Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading the following Series of IndexIQ Active ETF Trust Under NYSE Arca Equities Rule 8.600: IQ Wilshire Alternative Strategies ETF, 72723-72730 [2014-28643]
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Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices
Board of the Unaffiliated Investment
Company will take any appropriate
actions based on its review, including,
if appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interests
of shareholders.
7. Each Unaffiliated Investment
Company will maintain and preserve
permanently, in an easily accessible
place, a written copy of the procedures
described in the preceding condition,
and any modifications to such
procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in an Affiliated Underwriting
once an investment by a Fund of Funds
in the securities of an Unaffiliated
Investment Company exceeds the limit
of section 12(d)(1)(A)(i) of the Act,
setting forth (1) the party from whom
the securities were acquired, (2) the
identity of the underwriting syndicate’s
members, (3) the terms of the purchase,
and (4) the information or materials
upon which the determinations of the
Board of the Unaffiliated Investment
Company were made.
8. Prior to its investment in shares of
an Unaffiliated Investment Company in
excess of the limit set forth in section
12(d)(1)(A)(i) of the Act, the Fund of
Funds and the Unaffiliated Investment
Company will execute a Participation
Agreement stating, without limitation,
that their Boards and their investment
advisers understand the terms and
conditions of the order and agree to
fulfill their responsibilities under the
order. At the time of its investment in
shares of an Unaffiliated Investment
Company in excess of the limit set forth
in section 12(d)(1)(A)(i), a Fund of
Funds will notify the Unaffiliated
Investment Company of the investment.
At such time, the Fund of Funds will
also transmit to the Unaffiliated
Investment Company a list of the names
of each Fund of Funds Affiliate and
Underwriting Affiliate. The Fund of
Funds will notify the Unaffiliated
Investment Company of any changes to
the list as soon as reasonably practicable
after a change occurs. The Unaffiliated
Investment Company and the Fund of
Funds will maintain and preserve a
copy of the order, the Participation
Agreement, and the list with any
updated information for the duration of
the investment and for a period of not
less than six years thereafter, the first
two years in an easily accessible place.
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9. Before approving any advisory
contract under section 15 of the Act, the
Board of each Fund of Funds, including
a majority of the Independent Trustees,
shall find that the advisory fees charged
under the advisory contract are based on
services provided that are in addition to,
rather than duplicative of, services
provided under the advisory contract(s)
of any Underlying Fund in which the
Fund of Funds may invest. Such
finding, and the basis upon which the
finding was made, will be recorded fully
in the minute books of the appropriate
Fund of Funds.
10. The Adviser will waive fees
otherwise payable to it by a Fund of
Funds in an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by an
Unaffiliated Investment Company
pursuant to rule 12b–1 under the Act)
received from an Unaffiliated Fund by
the Adviser, or an affiliated person of
the Adviser, other than any advisory
fees paid to the Adviser or its affiliated
person by the Unaffiliated Investment
Company, in connection with the
investment by the Fund of Funds in the
Unaffiliated Fund. Any Sub-Adviser
will waive fees otherwise payable to the
Sub-Adviser, directly or indirectly, by
the Fund of Funds in an amount at least
equal to any compensation received by
the Sub-Adviser, or an affiliated person
of the Sub-Adviser, from an Unaffiliated
Fund, other than any advisory fees paid
to the Sub-Adviser or its affiliated
person by the Unaffiliated Investment
Company, in connection with the
investment by the Fund of Funds in the
Unaffiliated Fund made at the direction
of the Sub-Adviser. In the event that the
Sub-Adviser waives fees, the benefit of
the waiver will be passed through to the
Fund of Funds.
11. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to funds of funds set
forth in NASD Conduct Rule 2830.
12. No Underlying Fund will acquire
securities of any other investment
company or company relying on section
3(c)(1) or 3(c)(7) of the Act, in excess of
the limits contained in section
12(d)(1)(A) of the Act, except to the
extent that such Underlying Fund: (a)
Acquires such securities in compliance
with section 12(d)(1)(E) of the Act and
either is an Affiliated Fund or is in the
same ‘‘group of investment companies’’
as its corresponding master fund; (b)
receives securities of another
investment company as a dividend or as
a result of a plan of reorganization of a
company (other than a plan devised for
the purpose of evading section 12(d)(1)
of the Act); or (c) acquires (or is deemed
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to have acquired) securities of another
investment company pursuant to
exemptive relief from the Commission
permitting such Underlying Fund to: (i)
Acquire securities of one or more
investment companies for short-term
cash management purposes or (ii)
engage in inter-fund borrowing and
lending transactions.
B. Other Investments by Section
12(d)(1)(G) Funds of Funds
Applicants agree that the order
granting the requested relief to permit
Section 12(d)(1)(G) Funds of Funds to
invest in Other Investments shall be
subject to the following condition:
1. Applicants will comply with all
provisions of rule 12d1–2 under the Act,
except for paragraph (a)(2) to the extent
that it restricts any Section 12(d)(1)(G)
Fund of Funds from investing in Other
Investments as described in the
application.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–28682 Filed 12–5–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73716; File No. SR–
NYSEArca–2014–134]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to Listing and
Trading the following Series of IndexIQ
Active ETF Trust Under NYSE Arca
Equities Rule 8.600: IQ Wilshire
Alternative Strategies ETF
December 2, 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
November 18, 2014, NYSE Arca, Inc.
(the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory 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).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to list and
trade the following series of IndexIQ
Active ETF Trust under NYSE Arca
Equities Rule 8.600 (‘‘Managed Fund
Shares’’): IQ Wilshire Alternative
Strategies ETF. 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
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the IQ
Wilshire Alternative Strategies ETF (the
‘‘Fund’’) under NYSE Arca Equities
Rule 8.600, which governs the listing
and trading of Managed Fund Shares 4
on the Exchange.5 The Fund is a series
4 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), as amended (‘‘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.
5 The Commission has previously approved the
listing and trading on the Exchange of other of
actively managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 60717
(September 24, 2009), 74 FR 50853 (October 1,
2009) (SR–NYSEArca–2009–74) (order approving
listing of Four Grail Advisors RP Exchange-Traded
Funds) and 67320 (June 29, 2012), 77 FR 39763
(July 5, 2012) (SR–NYSEArca–2012–44) (order
approving listing of the iShares Strategic Beta U.S.
Large Cap Fund and iShares Strategic Beta U.S.
Small Cap Fund).
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of the IndexIQ Active ETF Trust (the
‘‘Trust’’).6
The Fund is an actively-managed
exchange-traded fund and does not seek
to replicate the performance of a
specified index.
IndexIQ Advisors LLC (the ‘‘Adviser’’)
is the investment adviser for the Fund.7
The Bank of New York Mellon
(‘‘Administrator’’), is the administrator,
custodian, transfer agent and securities
lending agent for the Fund. ALPS
Distributors Inc. (‘‘Distributor’’), is the
distributor for the Fund.
