 Act (or, as
permitted by applicable regulation,
enter into certain offsetting positions) to
cover its obligations under derivative
instruments. These procedures have
been adopted consistent with Section 18
of the 1940 Act and related Commission
guidance. In addition, the Fund will
include appropriate risk disclosure in
its offering documents, including
leveraging risk. Leveraging risk is the
risk that certain transactions of the
Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.18
Because the markets for certain
securities, or the securities themselves,
may be unavailable or cost prohibitive
as compared to derivative instruments,
suitable derivative transactions may be
an efficient alternative for the Fund to
obtain the desired asset exposure.
The Adviser believes that derivatives
can be an economically attractive
substitute for an underlying physical
security that the Fund would otherwise
purchase. For example, the Fund could
purchase Treasury futures contracts
instead of physical Treasuries or could
sell credit default protection on a
corporate bond instead of buying a
physical bond. Economic benefits
include potentially lower transaction
17 The 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.
18 To mitigate leveraging risk, the Adviser will
segregate or ‘‘earmark’’ liquid assets or otherwise
cover the transactions that may give rise to such
risk.
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costs or attractive relative valuation of a
derivative versus a physical bond (e.g.,
differences in yields).
The Adviser further believes that
derivatives can be used as a more liquid
means of adjusting portfolio duration as
well as targeting specific areas of yield
curve exposure, with potentially lower
transaction costs than the underlying
securities (e.g., interest rate swaps may
have lower transaction costs than
physical bonds). Similarly, money
market futures can be used to gain
exposure to short-term interest rates in
order to express views on anticipated
changes in central bank policy rates. In
addition, derivatives can be used to
protect client assets through selectively
hedging downside (or ‘‘tail risks’’) in the
Fund.
The Fund also can use derivatives to
increase or decrease credit exposure.
Index credit default swaps (CDX) can be
used to gain exposure to a basket of
credit risk by ‘‘selling protection’’
against default or other credit events, or
to hedge broad market credit risk by
‘‘buying protection.’’ Single name credit
default swaps (CDS) can be used to
allow the Fund to increase or decrease
exposure to specific issuers, saving
investor capital through lower trading
costs. The Fund can use total return
swap contracts to obtain the total return
of a reference asset or index in exchange
for paying a financing cost. A total
return swap may be much more efficient
than buying underlying securities of an
index, potentially lowering transaction
costs.
The Adviser believes that the use of
derivatives will allow the Fund to
selectively add diversifying sources of
return from selling options. Option
purchases and sales can also be used to
hedge specific exposures in the
portfolio, and can provide access to
return streams available to long-term
investors such as the persistent
difference between implied and realized
volatility. Option strategies can generate
income or improve execution prices
(i.e., covered calls).
Principal Investments
According to the Registration
Statement, the Fund will seek to
maximize total return, consistent with
prudent investment management. The
Fund will seek to achieve its investment
objective by investing under normal
circumstances 19 at least 80% of its
19 With respect to the 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-
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assets in a diversified portfolio of
investment grade corporate Fixed
Income Instruments 20 of varying
maturities, which may be represented
by forwards or derivatives such as
options, futures contracts or swap
agreements (the ‘‘80% Policy’’). The
average portfolio duration of the Fund
normally will vary from zero to 4 years
based on PIMCO’s forecast for interest
rates.21
In furtherance of the Fund’s 80%
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 purchase or sell
securities on a when-issued, delayed
delivery or forward commitment basis
and may engage in short sales.22 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).23
Other (Non-Principal) Investments
The non-principal investments listed
below would consist of investments that
are not included in the Fund’s 80%
Policy, as described above. Assets not
invested in investment grade corporate
Fixed Income Instruments may be
invested in other types of Fixed Income
Instruments and other instruments, as
described below.
The Fund may gain exposure to the
real estate sector by investing in OTC
real estate-linked derivatives 24,
exchange-traded and OTC real estate
made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance.
20 Corporate Fixed Income Instruments will be:
corporate debt securities of U.S. and non-U.S.
issuers, including convertible securities and
corporate commercial paper, inflation-indexed
bonds, bank capital securities, trust preferred
securities, and loan participations and assignments.
21 Duration is a measure used to determine the
sensitivity of a security’s price to changes in
interest rates. The longer a security’s duration, the
more sensitive it will be to changes in interest rates.
22 The Fund may make short sales of securities to:
(i) Offset potential declines in long positions in
similar securities, (ii) to [sic] increase the flexibility
of the Fund; (iii) for [sic] investment return; and (iv)
as [sic] part of a risk arbitrage strategy.
23 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.’’
24 Real estate-linked derivatives are derivative
instruments that are tied to real estate, such as
derivatives (e.g., swaps or options) on real-estate
related indices or specific real-estate related
companies. The value and risks associated with real
estate-linked derivative instruments are generally
similar to those associated with direct ownership of
real estate.
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68333
investment trusts (‘‘REITs’’), and
exchange traded common, exchangetraded and OTC preferred and
exchange-traded and OTC convertible
securities of issuers in real estate-related
industries.25
The Fund may invest in variable and
floating rate securities that are not
corporate Fixed Income Instruments.
The Fund may invest in floaters and
inverse floaters that are not corporate
Fixed Income Instruments.
As disclosed in the Registration
Statement, the Fund may invest in trade
claims,26 privately placed and
unregistered securities, and exchangetraded and OTC-traded structured
products,27 including credit-linked
securities,28 and commodity-linked
notes. The Fund may invest in Brady
Bonds.
The Fund may enter into repurchase
agreements on instruments other than
corporate Fixed Income Instruments, in
addition to repurchase agreements on
corporate 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
25 See
infra, note 30 and accompanying text.
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.
27 The Funds [sic] may invest in structured
products, including instruments such as creditlinked securities. For example, a structured product
may combine a traditional stock, bond, or
commodity with an option or forward contract.
Generally, the principal amount, amount payable
upon maturity or redemption, or interest rate of a
structured product is tied (positively or negatively)
to the price of some commodity, currency or
securities index or another interest rate or some
other economic factor. The interest rate or (unlike
most fixed income securities) the principal amount
payable at maturity of a structured product may be
increased or decreased, depending on changes in
the value of the benchmark. An example of
exchange-traded structured products would be an
[sic] exchange-traded notes or ETNs, such as those
listed and traded under NYSE Arca Equities Rule
5.2(j)(6).
28 Credit-linked securities are generally a basket
of derivative instruments, such as credit default
swaps or interest rate swaps. Like an investment in
a bond, investments in credit-linked securities
represent the right to receive periodic income
payments (in the form of distributions) and
payment of principal at the end of the term of the
security. However, these payments are conditioned
on the trust’s receipt of payments from, and the
trust’s potential obligations to, the counterparties to
the derivative instruments and other securities in
which the trust invests.
26 Trade
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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
corporate Fixed Income Instruments, in
addition to reverse repurchase
agreements on corporate Fixed Income
Instruments mentioned above, subject to
the Fund’s limitations on borrowings.29
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.
The Fund may invest only up to 10%
of its total assets in preferred stocks,
convertible securities, common stocks
and other equity-related securities; such
limit will not include real-estate related
investments, such as REITs or
investments in common, preferred or
convertible securities of issuers in real
estate-related industries.30
The Fund may invest up to 20% of its
total assets in structured notes,
including hybrid or ‘‘indexed’’
securities and event-linked bonds.
The Fund may invest up to 15% of its
total assets in high yield securities
(‘‘junk bonds’’) rated below BBB- (with
a minimum level of B- at purchase) by
Standard & Poor’s Ratings Services
(‘‘S&P’’), or equivalently rated by
Moody’s Investors Service, Inc.
(‘‘Moody’s’’) or Fitch, Inc. (‘‘Fitch’’), or,
if unrated, determined by PIMCO to be
of comparable quality (except that
29 With respect to the 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.
30 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 the 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 the Fund in the
aggregate invested in equity securities (other than
non-exchange-traded investment company
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 the 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.
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within such limitation, the Fund may
invest in mortgage-related securities
rated below B-).31
Investment Restrictions
If PIMCO believes that economic or
market conditions are unfavorable to
investors or that market conditions are
not normal, PIMCO may temporarily
invest up to 100% of the Fund’s assets
in certain defensive strategies, including
holding a substantial portion of the
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. As noted
above, the Fund may invest without
limit, for temporary or defensive
purposes, in such instruments, if
PIMCO deems it appropriate to do so.
The Fund 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 exchangetraded funds, provided that the Fund’s
investment in units or shares of
investment companies and other openend collective investment vehicles will
not exceed 10% of the Fund’s total
assets. The Fund may invest its
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.
The Fund may invest up to 20% of its
total 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. The Fund may invest
up to 20% of its total assets in securities
31 With respect to the 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
comparable rated securities and involve the risk
that the Fund’s portfolio manager may not
accurately evaluate the security’s comparative
credit rating. To the extent that the Fund invests in
unrated securities, the Fund’s success in achieving
its investment objective may depend more heavily
on the portfolio manager’s creditworthiness
analysis than if the 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.
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denominated in foreign currencies, and
may invest beyond this limit in U.S.
dollar denominated securities of foreign
issuers. The Fund will normally limit its
foreign currency exposure (from nonU.S. dollar-denominated securities or
currencies) to 10% of its total assets.32
The Fund may engage in foreign
currency transactions either on a spot
(cash) basis at the rate prevailing in the
currency exchange market at the time or
through forward currency contracts
(‘‘forwards’’).
