Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of ALPS Enhanced Put Write Strategy ETF under NYSE Arca Equities Rule 8.600, 25729-25738 [2015-10406]
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Federal Register / Vol. 80, No. 86 / Tuesday, May 5, 2015 / Notices
to acknowledge its net settlement
balance; (ii) state that the existing flat
fee charged for a Settling Bank’s failure
to timely settle its balance would
additionally apply to a Settling Bank’s
failure to: (A) Affirmatively
acknowledge its net-net settlement
balance, or (B) notify DTC of its refusal
to settle for one or more Participants for
which it is the designated Settling Bank,
by the Acknowledgment Cutoff Time;
(iii) clarify the fees chargeable to a
Participant for a failure to settle; (iv)
delete references to a Settling Bank’s
failure to timely settle its settlement
balance from being referred to as a
‘‘failure to settle’’ and remove references
to related procedures as being ‘‘failureto-settle’’ procedures, as this use of the
terminology could be confused with an
individual Participant’s failure to meet
its settlement obligation; (v) clarify
Settling Bank and settlement processing
timeframes as set forth in the Guide; (vi)
consolidate text, as applicable, for
consistency and to eliminate
duplication; (vii) apply initial
capitalization as appropriate for the
terms ‘‘Participant’’ and ‘‘Settling Bank’’
where they are used as defined terms;
and (viii) remove references to
Participant Terminal System (PTS)
functions, which are no longer used for
this service.
Implementation
The effective date of the proposed
rule change would be announced via a
DTC Important Notice.
2. Statutory Basis
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The proposed rule change would
reduce delays in the settlement process
by allowing DTC to collect net debits
and release net credits within scheduled
timeframes despite the failure of a
Settling Bank to affirmatively
acknowledge its end-of-day net-net
settlement balance or notify DTC of its
refusal to settle for a Participant for
which it is the designated Settling Bank
on a timely basis. Therefore, the
proposed rule change is consistent with
the provisions of section 17A(b)(3)(F) 10
of the Act, which requires that the rules
of the clearing agency be designed, inter
alia, to promote the prompt and
accurate clearance and settlement of
securities transactions.
(B) Clearing Agency’s Statement on
Burden on Competition
DTC does not believe that the
proposed rule change would have any
impact, or impose any burden, on
competition.
10 15
U.S.C. 78q–1(b)(3)(F).
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(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to the
proposed rule change have not yet been
solicited or received. DTC will notify
the Commission of any written
comments received by DTC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such 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–
DTC–2015–003 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–DTC–2015–003. 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
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25729
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of DTC and on DTCC’s Web site
(https://dtcc.com/legal/sec-rulefilings.aspx). 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–DTC–
2015–003 and should be submitted on
or before May 26, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Brent J. Fields,
Secretary.
[FR Doc. 2015–10400 Filed 5–4–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74839; File No. SR–
NYSEArca–2015–23]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to Listing and
Trading of Shares of ALPS Enhanced
Put Write Strategy ETF under NYSE
Arca Equities Rule 8.600
April 29, 2015.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on April 15,
2015, NYSE Arca, Inc. (‘‘Exchange’’ or
‘‘NYSE Arca’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
11 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.
1 15
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Federal Register / Vol. 80, No. 86 / Tuesday, May 5, 2015 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade the shares of the following under
NYSE Arca Equities Rule 8.600: ALPS
Enhanced Put Write Strategy 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
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The Exchange proposes to list and
trade the shares (‘‘Shares’’) of the
following under NYSE Arca Equities
Rule 8.600, which governs the listing
and trading of Managed Fund Shares on
the Exchange: 4 ALPS Enhanced Put
Write Strategy ETF (‘‘Fund’’). The
Shares will be offered by ALPS ETF
Trust (‘‘Trust’’). The Trust is registered
with the Commission as an investment
company and has filed a registration
statement on Form N–1A with the
Commission on behalf of the Fund.5
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) (‘‘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 Trust is registered under the 1940 Act. On
January 6, 2015, the Trust filed with the
Commission a registration statement on Form N–1A
under the Securities Act of 1933 (15 U.S.C. 77a)
(‘‘Securities Act’’), and under the 1940 Act relating
to the Fund (File Nos. 333–148826 and 811–22175)
(‘‘Registration Statement’’). The description of the
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ALPS Advisors, Inc. is the investment
adviser (‘‘Adviser’’) to the Fund. Rich
Investment Solutions, LLC is the
investment sub-adviser (‘‘Sub-Adviser’’)
to the Fund. ALPS Fund Services, Inc.
(‘‘ALPS Fund Services’’) serves as the
Trust’s administrator. The Bank of New
York Mellon also serves as custodian
(‘‘Custodian’’) and transfer agent
(‘‘Transfer Agent’’) for the Fund. ALPS
Portfolio Solutions Distributor, Inc. is
the distributor (‘‘Distributor’’) of the
Fund’s Shares.
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
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s
portfolio.6 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
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 the1940
Act. See Investment Company Act Release No.
30553 (June 11, 2013) (File No. 812–13884)
(‘‘Exemptive Order’’).
6 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and Sub-Adviser and their
related personnel are subject to the provisions of
Rule 204A–1 under the Advisers Act relating to
codes of ethics. This Rule requires investment
advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as
well as compliance with other applicable securities
laws. Accordingly, procedures designed to prevent
the communication and misuse of non-public
information by an investment adviser must be
consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. The Adviser is not a registered
broker-dealer but is affiliated with a
broker-dealer and has implemented a
‘‘fire wall’’ with respect to such brokerdealer regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. The
Sub-Adviser is not registered as a
broker-dealer and is not affiliated with
a broker-dealer. In the event (a) the
Adviser or Sub-adviser becomes
registered as a broker-dealer or newly
affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a
registered broker-dealer or becomes
affiliated with a broker-dealer, it will
implement a fire wall with respect to its
relevant personnel or broker-dealer
affiliate regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
ALPS Enhanced Put Write Strategy ETF
According to the Registration
Statement, the investment objective of
the Fund is to seek total return, with an
emphasis on income as the source of
that total return. The Fund will seek to
achieve its investment objective by
selling listed one-month put options on
the SPDR® S&P 500® ETF Trust
(‘‘SPY’’). SPY is an exchange-traded
fund (‘‘ETF’’) that seeks to provide
investment results that, before expenses,
correspond generally to the price and
yield performance of the S&P 500®
Index (‘‘SPX’’ or ‘‘Index’’). SPY holds a
portfolio of the common stocks that are
included in the SPX, with the weight of
each stock in its portfolio substantially
corresponding to the weight of such
stock in the SPX. The Fund may also
sell listed one-month put options
directly on the SPX under certain
circumstances (such as if such options
have more liquidity and narrower
spreads than options on SPY). SPY
shares are listed on the Exchange and
traded on national securities exchanges.
SPX options are traded on the Chicago
Board Options Exchange (‘‘CBOE’’).
Options on SPY are traded on national
securities exchanges.