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. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
6 The Trust is registered under the 1940 Act. On
April 25, 2014, the Trust filed with the Commission
an amendment to its registration statement on Form
N–1A relating to the Fund (File Nos. 333–193560
and 811–22739) (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. 30198 (September 10, 2012) (File
No. 812–13956) (the ‘‘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’’). The
Adviser, Wilshire and the underlying managers that
are sub-advisers to the Fund (the ‘‘Underlying
Managers’’) are each registered as an investment
adviser under the Advisers Act. As a result, each
of the Adviser, Wilshire and the Underlying
Managers 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 nonpublic information by an investment adviser must
be consistent with Rule 204A–1 under the Advisers
Act. In addition, each of the Adviser, Wilshire and
the Underlying Managers and its related personnel
are subject to the provisions of Rule 206(4)–7 under
the Advisers Act, which makes it unlawful for an
investment adviser to provide investment advice to
clients unless such investment adviser has (i)
adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s portfolio.
Commentary .06 to Rule 8.600 is similar
to Commentary .03(a)(i) and (iii) to
NYSE Arca Equities Rule 5.2(j)(3);
however, Commentary .06 in connection
with the establishment of a ‘‘fire wall’’
between the investment adviser and the
broker-dealer reflects the applicable
open-end fund’s portfolio, not an
underlying benchmark index, as is the
case with index-based funds. In the
event (a) any of the Adviser, Wilshire or
the Underlying Managers is or becomes
a broker-dealer or newly affiliated with
a broker-dealer, or (b) any new adviser
or subadviser is a registered brokerdealer or becomes affiliated with a
broker-dealer, then, to the extent the
broker-dealer or affiliated broker-dealer
is not a limited purpose broker-dealer
used for marketing and not trading
purposes, it will implement a firewall
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 nonpublic information regarding such
portfolio.
According to the Registration
Statement, the Fund will seek long-term
capital appreciation. Under normal
circumstances,8 100% of the Fund’s
assets will be allocated among the
Underlying Managers and that will
employ a variety of alternative
investment strategies.9 In making these
allocations, the Advisor will seek to
combine the strategies of the Underlying
Managers efficiently and systematically
so that the Fund will generate a positive
total return with relatively low volatility
and low sensitivity or correlation to
market indices.
According to the Registration
Statement, Wilshire Associates
8 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
adverse market, economic, political or other
conditions, including extreme volatility or trading
halts in the 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.
9 According to the Registration Statement, the
investment of Fund assets not allocated to the
Underlying Managers may be directly managed by
the Advisor, although the Advisor does not
currently intend to manage a significant portion of
the Fund’s assets directly, and to the extent the
Advisor does manage a portion of the Fund’s assets
it would invest such assets in the same manner as
the Underlying Managers.
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Incorporated (‘‘Wilshire’’) will be a subadvisor to the Fund and, in that role,
will evaluate and recommend strategies
and Underlying Managers to the
Advisor for use by the Fund.
Additionally, according to the
Registration Statement Wilshire will
provide recommendations to the
Advisor for allocating and reallocating
Fund assets among the Underlying
Managers. Wilshire will not directly
manage any assets of the Fund, although
it may provide the Advisor or an
Underlying Manager with nondiscretionary advice on investment
decisions and underlying positions.
According to the Registration
Statement, the Fund and each of its
Underlying Managers may use all or
some of the following strategies in
managing the assets of the Fund: Equity
hedge (long/short) strategies,10 relative
value strategies,11 global macro
strategies,12 event driven strategies,13
opportunistic credit strategies,14 tactical
trading strategies 15 and liquid
alternative beta strategies.16 The Fund,
and each of its Underlying Managers,
may also add additional strategies in the
10 According to the Registration Statement, an
equity hedge (long/short) strategy will seek to
identify equities that are trading under or over their
perceived intrinsic value or are deemed to be
mispriced based on fundamental, statistical,
technical or other factors.
11 According to the Registration Statement, a
relative value strategy will seek to exploit
differences in valuation through the simultaneous
purchase and sale of related financial instruments.
12 According to the Registration Statement, a
global macro strategy will seek to analyze
macroeconomic variables to identify global asset/
security mispricings (i.e., securities that are trading
higher or lower than their intrinsic or actual value)
and forecast future moves in such asset/security
prices on a directional or relative value basis.
13 According to the Registration Statement, an
event driven strategy will involve investing in
securities of companies currently or prospectively
involved in a wide variety of corporate transactions
or other events where the investment thesis is
predicated on the anticipated effect of such
transactions or events (e.g., merger arbitrage
strategy, which involves the simultaneous purchase
of stock in a company being acquired and the sale
of stock in its acquirer in an attempt to profit from
the spread in prices).
14 According to the Registration Statement, an
opportunistic credit strategy will seek to deliver
positive absolute returns in excess of cash
investments regardless of economic cycle (i.e.,
downturns and upswings) or cyclical credit
availability primarily by investing in mispriced
credit securities (i.e., credit securities that are
trading higher or lower than their intrinsic or actual
value).
15 According to the Registration Statement, a
tactical trading strategy will relate to a variety of
strategic and opportunistic investment strategies
not captured by one of the other enumerated
strategies, such as short-term trading opportunities.
16 According to the Registration Statement, a
liquid alternative beta strategy will seek to track the
beta portion of the returns (i.e., that portion of the
returns of hedge funds that are non-idiosyncratic,
or unrelated to manager skill) of hedge funds that
employ various hedge fund investment styles.
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Jkt 235001
future. According to the Registration
Statement, the Advisor may allocate 0 to
100 percent of the Fund’s assets to any
of these strategies or any of the
Underlying Managers at any time.
According to the Registration
Statement, in implementing the
aforementioned strategies, the Fund will
invest in a portfolio consisting of some
or all of the following:
Equity Securities
The Fund may invest in exchangetraded Equity Securities, which will
consist of:
• Common stocks;
• Preferred stocks;
• Convertible securities;
• Rights and warrants;
• Depositary receipts;
• Exchange-traded Funds (‘‘ETFs’’); 17
• Non-ETF exchange-traded vehicles
(‘‘ETVs’’); 18 and
• Partnership interests, including
master limited partnerships.
Fixed Income Securities
The Fund may invest in Fixed Income
Securities, which will consist of:
• Debt issued by corporations; 19
• Debt issued by governments, their
agencies, instrumentalities, sponsored
entities, and political subdivisions;
• Covered bonds;
• Debt participations;
• Convertible bonds;
• Non-investment grade securities;
• Senior bank loans;
• Exchange-traded notes (‘‘ETNs’’);
• Mortgage-backed and other assetbacked securities; and
• To-be-announced securities.20
17 For purposes of this filing, ETFs include
Investment Company Units (as described in NYSE
Arca Equities Rule 5.2(j)(3)); Portfolio Depositary
Receipts (as described in NYSE Arca Equities Rule
8.100); and Managed Fund Shares (as described in
NYSE Arca Equities Rule 8.600). The ETFs all will
be listed and traded in the U.S. on registered
exchanges or a non-U.S. securities exchange that is
a member of the Intermarket Surveillance Group
(‘‘ISG’’) or a party to a comprehensive surveillance
sharing agreement with the Exchange. The ETFs in
which the Fund may invest will primarily be indexbased exchange-traded funds that hold substantially
all of their assets in securities representing a
specific index.