The Fund may invest up to 20% of its
total assets in securities and instruments
of issuers economically tied to emerging
market countries.33
The 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 the
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.34 The Fund will monitor its
32 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.
33 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 which
country the security is economically tied to, 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
the Fund, at least 80% of issues of such securities
held by the Fund must have $200 million or more
par amount outstanding at the time of investment.
34 In reaching liquidity decisions, the Adviser
may consider the following factors: the frequency
of trades and quotes for the security; the number of
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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 the
Fund’s net assets are held in illiquid
assets. Illiquid assets include securities
subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.35
The Fund will be diversified within
the meaning of the 1940 Act.36
The Fund intends to qualify annually
and elect to be treated as a regulated
investment company under Subchapter
M of the Internal Revenue Code.37 The
Fund will not 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.38
The Fund’s investments, including
derivatives, will be consistent with the
Fund’s investment objective and the
Fund’s use of derivatives may be used
to enhance leverage. However, the
Fund’s investments will not be used to
seek performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
the Fund’s broad-based securities
dealers willing to purchase or sell the security and
the number of other potential purchasers; dealer
undertakings to make a market in the security; and
the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers, and
the mechanics of transfer).
35 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act).
36 The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act (15 U.S.C. 80e).
37 26 U.S.C. 851.
38 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
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market index (as defined in Form N–
1A).39
Net Asset Value and Derivatives
Valuation Methodology for Purposes of
Determining Net Asset Value
The net asset value (‘‘NAV’’) of the
Fund’s Shares will be determined by
dividing the total value of the Fund’s
portfolio investments and other assets,
less any liabilities, by the total number
of Shares outstanding.
The Fund’s Shares will be valued as
of the close of regular trading (normally
4:00 p.m. Eastern time (‘‘E.T.’’) (the
‘‘NYSE Close’’)) on each day NYSE Arca
is open (‘‘Business Day’’). Information
that becomes known to the Fund or its
agents after the NAV has been
calculated on a particular day will not
generally be used to retroactively adjust
the price of a portfolio asset or the NAV
determined earlier that day.
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. Domestic and 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. Prices obtained from
independent pricing services use
information provided by market makers
or estimates of market values obtained
from yield data relating to investments
or securities with similar characteristics.
Short-term debt instruments having a
remaining maturity of 60 days or less
will generally be valued at amortized
cost.
As discussed in more detail below,
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
39 The
Fund’s broad-based securities market
index will be identified in a future amendment to
the Registration Statement following the Fund’s
first full calendar year of performance.
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68335
generally be valued as of the respective
local region’s market close.
With respect to specific derivatives:
• Currency spot and forward rates
from major market data vendors 40 will
generally be determined as of the NYSE
Close.
• Exchange-traded futures will
generally be valued at the settlement
price of the relevant exchange.
• A total return swap on an index
will be valued at the publicly available
index price. The index price, in turn, is
determined by the applicable index
calculation agent, which generally
values the securities underlying the
index at the last reported sale price.
• Equity total return swaps will
generally be valued using the actual
underlying equity at local market
closing, while bank loan total return
swaps will generally be valued using the
evaluated underlying bank loan price
minus the strike price of the loan.
• Exchange-traded non-equity
options, (for example, options on bonds,
Eurodollar options and U.S. Treasury
options), index options, and options on
futures will generally be valued at the
official settlement price determined by
the relevant exchange, if available.
• OTC and exchange-traded equity
options will generally be valued on a
basis of quotes obtained from a
quotation reporting system, established
market makers, or pricing services or at
the settlement price of the applicable
exchange.
• OTC FX options will generally be
valued by pricing vendors.
• All other swaps such as interest rate
swaps, inflation swaps, swaptions,
credit default swaps, and CDX/CDS will
generally be valued by pricing services.
Exchange-traded equity securities
(including common stocks, exchangetraded investment companies,
exchange-traded convertible securities,
REITs and preferred securities, and
exchange-traded structured products)
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, exchangetraded 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.
40 Major market data vendors may include, but are
not limited to: Thomson Reuters, JPMorgan Chase
PricingDirect Inc., Markit Group Limited,
Bloomberg, Interactive Data Corporation or other
major data vendors.
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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. Money market instruments,
trade claims, OTC REITs, privately
placed and unregistered securities, OTC
structured products, OTC real-estate
linked derivatives, credit-linked
securities, commodity-linked notes,
Brady Bonds, variable and floating rate
securities that are not corporate Fixed
Income Instruments; floaters and
inverse floaters that are not corporate
Fixed Income Instruments and other
types of debt securities will generally be
valued on the basis of independent
pricing services or quotes obtained from
brokers and dealers.
If a foreign security’s value has
materially changed after the close of the
security’s primary exchange or principal
market but before the NYSE Close, the
security will be valued at fair value
based on procedures established and
approved by the Board. Foreign
securities that do not trade when the
NYSE is open will also be valued at fair
value.
Securities and other assets for which
market quotes are not readily available
will be valued at fair value as
determined in good faith by the Board
or persons acting at their direction. The
Board has adopted methods for valuing
securities and other assets in
circumstances where market quotes are
not readily available, and has delegated
to PIMCO the responsibility for
applying the valuation methods. In the
event that market quotes are not readily
available, and the security or asset
cannot be valued pursuant to one of the
valuation methods, the value of the
security or asset will be determined in
good faith by the Valuation Committee
of the Board of Trustees, generally based
upon recommendations provided by
PIMCO.
Market quotes are considered not
readily available in circumstances
where there is an absence of current or
reliable market-based data (e.g., trade
information, bid/ask information, broker
quotes), including where events occur
after the close of the relevant market,
but prior to the NYSE Close, that
materially affect the values of the
Fund’s securities or assets. In addition,
market quotes are considered not
readily available when, due to
extraordinary circumstances, the
exchanges or markets on which the
securities trade do not open for trading
for the entire day and no other market
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Jkt 235001
prices are available. The Board has
delegated to PIMCO the responsibility
for monitoring significant events that
may materially affect the values of the
Fund’s securities or assets and for
determining whether the value of the
applicable securities or assets should be
re-evaluated in light of such significant
events.
When the Fund uses fair value pricing
to determine its NAV, securities will not
be priced on the basis of quotes from the
primary market in which they are
traded, but rather may be priced by
another method that the Board of
Trustees or persons acting at their
direction believe reflects fair value. Fair
value pricing may require subjective
determinations about the value of a
security. While the Trust’s policy is
intended to result in a calculation of the
Fund’s NAV that fairly reflects security
values as of the time of pricing, the
Trust cannot ensure that fair values
determined by the Board or persons
acting at its direction would accurately
reflect the price that the Fund could
obtain for a security if it were to dispose
of that security as of the time of pricing
(for instance, in a forced or distressed
sale). The prices used by the Fund may
differ from the value that would be
realized if the securities were sold.
For the Fund’s 4:00 p.m. E.T. futures
holdings, estimated prices from Reuters
will be used if any cumulative futures
margin impact is greater than $0.005 to
the NAV due to futures movement after
the fixed income futures market closes
(3:00 p.m. E.T.) and up to the NYSE
Close (generally 4:00 p.m. E.T.). Swaps
traded on exchanges such as the
Chicago Mercantile Exchange (‘‘CME’’)
or the Intercontinental Exchange (‘‘ICE–
US’’) will be priced using the applicable
exchange closing price where available.
Investments initially valued in
currencies other than the U.S. dollar
will be converted to the U.S. dollar
using exchange rates obtained from
pricing services. As a result, the NAV of
the Fund’s Shares may be affected by
changes in the value of currencies in
relation to the U.S. dollar. The value of
securities traded in markets outside the
United States or denominated in
currencies other than the U.S. dollar
may be affected significantly on a day
that the NYSE is closed. As a result, to
the extent that the Fund holds foreign
(non-U.S.) securities, the NAV of the
Fund’s Shares may change when an
investor cannot purchase, redeem or
exchange shares.
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Derivatives Valuation Methodology for
purposes of Determining Portfolio
Indicative Value
On each Business Day, before
commencement of trading in Fund
Shares on NYSE Arca, the Fund will
disclose on its Web site the identities
and quantities of the portfolio
instruments and other assets held by the
Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the Business Day.
In order to provide additional
information regarding the intra-day
value of Shares of the Fund, one or more
major market data vendors will
disseminate every 15 seconds through
the facilities of the Consolidated Tape
Association (‘‘CTA’’) or other widely
disseminated means an updated
Portfolio Indicative Value (‘‘PIV’’) for
the Fund as calculated by an
information provider or market data
vendor.
A third party market data provider
will calculate the PIV for the Fund. For
the purposes of determining the PIV, the
third party market data provider’s
valuation of derivatives and other assets
are expected to be similar to its
valuation of all securities. The third
party market data provider may use
market quotes if available or may fair
value securities against proxies (such as
swap or yield curves).
With respect to specific derivatives:
• Foreign currency derivatives may
be valued intraday using market quotes,
or another proxy as determined to be
appropriate by the third party market
data provider.
• Futures may be valued intraday
using the relevant futures exchange
data, or another proxy as determined to
be appropriate by the third party market
data provider.
• Interest rate swaps may be mapped
to a swap curve and valued intraday
based on the swap curve, or another
proxy as determined to be appropriate
by the third party market data provider.