Each listed put option sold by the
Fund will be an ‘‘American-style’’
option (i.e., an option which can be
exercised at the strike price at any time
prior to its expiration). As the seller of
a listed put option, the Fund will incur
an obligation to buy SPY underlying the
option from the purchaser of the option
at the option’s strike price, upon
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exercise by the option purchaser. If a
listed put option sold by the Fund is
exercised prior to expiration, the Fund
will buy the SPY underlying the option
at the time of exercise and at the strike
price, and will hold SPY until the
market close on expiration.7
The option premiums and cash (in
respect of orders to create Shares in
large aggregations known as ‘‘Creation
Units,’’ as further described below)
received by the Fund will be invested in
an actively-managed portfolio of
investment grade debt securities (the
‘‘Collateral Portfolio’’) at least equal in
value to the Fund’s maximum liability
under its written options (i.e., the strike
price of each option). Investment grade
debt securities are those rated ‘‘Baa’’
equivalent or higher by a nationally
recognized statistical rating organization
(‘‘NRSROs’’), or are unrated securities
that the Sub-Adviser believes are of
comparable quality. Such investment
grade debt securities will include
Treasury bills (short-term U.S.
government debt securities), corporate
bonds, commercial paper, mortgagebacked securities (securities backed by a
group of mortgages) (‘‘MBS’’), assetbacked securities (securities backed by
loans, leases or other receivables other
than mortgages) (‘‘ABS’’) and notes
issued or guaranteed by federal agencies
and/or U.S. government sponsored
instrumentalities, such as the
Government National Mortgage
Administration (‘‘Ginnie Mae’’), the
Federal Housing Administration
(‘‘FHA’’), the Federal National Mortgage
Association (‘‘Fannie Mae’’) and the
Federal Home Loan Mortgage
Corporation (‘‘Freddie Mac’’). It is
expected that the average duration of
such securities will not exceed six
months and the maximum maturity of
any single security will not exceed one
year.
Under normal market conditions,8
substantially all of the Fund’s net assets
7 The Fund may also sell put options on the SPX
directly under certain circumstances (such as if
such options have more liquidity and narrower
spreads than options on SPY) resulting in lower
transaction costs than options on SPY. The puts are
struck at-the-money (i.e., with a strike price that is
equal to the market price of the underlying SPY)
and are typically sold on a monthly basis, usually
on the 3rd Friday of the month (the ‘‘roll date’’).
8 The term ‘‘under normal market conditions’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the equity or
options markets or the financial markets generally;
events or circumstances causing a disruption in
market liquidity or orderly markets; operational
issues causing dissemination of inaccurate market
information; or force majeure type events such as
systems failure, natural or man-made disaster, act
of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
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will be invested in options on SPY or
SPX, or in the Collateral Portfolio.
The Fund may invest up to 20% of its
net assets in non-agency MBS and ABS
in the aggregate.
The Fund may seek to obtain
exposure to U.S. agency mortgage passthrough securities primarily through the
use of ‘‘to-be-announced’’ or ‘‘TBA
transactions.’’ ‘‘TBA’’ 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 mortgagebacked security. Most transactions in
mortgage pass-through securities occur
through the use of TBA transactions.
TBA transactions generally are
conducted in accordance with widelyaccepted guidelines which establish
commonly observed terms and
conditions for execution, settlement and
delivery. In a TBA transaction, the
buyer and seller decide on general trade
parameters, such as agency, settlement
date, par amount, and price. The actual
pools delivered generally are
determined two days prior to settlement
date. The Fund will enter into TBA
transactions only with established
counterparties (such as major brokerdealers) and the Sub-Adviser will
monitor the creditworthiness of such
counterparties.9
According to the Registration
Statement, every month, the options
sold by the Fund will be settled by
delivery at expiration or expire with no
value and new option positions will be
established while the Fund sells any
units of SPY it owns as a result of such
settlements or of the Fund’s prior option
positions having been exercised.10 This
monthly cycle likely will cause the
Fund to have frequent and substantial
turnover in its option positions. If the
Fund receives additional inflows (and
issues more Shares in ‘‘Creation Unit’’
size during a one-month period 11), the
Fund will sell additional listed put
options, which will be exercised or
expire at the end of such one-month
period. Conversely, if the Fund redeems
Shares in Creation Unit size during a
monthly period, the Fund will terminate
9 The Fund intends to invest cash pending
settlement of any TBA transactions in money
market instruments, repurchase agreements,
commercial paper (including asset-backed
commercial paper) or other high-quality, liquid
short-term instruments, which may include money
market funds affiliated with the Adviser or SubAdviser.
10 The Fund may hold U.S. exchange-listed equity
securities, generally shares of SPY, for temporary
periods upon settlement or exercise of the options
sold by the Fund.
11 See ‘‘Creation and Redemption of Shares’’,
infra.
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25731
the appropriate portion of the options it
has sold accordingly.
With respect to no more than 20% of
the Fund’s assets, the Fund may engage
in certain opportunistic ‘‘put spread’’
and ‘‘call spread’’ strategies.
Specifically, when the Sub-Adviser
believes the SPX (and thus SPY) will
rise or not decline in value, the Fund
may engage in ‘‘put spreads’’ whereby
the Fund will buy back certain of the
written put options which are out of the
money (i.e., the strike price of the put
option is lower than the market price of
the underlying SPY) prior to expiration
in order to sell new put options which
are less out of the money. Similarly, the
Fund may buy back certain of its written
put options prior to expiration in order
to sell new longer-dated options that
will remain open past the one-month
period of the original option.
Conversely, when the Sub-Adviser
believes the SPX will decline in value,
the Fund may engage in ‘‘call spreads’’
whereby the Fund will sell call options
which are in-the-money (i.e., the strike
price of the call option is lower than the
market price of the underlying SPY) and
buy back less in-the-money call options.
The Sub-Adviser may employ a variant
of this call spread strategy whereby the
Fund buys more calls than it sells (as
long as the Fund receives a net premium
on such transactions). This may enable
the Fund to perform better when the
SPX (and thus SPY) experiences gains
well above the strike price of the calls
bought by the Fund. However, even if
the Fund engages in such call spreads,
a declining SPX (and thus SPY) will
significantly detract from Fund
performance (given the Fund’s principal
strategy of selling put options on SPY)
as illustrated in the example below,
which is included in the Registration
Statement.
Roll Date Transactions—At each roll
date, any settlement loss from the
expiring puts will be financed by the
Fund’s portfolio of investment grade
debt securities (the ‘‘Collateral
Portfolio’’) and a new batch of at-themoney puts will be sold. The revenue
from their sale will be added to the
Fund’s Collateral Portfolio. The Fund’s
total cash available will be reinvested
daily in the Fund’s Collateral Portfolio.
Number of Puts Sold—The number of
puts sold will be chosen to ensure full
collateralization. This means that at the
expiration of the puts, the total value of
the Collateral Portfolio must be equal to
the maximum possible loss from final
settlement of the put options.
Example: SPY trades at $50 per share
at the start of the one month period, and
a listed put ‘‘American style’’ option
with a term of one month was sold by
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the Fund with a strike price of $50.00
per Share for a premium of $0.50 per
Share:
Trading at or above the strike price: If
at all times during the one month period
prior to expiration, SPY trades at or
above the strike price of $50.00, then the
option would expire worthless and the
Fund’s value would reflect the retention
of the $0.50 per share premium. The
Fund’s value thus would be increased
by $0.50 per share on the SPY option
position.
Trading below the strike price: If at
any time during the one month period
prior to expiration, SPY trades at or
below $49.99, then the option buyer
would have the right, but not the
obligation, to exercise the option. The
Fund’s value would change as if the
Fund had been put (i.e., would buy)
SPY at the strike price of $50.00 and sell
SPY immediately at the closing price of
$49.99 (or whatever lower price at
which the option is exercised). As a
result, the Fund’s value would be
reduced by $2.00 per Share if, for
example, the exercise price was $48 per
Share. However, the Fund’s value
would also reflect the retention of the
$0.50 per Share premium, so the net
loss to the Fund’s value would be $1.50
per Share on the SPY option position.
Non-Principal Investments
While, under normal market
conditions, substantially all of the
Fund’s net assets will be invested in
options on SPY or SPX, or in the
Collateral Portfolio, the Fund may
invest its remaining assets in other
securities and financial instruments, as
described below. The Fund may invest
its remaining assets in any one or more
of the following instruments: Money
market instruments (as described
below), in addition to those in which
the Fund invests as part of the Collateral
Portfolio, and including repurchase
agreements or other funds which invest
exclusively in money market
instruments; convertible securities;
structured notes (notes on which the
amount of principal repayment and
interest payments are based on the
movement of one or more specified
factors, such as the movement of a
particular stock or stock index); forward
foreign currency exchange contracts;
swaps; over-the-counter (‘‘OTC’’)
options on SPY or on the S&P 500
Index; and futures contracts and options
on futures contracts, as described
further below. Swaps, options and
futures contracts may be used by the
Fund in seeking to achieve its
investment objective, and in managing
cash flows. The Fund may also invest in
money market instruments or other
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short-term fixed income instruments as
part of a temporary defensive strategy to
protect against temporary market
declines.