18 According to the Adviser, an ETV is a noninvestment company exchange-traded vehicle that
issues equity securities, such as an exchange-traded
commodity pool.
19 The Adviser expects that, under normal market
circumstances, the Fund will generally seek to
invest in corporate bond issuances in developed
countries that have at least $100,000,000 par
amount outstanding and at least $200,000,000 par
amount outstanding with respect to corporate bond
issuances in emerging market countries.
20 The Fund will seek to gain exposure to U.S.
agency mortgage pass-through securities primarily
through the use of ‘‘to-be-announced securities.’’
‘‘To-be-announced’’ refers to a commonly used
mechanism for the forward settlement of U.S.
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72725
According to the Registration
Statement, the Fund may also invest
directly in currencies.
According to the Registration
Statement, the Fund may invest in the
following derivative instruments:
Futures contracts (consisting of futures
contracts based on equity or fixed
income securities and/or equity or fixed
income indices, commodities, interest
rates and currencies); swap agreements
on any of the following asset classes:
Equity, fixed income, currency and
interest rates (such swaps may be based
on the price return or total return of the
referenced asset); credit default swaps
(consisting of credit default swaps in
which the referenced asset is a single
fixed income security or a group of fixed
income securities); options (consisting
of long and short positions in call
options and put options on indices
based on equities, fixed income
securities, interest rates, currencies or
commodities, individual securities or
currencies, swaptions and options on
futures contracts); forward contracts
(consisting of forward contracts based
on equity or fixed income securities
and/or equity or fixed income indices,
currencies, interest rates, swap forwards
and non-deliverable forwards); and
structured securities (such derivative
instruments, collectively ‘‘Financial
Instruments’’).21
According to the Registration
Statement, the Fund may use leverage
(e.g., through the use of Financial
Instruments) to obtain exposure in
excess of 100% in an investment. The
Fund may employ leverage to increase
exposure to the Fund’s portfolio
holdings by up to 100% of the net assets
of the Fund to gain additional exposure
to the Fund’s portfolio holdings, such
that the Fund will have up to 200% net
exposure to its investments.
According to the Registration
Statement, the Fund may take long and/
or short positions in Equity Securities,
Fixed Income Securities, commodities 22
and currencies, among others.
agency mortgage pass-through securities, and not to
a separate type of mortgage-backed security. Most
transactions in mortgage pass-through securities
occur through the use of to-be-announced
securities.
21 According to the Registration Statement, as a
result of the Fund’s ability to invest in Financial
Instruments, it may also hold U.S. Treasury Bills or
short-term investments as collateral for the
Financial Instruments, including money market
funds, repurchase agreements, cash and time
deposits.
22 According to the Registration Statement, the
Fund may gain exposure to commodities through
investments in other investment companies, ETFs
or ETVs.
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Investment Restrictions
According to the Adviser, all Equity
Securities will be listed on a U.S.
national securities exchange or a nonU.S. securities exchange that is a
member of the ISG or a party to a
comprehensive surveillance sharing
agreement with the Exchange; provided,
however, that up to 10% of the assets
of the Fund may be invested in non-U.S.
listed Equity Securities that do not meet
these requirements.
The Adviser has represented that all
options contracts will be listed on a U.S.
national securities exchange or a nonU.S. securities exchange that is a
member of ISG or a party to a
comprehensive surveillance sharing
agreement with the Exchange.
The Adviser has represented that not
more than 20% of the Fund’s assets will
be invested, in the aggregate, in noninvestment grade securities and
structured securities.
According to the Registration
Statement, up to 10% of the weight of
the futures contracts held by the Fund
may consist of futures contracts whose
principal trading market is not a
member of ISG or a party to a
comprehensive surveillance sharing
agreement with the Exchange.
According to the Advisor, the Fund
may invest up to 20% of its total assets
in mortgage-backed securities or in
other asset-backed securities, although
this 20% limitation will not apply to
U.S. government securities.
According to the Registration
Statement, 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.23 The Fund will
monitor its portfolio liquidity on an
ongoing basis to determine whether, in
the light of current circumstances, an
adequate level of liquidity is being
maintained, and will consider taking
appropriate steps in order to maintain
23 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. 8901 (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 ETF. 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 of 1933).
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20:19 Dec 05, 2014
Jkt 235001
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.
The Fund will not invest more than
10% of its net assets in unsponsored
depositary receipts.
According to the Registration
Statement, the Fund is considered nondiversified, which means that it can
invest a higher percentage of assets in
securities of individual issuers than a
diversified fund.
Net Asset Value
According to the Registration
Statement, the net asset value (‘‘NAV’’)
of the Shares of the Fund will be equal
to the Fund’s total assets minus the
Fund’s total liabilities divided by the
total number of shares outstanding. The
NAV that is published will be rounded
to the nearest cent; however, for
purposes of determining the price of
Creation Units, the NAV will be
calculated to five decimal places.
For purposes of calculating NAV,
portfolio securities and other assets for
which market quotations 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.
In calculating NAV, the Fund’s
exchange-traded Equity Securities will
be valued at market value, which will
generally be determined using the last
reported official closing or last trading
price on the exchange or market on
which the security is primarily traded at
the time of valuation or, if no sale has
occurred, at the last quoted mid price on
the primary market or exchange on
which they are traded. Investment
company securities (other than ETFs)
will be valued at NAV.
Unsponsored depositary receipts will
be valued at the last quoted mid price
on the primary market on which they
are traded. Fixed Income Securities will
be valued using market quotations when
available or other equivalent indications
of value provided by an independent
third-party pricing service. Short-term
Fixed Income Securities having a
remaining maturity of 60 days or less
are generally valued at amortized cost,
which approximates market value.
A swap on an exchange-listed security
or securities is valued at the last
reported sale price of the swap’s
underlying security or securities on the
exchange where the security or
securities is primarily traded, or if no
sale price is available, at the mid price
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of the security or securities underlying
the swap on the exchange where the
security is primarily traded. A swap on
Fixed Income Securities will be valued
on the price of the referenced Fixed
Income Securities on which the swap is
based (i.e., using market quotations
when available or other equivalent
indications of value provided by an
independent third-party pricing service;
short term Fixed Income Securities
having a remaining maturity of 60 days
or less are generally valued at amortized
cost, which approximates market value).
A swap on an index is valued based on
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.
Currency swaps 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. Credit default swaps will
be valued on the basis of market prices,
generally the mid point between the
bid/ask quotes, obtained from a thirdparty pricing service at the time the
Fund calculates its NAV.
Futures contracts will be valued at the
settlement or closing price determined
by the applicable exchange. Exchangetraded option contracts, including
options on futures, will be valued at
their most recent sale price. If no such
sales are reported, these contracts will
be valued at their last traded price.
The Fund’s OTC-traded Financial
Instruments that are based on exchangelisted underlying securities or for which
exchange pricing is otherwise available
will generally be valued at the last
reported official closing or last traded
price of the applicable underlying
securities. Other OTC-traded Financial
Instruments will normally be valued on
the basis of quotes obtained from a third
party broker-dealer who makes markets
in such securities or on the basis of
quotes obtained from an independent
third-party pricing service.