• CDX/CDS may be valued using
intraday data from market vendors, or
based on underlying asset price, or
another proxy as determined to be
appropriate by the third party market
data provider.
• Total return swaps may be valued
intraday using the underlying asset
price, or another proxy as determined to
be appropriate by the third party market
data provider.
• Exchange listed options may be
valued intraday using the relevant
exchange data, or another proxy as
determined to be appropriate by the
third party market data provider.
• OTC options may be valued
intraday through option valuation
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models (e.g., Black-Scholes) or using
exchange-traded options as a proxy, or
another proxy as determined to be
appropriate by the third party market
data provider.
• A third party market data provider’s
valuation of forwards will be similar to
their valuation of the underlying
securities, or another proxy as
determined to be appropriate by the
third party market data provider. The
third party market data provider will
generally use market quotes if available.
Where market quotes are not available,
they may fair value securities against
proxies (such as swap or yield curves).
The Fund’s disclosure of forward
positions will include information that
market participants can use to value
these positions intraday.
mstockstill on DSK4VPTVN1PROD with NOTICES
Disclosed Portfolio
The Fund’s disclosure of derivative
positions in the applicable Disclosed
Portfolio will include information that
market participants can use to value
these positions intraday. On a daily
basis, the Fund 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 the Fund’s
portfolio.
Impact on Arbitrage Mechanism
For the Fund, the Adviser believes
there will be minimal, if any, impact to
the arbitrage mechanism as a result of
the use of derivatives. Market makers
and participants should be able to value
derivatives as long as the positions are
disclosed with relevant information.
The Adviser believes that the price at
which Shares of the Fund trade will
continue to be disciplined by arbitrage
opportunities created by the ability to
purchase or redeem creation Shares of
the Fund at their NAV, which should
ensure that Shares of the Fund will not
trade at a material discount or premium
in relation to its NAV.
The Adviser does not believe there
will be any significant impacts to the
settlement or operational aspects of the
Fund’s arbitrage mechanism due to the
use of derivatives. Because derivatives
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generally are not eligible for in-kind
transfer, they will be substituted with a
‘‘cash in lieu’’ amount (as described
below) when the Fund processes
purchases or redemptions of block-size
‘‘Creation Units’’ (as described below)
in-kind.
Creations and Redemptions of Shares
According to the Registration
Statement, Shares of the Fund that trade
in the secondary market will be
‘‘created’’ at NAV by Authorized
Participants only in block-size Creation
Units of 50,000 Shares or multiples
thereof.41 The size of a Creation Unit is
subject to change. The Fund will offer
and issue Shares at their NAV per Share
generally in exchange for a basket of
debt securities held by that Fund (the
‘‘Deposit Securities’’) together with a
deposit of a specified cash payment (the
‘‘Cash Component’’), or in lieu of
Deposit Securities, the Fund may permit
a ‘‘cash-in-lieu’’ amount for any reason
at the Fund’s sole discretion.
Alternatively, the Fund may issue
Creation Units in exchange for a
specified all-cash payment (‘‘Cash
Deposit’’) (together with Deposit
Securities and Cash Component, the
‘‘Fund Deposit’’). Similarly, Shares can
be redeemed only in Creation Units,
generally in-kind for a portfolio of debt
securities held by the Fund and/or for
a specified amount of cash (collectively,
‘‘Redemption Instruments’’).
On any given Business Day, purchases
and redemptions of Creation Units will
be made in whole or in part on a cash
basis if an Authorized Participant
deposits or receives (as applicable) cash
in lieu of some or all of the Fund
Deposit or Redemption Instruments,
respectively, solely because such
instruments are, in the case of the Fund
Deposit, not available in sufficient
quantity.42 In determining whether the
41 The NAV of the Fund’s Shares generally will
be calculated once daily Monday through Friday as
of the close of trading on the New York Stock
Exchange (‘‘NYSE’’), generally 4:00 p.m. E.T. (the
‘‘NAV Calculation Time’’) on any Business Day.
NAV per Share will be calculated by dividing the
Fund’s net assets by the number of the Fund’s
Shares outstanding. For more information regarding
the valuation of Fund investments in calculating
the Fund’s NAV, see the Registration Statement.
The term ‘‘Authorized Participant’’ refers to a
‘‘Participating Party’’ (a broker-dealer or other
participant in the clearing process through the
Continuous Net Settlement System of the NSCC; or
a Depository Trust Company (‘‘DTC’’) Participant
who has executed a Participant Agreement (an
agreement with the Distributor and Transfer Agent
with respect to creations and redemptions of
Creation Units) [sic].
42 Such purchase or redemption transactions are
‘‘custom orders.’’ On any given Business Day, if the
Fund accepts a custom order, the Adviser
represents that the Fund will accept custom orders
from all other Authorized Participants on the same
basis.
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68337
Fund will be selling or redeeming
Creation Units on a cash or in-kind
basis, the key consideration will be the
benefit which would accrue to Fund
investors. In many cases, investors may
benefit by the use of all cash purchase
orders because the Adviser would
execute trades rather than market
makers, and the Adviser may be able to
obtain better execution in bond
transactions due to its size, experience
and potentially stronger relationships in
the fixed income markets.
Except when aggregated in Creation
Units, Shares will not be redeemable by
the Fund. The prices at which creations
and redemptions occur will be based on
the next calculation of NAV after an
order is received. Requirements as to the
timing and form of orders will be
described in the Authorized Participant
agreement. PIMCO will make available
on each Business Day via the National
Securities Clearing Corporation
(‘‘NSCC’’), prior to the opening of
business (subject to amendments) on the
Exchange (currently 9:30 a.m., E.T.), the
identity and the required amount of
each Deposit Security and the amount of
the Cash Component (or Cash Deposit)
to be included in the current ‘‘Fund
Deposit’’ 43 (based on information at the
end of the previous Business Day).
Creations and redemptions must be
made by an Authorized Participant.
Additional information regarding the
Trust, the Fund and the Shares,
including investment strategies, risks,
creation and redemption procedures,
fees, portfolio holdings, disclosure
policies, distributions and taxes is
included in the Registration Statement.
All terms relating to the Fund that are
referred to but not defined in this
proposed rule change are defined in the
Registration Statement.
Availability of Information
The Trust’s Web site
(www.pimcoetfs.com), which will be
publicly available prior to the public
offering of Shares of the Fund, will
include a form of the prospectus for the
Fund that may be downloaded. The
Trust’s Web site will include additional
quantitative information updated on a
daily basis, including, for the Fund, (1)
daily trading volume, the prior Business
Day’s reported closing price, NAV and
mid-point of the bid/ask spread at the
time of calculation of such NAV (the
‘‘Bid/Ask Price’’),44 and a calculation of
43 The Deposit Securities and Cash Component or,
alternatively, the Cash Deposit, will constitute the
Fund Deposit, which will represent the investment
amount for a Creation Unit of the Fund.
44 The Bid/Ask Price of Shares of the Fund will
be determined using the mid-point of the highest
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the premium and discount of the Bid/
Ask Price against the NAV, and (2) data
in chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each Business Day, before
commencement of trading in Shares in
the Core Trading Session (9:30 a.m. E.T.
to 4:00 p.m. E.T.) on the Exchange, the
Fund 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 the Fund’s
calculation of NAV at the end of the
Business Day.45
The Fund’s disclosure of derivative
positions in the applicable Disclosed
Portfolio will include information that
market participants can use to value
these positions intraday. On a daily
basis, the Fund 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 the Fund’s
portfolio. The Web site information will
be publicly available at no charge.
In addition, a basket composition file,
which includes the security names and
share quantities, if applicable, required
to be delivered in exchange for the
Fund’s Shares, together with estimates
and actual cash components, will be
publicly disseminated daily prior to the
opening of the Exchange via the NSCC.
The basket represents one Creation Unit
of the Fund. The NAV of Shares of the
Fund will normally be determined as of
the close of the regular trading session
on the Exchange (ordinarily 4:00 p.m.
E.T.) on each Business Day. Authorized
Participants may refer to the basket
composition file for information
regarding Fixed Income Instruments,
bid and the lowest offer on the Exchange as of the
time of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
45 Under accounting procedures followed by the
Fund, trades made on the prior Business Day (‘‘T’’)
will be booked and reflected in NAV on the current
Business Day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the Business
Day the portfolio that will form the basis for the
NAV calculation at the end of the Business Day.
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17:37 Nov 13, 2014
Jkt 235001
and any other instrument that may
comprise the Fund’s basket on a given
day.
Investors can also obtain the Trust’s
SAI, the Fund’s Shareholder Reports,
and the Fund’s Forms N–CSR and
Forms N–SAR, filed twice a year. The
Fund’s SAI and Shareholder Reports
will be available free upon request from
the Trust, and those documents and the
Form N–CSR, Form N–PX and Form N–
SAR may be viewed on-screen or
downloaded from the Commission’s
Web site at www.sec.gov. Intra-day and
closing price information regarding
exchange-traded equity securities,
including common stocks, preferred
stocks, securities convertible into
stocks, closed-end funds, exchangetraded funds, exchange-traded
structured products (including ETNs),
exchange-traded REITs, 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) and futures will be
available from the exchange on which
such instruments are traded. Intra-day
and closing price information regarding
Fixed Income Instruments and other
forms of debt securities also will be
available from major market data
vendors. Price information relating to
forwards, spot currency, OTC options
and swaps will be available from major
market data vendors. Price information
regarding, money market instruments,
OTC REITs, private activity bonds, trade
claims, privately placed and
unregistered securities, OTC real estatelinked derivatives, OTC structured
products, credit-linked securities,
commodity-linked notes, Brady Bonds,
variable and floating rate securities that
are not corporate Fixed Income
Instruments and floaters and inverse
floaters that are not corporate Fixed
Income Instruments 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.