The Fund may invest in high-quality
money market instruments on an
ongoing basis to provide liquidity. The
instruments in which the Fund may
invest include: (i) Short-term obligations
issued by the U.S. Government; 12 (ii)
negotiable certificates of deposit
(‘‘CDs’’), fixed time deposits and
bankers’ acceptances of U.S. and foreign
banks and similar institutions; 13 (iii)
commercial paper rated at the date of
purchase ‘‘Prime-1’’ by Moody’s
Investors Service, Inc. or ‘‘A–1+’’ or ‘‘A–
1’’ by Standard & Poor’s or, if unrated,
of comparable quality as determined by
the Adviser; (iv) repurchase
agreements; 14 and (v) money market
mutual funds.
The Fund may enter into reverse
repurchase agreements, which involve
the sale of securities with an agreement
to repurchase the securities at an
agreed-upon price, date and interest
payment and have the characteristics of
borrowing. The securities purchased
with the funds obtained from the
agreement and securities collateralizing
the agreement will have maturity dates
no later than the repayment date.
The Fund may invest in the securities
of other investment companies
(including money market funds), subject
to applicable restrictions under the 1940
Act.
The Fund may utilize U.S. exchangetraded futures contracts on the S&P 500
Index and U.S. exchange-traded options
on futures contracts on the S&P 500
Index.
The Fund may utilize such options on
futures contracts as a hedge against
changes in value of its portfolio
securities, or in anticipation of the
purchase of securities, and may enter
into closing transactions with respect to
12 Obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities
include bills, notes and bonds issued by the U.S.
Treasury, as well as ‘‘stripped’’ or ‘‘zero coupon’’
U.S. Treasury obligations representing future
interest or principal payments on U.S. Treasury
notes or bonds.
13 CDs are short-term negotiable obligations of
commercial banks. Time deposits are nonnegotiable deposits maintained in banking
institutions for specified periods of time at stated
interest rates. Banker’s acceptances are time drafts
drawn on commercial banks by borrowers, usually
in connection with international transactions.
14 Repurchase agreements may be characterized
as loans secured by the underlying securities. The
Fund may enter into repurchase agreements with (i)
member banks of the Federal Reserve System
having total assets in excess of $500 million and (i)
securities dealers (‘‘Qualified Institutions’’). The
Adviser will monitor the continued
creditworthiness of Qualified Institutions.
PO 00000
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such options to terminate existing
positions.
The Fund may enter into swap
agreements based on the S&P 500 Index.
The Fund may invest in investment
grade debt obligations traded in the U.S.
Such debt obligations include, among
others, bonds, notes, debentures and
variable rate demand notes. In choosing
corporate debt securities on behalf of
the Fund, the Sub-Adviser may consider
(i) general economic and financial
conditions; and (ii) the specific issuer’s
(a) business and management, (b) cash
flow, (c) earnings coverage of interest
and dividends, (d) ability to operate
under adverse economic conditions, (e)
fair market value of assets, and (f) other
considerations deemed appropriate.
The Fund may invest up to 100% of
its total assets in debt securities that are
rated investment grade by an NRSROs
[sic], or are unrated securities that the
Sub-Adviser believes are of comparable
quality.
The Fund may invest in securities
that have variable or floating interest
rates which are readjusted on set dates
(such as the last day of the month or
calendar quarter) in the case of variable
rates or whenever a specified interest
rate change occurs in the case of a
floating rate instrument.
The Fund may use delayed delivery
transactions as an investment technique.
Delayed delivery transactions, also
referred to as forward commitments,
involve commitments by the Fund to
dealers or issuers to acquire or sell
securities at a specified future date
beyond the customary settlement for
such securities. These commitments
may fix the payment price and interest
rate to be received or paid on the
investment. The Fund may purchase
securities on a delayed delivery basis to
the extent that it can anticipate having
available cash on the settlement date.
Delayed delivery agreements will not be
used as a speculative or leverage
technique.
The Fund may purchase when-issued
securities.
The Fund may invest in zero-coupon
or pay-in-kind securities. These
securities are debt securities that do not
make regular cash interest payments.
Zero-coupon securities are sold at a
deep discount to their face value. Payin-kind securities pay interest through
the issuance of additional securities.
Investment Restrictions
The Fund may hold up to an aggregate
of 15% of its net assets in illiquid assets
(calculated at the time of investment),
including Rule 144A securities deemed
illiquid by the Adviser or Sub-
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Adviser.15 The Fund will monitor its
portfolio liquidity on an ongoing basis
to determine whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid assets. Illiquid assets include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.16
The Fund intends to qualify for and
to elect to be treated as a separate
regulated investment company (a ‘‘RIC’’)
under Subchapter M of the Internal
Revenue Code.17
The Fund’s investments will be
consistent with its investment objective
15 Rule 144A securities are securities which,
while privately placed, are eligible for purchase and
resale pursuant to Rule 144A under the Securities
Act. This rule permits certain qualified institutional
buyers, such as the Fund, to trade in privately
placed securities even though such securities are
not registered under the Securities Act. The SubAdviser, under supervision of the Board, will
consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund’s
restriction on illiquid assets. Determination of
whether a Rule 144A security is liquid or not is a
question of fact. In making this determination, the
Sub-Adviser will consider the trading markets for
the specific security taking into account the
unregistered nature of a Rule 144A security. In
addition, the Sub-Adviser could consider the (i)
frequency of trades and quotes; (ii) number of
dealers and potential purchasers; (iii) dealer
undertakings to make a market; and (iv) nature of
the security and of market place trades (for
example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics
of transfer). The Sub-Adviser will also monitor the
liquidity of Rule 144A securities, and if, as a result
of changed conditions, the Sub-Adviser determines
that a Rule 144A security is no longer liquid, the
Sub-Adviser will review the Fund’s holdings of
illiquid securities to determine what, if any, action
is required to assure that the Fund complies with
its restriction on investment of illiquid securities.
16 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933 (15 U.S.C. 77a).
17 26 U.S.C. 851 et seq.
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and will not be used to enhance
leverage.18
Net Asset Value
The net asset value (‘‘NAV’’) per
Share of the Fund will be computed by
dividing the value of the net assets of
the Fund (i.e., the value of its total
assets less total liabilities) by the total
number of Shares of the Fund
outstanding, rounded to the nearest
cent. Expenses and fees, including
without limitation, the management and
administration fees, will be accrued
daily and taken into account for
purposes of determining NAV. The NAV
per Share will be calculated by the
Custodian and determined as of the
close of the regular trading session on
the New York Stock Exchange (‘‘NYSE’’)
(ordinarily 4:00 p.m., Eastern time)
(‘‘NYSE Close’’) on each day that such
exchange is open.
In computing the Fund’s NAV, the
Fund’s securities holdings traded on a
national securities exchange (including
listed put options sold by the Fund and
any exchange-traded equity securities
held by the Fund) will be valued based
on their last sale price. Price
information on listed securities will be
taken from the exchange where the
security is primarily traded. Other
portfolio securities and assets for which
market quotations are not readily
available will be valued based on fair
value as determined in good faith in
accordance with procedures adopted by
the Trust’s Board.
Non-exchange traded investment
company securities will be priced at
NAV.