Foreign securities and instruments
will be valued in their local currency
following the methodologies described
above. Foreign securities, instruments
and currencies will be translated to U.S.
dollars, based on foreign currency
exchange rate quotations supplied by
the London Stock Exchange.
When market quotations are not
readily available, are deemed unreliable
or do not reflect material events
occurring between the close of local
markets and the time of valuation,
investments will be valued using fair
value pricing as determined in good
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faith by the Adviser under procedures
established by and under the general
supervision and responsibility of the
Trust’s Board of Trustees. According to
the Registration Statement, the NAV
will be calculated by the Administrator
and determined each business day as of
the close of regular trading on the
Exchange (ordinarily 4:00 p.m., Eastern
time (‘‘E.T.’’)). The Shares of the Fund
will not be priced on days on which the
Exchange is closed for trading.
mstockstill on DSK4VPTVN1PROD with NOTICES
Indicative Intra-Day Value
According to the Registration
Statement, an independent third party
calculator will calculate the Indicative
Intra-Day Value (‘‘IIV’’) for the Fund
during hours of trading on the Exchange
by dividing the ‘‘Estimated Fund Value’’
as of the time of the calculation by the
total number of outstanding Shares of
that Fund. ‘‘Estimated Fund Value’’ is
the sum of the estimated amount of cash
held in the Fund’s portfolio, the
estimated amount of accrued interest
owed to the Fund and the estimated
value of the assets held in the Fund’s
portfolio, minus the estimated amount
of the Fund’s liabilities. The IIV will be
calculated based on the same portfolio
holdings disclosed on the Trust’s Web
site. All assets held by the Fund will be
included in the IIV calculation.
According to the Registration
Statement, the Fund will provide the
independent third party calculator with
information to calculate the IIV, but the
Fund will not be involved in the actual
calculation of the IIV and is not
responsible for the calculation or
dissemination of the IIV. The Fund
makes no warranty as to the accuracy of
the IIV. The IIV should not be viewed
as a ‘‘real-time’’ update of NAV because
the IIV may not be calculated in the
same manner as NAV, which is
computed once per day.
Creations and Redemptions of Shares
According to the Registration
Statement, the Fund will issue and
redeem Shares on a continuous basis, at
their NAV next determined after receipt,
on any business day, for a creation order
or redemption request received in
proper form. The Fund will issue and
redeem Shares only in blocks of 50,000
Shares or whole multiples thereof
(‘‘Creation Units’’).
According to the Registration
Statement, Creation Units will be sold
in exchange for an in-kind basket of a
designated portfolio of securities and a
cash component. All orders to create
Creation Units must be received by the
Distributor no later than 3:00 p.m. E.T.
on the date such order is placed, in
order for the creation of Creation Units
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Jkt 235001
to be effected based on the NAV of
Shares of the Fund as next determined
on such date after receipt of the order
in proper form.
According to the Registration
Statement, beneficial owners must
accumulate enough Shares in the
secondary market to constitute a
Creation Unit in order to have such
Shares redeemed by the Trust. The
redemption proceeds for a Creation Unit
will consist of consideration in an
amount equal to the NAV of the Shares
being redeemed, as next determined
after receipt of a request in proper form
less a redemption transaction fee.
Creation Units will be redeemed
principally in-kind for securities
included in the Fund but also including
cash based on the then-current value of
the securities sold short by the Fund
and/or the Financial Instruments used
by the Fund (as applicable). With
respect to the Funds, the Administrator,
through the National Securities Clearing
Corporation (‘‘NSCC’’), will make
available immediately prior to the
opening of business on the Exchange
(currently 9:30 a.m., E.T.) on each
business day, the designated portfolio of
securities (the ‘‘Fund Securities’’) or
cash component, as applicable, per
Creation Unit that will be applicable to
redemption requests received in proper
form on that day. An order to redeem
Creation Units must be received by the
Administrator not later than 3:00 p.m.,
E.T.
Availability of Information
The Fund’s Web site
(www.indexiq.com), which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Fund’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 midpoint of the bid/ask spread at the time
of calculation of such NAV (the ‘‘Bid/
Ask Price’’),24 and a calculation of 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.
24 The
Bid/Ask Price of the Fund will be
determined using the midpoint 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.
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72727
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 its Web site the
Disclosed Portfolio that will form the
basis for the Fund’s calculation of NAV
at the end of the business day.25 The
Web site information will be publicly
available at no charge.
On a daily basis, the Fund will
disclose on www.indexiq.com 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.
In addition, a basket composition file,
which includes the security names and
share quantities required to be delivered
in exchange for Fund Shares, together
with estimates and actual cash
components, will be publicly
disseminated daily prior to the opening
of the NYSE via the NSCC. The basket
represents one Creation Unit of the
Fund.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), Shareholder Reports and Form
N–CSR. The Trust’s SAI and
Shareholder Reports are available free
upon request from the Trust, and those
documents and the Form N–CSR may be
viewed on-screen or downloaded from
the Commission’s Web site at
www.sec.gov. 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 and underlying securities
that are U.S. exchange listed will be
25 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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mstockstill on DSK4VPTVN1PROD with NOTICES
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line.
Quotation and last sale information for
such U.S. exchange-listed securities as
well as futures will be available from
the exchange on which they are listed.
Quotation and last sale information for
options contracts will be available via
the Options Price Reporting Authority.
Quotation information for OTC-traded
securities and OTC-traded Financial
Instruments (such as forwards, swaps
and currency-related derivatives), and
investment company securities
(excluding ETFs), may be obtained from
brokers and dealers who make markets
in such securities or through nationally
recognized pricing services through
subscription agreements. Quotation
information from brokers and dealers or
pricing services will be available for
spot and forward currency transactions
held by the Fund.
In addition, the Portfolio Indicative
Value of the Fund, 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.26 The dissemination of the
Portfolio Indicative Value, together with
the Disclosed Portfolio, will allow
investors to determine the value of the
underlying portfolio of the Fund on a
daily basis and to provide a close
estimate of that value throughout the
trading day.
Additional information regarding the
Trust and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees (including
money manager and other advisory or
management 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.
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.27 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
26 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Portfolio Indicative
Values taken from CTA or other data feeds.
27 See NYSE Arca Equities Rule 7.12,
Commentary .04.
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20:19 Dec 05, 2014
Jkt 235001
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
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 be subject to NYSE
Arca Equities Rule 8.600, which sets
forth the initial and continued listing
criteria applicable to Managed Fund
Shares. The Exchange represents that,
for initial and/or continued listing, each
Trust will be in compliance with Rule
10A–3 28 under the Act, as provided by
NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares will be
outstanding at the commencement of
trading on the Exchange. 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 as
defined in NYSE Arca Equities Rule
8.600(c)(2) 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.29 The Exchange
28 17
CFR 240.10A–3.
surveils trading on the Exchange
pursuant to a regulatory services agreement. The
29 FINRA
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represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to detect and help deter
violations of Exchange rules and
applicable federal securities laws.