Information regarding market price and
trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume information for the Shares will
be published daily in the financial
section of newspapers. Quotation and
last sale information for the Shares will
be available via the CTA high-speed
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
line. Exchange-traded options quotation
and last sale information for options
cleared via the Options Clearing
Corporation (‘‘OCC’’) is available via the
Options Price Reporting Authority
(‘‘OPRA’’). Price information relating to
equity securities traded OTC will be
available from major market data
vendors. In addition, the 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.46 The dissemination of
the PIV, together with the Disclosed
Portfolio, may allow investors to
determine an approximate value of the
underlying portfolio of the Fund on a
daily basis and to provide an estimate
of that value throughout the trading day.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund.47 Trading in Shares of the
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. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund; or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. 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.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m.
to 8 p.m. E.T. in accordance with NYSE
Arca Equities Rule 7.34 (Opening, Core,
and Late Trading Sessions). The
Exchange has appropriate rules to
facilitate transactions in the Shares
during all trading sessions. As provided
in NYSE Arca Equities Rule 7.6,
Commentary .03, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
46 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available PIVs taken from CTA or
other data feeds.
47 See NYSE Arca Equities Rule 7.12.
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mstockstill on DSK4VPTVN1PROD with NOTICES
the NYSE Arca Marketplace is $0.01,
with the exception of securities that are
priced less than $1.00 for which the
MPV for order entry is $0.0001.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600.
Consistent with NYSE Arca Equities
Rule 8.600(d)(2)(B)(ii), the 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 Fund will
be in compliance with Rule 10A–3 48
under the Act, as provided by NYSE
Arca Equities Rule 5.3. A minimum of
100,000 Shares for the Fund will be
outstanding at the commencement of
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares of the 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.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws.49 The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares, exchange-traded
options, exchange-traded equities
(including common stocks, exchangetraded investment companies,
48 17
CFR 240.10A–3.
49 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.
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17:37 Nov 13, 2014
Jkt 235001
exchange- traded convertibles and
preferred securities, exchange-traded
REITs, and exchange-traded structured
products, including ETNs), futures and
options on futures with other markets or
other entities that are members of the
ISG, and FINRA may obtain trading
information regarding trading in the
Shares, exchange-traded options,
exchange-traded equities, futures and
options on futures from such markets or
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares, exchange-traded options,
exchange-traded equities, futures and
options on futures from markets or other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement.50 FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s Trade Reporting
and Compliance Engine (‘‘TRACE’’).
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.
Not more than 10% of the net assets
of the Fund in the aggregate invested in
equity securities (other than nonexchange-traded investment company
securities) shall consist of equity
securities, including stocks into which a
convertible security is converted, whose
principal market is not a member of the
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 the 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.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit (‘‘ETP’’) Holders
in an Information Bulletin (‘‘Bulletin’’)
50 For a list of the current members of ISG, see
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.
PO 00000
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Fmt 4703
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68339
of the special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its ETP Holders to learn the essential
facts relating to every customer prior to
trading the Shares; (3) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated PIV will not be
calculated or publicly disseminated; (4)
how information regarding the PIV and
the Disclosed Portfolio is disseminated;
(5) the requirement that ETP Holders
deliver a prospectus to investors
purchasing newly issued Shares prior to
or concurrently with the confirmation of
a transaction; and (6) trading
information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Act. The Bulletin will also disclose that
the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each
trading day.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 51 that an
exchange have rules that are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and federal securities laws
applicable to trading on the Exchange.
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in the Shares, exchange-traded
options, exchange-traded equities
(including common stocks, exchange51 15
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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices
traded investment companies,
exchange-traded convertibles and
preferred securities, exchange-traded
REITs, and exchange-traded structured
products, including ETNs), futures and
options on futures with other markets or
other entities that are members of the
ISG, and FINRA may obtain trading
information regarding trading in the
Shares, exchange-traded options,
exchange-traded equities, futures and
options on futures from such markets or
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares, exchange-traded options,
exchange-traded equities, futures and
options on futures from markets or other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s TRACE. 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.
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 Fund, at least 80% of issues of such
securities held by the Fund must have
$200 million or more par amount
outstanding at the time of investment.
Furthermore, not more than 10% of the
net assets of the Fund in the aggregate
invested in equity securities (other than
non-exchange-traded investment
company securities) shall consist of
equity securities, including stocks into
which a convertible security is
converted, whose principal market is
not a member of the 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 the 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’s investments, including
derivatives, will be consistent with the
Fund’s investment objective and the
Fund’s use of derivatives may be used
to enhance leverage. However, the
Fund’s investments will not be used to
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17:37 Nov 13, 2014
Jkt 235001
seek performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
the Fund’s broad-based securities
market index (as defined in Form N–
1A). The Fund’s investments 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. PIMCO’s
Counterparty Risk Committee will
evaluate the creditworthiness of swaps
counterparties on an ongoing basis.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. Moreover, the PIV
will be widely disseminated by one or
more major market data vendors at least
every 15 seconds during the Exchange’s
Core Trading Session. On each Business
Day, before commencement of trading in
Shares in the Core Trading Session on
the Exchange, the Fund will disclose on
the Trust’s Web site the Disclosed
Portfolio that will form the basis for the
Fund’s calculation of NAV at the end of
the Business Day. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
last sale information will be available
via the CTA high-speed line. Exchangetraded options quotation and last sale
information for options cleared via the
OCC is available OPRA. Price
information for the debt securities and
other financial instruments held by the
Fund, including the intra-day closing
settlement price for the Fixed Income
Instruments, including Municipal
Bonds, and derivatives thereon, and
other financial instruments held by the
Fund, will be available through major
market data vendors. The Fund’s
investments, including derivatives, will
be consistent with the Fund’s
investment objective. The Trust’s Web
site will include a form of the
prospectus for the Fund and additional
data relating to NAV and other
applicable quantitative information.
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Moreover, prior to the commencement
of trading, the Exchange will inform its
ETP Holders in an Information Bulletin
of the special characteristics and risks
associated with trading the Shares.
Trading in Shares of the Fund will be
halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have
been reached or because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable, and 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. In addition,
as noted above, investors will have
ready access to information regarding
the Fund’s holdings, the PIV, the
Disclosed Portfolio, and quotation and
last sale information for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. The Adviser is not a brokerdealer but is affiliated with a brokerdealer and has implemented a ‘‘fire
wall’’ with respect to such broker-dealer
regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. In
addition, the 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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
additional type of actively-managed
exchange-traded product that, under
normal circumstances, will invest
principally in fixed income securities
and that will enhance competition with
respect to such products among market
E:\FR\FM\14NON1.SGM
14NON1
Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2014–85 and should be
submitted on or before December 5,
2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.52
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–26944 Filed 11–13–14; 8:45 am]
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
Number SR–NYSEArca–2014–85 on the
subject line.
mstockstill on DSK4VPTVN1PROD with NOTICES
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:
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Related to Fees for Use
of EDGX Exchange, Inc.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2014–85. 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
VerDate Sep<11>2014
17:37 Nov 13, 2014
Jkt 235001
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73563; File No. SR–EDGX–
2014–26]
November 7, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
31, 2014, EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposed rule change as
one establishing or changing a member
due, fee, or other charge imposed by the
Exchange under Section 19(b)(3)(A)(ii)
of the Act 3 and Rule 19b–4(f)(2)
thereunder,4 which renders the
proposed rule change effective upon
filing with the Commission. The
52 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
PO 00000
Frm 00133
Fmt 4703
Sfmt 4703
68341
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend the fee schedule applicable to
Members 5 and non-members of the
Exchange pursuant to EDGX Rules
15.1(a) and (c). Changes to the fee
schedule pursuant to this proposal are
effective upon filing.
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.directedge.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
Fee Schedule to decrease the fee for
orders yielding Flag K, which routes to
PSX using ROUC or ROUE routing
strategies. In securities priced at or
above $1.00, the Exchange currently
assesses a fee of $0.0026 per share for
Members’ orders that yield Flag K. The
Exchange proposes to amend its Fee
Schedule to decrease this fee to $0.0024
per share from $0.0026 per share. The
proposed change represents a pass
through of the rate that Direct Edge ECN
LLC (d/b/a DE Route) (‘‘DE Route’’), the
Exchange’s affiliated routing brokerdealer, is charged for routing orders to
PSX when it does not qualify for a
volume tiered reduced fee. The
proposed change is in response to PSX’s
5 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer, or any person associated
with a registered broker or dealer, that has been
admitted to membership in the Exchange. A
Member will have the status of a ‘‘member’’ of the
Exchange as that term is defined in Section 3(a)(3)
of the Act.’’ See Exchange Rule 1.5(n).