The Fund’s debt securities will be
valued at market value. Market value
generally means a valuation (i) obtained
from an exchange, a pricing service or
a major market maker (or dealer), (ii)
based on a price quotation or other
equivalent indication of value supplied
by an exchange, a pricing service or a
major market maker (or dealer), or (iii)
18 Investments in derivative instruments by the
Fund will be made in accordance with the 1940 Act
and consistent with the Fund’s investment objective
and policies. To limit the potential risk associated
with transactions in derivatives, the Fund will
segregate or ‘‘earmark’’ assets determined to be
liquid by the Adviser in accordance with
procedures that will established by the Trust’s
Board of Trustees (‘‘Board’’) and in accordance with
the 1940 Act (or, as permitted by applicable
regulation, enter into certain offsetting positions) to
cover its obligations under derivative instruments.
These procedures will be adopted consistent with
Section 18 of the 1940 Act and related Commission
guidance. In addition, the Fund will include
appropriate risk disclosure in its offering
documents, including leveraging risk. Leveraging
risk is the risk that certain transactions of the Fund,
including the Fund’s use of derivatives, may give
rise to leverage, causing the Fund’s Shares to be
more volatile than if they had not been leveraged.
PO 00000
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25733
based on amortized cost. The Fund’s
debt securities will be thus valued by
reference to a combination of
transactions and quotations for the same
or other securities believed to be
comparable in quality, coupon,
maturity, type of issue, call provisions,
trading characteristics and other
features deemed to be relevant. To the
extent the Fund’s debt securities are
valued based on price quotations or
other equivalent indications of value
provided by a third-party pricing
service, any such third-party pricing
service may use a variety of
methodologies to value some or all of
the Fund’s debt securities to determine
the market price. For example, the
prices of securities with characteristics
similar to those held by the Fund may
be used to assist with the pricing
process. In addition, the pricing service
may use proprietary pricing models.
Short-term fixed income securities
having a remaining maturity of 60 days
or less will generally be valued at
amortized cost. The Fund’s listed put
options, as well as exchange-traded
equity securities held by the Fund, will
be valued at the last reported sale price
on the principal exchange on which
such securities are traded, as of the
close of regular trading on NYSE Arca
on the day the securities are being
valued or, if there are no sales, at the
mean of the most recent bid and asked
prices. Other derivatives will generally
be valued on the basis of quotes
obtained from brokers and dealers or
pricing services using data reflecting the
earlier closing of the principal markets
for those assets. Local closing prices
will be used for all instrument valuation
purposes. Foreign currencydenominated derivatives will generally
be valued as of the respective local
region’s market close. With respect to
specific derivatives, and [sic] forward
rates from major market data vendors
will generally be determined as of the
NYSE Close; futures will generally be
valued at the settlement price of the
relevant exchange; index swaps will be
valued at the publicly available index
price; index options, and options on
futures will generally be valued at the
official settlement price determined by
the relevant exchange, if available; OTC
and exchange-traded equity options will
generally be valued on the basis of
quotes of quotes received from a
quotation reporting system, established
market makers, or pricing services or’for
[sic] exchange-traded options, at the
settlement price of the applicable
exchange. Money market instruments
(other than debt securities noted above),
structured notes, repurchase
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agreements, reverse repurchase
agreements and variable or floating rate
securities will generally be valued on
the basis of independent pricing
services or quotes obtained from brokers
and dealers. Securities for which market
quotations are not readily available,
including Rule 144A securities, will be
valued by a method that the Trust’s
Board believes accurately reflects fair
value. Securities will be valued at fair
value when market quotations are not
readily available or are deemed
unreliable, such as when a security’s
value or meaningful portion of the
Fund’s portfolio is believed to have
been materially affected by a significant
event.
Creation and Redemption of Shares
The Trust will issue and sell Shares
of the Fund only in ‘‘Creation Unit
Aggregations’’ of 50,000 Shares each on
a continuous basis through the
Distributor, without a sales load, at its
NAV next determined after receipt, on
any business day, of an order in proper
form.
Creation Units of the Fund generally
will be sold for cash only, calculated
based on the NAV per Share multiplied
by the number of Shares representing a
Creation Unit (‘‘Deposit Cash’’), plus a
transaction fee.
The Custodian, through the National
Securities Clearing Corporation
(‘‘NSCC’’), will make available on each
business day, prior to the opening of
business on the NYSE Arca (currently
9:30 a.m., Eastern time), the amount of
the Deposit Cash to be deposited in
exchange for a Creation Unit
Aggregation of the Fund.
To be eligible to place orders with the
Distributor and to create a Creation Unit
Aggregation of the Fund, an entity must
be a Depositary Trust Company (‘‘DTC’’)
Participant that has executed an
agreement with the Distributor, with
respect to creations and redemptions of
Creation Units (‘‘Participant
Agreement’’). A DTC Participant that
has executed a Participant Agreement is
referred to as an ‘‘Authorized
Participant.’’
All orders to create Creation Unit
Aggregations must be received by the
Distributor no later than the closing
time of the regular trading session on
the NYSE (‘‘Closing Time’’) (ordinarily
4:00 p.m., Eastern time) in each case on
the date such order is placed in order
for creation of Creation Unit
Aggregations 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. The date on
which an order to create Creation Unit
Aggregations is placed is referred to as
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17:18 May 04, 2015
Jkt 235001
the ‘‘Transmittal Date.’’ Orders must be
transmitted by an Authorized
Participant by telephone or other
transmission method acceptable to the
Distributor pursuant to procedures set
forth in the ‘‘Participant Agreement’’.
Authorized Participants will be
required to pay a fixed creation
transaction fee payable regardless of the
number of creations made each day.
Fund Shares may be redeemed only in
Creation Unit size at the NAV next
determined after receipt of a redemption
request in proper form by the Fund
through the Transfer Agent and only on
a business day. The Fund will not
redeem Shares in amounts less than
Creation Unit Aggregations.
With respect to the Fund, the
Custodian, through the NSCC, will make
available prior to the opening of
business on NYSE Arca on each
business day, the amount of cash that
will be paid (subject to possible
amendment or correction) in respect of
redemption requests received in proper
form on that day (the ‘‘Redemption
Cash’’).
The redemption proceeds for a
Creation Unit generally consist of the
Redemption Cash—as announced on the
business day of the request for
redemption received in proper form—
less a redemption transaction fee.
The right of redemption may be
suspended or the date of payment
postponed (i) for any period during
which the NYSE is closed (other than
customary weekend and holiday
closings); (ii) for any period during
which trading on the NYSE is
suspended or restricted; (iii) for any
period during which an emergency
exists as a result of which disposal of
the Shares of the Fund or determination
of the Fund’s NAV is not reasonably
practicable; or (iv) in such other
circumstances as is permitted by the
Commission.
Orders to redeem Creation Units must
be delivered through a DTC Participant
that has executed the Participant
Agreement. An order to redeem Creation
Units is deemed received by the Trust
on the Transmittal Date if (i) such order
is received by the Transfer Agent not
later than 4:00 p.m., Eastern time on
such Transmittal Date; (ii) such order is
accompanied or followed by the
requisite number of Shares of the Fund,
which delivery must be made through
DTC to the Custodian no later than
11:00 a.m., Eastern time (for the Fund
Shares), on the next business day
immediately following such Transmittal
Date (the ‘‘DTC Cut-Off-Time’’) and 2:00
p.m., Eastern time for any cash
component, if any owed to the Fund;
and (iii) all other procedures set forth in
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
the Participant Agreement are properly
followed. After the Trust has deemed an
order for redemption received, the Trust
will initiate procedures to transfer the
requisite Redemption Cash which is
expected to be delivered within three
business days.