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, Equity Securities,
exchange-traded options, futures
contracts and options on futures
contracts with other markets that are
members of the ISG and FINRA, on
behalf of the Exchange, may obtain
trading information regarding trading in
the Shares, exchange-traded equities,
exchange-traded options, futures
contracts and options on futures
contracts from such markets. In
addition, the Exchange may obtain
information regarding trading in the
Shares, exchange-traded equities,
exchange-traded options, futures
contracts and options on futures
contracts from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement.30 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’’).
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
Exchange is responsible for FINRA’s performance
under this regulatory services agreement.
30 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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mstockstill on DSK4VPTVN1PROD with NOTICES
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 Portfolio Indicative
Value will not be calculated or publicly
disseminated; (4) how information
regarding the Portfolio Indicative Value
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) 31 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 applicable federal securities
laws. The Exchange 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. All of the Equity
Securities in which the Fund will invest
will be listed on a U.S. national
securities exchange or a non-U.S.
securities exchange that is a member of
the ISG or a party to a comprehensive
surveillance sharing agreement with the
31 15
U.S.C. 78f(b)(5).
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20:19 Dec 05, 2014
Jkt 235001
Exchange; provided, however, that up to
10% of the assets of the Fund may be
invested in non-U.S. listed equity
securities that do not meet these
requirements. The Adviser has
represented that not more than 20% of
the Fund’s assets will be invested, in the
aggregate, in non-investment grade
securities and structured securities. The
Fund’s investments will, under normal
circumstances, be consistent with its
investment objective. The Fund will not
hold more than 15% of its net assets in
illiquid securities, including Rule 144A
securities. The Adviser is not a brokerdealer and is not affiliated with a
broker-dealer. In the event (a) the
Adviser becomes newly affiliated with a
broker-dealer, or (b) any new adviser or
subadviser is a registered broker-dealer
or becomes affiliated with a brokerdealer it will implement a firewall 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 nonpublic information regarding such
portfolio.
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 Adviser is not
affiliated with broker-dealers. The
Exchange will obtain a representation
from the issuer of the Shares that the
NAVs per Share will be calculated daily
and that the NAVs 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. The Fund’s
portfolio holdings will be disclosed on
its Web site daily after the close of
trading on the Exchange and prior to the
opening of trading on the Exchange the
following day. Moreover, the Portfolio
Indicative Value will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Core Trading
Session. Information regarding market
price and trading volume of the Shares
will be continually available on a realtime basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
last sale information will be available
via the CTA high-speed line. The Web
site for the Fund will include a form of
the prospectus for the Fund and
additional data relating to the Fund’s
NAVs and other applicable quantitative
information. Moreover, prior to the
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72729
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 Portfolio Indicative
Value, 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 additional types of actively-managed
exchange-traded products 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. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Portfolio Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of
additional types of actively-managed
exchange-traded products that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
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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 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–2014–134 on the subject
line.
mstockstill on DSK4VPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2014–134. 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
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20:19 Dec 05, 2014
Jkt 235001
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2014–134, and should be
submitted on or before December 29,
2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–28643 Filed 12–5–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73717; File No. SR–
NYSEArca–2014–126]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change, as Modified by
Amendment No. 1, Relating to the
Listing and Trading of Shares of the
AdvisorShares Pacific Asset Enhanced
Floating Rate ETF Under NYSE Arca
Equities Rule 8.600
December 2, 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
November 19, 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 Exchange. On
November 26, 2014, the Exchange filed
Amendment No. 1 to the proposal.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 Amendment No. 1 amends the proposed rule
change in the following ways: (1) Specifies that the
floating rate high yield corporate bonds in which
the Fund invests generally must have a $100
million par amount outstanding at the time of
investment; (2) clarifies that senior loans in which
the Fund may invest includes leveraged loans; and
(3) specifies that the U.S. exchange-traded futures
contracts, U.S. exchange-traded options on futures
contracts and U.S. exchange-traded put and call
options in which the Fund invests will trade on
exchanges that are members of the Intermarket
Surveillance Group.
1 15
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
change, as modified by Amendment No.
1, 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’’):
AdvisorShares Pacific Asset Enhanced
Floating Rate ETF. 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,
which governs the listing and trading of
Managed Fund Shares 5: AdvisorShares
Pacific Asset Enhanced Floating Rate
ETF (‘‘Fund’’).6 The Shares will be
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 Commission has approved listing and
trading on the Exchange of a number of actively
managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 69591 (May
16, 2013), 78 FR 30372 (May 22, 2013) (SR–
NYSEArca–2013–33) (order approving Exchange
listing and trading of International Bear ETF); 69061
(March 7, 2013), 78 FR 15990 (March 13, 2013) (SR–
NYSEArca–2013–01) (order approving Exchange
E:\FR\FM\08DEN1.SGM
08DEN1
]]>Agencies
[Federal Register Volume 79, Number 235 (Monday, December 8, 2014)]
[Proposed Rules]
[Pages 72723-72730]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28643]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73716; File No. SR-NYSEArca-2014-134]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading the following
Series of IndexIQ Active ETF Trust Under NYSE Arca Equities Rule 8.600:
IQ Wilshire Alternative Strategies ETF
December 2, 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 November 18, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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[[Page 72724]]
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to list and trade the following series of
IndexIQ Active ETF Trust under NYSE Arca Equities Rule 8.600 (``Managed
Fund Shares''): IQ Wilshire Alternative Strategies ETF. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
IQ Wilshire Alternative Strategies ETF (the ``Fund'') under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares \4\ on the Exchange.\5\ The Fund is a series of the IndexIQ
Active ETF Trust (the ``Trust'').\6\
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\4\ 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), as amended (``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.
\5\ The Commission has previously approved the listing and
trading on the Exchange of other of actively managed funds under
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 60717
(September 24, 2009), 74 FR 50853 (October 1, 2009) (SR-NYSEArca-
2009-74) (order approving listing of Four Grail Advisors RP
Exchange-Traded Funds) and 67320 (June 29, 2012), 77 FR 39763 (July
5, 2012) (SR-NYSEArca-2012-44) (order approving listing of the
iShares Strategic Beta U.S. Large Cap Fund and iShares Strategic
Beta U.S. Small Cap Fund).
\6\ The Trust is registered under the 1940 Act. On April 25,
2014, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A relating to the Fund (File Nos.
333-193560 and 811-22739) (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.
30198 (September 10, 2012) (File No. 812-13956) (the ``Exemptive
Order'').
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The Fund is an actively-managed exchange-traded fund and does not
seek to replicate the performance of a specified index.