E:\FR\FM\14NON1.SGM
14NON1
]]>Agencies
[Federal Register Volume 79, Number 220 (Friday, November 14, 2014)]
[Notices]
[Pages 68330-68341]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26944]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73556; File No. SR-NYSEArca-2014-85]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of Shares
of the PIMCO Low Duration Investment Grade Corporate Bond Active
Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600
November 7, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on October 23, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): PIMCO
Low Duration Investment Grade Corporate Bond Active Exchange-Traded
Fund.
[[Page 68331]]
The text of the proposed rule change is available on the Exchange's Web
site at www.nyse.com, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600,\4\ which governs the
listing and trading of Managed Fund Shares: \5\ PIMCO Low Duration
Investment Grade Corporate Bond Active Exchange-Traded Fund (``Fund'').
The Shares will be offered by PIMCO ETF Trust (the ``Trust''), a
statutory trust organized under the laws of the State of Delaware and
registered with the Commission as an open-end management investment
company.\6\
---------------------------------------------------------------------------
\4\ The Commission has previously approved the listing and
trading on the Exchange of other actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 60981
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (order approving Exchange listing and trading of five fixed
income funds of the PIMCO ETF Trust); 72666 (July 24, 2014), 79 FR
44224 (July 30, 2014) (SR-NYSEArca-2013-122) (order approving
proposed rule change relating to use of derivative instruments by
the PIMCO Total Return Exchange Traded Fund).
\5\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
\6\ The Trust is registered under the 1940 Act. On June 17,
2014, the Trust filed an amendment to its registration statement on
Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) (``1933
Act'') and the 1940 Act relating to the Fund (File Nos. 333-155395
and 811-22250) (the ``Registration Statement''). The description of
the operation of the Trust and the Fund herein is based, in part, on
the Registration Statement. In addition, the Commission has issued
an order granting certain exemptive relief to the Trust under the
1940 Act. See Investment Company Act Release No. 28993 (November 10,
2009) (File No. 812-13571) (``Exemptive Order'').
---------------------------------------------------------------------------
The investment manager to the Fund will be Pacific Investment
Management Company LLC (``PIMCO'' or the ``Adviser''). PIMCO
Investments LLC will serve as the distributor for the Fund
(``Distributor''). State Street Bank & Trust Co. will serve as the
custodian and transfer agent for the Fund (``Custodian'' or ``Transfer
Agent'').
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition,
Commentary .06 further requires that personnel who make decisions on
the open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the open-end fund's portfolio. The Adviser is not
registered as a broker-dealer, but is affiliated with a broker-dealer,
and will implement a ``fire wall'' with respect to such broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the Fund's portfolio. If PIMCO elects to hire a sub-
adviser for the Fund that is registered as a broker-dealer or is
affiliated with a broker-dealer, such sub-adviser will implement a fire
wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
---------------------------------------------------------------------------
\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violations, 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.
---------------------------------------------------------------------------
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, it will implement a fire wall with respect to its
relevant personnel or its broker-dealer affiliate regarding access to
information concerning the composition and/or changes to a portfolio,
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio.
Characteristics of the Fund \8\
---------------------------------------------------------------------------
\8\ Many of the investment strategies of the Fund are
discretionary, which means that PIMCO can decide from time to time
whether to use them or not.
---------------------------------------------------------------------------
According to the Registration Statement, in selecting investments
for the 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 the
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 the 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
[[Page 68332]]
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, the Fund
may invest in Fixed Income Instruments, which include any one or more
of the following:
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; \9\
---------------------------------------------------------------------------
\9\ With respect to the Fund, 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 Fund, at least 80% of issues of such securities
held by the Fund must have $100 million or more par amount
outstanding at the time of investment. See also note 33, infra,
regarding emerging market corporate debt securities.
---------------------------------------------------------------------------
Mortgage-backed and other asset-backed securities; \10\
---------------------------------------------------------------------------
\10\ 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; \11\
---------------------------------------------------------------------------
\11\ 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; \12\
---------------------------------------------------------------------------
\12\ The Fund 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, 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, the
Fund may lose a portion or its entire principal invested in the bond
or notional amount on a swap.
---------------------------------------------------------------------------
Bank capital and trust preferred securities; \13\
---------------------------------------------------------------------------
\13\ There are two common types of bank capital: Tier I and Tier
II. Bank capital is generally, but not always, of investment grade
quality. Tier I securities are typically exchange-traded and often
take the form of trust preferred securities. Tier II securities are
commonly thought of as hybrids of debt and preferred stock. Tier II
securities are typically traded over-the-counter, 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.
---------------------------------------------------------------------------
Loans, including loan participations and assignments; \14\
---------------------------------------------------------------------------
\14\ The Fund 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 Fund
The Fund's investments in derivative instruments will be made in
accordance with the 1940 Act and consistent with the Fund's investment
objective and policies. With respect to the Fund, derivative
instruments will include forwards; \15\ 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.\16\ Generally,
derivatives are financial contracts 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. The Fund
may, but is not required to, use derivative instruments for risk
management purposes or as part of its investment strategies.\17\
---------------------------------------------------------------------------
\15\ Forwards are contracts to purchase or sell securities for a
fixed price at a future date beyond normal settlement time (forward
commitments).
\16\ In the future, in the event that there are exchange-traded
options on swaps, the Fund may invest in these instruments.
\17\ The 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.
---------------------------------------------------------------------------
As described further below, the 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. The Fund may also use
derivative instruments to enhance returns. To limit the potential risk
associated with such transactions, the Fund will segregate or
``earmark'' assets determined to be liquid by PIMCO in accordance with
procedures established by the Trust's Board of Trustees and in
accordance with the 1940 Act (or, as permitted by applicable
regulation, enter into certain offsetting positions) to cover its
obligations under derivative instruments. These procedures have been
adopted consistent with Section 18 of the 1940 Act and related
Commission guidance. In addition, the Fund will include appropriate
risk disclosure in its offering documents, including leveraging risk.
Leveraging risk is the risk that certain transactions of the Fund,
including the Fund's use of derivatives, may give rise to leverage,
causing the Fund to be more volatile than if it had not been
leveraged.\18\ Because the markets for certain securities, or the
securities themselves, may be unavailable or cost prohibitive as
compared to derivative instruments, suitable derivative transactions
may be an efficient alternative for the Fund to obtain the desired
asset exposure.
---------------------------------------------------------------------------
\18\ To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that
may give rise to such risk.
---------------------------------------------------------------------------
The Adviser believes that derivatives can be an economically
attractive substitute for an underlying physical security that the Fund
would otherwise purchase. For example, the Fund could purchase Treasury
futures contracts instead of physical Treasuries or could sell credit
default protection on a corporate bond instead of buying a physical
bond. Economic benefits include potentially lower transaction
[[Page 68333]]
costs or attractive relative valuation of a derivative versus a
physical bond (e.g., differences in yields).
The Adviser further believes that derivatives can be used as a more
liquid means of adjusting portfolio duration as well as targeting
specific areas of yield curve exposure, with potentially lower
transaction costs than the underlying securities (e.g., interest rate
swaps may have lower transaction costs than physical bonds). Similarly,
money market futures can be used to gain exposure to short-term
interest rates in order to express views on anticipated changes in
central bank policy rates. In addition, derivatives can be used to
protect client assets through selectively hedging downside (or ``tail
risks'') in the Fund.
The Fund also can use derivatives to increase or decrease credit
exposure. Index credit default swaps (CDX) can be used to gain exposure
to a basket of credit risk by ``selling protection'' against default or
other credit events, or to hedge broad market credit risk by ``buying
protection.'' Single name credit default swaps (CDS) can be used to
allow the Fund to increase or decrease exposure to specific issuers,
saving investor capital through lower trading costs. The Fund can use
total return swap contracts to obtain the total return of a reference
asset or index in exchange for paying a financing cost. A total return
swap may be much more efficient than buying underlying securities of an
index, potentially lowering transaction costs.
The Adviser believes that the use of derivatives will allow the
Fund to selectively add diversifying sources of return from selling
options. Option purchases and sales can also be used to hedge specific
exposures in the portfolio, and can provide access to return streams
available to long-term investors such as the persistent difference
between implied and realized volatility. Option strategies can generate
income or improve execution prices (i.e., covered calls).
Principal Investments
According to the Registration Statement, the Fund will seek to
maximize total return, consistent with prudent investment management.
The Fund will seek to achieve its investment objective by investing
under normal circumstances \19\ at least 80% of its assets in a
diversified portfolio of investment grade corporate Fixed Income
Instruments \20\ of varying maturities, which may be represented by
forwards or derivatives such as options, futures contracts or swap
agreements (the ``80% Policy''). The average portfolio duration of the
Fund normally will vary from zero to 4 years based on PIMCO's forecast
for interest rates.\21\
---------------------------------------------------------------------------
\19\ With respect to the 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.
\20\ Corporate Fixed Income Instruments will be: corporate debt
securities of U.S. and non-U.S. issuers, including convertible
securities and corporate commercial paper, inflation-indexed bonds,
bank capital securities, trust preferred securities, and loan
participations and assignments.
\21\ Duration is a measure used to determine the sensitivity of
a security's price to changes in interest rates. The longer a
security's duration, the more sensitive it will be to changes in
interest rates.
---------------------------------------------------------------------------
In furtherance of the Fund's 80% 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 purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis and may engage in short sales.\22\
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).\23\
---------------------------------------------------------------------------
\22\ The Fund may make short sales of securities to: (i) Offset
potential declines in long positions in similar securities, (ii) to
[sic] increase the flexibility of the Fund; (iii) for [sic]
investment return; and (iv) as [sic] part of a risk arbitrage
strategy.