Intraday Indicative Value
The approximate value of the Fund’s
investments on a per-Share basis, the
Indicative Intra-Day Value (‘‘IIV’’),
which is the Portfolio Indicative Value
as defined in NYSE Arca Equities Rule
8.600(c)(3), will be disseminated by one
or more major market data vendors
every 15 seconds during the Exchange’s
Core Trading Session. The IIV should
not be viewed as a ‘‘real-time’’ update
of NAV because the IIV will be
calculated by an independent third
party calculator and may not be
calculated in the exact same manner as
NAV, which will be computed daily.
The IIV will be calculated during the
Exchange’s Core Trading Session by
dividing the ‘‘Estimated Fund Value’’ as
of the time of the calculation by the total
number of outstanding Shares.
‘‘Estimated Fund Value’’ is the sum of
the estimated amount of cash held in
the Fund’s portfolio, the estimated
amount of accrued interest owing to the
Fund and the estimated value of the
securities and other assets held in the
Fund’s portfolio, minus the estimated
amount of liabilities. The IIV will be
calculated based on the same portfolio
holdings disclosed on the Fund’s Web
site. In determining the estimated value
for each of the component securities and
other assets, the IIV will use last sale,
market prices or other methods that
would be considered appropriate for
pricing securities held by registered
investment companies.
Availability of Information
The Fund’s Web site
(www.alpsfunds.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’’),19 and a calculation of the
premium and discount of the Bid/Ask
19 The Bid/Ask Price of the Fund’s Shares will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
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Price against the NAV, and (2) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange (9:30 a.m. to 4:00 p.m.,
Eastern time), the Fund’s Web site will
disclose the Disclosed Portfolio that will
form the basis for the Fund’s calculation
of NAV at the end of the business day.20
The Fund will disclose on the Fund’s
Web site the following information
regarding each portfolio holding, as
applicable to the type of holding: Ticker
symbol, CUSIP number or other
identifier, if any; a description of the
holding (including the type of holding,
such as the type of swap); the identity
of the security, commodity, index or
other asset or instrument underlying the
holding, if any; for options, the option
strike price; quantity held (as measured
by, for example, par value, notional
value or number of shares, contracts or
units); maturity date, if any; coupon
rate, if any; effective date, if any; market
value of the holding; and the percentage
weighting of the holding in the Fund’s
portfolio. The Web site information will
be publicly available at no charge.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s shareholder reports,
and its Form N–CSR and Form N–SAR,
filed twice a year. The Trust’s SAI and
Shareholder Reports will be available
free upon request from the Trust, and
those documents and the Form N–CSR
and Form N–SAR may be viewed onscreen 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 U.S. exchange-listed
equities (including SPY) will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line,
and from the Exchange. Quotation and
last sale information for exchange-listed
20 Under accounting procedures followed by the
Fund, trades made on the prior business day (‘‘T’’)
will be booked and reflected in NAV on the current
business day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the business
day the portfolio that will form the basis for the
NAV calculation at the end of the business day.
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17:18 May 04, 2015
Jkt 235001
options cleared via the Options Clearing
Corporation will be available via the
Options Price Reporting Authority.
Intra-day and closing price information
regarding exchange-traded options
(including options on futures) and
futures will be available from the
exchange on which such instruments
are traded. Intra-day and closing price
information regarding debt securities;
money market instruments; convertible
securities; structured notes; forward
foreign currency exchange contracts;
swaps; repurchase agreements; reverse
repurchase agreements; US government
securities; MBS and ABS; mortgage
pass-throughs; variable or floating
interest rate securities; when-issued
securities; delayed delivery securities;
and zero-coupon securities also will be
available from major market data
vendors. Price information for nonexchange-traded investment company
securities will be available from major
market data vendors and from the Web
site of the applicable investment
company.
In addition, the IIV will be widely
disseminated at least every 15 seconds
during the Core Trading Session by one
or more major market data vendors.21
The dissemination of the IIV, together
with the Disclosed Portfolio, will allow
investors to determine the value of the
underlying portfolio of the Fund on a
daily basis and will 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, 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.22 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
21 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available IIVs taken from CTA or
other data feeds.
22 See NYSE Arca Equities Rule 7.12,
Commentary .04.
PO 00000
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25735
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.
If the IIV, Index value or the value of
the Index components is not being
disseminated as required, the Exchange
may halt trading during the day in
which the disruption occurs; if the
interruption persists past the day in
which it occurred, the Exchange will
halt trading no later than the beginning
of the trading day following the
interruption. Under NYSE Arca Equities
Rule 7.34(a)(5), if the Exchange becomes
aware that the NAV for the Fund is not
being disseminated to all market
participants at the same time, it will halt
trading in the Shares until such time as
the NAV is available to all market
participants.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600.
Consistent with NYSE Arca Equities
Rule 8.600(d)(2)(B)(ii), the Adviser will
implement and maintain, or be subject
to, procedures designed to prevent the
use and dissemination of material nonpublic information regarding the actual
components of the Fund’s portfolio. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3 23
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.
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. ET 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
23 17
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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.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Surveillance
The Exchange represents that the
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.24 The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares, other exchangetraded equity securities, exchangetraded investment company securities,
futures contracts, and exchange-traded
options contracts with other markets
and other entities that are members of
the Intermarket Surveillance Group
(‘‘ISG’’), and FINRA, on behalf of the
Exchange, may obtain trading
information regarding trading in the
Shares, other exchange-traded equity
securities, exchange-traded investment
company securities, futures contracts
and exchange-traded options contracts
from such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, other exchange-traded equity
securities, exchange-traded investment
company securities, futures contracts
and exchange-traded options contracts
from markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
24 FINRA surveils trading on the Exchange
pursuant to a regulatory services agreement. The
Exchange is responsible for FINRA’s performance
under this regulatory services agreement.
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17:18 May 04, 2015
Jkt 235001
surveillance sharing agreement.25 All
futures contracts (and options on
futures) and listed options held by the
Fund will be traded on U.S. exchanges,
all of which are members of ISG or are
exchanges with which the Exchange has
in place a comprehensive surveillance
sharing agreement. In addition, 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
of Shares in the Fund, the Exchange will
inform its ETP Holders in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its ETP Holders to learn the essential
facts relating to every customer prior to
trading the Shares; (3) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated IIV or Index value will
not be calculated or publicly
disseminated; (4) how information
regarding the IIV, the Disclosed
Portfolio and the Index value will be
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., Eastern time
each trading day.
25 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
of the components of the portfolio for the Fund may
trade on exchanges that are members of the ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement.
PO 00000
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Fmt 4703
Sfmt 4703
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 26 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 on the Exchange pursuant to
the initial and continued listing criteria
in NYSE Arca Equities Rule 8.600. The
Shares will be subject to the existing
trading surveillances, administered by
FINRA on behalf of the Exchange,
which are designed to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange. FINRA and the Exchange,
as applicable, may each obtain
information via ISG from other
exchanges that are members of ISG, and
in the case of the Exchange, from other
market or entities with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. The Adviser is not a
registered broker-dealer but is affiliated
with a broker-dealer and has
implemented a ‘‘fire wall’’ with respect
to such broker-dealer regarding access to
information concerning the composition
and/or changes to the Fund’s portfolio.
The Sub-Adviser is not registered as a
broker-dealer and is not affiliated with
a broker-dealer. The Fund’s investments
will be consistent with its investment
objective and will not be used to
enhance leverage.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid assets (calculated at the time of
investment), including Rule 144A
securities deemed illiquid by the
Adviser or Sub-Adviser, consistent with
Commission guidance. The proposed
rule change is designed to promote just
and equitable principles of trade and to
protect investors and the public interest
in that the Exchange will obtain a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily every day the NYSE is
open, and that the NAV will be made
available to all market participants at
the same time. In addition, a large
amount of publicly available
information will be publicly available
26 15
E:\FR\FM\05MYN1.SGM
U.S.C. 78f(b)(5).
05MYN1
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 86 / Tuesday, May 5, 2015 / Notices
regarding the Fund and the Shares,
thereby promoting market transparency.