IndexIQ Advisors LLC (the ``Adviser'') is the investment adviser
for the Fund.\7\ The Bank of New York Mellon (``Administrator''), is
the administrator, custodian, transfer agent and securities lending
agent for the Fund. ALPS Distributors Inc. (``Distributor''), is the
distributor for the Fund.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). The Adviser, Wilshire and the underlying managers that are
sub-advisers to the Fund (the ``Underlying Managers'') are each
registered as an investment adviser under the Advisers Act. As a
result, each of the Adviser, Wilshire and the Underlying Managers
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, each of the
Adviser, Wilshire and the Underlying Managers and its related
personnel are subject to the provisions of Rule 206(4)-7 under the
Advisers Act, which makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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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. 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. Commentary .06 to Rule 8.600
is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 in connection with the establishment
of a ``fire wall'' between the investment adviser and the broker-dealer
reflects the applicable open-end fund's portfolio, not an underlying
benchmark index, as is the case with index-based funds. In the event
(a) any of the Adviser, Wilshire or the Underlying Managers is or
becomes a broker-dealer or newly affiliated with a broker-dealer, or
(b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, then, to the extent the
broker-dealer or affiliated broker-dealer is not a limited purpose
broker-dealer used for marketing and not trading purposes, it will
implement a firewall 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.
According to the Registration Statement, the Fund will seek long-
term capital appreciation. Under normal circumstances,\8\ 100% of the
Fund's assets will be allocated among the Underlying Managers and that
will employ a variety of alternative investment strategies.\9\ In
making these allocations, the Advisor will seek to combine the
strategies of the Underlying Managers efficiently and systematically so
that the Fund will generate a positive total return with relatively low
volatility and low sensitivity or correlation to market indices.
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\8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of adverse market, economic, political or
other conditions, including extreme volatility or trading halts in
the 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.
\9\ According to the Registration Statement, the investment of
Fund assets not allocated to the Underlying Managers may be directly
managed by the Advisor, although the Advisor does not currently
intend to manage a significant portion of the Fund's assets
directly, and to the extent the Advisor does manage a portion of the
Fund's assets it would invest such assets in the same manner as the
Underlying Managers.
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According to the Registration Statement, Wilshire Associates
[[Page 72725]]
Incorporated (``Wilshire'') will be a sub-advisor to the Fund and, in
that role, will evaluate and recommend strategies and Underlying
Managers to the Advisor for use by the Fund. Additionally, according to
the Registration Statement Wilshire will provide recommendations to the
Advisor for allocating and reallocating Fund assets among the
Underlying Managers. Wilshire will not directly manage any assets of
the Fund, although it may provide the Advisor or an Underlying Manager
with non-discretionary advice on investment decisions and underlying
positions.
According to the Registration Statement, the Fund and each of its
Underlying Managers may use all or some of the following strategies in
managing the assets of the Fund: Equity hedge (long/short)
strategies,\10\ relative value strategies,\11\ global macro
strategies,\12\ event driven strategies,\13\ opportunistic credit
strategies,\14\ tactical trading strategies \15\ and liquid alternative
beta strategies.\16\ The Fund, and each of its Underlying Managers, may
also add additional strategies in the future. According to the
Registration Statement, the Advisor may allocate 0 to 100 percent of
the Fund's assets to any of these strategies or any of the Underlying
Managers at any time.
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\10\ According to the Registration Statement, an equity hedge
(long/short) strategy will seek to identify equities that are
trading under or over their perceived intrinsic value or are deemed
to be mispriced based on fundamental, statistical, technical or
other factors.
\11\ According to the Registration Statement, a relative value
strategy will seek to exploit differences in valuation through the
simultaneous purchase and sale of related financial instruments.
\12\ According to the Registration Statement, a global macro
strategy will seek to analyze macroeconomic variables to identify
global asset/security mispricings (i.e., securities that are trading
higher or lower than their intrinsic or actual value) and forecast
future moves in such asset/security prices on a directional or
relative value basis.
\13\ According to the Registration Statement, an event driven
strategy will involve investing in securities of companies currently
or prospectively involved in a wide variety of corporate
transactions or other events where the investment thesis is
predicated on the anticipated effect of such transactions or events
(e.g., merger arbitrage strategy, which involves the simultaneous
purchase of stock in a company being acquired and the sale of stock
in its acquirer in an attempt to profit from the spread in prices).
\14\ According to the Registration Statement, an opportunistic
credit strategy will seek to deliver positive absolute returns in
excess of cash investments regardless of economic cycle (i.e.,
downturns and upswings) or cyclical credit availability primarily by
investing in mispriced credit securities (i.e., credit securities
that are trading higher or lower than their intrinsic or actual
value).
\15\ According to the Registration Statement, a tactical trading
strategy will relate to a variety of strategic and opportunistic
investment strategies not captured by one of the other enumerated
strategies, such as short-term trading opportunities.
\16\ According to the Registration Statement, a liquid
alternative beta strategy will seek to track the beta portion of the
returns (i.e., that portion of the returns of hedge funds that are
non-idiosyncratic, or unrelated to manager skill) of hedge funds
that employ various hedge fund investment styles.
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According to the Registration Statement, in implementing the
aforementioned strategies, the Fund will invest in a portfolio
consisting of some or all of the following:
Equity Securities
The Fund may invest in exchange-traded Equity Securities, which
will consist of:
Common stocks;
Preferred stocks;
Convertible securities;
Rights and warrants;
Depositary receipts;
Exchange-traded Funds (``ETFs''); \17\
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\17\ For purposes of this filing, ETFs include Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3));
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). The ETFs all will be listed and traded in the
U.S. on registered exchanges or a non-U.S. securities exchange that
is a member of the Intermarket Surveillance Group (``ISG'') or a
party to a comprehensive surveillance sharing agreement with the
Exchange. The ETFs in which the Fund may invest will primarily be
index-based exchange-traded funds that hold substantially all of
their assets in securities representing a specific index.
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Non-ETF exchange-traded vehicles (``ETVs''); \18\ and
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\18\ According to the Adviser, an ETV is a non-investment
company exchange-traded vehicle that issues equity securities, such
as an exchange-traded commodity pool.
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Partnership interests, including master limited partnerships.
Fixed Income Securities
The Fund may invest in Fixed Income Securities, which will consist
of:
Debt issued by corporations; \19\
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\19\ The Adviser expects that, under normal market
circumstances, the Fund will generally seek to invest in corporate
bond issuances in developed countries that have at least
$100,000,000 par amount outstanding and at least $200,000,000 par
amount outstanding with respect to corporate bond issuances in
emerging market countries.
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Debt issued by governments, their agencies, instrumentalities,
sponsored entities, and political subdivisions;
Covered bonds;
Debt participations;
Convertible bonds;
Non-investment grade securities;
Senior bank loans;
Exchange-traded notes (``ETNs'');
Mortgage-backed and other asset-backed securities; and
To-be-announced securities.\20\
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\20\ The Fund will seek to gain exposure to U.S. agency mortgage
pass-through securities primarily through the use of ``to-be-
announced securities.'' ``To-be-announced'' refers to a commonly
used mechanism for the forward settlement of U.S. agency mortgage
pass-through securities, and not to a separate type of mortgage-
backed security. Most transactions in mortgage pass-through
securities occur through the use of to-be-announced securities.
According to the Registration Statement, the Fund may also invest
directly in currencies.