\23\ 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.''
---------------------------------------------------------------------------
Other (Non-Principal) Investments
The non-principal investments listed below would consist of
investments that are not included in the Fund's 80% Policy, as
described above. Assets not invested in investment grade corporate
Fixed Income Instruments may be invested in other types of Fixed Income
Instruments and other instruments, as described below.
The Fund may gain exposure to the real estate sector by investing
in OTC real estate-linked derivatives \24\, exchange-traded and OTC
real estate investment trusts (``REITs''), and exchange traded common,
exchange-traded and OTC preferred and exchange-traded and OTC
convertible securities of issuers in real estate-related
industries.\25\
---------------------------------------------------------------------------
\24\ Real estate-linked derivatives are derivative instruments
that are tied to real estate, such as derivatives (e.g., swaps or
options) on real-estate related indices or specific real-estate
related companies. The value and risks associated with real estate-
linked derivative instruments are generally similar to those
associated with direct ownership of real estate.
\25\ See infra, note 30 and accompanying text.
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The Fund may invest in variable and floating rate securities that
are not corporate Fixed Income Instruments. The Fund may invest in
floaters and inverse floaters that are not corporate Fixed Income
Instruments.
As disclosed in the Registration Statement, the Fund may invest in
trade claims,\26\ privately placed and unregistered securities, and
exchange-traded and OTC-traded structured products,\27\ including
credit-linked securities,\28\ and commodity-linked notes. The Fund may
invest in Brady Bonds.
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\26\ 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.
\27\ The Funds [sic] may invest in structured products,
including instruments such as credit-linked securities. For example,
a structured product may combine a traditional stock, bond, or
commodity with an option or forward contract. Generally, the
principal amount, amount payable upon maturity or redemption, or
interest rate of a structured product is tied (positively or
negatively) to the price of some commodity, currency or securities
index or another interest rate or some other economic factor. The
interest rate or (unlike most fixed income securities) the principal
amount payable at maturity of a structured product may be increased
or decreased, depending on changes in the value of the benchmark. An
example of exchange-traded structured products would be an [sic]
exchange-traded notes or ETNs, such as those listed and traded under
NYSE Arca Equities Rule 5.2(j)(6).
\28\ Credit-linked securities are generally a basket of
derivative instruments, such as credit default swaps or interest
rate swaps. Like an investment in a bond, investments in credit-
linked securities represent the right to receive periodic income
payments (in the form of distributions) and payment of principal at
the end of the term of the security. However, these payments are
conditioned on the trust's receipt of payments from, and the trust's
potential obligations to, the counterparties to the derivative
instruments and other securities in which the trust invests.
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The Fund may enter into repurchase agreements on instruments other
than corporate Fixed Income Instruments, in addition to repurchase
agreements on corporate 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
[[Page 68334]]
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 corporate Fixed Income
Instruments, in addition to reverse repurchase agreements on corporate
Fixed Income Instruments mentioned above, subject to the Fund's
limitations on borrowings.\29\ 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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\29\ With respect to the 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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The Fund may invest only up to 10% of its total assets in preferred
stocks, convertible securities, common stocks and other equity-related
securities; such limit will not include real-estate related
investments, such as REITs or investments in common, preferred or
convertible securities of issuers in real estate-related
industries.\30\
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\30\ 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 the 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 the Fund in the aggregate invested in equity securities
(other than non-exchange-traded investment company 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 the 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.
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The Fund may invest up to 20% of its total assets in structured
notes, including hybrid or ``indexed'' securities and event-linked
bonds.
The Fund may invest up to 15% of its total assets in high yield
securities (``junk bonds'') rated below BBB- (with a minimum level of
B- at purchase) by Standard & Poor's Ratings Services (``S&P''), or
equivalently rated by Moody's Investors Service, Inc. (``Moody's'') or
Fitch, Inc. (``Fitch''), or, if unrated, determined by PIMCO to be of
comparable quality (except that within such limitation, the Fund may
invest in mortgage-related securities rated below B-).\31\
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\31\ With respect to the 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 comparable rated
securities and involve the risk that the Fund's portfolio manager
may not accurately evaluate the security's comparative credit
rating. To the extent that the Fund invests in unrated securities,
the Fund's success in achieving its investment objective may depend
more heavily on the portfolio manager's creditworthiness analysis
than if the 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.
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Investment Restrictions
If PIMCO believes that economic or market conditions are
unfavorable to investors or that market conditions are not normal,
PIMCO may temporarily invest up to 100% of the Fund's assets in certain
defensive strategies, including holding a substantial portion of the
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. As noted above, the Fund
may invest without limit, for temporary or defensive purposes, in such
instruments, if PIMCO deems it appropriate to do so.
The Fund 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 the Fund's
investment in units or shares of investment companies and other open-
end collective investment vehicles will not exceed 10% of the Fund's
total assets. The Fund may invest its 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.
The Fund may invest up to 20% of its total 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. The Fund may invest
up to 20% 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. The Fund will normally limit its foreign
currency exposure (from non-U.S. dollar-denominated securities or
currencies) to 10% of its total assets.\32\ The Fund may engage in
foreign currency transactions either on a spot (cash) basis at the rate
prevailing in the currency exchange market at the time or through
forward currency contracts (``forwards'').
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\32\ 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.
---------------------------------------------------------------------------
The Fund may invest up to 20% of its total assets in securities and
instruments of issuers economically tied to emerging market
countries.\33\
---------------------------------------------------------------------------
\33\ 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 which country the security is economically tied to, 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 the Fund, at least 80% of issues of
such securities held by the Fund must have $200 million or more par
amount outstanding at the time of investment.
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The 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 the 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.\34\ The Fund will monitor
its
[[Page 68335]]
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 the Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\35\
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\34\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
security; the number of dealers willing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers,
and the mechanics of transfer).
\35\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act).
---------------------------------------------------------------------------
The Fund will be diversified within the meaning of the 1940
Act.\36\
---------------------------------------------------------------------------
\36\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
---------------------------------------------------------------------------
The Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code.\37\ The Fund will not 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.\38\
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\37\ 26 U.S.C. 851.
\38\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
---------------------------------------------------------------------------
The Fund's investments, including derivatives, will be consistent
with the Fund's investment objective and the Fund's use of derivatives
may be used to enhance leverage. However, the Fund's investments will
not be used to seek performance that is the multiple or inverse
multiple (i.e., 2Xs and 3Xs) of the Fund's broad-based securities
market index (as defined in Form N-1A).\39\
---------------------------------------------------------------------------
\39\ The Fund's broad-based securities market index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------
Net Asset Value and Derivatives Valuation Methodology for Purposes of
Determining Net Asset Value
The net asset value (``NAV'') of the Fund's Shares will be
determined by dividing the total value of the Fund's portfolio
investments and other assets, less any liabilities, by the total number
of Shares outstanding.
The Fund's Shares will be valued as of the close of regular trading
(normally 4:00 p.m. Eastern time (``E.T.'') (the ``NYSE Close'')) on
each day NYSE Arca is open (``Business Day''). Information that becomes
known to the Fund or its agents after the NAV has been calculated on a
particular day will not generally be used to retroactively adjust the
price of a portfolio asset or the NAV determined earlier that day.
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. Domestic and 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. Prices
obtained from independent pricing services use information provided by
market makers or estimates of market values obtained from yield data
relating to investments or securities with similar characteristics.
Short-term debt instruments having a remaining maturity of 60 days or
less will generally be valued at amortized cost.
As discussed in more detail below, 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.
With respect to specific derivatives:
Currency spot and forward rates from major market data
vendors \40\ will generally be determined as of the NYSE Close.
---------------------------------------------------------------------------
\40\ Major market data vendors may include, but are not limited
to: Thomson Reuters, JPMorgan Chase PricingDirect Inc., Markit Group
Limited, Bloomberg, Interactive Data Corporation or other major data
vendors.
---------------------------------------------------------------------------
Exchange-traded futures will generally be valued at the
settlement price of the relevant exchange.
A total return swap on an index will be valued at the
publicly available index price. The index price, in turn, is determined
by the applicable index calculation agent, which generally values the
securities underlying the index at the last reported sale price.
Equity total return swaps will generally be valued using
the actual underlying equity at local market closing, while bank loan
total return swaps will generally be valued using the evaluated
underlying bank loan price minus the strike price of the loan.
Exchange-traded non-equity options, (for example, options
on bonds, Eurodollar options and U.S. Treasury options), index options,
and options on futures will generally be valued at the official
settlement price determined by the relevant exchange, if available.
OTC and exchange-traded equity options will generally be
valued on a basis of quotes obtained from a quotation reporting system,
established market makers, or pricing services or at the settlement
price of the applicable exchange.
OTC FX options will generally be valued by pricing
vendors.
All other swaps such as interest rate swaps, inflation
swaps, swaptions, credit default swaps, and CDX/CDS will generally be
valued by pricing services.
Exchange-traded equity securities (including common stocks,
exchange-traded investment companies, exchange-traded convertible
securities, REITs and preferred securities, and exchange-traded
structured products) 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.