Moreover, the IIV will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Exchange’s Core
Trading Session. On each business day,
before commencement of trading in the
Shares in the Core Session on the
Exchange, the Fund will disclose on its
Web site the portfolio that will form the
basis for the Fund’s calculation of NAV
at the end of the business day.
Information regarding market price and
trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services, and quotations and last sale
information will be available via the
CTA high-speed line. Quotation and last
sale information for the Shares will be
available via the CTA high-speed line,
and from the Exchange. Quotation and
last sale information for exchange-listed
options cleared via the Options Clearing
Corporation will be available via the
Options Price Reporting Authority.
Intra-day and closing price information
regarding exchange-traded options
(including options on futures) and
futures will be available from the
exchange on which such instruments
are traded. Intra-day and closing price
information regarding debt securities;
money market instruments; convertible
securities; structured notes; forward
foreign currency exchange contracts;
swaps; US government securities; MBS
and ABS; mortgage pass-throughs;
variable or floating interest rate
securities; when-issued securities;
delayed delivery securities; zero-coupon
securities; repurchase agreements;
reverse repurchase agreements; and payin-kind securities also will be available
from major market data vendors.
In addition, the IIV will be widely
disseminated at least every 15 seconds
during the Core Trading Session by one
or more major market data. The Web site
for the Fund will include the prospectus
for the Fund and additional data
relating to NAV and other applicable
quantitative information. Moreover,
prior to commencement of trading, the
Exchange will inform its ETP Holders in
an Information Bulletin of the special
characteristics and risks associated with
trading the Shares. 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 the Shares
inadvisable. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
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17:18 May 04, 2015
Jkt 235001
holdings, the IIV, the Fund’s portfolio,
and quotation and last sale information
for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of exchange-traded
product that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
As noted above, the Shares will be
subject to the existing trading
surveillances, administered by FINRA
on behalf of the Exchange, which are
designed to detect violations of
Exchange rules and federal securities
laws applicable to trading on the
Exchange. FINRA, on behalf of the
Exchange, will communicate as needed
regarding trading in the Shares, other
exchange-traded equity securities,
exchange-traded investment company
securities, futures contracts, and
exchange-traded options contracts with
other market and other entities that are
members of ISG, and FINRA, on behalf
of the Exchange, may obtain trading
information in the Shares, other
exchange-traded equity securities,
exchange-traded investment company
securities, futures contracts, and
exchange-traded options contracts from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, other exchange-traded equity
securities, exchange-traded investment
company securities, futures contracts,
and exchange-traded options contracts
from markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. FINRA,
on behalf of the Exchange, is able to
access, as needed, trade information for
certain fixed income securities held by
the Fund reported to FINRA’s TRACE.
In addition, as noted above, investors
will have ready access to information
regarding the Fund’s holdings, the IIV,
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 an
additional type of actively managed ETF
that will enhance competition among
market participants, to the benefit of
investors and the marketplace.
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
25737
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or 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–2015–23 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–2015–23. 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
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25738
Federal Register / Vol. 80, No. 86 / Tuesday, May 5, 2015 / Notices
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE.,
Washington, DC 20549 on official
business days between 10:00 a.m. and
3:00 p.m. Copies of the filing will also
be available for inspection and copying
at the NYSE’s principal office and on its
Internet Web site at www.nyse.com. 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–2015–23 and
should be submitted on or before May
26, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Brent J. Fields,
Secretary.
[FR Doc. 2015–10406 Filed 5–4–15; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–74832; File No. SR–ISE–
2015–16]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Amend Rule 502
April 29, 2015.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 22,
2015, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I and II 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.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The ISE proposes to amend Rule 502
to allow the listing of options overlying
Exchange-Traded Fund Shares (‘‘ETFs’’)
that are listed pursuant to generic listing
standards on equities exchanges for
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
17:18 May 04, 2015
Jkt 235001
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 these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
27 17
series of portfolio depositary receipts
and index fund shares based on
international or global indexes under
which a comprehensive surveillance
agreement is not required. The text of
the proposed rule change is available on
the Exchange’s Web site (https://
www.ise.com), at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
1. Purpose
The Exchange proposes to amend
Rule 502 to allow the listing of options
overlying ETFs that are listed pursuant
to generic listing standards on equities
exchanges for series of portfolio
depositary receipts and index fund
shares based on international or global
indexes under which a comprehensive
surveillance sharing agreement
(‘‘comprehensive surveillance
agreement’’ or ‘‘CSSA’’) is not required.3
This proposal will enable the Exchange
to list and trade options on ETFs
without a CSSA provided that the ETF
is listed on an equities exchange
pursuant to the generic listings
standards that do not require a CSSA
pursuant to Rule 19b–4(e) 4 of the
Exchange Act. Rule 19b–4(e) provides
that the listing and trading of a new
derivative securities product by a selfregulatory organization (‘‘SRO’’) shall
not be deemed a proposed rule change,
pursuant to paragraph (c)(1) of Rule
19b–4, if the Commission has approved,
pursuant to Section 19(b) of the
Exchange Act, the SRO’s trading rules,
procedures and listing standards for the
product class that would include the
new derivatives securities product, and
3 See e.g., NYSE MKT Rule 1000 Commentary
.03(a)(B); NYSE Arca Equities Rule 5.2(j)(3)
Commentary .01(a)(B); NASDAQ Rule
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii).
4 17 CFR 240.19b–4(e).
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
the SRO has a surveillance program for
the product class.5 In other words, the
proposal will amend the listing
standards to allow the Exchange to list
and trade options on ETFs based on
international or global indexes to a
similar degree that they are allowed to
be listed on several equities exchanges.6
Exchange-Traded Funds
The Exchange allows for the listing
and trading of options on ETFs. Rule
502(h)(B)(1)–(3) provide the listings
standards for options on ETFs with nonU.S. component securities, such as ETFs
based on international or global indexes.
Rule 502(h)(B)(1) requires that any nonU.S. component securities of an index
or portfolio of securities on which the
Exchange-Traded Fund Shares are based
that are not subject to comprehensive
surveillance agreements do not in the
aggregate represent more than 50% of
the weight of the index or portfolio.7
Rule 502(h)(B)(2) requires that
component securities of an index or
portfolio of securities on which the
Exchange-Traded Fund Shares are based
for which the primary market is in any
one country that is not subject to a
comprehensive surveillance agreement
do not represent 20% or more of the
weight of the index.8 Rule 502(h)(B)(3)
requires that component securities of an
index or portfolio of securities on which
the Exchange-Traded Fund Shares are
based for which the primary market is
in any two countries that are not subject
to comprehensive surveillance
agreements do not represent 33% or
more of the weight of the index.9
Generic Listing Standards for ExchangeTraded Funds
The Exchange notes that the
Commission has previously approved
generic listing standards pursuant to
Rule 19b–4(e) 10 of the Exchange Act for
ETFs based on indexes that consist of
stocks listed on U.S. exchanges.11 In
5 When relying on Rule 19b–4(e), the SRO must
submit Form 19b–4(e) to the Commission within
five business days after the SRO begins trading the
new derivative securities products. See Securities
Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998).
6 See NYSE MKT Rule 1000 Commentary
.03(a)(B); NYSE Arca Equities Rule 5.2(j)(3)
Commentary .01(a)(B); NASDAQ Rule
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii).
See also Securities Exchange Act Release Nos.
54739 (November 9, 2006), 71 FR 66993 (SR–
Amex–2006–78); 55269 (February 9, 2007), 72 FR
7490 (February 15, 2007) (SR–NASDAQ–2006–050);
55621 (April 12, 2007), 72 FR 19571 (April 18,
2007) (SR–NYSEArca–2006–86).
7 See Rule 502(h)(B)(1).
8 See Rule 502(h)(B)(2).
9 See Rule 502(h)(B)(3).
10 17 CFR 240.19b–4(e).