According to the Registration Statement, the Fund may invest in the
following derivative instruments: Futures contracts (consisting of
futures contracts based on equity or fixed income securities and/or
equity or fixed income indices, commodities, interest rates and
currencies); swap agreements on any of the following asset classes:
Equity, fixed income, currency and interest rates (such swaps may be
based on the price return or total return of the referenced asset);
credit default swaps (consisting of credit default swaps in which the
referenced asset is a single fixed income security or a group of fixed
income securities); options (consisting of long and short positions in
call options and put options on indices based on equities, fixed income
securities, interest rates, currencies or commodities, individual
securities or currencies, swaptions and options on futures contracts);
forward contracts (consisting of forward contracts based on equity or
fixed income securities and/or equity or fixed income indices,
currencies, interest rates, swap forwards and non-deliverable
forwards); and structured securities (such derivative instruments,
collectively ``Financial Instruments'').\21\
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\21\ According to the Registration Statement, as a result of the
Fund's ability to invest in Financial Instruments, it may also hold
U.S. Treasury Bills or short-term investments as collateral for the
Financial Instruments, including money market funds, repurchase
agreements, cash and time deposits.
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According to the Registration Statement, the Fund may use leverage
(e.g., through the use of Financial Instruments) to obtain exposure in
excess of 100% in an investment. The Fund may employ leverage to
increase exposure to the Fund's portfolio holdings by up to 100% of the
net assets of the Fund to gain additional exposure to the Fund's
portfolio holdings, such that the Fund will have up to 200% net
exposure to its investments.
According to the Registration Statement, the Fund may take long
and/or short positions in Equity Securities, Fixed Income Securities,
commodities \22\ and currencies, among others.
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\22\ According to the Registration Statement, the Fund may gain
exposure to commodities through investments in other investment
companies, ETFs or ETVs.
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[[Page 72726]]
Investment Restrictions
According to the Adviser, all Equity Securities will be listed on a
U.S. national securities exchange or a non-U.S. securities exchange
that is a member of the ISG or a party to a comprehensive surveillance
sharing agreement with the Exchange; provided, however, that up to 10%
of the assets of the Fund may be invested in non-U.S. listed Equity
Securities that do not meet these requirements.
The Adviser has represented that all options contracts will be
listed on a U.S. national securities exchange or a non-U.S. securities
exchange that is a member of ISG or a party to a comprehensive
surveillance sharing agreement with the Exchange.
The Adviser has represented that not more than 20% of the Fund's
assets will be invested, in the aggregate, in non-investment grade
securities and structured securities.
According to the Registration Statement, up to 10% of the weight of
the futures contracts held by the Fund may consist of futures contracts
whose principal trading market is not a member of ISG or a party to a
comprehensive surveillance sharing agreement with the Exchange.
According to the Advisor, the Fund may invest up to 20% of its
total assets in mortgage-backed securities or in other asset-backed
securities, although this 20% limitation will not apply to U.S.
government securities.
According to the Registration Statement, 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.\23\ The Fund will monitor its portfolio liquidity on an
ongoing basis to determine whether, in the 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.
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\23\ 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. 8901 (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 ETF. 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 of 1933).
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The Fund will not invest more than 10% of its net assets in
unsponsored depositary receipts.
According to the Registration Statement, the Fund is considered
non-diversified, which means that it can invest a higher percentage of
assets in securities of individual issuers than a diversified fund.
Net Asset Value
According to the Registration Statement, the net asset value
(``NAV'') of the Shares of the Fund will be equal to the Fund's total
assets minus the Fund's total liabilities divided by the total number
of shares outstanding. The NAV that is published will be rounded to the
nearest cent; however, for purposes of determining the price of
Creation Units, the NAV will be calculated to five decimal places.
For purposes of calculating NAV, portfolio securities and other
assets for which market quotations 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.
In calculating NAV, the Fund's exchange-traded Equity Securities
will be valued at market value, which will generally be determined
using the last reported official closing or last trading price on the
exchange or market on which the security is primarily traded at the
time of valuation or, if no sale has occurred, at the last quoted mid
price on the primary market or exchange on which they are traded.
Investment company securities (other than ETFs) will be valued at NAV.
Unsponsored depositary receipts will be valued at the last quoted
mid price on the primary market on which they are traded. Fixed Income
Securities will be valued using market quotations when available or
other equivalent indications of value provided by an independent third-
party pricing service. Short-term Fixed Income Securities having a
remaining maturity of 60 days or less are generally valued at amortized
cost, which approximates market value.
A swap on an exchange-listed security or securities is valued at
the last reported sale price of the swap's underlying security or
securities on the exchange where the security or securities is
primarily traded, or if no sale price is available, at the mid price of
the security or securities underlying the swap on the exchange where
the security is primarily traded. A swap on Fixed Income Securities
will be valued on the price of the referenced Fixed Income Securities
on which the swap is based (i.e., using market quotations when
available or other equivalent indications of value provided by an
independent third-party pricing service; short term Fixed Income
Securities having a remaining maturity of 60 days or less are generally
valued at amortized cost, which approximates market value). A swap on
an index is valued based on 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.
Currency swaps 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. Credit default swaps will be valued on the basis of market
prices, generally the mid point between the bid/ask quotes, obtained
from a third-party pricing service at the time the Fund calculates its
NAV.
Futures contracts will be valued at the settlement or closing price
determined by the applicable exchange. Exchange-traded option
contracts, including options on futures, will be valued at their most
recent sale price. If no such sales are reported, these contracts will
be valued at their last traded price.
The Fund's OTC-traded Financial Instruments that are based on
exchange-listed underlying securities or for which exchange pricing is
otherwise available will generally be valued at the last reported
official closing or last traded price of the applicable underlying
securities. Other OTC-traded Financial Instruments will normally be
valued on the basis of quotes obtained from a third party broker-dealer
who makes markets in such securities or on the basis of quotes obtained
from an independent third-party pricing service.
Foreign securities and instruments will be valued in their local
currency following the methodologies described above. Foreign
securities, instruments and currencies will be translated to U.S.
dollars, based on foreign currency exchange rate quotations supplied by
the London Stock Exchange.
When market quotations are not readily available, are deemed
unreliable or do not reflect material events occurring between the
close of local markets and the time of valuation, investments will be
valued using fair value pricing as determined in good
[[Page 72727]]
faith by the Adviser under procedures established by and under the
general supervision and responsibility of the Trust's Board of
Trustees. According to the Registration Statement, the NAV will be
calculated by the Administrator and determined each business day as of
the close of regular trading on the Exchange (ordinarily 4:00 p.m.,
Eastern time (``E.T.'')). The Shares of the Fund will not be priced on
days on which the Exchange is closed for trading.
Indicative Intra-Day Value
According to the Registration Statement, an independent third party
calculator will calculate the Indicative Intra-Day Value (``IIV'') for
the Fund during hours of trading on the Exchange by dividing the
``Estimated Fund Value'' as of the time of the calculation by the total
number of outstanding Shares of that Fund. ``Estimated Fund Value'' is
the sum of the estimated amount of cash held in the Fund's portfolio,
the estimated amount of accrued interest owed to the Fund and the
estimated value of the assets held in the Fund's portfolio, minus the
estimated amount of the Fund's liabilities. The IIV will be calculated
based on the same portfolio holdings disclosed on the Trust's Web site.
All assets held by the Fund will be included in the IIV calculation.