[[Page 68336]]
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. Money market instruments, trade claims,
OTC REITs, privately placed and unregistered securities, OTC structured
products, OTC real-estate linked derivatives, credit-linked securities,
commodity-linked notes, Brady Bonds, variable and floating rate
securities that are not corporate Fixed Income Instruments; floaters
and inverse floaters that are not corporate Fixed Income Instruments
and other types of debt securities will generally be valued on the
basis of independent pricing services or quotes obtained from brokers
and dealers.
If a foreign security's value has materially changed after the
close of the security's primary exchange or principal market but before
the NYSE Close, the security will be valued at fair value based on
procedures established and approved by the Board. Foreign securities
that do not trade when the NYSE is open will also be valued at fair
value.
Securities and other assets for which market quotes are not readily
available will be valued at fair value as determined in good faith by
the Board or persons acting at their direction. The Board has adopted
methods for valuing securities and other assets in circumstances where
market quotes are not readily available, and has delegated to PIMCO the
responsibility for applying the valuation methods. In the event that
market quotes are not readily available, and the security or asset
cannot be valued pursuant to one of the valuation methods, the value of
the security or asset will be determined in good faith by the Valuation
Committee of the Board of Trustees, generally based upon
recommendations provided by PIMCO.
Market quotes are considered not readily available in circumstances
where there is an absence of current or reliable market-based data
(e.g., trade information, bid/ask information, broker quotes),
including where events occur after the close of the relevant market,
but prior to the NYSE Close, that materially affect the values of the
Fund's securities or assets. In addition, market quotes are considered
not readily available when, due to extraordinary circumstances, the
exchanges or markets on which the securities trade do not open for
trading for the entire day and no other market prices are available.
The Board has delegated to PIMCO the responsibility for monitoring
significant events that may materially affect the values of the Fund's
securities or assets and for determining whether the value of the
applicable securities or assets should be re-evaluated in light of such
significant events.
When the Fund uses fair value pricing to determine its NAV,
securities will not be priced on the basis of quotes from the primary
market in which they are traded, but rather may be priced by another
method that the Board of Trustees or persons acting at their direction
believe reflects fair value. Fair value pricing may require subjective
determinations about the value of a security. While the Trust's policy
is intended to result in a calculation of the Fund's NAV that fairly
reflects security values as of the time of pricing, the Trust cannot
ensure that fair values determined by the Board or persons acting at
its direction would accurately reflect the price that the Fund could
obtain for a security if it were to dispose of that security as of the
time of pricing (for instance, in a forced or distressed sale). The
prices used by the Fund may differ from the value that would be
realized if the securities were sold.
For the Fund's 4:00 p.m. E.T. futures holdings, estimated prices
from Reuters will be used if any cumulative futures margin impact is
greater than $0.005 to the NAV due to futures movement after the fixed
income futures market closes (3:00 p.m. E.T.) and up to the NYSE Close
(generally 4:00 p.m. E.T.). Swaps traded on exchanges such as the
Chicago Mercantile Exchange (``CME'') or the Intercontinental Exchange
(``ICE-US'') will be priced using the applicable exchange closing price
where available.
Investments initially valued in currencies other than the U.S.
dollar will be converted to the U.S. dollar using exchange rates
obtained from pricing services. As a result, the NAV of the Fund's
Shares may be affected by changes in the value of currencies in
relation to the U.S. dollar. The value of securities traded in markets
outside the United States or denominated in currencies other than the
U.S. dollar may be affected significantly on a day that the NYSE is
closed. As a result, to the extent that the Fund holds foreign (non-
U.S.) securities, the NAV of the Fund's Shares may change when an
investor cannot purchase, redeem or exchange shares.
Derivatives Valuation Methodology for purposes of Determining Portfolio
Indicative Value
On each Business Day, before commencement of trading in Fund Shares
on NYSE Arca, the Fund will disclose on its Web site the identities and
quantities of the portfolio instruments and other assets held by the
Fund that will form the basis for the Fund's calculation of NAV at the
end of the Business Day.
In order to provide additional information regarding the intra-day
value of Shares of the Fund, one or more major market data vendors will
disseminate every 15 seconds through the facilities of the Consolidated
Tape Association (``CTA'') or other widely disseminated means an
updated Portfolio Indicative Value (``PIV'') for the Fund as calculated
by an information provider or market data vendor.
A third party market data provider will calculate the PIV for the
Fund. For the purposes of determining the PIV, the third party market
data provider's valuation of derivatives and other assets are expected
to be similar to its valuation of all securities. The third party
market data provider may use market quotes if available or may fair
value securities against proxies (such as swap or yield curves).
With respect to specific derivatives:
Foreign currency derivatives may be valued intraday using
market quotes, or another proxy as determined to be appropriate by the
third party market data provider.
Futures may be valued intraday using the relevant futures
exchange data, or another proxy as determined to be appropriate by the
third party market data provider.
Interest rate swaps may be mapped to a swap curve and
valued intraday based on the swap curve, or another proxy as determined
to be appropriate by the third party market data provider.
CDX/CDS may be valued using intraday data from market
vendors, or based on underlying asset price, or another proxy as
determined to be appropriate by the third party market data provider.
Total return swaps may be valued intraday using the
underlying asset price, or another proxy as determined to be
appropriate by the third party market data provider.
Exchange listed options may be valued intraday using the
relevant exchange data, or another proxy as determined to be
appropriate by the third party market data provider.
OTC options may be valued intraday through option
valuation
[[Page 68337]]
models (e.g., Black-Scholes) or using exchange-traded options as a
proxy, or another proxy as determined to be appropriate by the third
party market data provider.
A third party market data provider's valuation of forwards
will be similar to their valuation of the underlying securities, or
another proxy as determined to be appropriate by the third party market
data provider. The third party market data provider will generally use
market quotes if available. Where market quotes are not available, they
may fair value securities against proxies (such as swap or yield
curves). The Fund's disclosure of forward positions will include
information that market participants can use to value these positions
intraday.
Disclosed Portfolio
The Fund's disclosure of derivative positions in the applicable
Disclosed Portfolio will include information that market participants
can use to value these positions intraday. On a daily basis, the Fund
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 the Fund's portfolio.
Impact on Arbitrage Mechanism
For the Fund, the Adviser believes there will be minimal, if any,
impact to the arbitrage mechanism as a result of the use of
derivatives. Market makers and participants should be able to value
derivatives as long as the positions are disclosed with relevant
information. The Adviser believes that the price at which Shares of the
Fund trade will continue to be disciplined by arbitrage opportunities
created by the ability to purchase or redeem creation Shares of the
Fund at their NAV, which should ensure that Shares of the Fund will not
trade at a material discount or premium in relation to its NAV.
The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of the Fund's arbitrage
mechanism due to the use of derivatives. Because derivatives generally
are not eligible for in-kind transfer, they will be substituted with a
``cash in lieu'' amount (as described below) when the Fund processes
purchases or redemptions of block-size ``Creation Units'' (as described
below) in-kind.
Creations and Redemptions of Shares
According to the Registration Statement, Shares of the Fund that
trade in the secondary market will be ``created'' at NAV by Authorized
Participants only in block-size Creation Units of 50,000 Shares or
multiples thereof.\41\ The size of a Creation Unit is subject to
change. The Fund will offer and issue Shares at their NAV per Share
generally in exchange for a basket of debt securities held by that Fund
(the ``Deposit Securities'') together with a deposit of a specified
cash payment (the ``Cash Component''), or in lieu of Deposit
Securities, the Fund may permit a ``cash-in-lieu'' amount for any
reason at the Fund's sole discretion. Alternatively, the Fund may issue
Creation Units in exchange for a specified all-cash payment (``Cash
Deposit'') (together with Deposit Securities and Cash Component, the
``Fund Deposit''). Similarly, Shares can be redeemed only in Creation
Units, generally in-kind for a portfolio of debt securities held by the
Fund and/or for a specified amount of cash (collectively, ``Redemption
Instruments'').
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\41\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of trading on the
New York Stock Exchange (``NYSE''), generally 4:00 p.m. E.T. (the
``NAV Calculation Time'') on any Business Day. NAV per Share will be
calculated by dividing the Fund's net assets by the number of the
Fund's Shares outstanding. For more information regarding the
valuation of Fund investments in calculating the Fund's NAV, see the
Registration Statement.
The term ``Authorized Participant'' refers to a ``Participating
Party'' (a broker-dealer or other participant in the clearing
process through the Continuous Net Settlement System of the NSCC; or
a Depository Trust Company (``DTC'') Participant who has executed a
Participant Agreement (an agreement with the Distributor and
Transfer Agent with respect to creations and redemptions of Creation
Units) [sic].
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On any given Business Day, purchases and redemptions of Creation
Units will be made in whole or in part on a cash basis if an Authorized
Participant deposits or receives (as applicable) cash in lieu of some
or all of the Fund Deposit or Redemption Instruments, respectively,
solely because such instruments are, in the case of the Fund Deposit,
not available in sufficient quantity.\42\ In determining whether the
Fund will be selling or redeeming Creation Units on a cash or in-kind
basis, the key consideration will be the benefit which would accrue to
Fund investors. In many cases, investors may benefit by the use of all
cash purchase orders because the Adviser would execute trades rather
than market makers, and the Adviser may be able to obtain better
execution in bond transactions due to its size, experience and
potentially stronger relationships in the fixed income markets.
---------------------------------------------------------------------------
\42\ Such purchase or redemption transactions are ``custom
orders.'' On any given Business Day, if the Fund accepts a custom
order, the Adviser represents that the Fund will accept custom
orders from all other Authorized Participants on the same basis.