11 See Commentary .03 to Amex Rule 1000 and
Commentary .02 to Amex Rule 1000A. See also
E:\FR\FM\05MYN1.SGM
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]]>Agencies
[Federal Register Volume 80, Number 86 (Tuesday, May 5, 2015)]
[Notices]
[Pages 25729-25738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10406]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74839; File No. SR-NYSEArca-2015-23]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of Shares of
ALPS Enhanced Put Write Strategy ETF under NYSE Arca Equities Rule
8.600
April 29, 2015.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on April 15, 2015, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 25730]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the shares of the following
under NYSE Arca Equities Rule 8.600: ALPS Enhanced Put Write Strategy
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 the shares (``Shares'') of
the following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares on the Exchange: \4\ ALPS
Enhanced Put Write Strategy ETF (``Fund''). The Shares will be offered
by ALPS ETF Trust (``Trust''). The Trust is registered with the
Commission as an investment company and has filed a registration
statement on Form N-1A with the Commission on behalf of the Fund.\5\
---------------------------------------------------------------------------
\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) (``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 Trust is registered under the 1940 Act. On January 6,
2015, the Trust filed with the Commission a registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a)
(``Securities Act''), and under the 1940 Act relating to the Fund
(File Nos. 333-148826 and 811-22175) (``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 the1940 Act. See Investment Company Act Release No.
30553 (June 11, 2013) (File No. 812-13884) (``Exemptive Order'').
---------------------------------------------------------------------------
ALPS Advisors, Inc. is the investment adviser (``Adviser'') to the
Fund. Rich Investment Solutions, LLC is the investment sub-adviser
(``Sub-Adviser'') to the Fund. ALPS Fund Services, Inc. (``ALPS Fund
Services'') serves as the Trust's administrator. The Bank of New York
Mellon also serves as custodian (``Custodian'') and transfer agent
(``Transfer Agent'') for the Fund. ALPS Portfolio Solutions
Distributor, Inc. is the distributor (``Distributor'') of the Fund's
Shares.
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.\6\ 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. The
Adviser is not a registered broker-dealer but is affiliated with a
broker-dealer and has implemented a ``fire wall'' with respect to such
broker-dealer regarding access to information concerning the
composition and/or changes to the Fund's portfolio. The Sub-Adviser is
not registered as a broker-dealer and is not affiliated with a broker-
dealer. In the event (a) the Adviser or Sub-adviser becomes registered
as a broker-dealer or newly affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement a fire wall with
respect to its relevant personnel or broker-dealer affiliate regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio.
---------------------------------------------------------------------------
\6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
---------------------------------------------------------------------------
ALPS Enhanced Put Write Strategy ETF
According to the Registration Statement, the investment objective
of the Fund is to seek total return, with an emphasis on income as the
source of that total return. The Fund will seek to achieve its
investment objective by selling listed one-month put options on the
SPDR[supreg] S&P 500[supreg] ETF Trust (``SPY''). SPY is an exchange-
traded fund (``ETF'') that seeks to provide investment results that,
before expenses, correspond generally to the price and yield
performance of the S&P 500[supreg] Index (``SPX'' or ``Index''). SPY
holds a portfolio of the common stocks that are included in the SPX,
with the weight of each stock in its portfolio substantially
corresponding to the weight of such stock in the SPX. The Fund may also
sell listed one-month put options directly on the SPX under certain
circumstances (such as if such options have more liquidity and narrower
spreads than options on SPY). SPY shares are listed on the Exchange and
traded on national securities exchanges. SPX options are traded on the
Chicago Board Options Exchange (``CBOE''). Options on SPY are traded on
national securities exchanges.
Each listed put option sold by the Fund will be an ``American-
style'' option (i.e., an option which can be exercised at the strike
price at any time prior to its expiration). As the seller of a listed
put option, the Fund will incur an obligation to buy SPY underlying the
option from the purchaser of the option at the option's strike price,
upon
[[Page 25731]]
exercise by the option purchaser. If a listed put option sold by the
Fund is exercised prior to expiration, the Fund will buy the SPY
underlying the option at the time of exercise and at the strike price,
and will hold SPY until the market close on expiration.\7\
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\7\ The Fund may also sell put options on the SPX directly under
certain circumstances (such as if such options have more liquidity
and narrower spreads than options on SPY) resulting in lower
transaction costs than options on SPY. The puts are struck at-the-
money (i.e., with a strike price that is equal to the market price
of the underlying SPY) and are typically sold on a monthly basis,
usually on the 3rd Friday of the month (the ``roll date'').
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The option premiums and cash (in respect of orders to create Shares
in large aggregations known as ``Creation Units,'' as further described
below) received by the Fund will be invested in an actively-managed
portfolio of investment grade debt securities (the ``Collateral
Portfolio'') at least equal in value to the Fund's maximum liability
under its written options (i.e., the strike price of each option).
Investment grade debt securities are those rated ``Baa'' equivalent or
higher by a nationally recognized statistical rating organization
(``NRSROs''), or are unrated securities that the Sub-Adviser believes
are of comparable quality. Such investment grade debt securities will
include Treasury bills (short-term U.S. government debt securities),
corporate bonds, commercial paper, mortgage-backed securities
(securities backed by a group of mortgages) (``MBS''), asset-backed
securities (securities backed by loans, leases or other receivables
other than mortgages) (``ABS'') and notes issued or guaranteed by
federal agencies and/or U.S. government sponsored instrumentalities,
such as the Government National Mortgage Administration (``Ginnie
Mae''), the Federal Housing Administration (``FHA''), the Federal
National Mortgage Association (``Fannie Mae'') and the Federal Home
Loan Mortgage Corporation (``Freddie Mac''). It is expected that the
average duration of such securities will not exceed six months and the
maximum maturity of any single security will not exceed one year.
Under normal market conditions,\8\ substantially all of the Fund's
net assets will be invested in options on SPY or SPX, or in the
Collateral Portfolio.
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\8\ The term ``under normal market conditions'' includes, but is
not limited to, the absence of extreme volatility or trading halts
in the equity or options markets or the financial markets generally;
events or circumstances causing a disruption in market liquidity or
orderly markets; 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.
---------------------------------------------------------------------------
The Fund may invest up to 20% of its net assets in non-agency MBS
and ABS in the aggregate.
The Fund may seek to obtain exposure to U.S. agency mortgage pass-
through securities primarily through the use of ``to-be-announced'' or
``TBA transactions.'' ``TBA'' 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 TBA transactions. TBA transactions generally are conducted in
accordance with widely-accepted guidelines which establish commonly
observed terms and conditions for execution, settlement and delivery.
In a TBA transaction, the buyer and seller decide on general trade
parameters, such as agency, settlement date, par amount, and price. The
actual pools delivered generally are determined two days prior to
settlement date. The Fund will enter into TBA transactions only with
established counterparties (such as major broker-dealers) and the Sub-
Adviser will monitor the creditworthiness of such counterparties.\9\
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\9\ The Fund intends to invest cash pending settlement of any
TBA transactions in money market instruments, repurchase agreements,
commercial paper (including asset-backed commercial paper) or other
high-quality, liquid short-term instruments, which may include money
market funds affiliated with the Adviser or Sub-Adviser.
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According to the Registration Statement, every month, the options
sold by the Fund will be settled by delivery at expiration or expire
with no value and new option positions will be established while the
Fund sells any units of SPY it owns as a result of such settlements or
of the Fund's prior option positions having been exercised.\10\ This
monthly cycle likely will cause the Fund to have frequent and
substantial turnover in its option positions. If the Fund receives
additional inflows (and issues more Shares in ``Creation Unit'' size
during a one-month period \11\), the Fund will sell additional listed
put options, which will be exercised or expire at the end of such one-
month period. Conversely, if the Fund redeems Shares in Creation Unit
size during a monthly period, the Fund will terminate the appropriate
portion of the options it has sold accordingly.