According to the Registration Statement, the Fund will provide the
independent third party calculator with information to calculate the
IIV, but the Fund will not be involved in the actual calculation of the
IIV and is not responsible for the calculation or dissemination of the
IIV. The Fund makes no warranty as to the accuracy of the IIV. The IIV
should not be viewed as a ``real-time'' update of NAV because the IIV
may not be calculated in the same manner as NAV, which is computed once
per day.
Creations and Redemptions of Shares
According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis, at their NAV next determined after
receipt, on any business day, for a creation order or redemption
request received in proper form. The Fund will issue and redeem Shares
only in blocks of 50,000 Shares or whole multiples thereof (``Creation
Units'').
According to the Registration Statement, Creation Units will be
sold in exchange for an in-kind basket of a designated portfolio of
securities and a cash component. All orders to create Creation Units
must be received by the Distributor no later than 3:00 p.m. E.T. on the
date such order is placed, in order for the creation of Creation Units
to be effected based on the NAV of Shares of the Fund as next
determined on such date after receipt of the order in proper form.
According to the Registration Statement, beneficial owners must
accumulate enough Shares in the secondary market to constitute a
Creation Unit in order to have such Shares redeemed by the Trust. The
redemption proceeds for a Creation Unit will consist of consideration
in an amount equal to the NAV of the Shares being redeemed, as next
determined after receipt of a request in proper form less a redemption
transaction fee. Creation Units will be redeemed principally in-kind
for securities included in the Fund but also including cash based on
the then-current value of the securities sold short by the Fund and/or
the Financial Instruments used by the Fund (as applicable). With
respect to the Funds, the Administrator, through the National
Securities Clearing Corporation (``NSCC''), will make available
immediately prior to the opening of business on the Exchange (currently
9:30 a.m., E.T.) on each business day, the designated portfolio of
securities (the ``Fund Securities'') or cash component, as applicable,
per Creation Unit that will be applicable to redemption requests
received in proper form on that day. An order to redeem Creation Units
must be received by the Administrator not later than 3:00 p.m., E.T.
Availability of Information
The Fund's Web site (www.indexiq.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund'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''),\24\ and a calculation of 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.
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\24\ The Bid/Ask Price of the Fund will be determined using the
midpoint 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.
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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 its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day.\25\ The Web site information will be
publicly available at no charge.
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\25\ 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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On a daily basis, the Fund will disclose on www.indexiq.com 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.
In addition, a basket composition file, which includes the security
names and share quantities required to be delivered in exchange for
Fund Shares, together with estimates and actual cash components, will
be publicly disseminated daily prior to the opening of the NYSE via the
NSCC. The basket represents one Creation Unit of the Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), Shareholder Reports and Form N-CSR. The Trust's
SAI and Shareholder Reports are available free upon request from the
Trust, and those documents and the Form N-CSR may be viewed on-screen
or downloaded from the Commission's Web site at www.sec.gov.
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 and underlying
securities that are U.S. exchange listed will be
[[Page 72728]]
available via the Consolidated Tape Association (``CTA'') high-speed
line. Quotation and last sale information for such U.S. exchange-listed
securities as well as futures will be available from the exchange on
which they are listed. Quotation and last sale information for options
contracts will be available via the Options Price Reporting Authority.
Quotation information for OTC-traded securities and OTC-traded
Financial Instruments (such as forwards, swaps and currency-related
derivatives), and investment company securities (excluding ETFs), may
be obtained from brokers and dealers who make markets in such
securities or through nationally recognized pricing services through
subscription agreements. Quotation information from brokers and dealers
or pricing services will be available for spot and forward currency
transactions held by the Fund.
In addition, the Portfolio Indicative Value of the Fund, 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.\26\ The dissemination of the Portfolio
Indicative Value, together with the Disclosed Portfolio, will allow
investors to determine the value of the underlying portfolio of the
Fund on a daily basis and to provide a close estimate of that value
throughout the trading day.
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\26\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
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Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees (including money manager and other advisory or
management 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.
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.\27\ 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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\27\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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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 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 be subject to NYSE Arca Equities Rule 8.600, which
sets forth the initial and continued listing criteria applicable to
Managed Fund Shares. The Exchange represents that, for initial and/or
continued listing, each Trust will be in compliance with Rule 10A-3
\28\ under the Act, as provided by NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares will be outstanding at the commencement of
trading on the Exchange. 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 as defined in NYSE
Arca Equities Rule 8.600(c)(2) will be made available to all market
participants at the same time.
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\28\ 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.\29\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to detect and help deter
violations of Exchange rules and applicable federal securities laws.
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\29\ 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, Equity Securities, exchange-traded
options, futures contracts and options on futures contracts with other
markets that are members of the ISG and FINRA, on behalf of the
Exchange, may obtain trading information regarding trading in the
Shares, exchange-traded equities, exchange-traded options, futures
contracts and options on futures contracts from such markets. In
addition, the Exchange may obtain information regarding trading in the
Shares, exchange-traded equities, exchange-traded options, futures
contracts and options on futures contracts from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.\30\ 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'').
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\30\ 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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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
[[Page 72729]]
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 Portfolio Indicative
Value will not be calculated or publicly disseminated; (4) how
information regarding the Portfolio Indicative Value 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) \31\ 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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\31\ 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
applicable federal securities laws. The Exchange 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. All of the Equity Securities in which the Fund will invest
will be listed on a U.S. national securities exchange or a non-U.S.
securities exchange that is a member of the ISG or a party to a
comprehensive surveillance sharing agreement with the Exchange;
provided, however, that up to 10% of the assets of the Fund may be
invested in non-U.S. listed equity securities that do not meet these
requirements. The Adviser has represented that not more than 20% of the
Fund's assets will be invested, in the aggregate, in non-investment
grade securities and structured securities. The Fund's investments
will, under normal circumstances, be consistent with its investment
objective. The Fund will not hold more than 15% of its net assets in
illiquid securities, including Rule 144A securities. The Adviser is not
a broker-dealer and is not affiliated with a broker-dealer. In the
event (a) the Adviser becomes newly affiliated with a broker-dealer, or
(b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with a broker-dealer it will implement a firewall
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.
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 Adviser is not affiliated with broker-dealers. The Exchange
will obtain a representation from the issuer of the Shares that the
NAVs per Share will be calculated daily and that the NAVs 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. The Fund's portfolio holdings will be disclosed on
its Web site daily after the close of trading on the Exchange and prior
to the opening of trading on the Exchange the following day. Moreover,
the Portfolio Indicative Value will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Core Trading Session. Information regarding market price and trading
volume of the Shares will be continually available on a real-time basis
throughout the day on brokers' computer screens and other electronic
services, and quotation and last sale information will be available via
the CTA high-speed line. The Web site for the Fund will include a form
of the prospectus for the Fund and additional data relating to the
Fund's NAVs 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 Portfolio Indicative Value, 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
additional types of actively-managed exchange-traded products 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. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
[[Page 72730]]
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 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-2014-134 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2014-134. 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 also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2014-134, and
should be submitted on or before December 29, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28643 Filed 12-5-14; 8:45 am]
BILLING CODE 8011-01-P