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Except when aggregated in Creation Units, Shares will not be
redeemable by the Fund. The prices at which creations and redemptions
occur will be based on the next calculation of NAV after an order is
received. Requirements as to the timing and form of orders will be
described in the Authorized Participant agreement. PIMCO will make
available on each Business Day via the National Securities Clearing
Corporation (``NSCC''), prior to the opening of business (subject to
amendments) on the Exchange (currently 9:30 a.m., E.T.), the identity
and the required amount of each Deposit Security and the amount of the
Cash Component (or Cash Deposit) to be included in the current ``Fund
Deposit'' \43\ (based on information at the end of the previous
Business Day). Creations and redemptions must be made by an Authorized
Participant.
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\43\ The Deposit Securities and Cash Component or,
alternatively, the Cash Deposit, will constitute the Fund Deposit,
which will represent the investment amount for a Creation Unit of
the Fund.
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Additional information regarding the Trust, the Fund and the
Shares, including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings, disclosure policies,
distributions and taxes is included in the Registration Statement. All
terms relating to the Fund that are referred to but not defined in this
proposed rule change are defined in the Registration Statement.
Availability of Information
The Trust's Web site (www.pimcoetfs.com), which will be publicly
available prior to the public offering of Shares of the Fund, will
include a form of the prospectus for the Fund that may be downloaded.
The Trust's Web site will include additional quantitative information
updated on a daily basis, including, for the Fund, (1) daily trading
volume, the prior Business Day's reported closing price, NAV and mid-
point of the bid/ask spread at the time of calculation of such NAV (the
``Bid/Ask Price''),\44\ and a calculation of
[[Page 68338]]
the premium and discount of the Bid/Ask Price against the NAV, and (2)
data in chart format displaying the frequency distribution of discounts
and premiums of the daily Bid/Ask Price against the NAV, within
appropriate ranges, for each of the four previous calendar quarters. On
each Business Day, before commencement of trading in Shares in the Core
Trading Session (9:30 a.m. E.T. to 4:00 p.m. E.T.) on the Exchange, the
Fund 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 the Fund's calculation of NAV at the end of the Business Day.\45\
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\44\ The Bid/Ask Price of Shares of the Fund will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid/Ask Prices will be retained by the Fund and
its service providers.
\45\ Under accounting procedures followed by the Fund, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
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The Fund's disclosure of derivative positions in the applicable
Disclosed Portfolio will include information that market participants
can use to value these positions intraday. On a daily basis, the Fund
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 the Fund's portfolio. The
Web site information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of
the Fund. The NAV of Shares of the Fund will normally be determined as
of the close of the regular trading session on the Exchange (ordinarily
4:00 p.m. E.T.) on each Business Day. Authorized Participants may refer
to the basket composition file for information regarding Fixed Income
Instruments, and any other instrument that may comprise the Fund's
basket on a given day.
Investors can also obtain the Trust's SAI, the Fund's Shareholder
Reports, and the Fund's Forms N-CSR and Forms N-SAR, filed twice a
year. The Fund's SAI and Shareholder Reports will be available free
upon request from the Trust, and those documents and the Form N-CSR,
Form N-PX and Form N-SAR may be viewed on-screen or downloaded from the
Commission's Web site at www.sec.gov. 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 (including ETNs), exchange-traded REITs, 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) and
futures will be available from the exchange on which such instruments
are traded. Intra-day and closing price information regarding Fixed
Income Instruments and other forms of debt securities also will be
available from major market data vendors. Price information relating to
forwards, spot currency, OTC options and swaps will be available from
major market data vendors. Price information regarding, money market
instruments, OTC REITs, private activity bonds, trade claims, privately
placed and unregistered securities, OTC real estate-linked derivatives,
OTC structured products, credit-linked securities, commodity-linked
notes, Brady Bonds, variable and floating rate securities that are not
corporate Fixed Income Instruments and floaters and inverse floaters
that are not corporate Fixed Income Instruments 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.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares will be available via the CTA high-speed line. Exchange-traded
options quotation and last sale information for options cleared via the
Options Clearing Corporation (``OCC'') is available via the Options
Price Reporting Authority (``OPRA''). Price information relating to
equity securities traded OTC will be available from major market data
vendors. In addition, the 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.\46\ The dissemination of the PIV, together with the Disclosed
Portfolio, may allow investors to determine an approximate value of the
underlying portfolio of the Fund on a daily basis and to provide an
estimate of that value throughout the trading day.
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\46\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available PIVs
taken from CTA or other data feeds.
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Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\47\ Trading in Shares of the 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. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. 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.
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\47\ See NYSE Arca Equities Rule 7.12.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on
[[Page 68339]]
the NYSE Arca Marketplace is $0.01, with the exception of securities
that are priced less than $1.00 for which the MPV for order entry is
$0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), the 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 Fund will be
in compliance with Rule 10A-3 \48\ under the Act, as provided by NYSE
Arca Equities Rule 5.3. A minimum of 100,000 Shares for the Fund will
be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
the 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.
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\48\ 17 CFR 240.10A-3.
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Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\49\ 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.
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\49\ 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.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, exchange-traded options, exchange-
traded equities (including common stocks, exchange-traded investment
companies, exchange- traded convertibles and preferred securities,
exchange-traded REITs, and exchange-traded structured products,
including ETNs), futures and options on futures with other markets or
other entities that are members of the ISG, and FINRA may obtain
trading information regarding trading in the Shares, exchange-traded
options, exchange-traded equities, futures and options on futures from
such markets or entities. In addition, the Exchange may obtain
information regarding trading in the Shares, exchange-traded options,
exchange-traded equities, futures and options on futures from markets
or other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement.\50\ FINRA,
on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
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.
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\50\ For a list of the current members of ISG, see
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.
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Not more than 10% of the net assets of the Fund in the aggregate
invested in equity securities (other than non-exchange-traded
investment company securities) shall consist of equity securities,
including stocks into which a convertible security is converted, whose
principal market is not a member of the 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 the 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.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated PIV will not be calculated or publicly
disseminated; (4) how information regarding the PIV and the Disclosed
Portfolio is disseminated; (5) the requirement that ETP Holders deliver
a prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \51\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\51\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
federal securities laws applicable to trading on the Exchange. FINRA,
on behalf of the Exchange, will communicate as needed regarding trading
in the Shares, exchange-traded options, exchange-traded equities
(including common stocks, exchange-
[[Page 68340]]
traded investment companies, exchange-traded convertibles and preferred
securities, exchange-traded REITs, and exchange-traded structured
products, including ETNs), futures and options on futures with other
markets or other entities that are members of the ISG, and FINRA may
obtain trading information regarding trading in the Shares, exchange-
traded options, exchange-traded equities, futures and options on
futures from such markets or entities. In addition, the Exchange may
obtain information regarding trading in the Shares, exchange-traded
options, exchange-traded equities, futures and options on futures from
markets or other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's TRACE. 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. 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 Fund, at least 80% of
issues of such securities held by the Fund must have $200 million or
more par amount outstanding at the time of investment. Furthermore, not
more than 10% of the net assets of the Fund in the aggregate invested
in equity securities (other than non-exchange-traded investment company
securities) shall consist of equity securities, including stocks into
which a convertible security is converted, whose principal market is
not a member of the 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 the 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's investments, including derivatives, will be consistent
with the Fund's investment objective and the Fund's use of derivatives
may be used to enhance leverage. However, the Fund's investments will
not be used to seek performance that is the multiple or inverse
multiple (i.e., 2Xs and 3Xs) of the Fund's broad-based securities
market index (as defined in Form N-1A). The Fund's investments 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. PIMCO's Counterparty Risk Committee will evaluate the
creditworthiness of swaps counterparties on an ongoing basis.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Moreover, the PIV will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Exchange's Core Trading Session. On each Business
Day, before commencement of trading in Shares in the Core Trading
Session on the Exchange, the Fund will disclose on the Trust's Web site
the Disclosed Portfolio that will form the basis for the Fund's
calculation of NAV at the end of the Business Day. Information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last sale information will be available via the CTA high-speed
line. Exchange-traded options quotation and last sale information for
options cleared via the OCC is available OPRA. Price information for
the debt securities and other financial instruments held by the Fund,
including the intra-day closing settlement price for the Fixed Income
Instruments, including Municipal Bonds, and derivatives thereon, and
other financial instruments held by the Fund, will be available through
major market data vendors. The Fund's investments, including
derivatives, will be consistent with the Fund's investment objective.
The Trust's Web site will include a form of the prospectus for the Fund
and additional data relating to NAV and other applicable quantitative
information. Moreover, prior to the commencement of trading, the
Exchange will inform its ETP Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Trading in Shares of the Fund will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule 7.12 have been reached or because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable, and 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. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the PIV, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. The Adviser is not a broker-dealer but
is affiliated with a broker-dealer and has implemented a ``fire wall''
with respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the Fund's portfolio. In
addition, the 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded product that, under
normal circumstances, will invest principally in fixed income
securities and that will enhance competition with respect to such
products among market
[[Page 68341]]
participants, to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2014-85 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2014-85. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2014-85 and should
be submitted on or before December 5, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\52\
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\52\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26944 Filed 11-13-14; 8:45 am]
BILLING CODE 8011-01-P