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\10\ The Fund may hold U.S. exchange-listed equity securities,
generally shares of SPY, for temporary periods upon settlement or
exercise of the options sold by the Fund.
\11\ See ``Creation and Redemption of Shares'', infra.
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With respect to no more than 20% of the Fund's assets, the Fund may
engage in certain opportunistic ``put spread'' and ``call spread''
strategies. Specifically, when the Sub-Adviser believes the SPX (and
thus SPY) will rise or not decline in value, the Fund may engage in
``put spreads'' whereby the Fund will buy back certain of the written
put options which are out of the money (i.e., the strike price of the
put option is lower than the market price of the underlying SPY) prior
to expiration in order to sell new put options which are less out of
the money. Similarly, the Fund may buy back certain of its written put
options prior to expiration in order to sell new longer-dated options
that will remain open past the one-month period of the original option.
Conversely, when the Sub-Adviser believes the SPX will decline in
value, the Fund may engage in ``call spreads'' whereby the Fund will
sell call options which are in-the-money (i.e., the strike price of the
call option is lower than the market price of the underlying SPY) and
buy back less in-the-money call options. The Sub-Adviser may employ a
variant of this call spread strategy whereby the Fund buys more calls
than it sells (as long as the Fund receives a net premium on such
transactions). This may enable the Fund to perform better when the SPX
(and thus SPY) experiences gains well above the strike price of the
calls bought by the Fund. However, even if the Fund engages in such
call spreads, a declining SPX (and thus SPY) will significantly detract
from Fund performance (given the Fund's principal strategy of selling
put options on SPY) as illustrated in the example below, which is
included in the Registration Statement.
Roll Date Transactions--At each roll date, any settlement loss from
the expiring puts will be financed by the Fund's portfolio of
investment grade debt securities (the ``Collateral Portfolio'') and a
new batch of at-the-money puts will be sold. The revenue from their
sale will be added to the Fund's Collateral Portfolio. The Fund's total
cash available will be reinvested daily in the Fund's Collateral
Portfolio.
Number of Puts Sold--The number of puts sold will be chosen to
ensure full collateralization. This means that at the expiration of the
puts, the total value of the Collateral Portfolio must be equal to the
maximum possible loss from final settlement of the put options.
Example: SPY trades at $50 per share at the start of the one month
period, and a listed put ``American style'' option with a term of one
month was sold by
[[Page 25732]]
the Fund with a strike price of $50.00 per Share for a premium of $0.50
per Share:
Trading at or above the strike price: If at all times during the
one month period prior to expiration, SPY trades at or above the strike
price of $50.00, then the option would expire worthless and the Fund's
value would reflect the retention of the $0.50 per share premium. The
Fund's value thus would be increased by $0.50 per share on the SPY
option position.
Trading below the strike price: If at any time during the one month
period prior to expiration, SPY trades at or below $49.99, then the
option buyer would have the right, but not the obligation, to exercise
the option. The Fund's value would change as if the Fund had been put
(i.e., would buy) SPY at the strike price of $50.00 and sell SPY
immediately at the closing price of $49.99 (or whatever lower price at
which the option is exercised). As a result, the Fund's value would be
reduced by $2.00 per Share if, for example, the exercise price was $48
per Share. However, the Fund's value would also reflect the retention
of the $0.50 per Share premium, so the net loss to the Fund's value
would be $1.50 per Share on the SPY option position.
Non-Principal Investments
While, under normal market conditions, substantially all of the
Fund's net assets will be invested in options on SPY or SPX, or in the
Collateral Portfolio, the Fund may invest its remaining assets in other
securities and financial instruments, as described below. The Fund may
invest its remaining assets in any one or more of the following
instruments: Money market instruments (as described below), in addition
to those in which the Fund invests as part of the Collateral Portfolio,
and including repurchase agreements or other funds which invest
exclusively in money market instruments; convertible securities;
structured notes (notes on which the amount of principal repayment and
interest payments are based on the movement of one or more specified
factors, such as the movement of a particular stock or stock index);
forward foreign currency exchange contracts; swaps; over-the-counter
(``OTC'') options on SPY or on the S&P 500 Index; and futures contracts
and options on futures contracts, as described further below. Swaps,
options and futures contracts may be used by the Fund in seeking to
achieve its investment objective, and in managing cash flows. The Fund
may also invest in money market instruments or other short-term fixed
income instruments as part of a temporary defensive strategy to protect
against temporary market declines.
The Fund may invest in high-quality money market instruments on an
ongoing basis to provide liquidity. The instruments in which the Fund
may invest include: (i) Short-term obligations issued by the U.S.
Government; \12\ (ii) negotiable certificates of deposit (``CDs''),
fixed time deposits and bankers' acceptances of U.S. and foreign banks
and similar institutions; \13\ (iii) commercial paper rated at the date
of purchase ``Prime-1'' by Moody's Investors Service, Inc. or ``A-1+''
or ``A-1'' by Standard & Poor's or, if unrated, of comparable quality
as determined by the Adviser; (iv) repurchase agreements; \14\ and (v)
money market mutual funds.
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\12\ Obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities include bills, notes and bonds
issued by the U.S. Treasury, as well as ``stripped'' or ``zero
coupon'' U.S. Treasury obligations representing future interest or
principal payments on U.S. Treasury notes or bonds.
\13\ CDs are short-term negotiable obligations of commercial
banks. Time deposits are non-negotiable deposits maintained in
banking institutions for specified periods of time at stated
interest rates. Banker's acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with
international transactions.
\14\ Repurchase agreements may be characterized as loans secured
by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System
having total assets in excess of $500 million and (i) securities
dealers (``Qualified Institutions''). The Adviser will monitor the
continued creditworthiness of Qualified Institutions.
---------------------------------------------------------------------------
The Fund may enter into reverse repurchase agreements, which
involve the sale of securities with an agreement to repurchase the
securities at an agreed-upon price, date and interest payment and have
the characteristics of borrowing. The securities purchased with the
funds obtained from the agreement and securities collateralizing the
agreement will have maturity dates no later than the repayment date.
The Fund may invest in the securities of other investment companies
(including money market funds), subject to applicable restrictions
under the 1940 Act.
The Fund may utilize U.S. exchange-traded futures contracts on the
S&P 500 Index and U.S. exchange-traded options on futures contracts on
the S&P 500 Index.
The Fund may utilize such options on futures contracts as a hedge
against changes in value of its portfolio securities, or in
anticipation of the purchase of securities, and may enter into closing
transactions with respect to such options to terminate existing
positions.
The Fund may enter into swap agreements based on the S&P 500 Index.
The Fund may invest in investment grade debt obligations traded in
the U.S. Such debt obligations include, among others, bonds, notes,
debentures and variable rate demand notes. In choosing corporate debt
securities on behalf of the Fund, the Sub-Adviser may consider (i)
general economic and financial conditions; and (ii) the specific
issuer's (a) business and management, (b) cash flow, (c) earnings
coverage of interest and dividends, (d) ability to operate under
adverse economic conditions, (e) fair market value of assets, and (f)
other considerations deemed appropriate.
The Fund may invest up to 100% of its total assets in debt
securities that are rated investment grade by an NRSROs [sic], or are
unrated securities that the Sub-Adviser believes are of comparable
quality.
The Fund may invest in securities that have variable or floating
interest rates which are readjusted on set dates (such as the last day
of the month or calendar quarter) in the case of variable rates or
whenever a specified interest rate change occurs in the case of a
floating rate instrument.
The Fund may use delayed delivery transactions as an investment
technique. Delayed delivery transactions, also referred to as forward
commitments, involve commitments by the Fund to dealers or issuers to
acquire or sell securities at a specified future date beyond the
customary settlement for such securities. These commitments may fix the
payment price and interest rate to be received or paid on the
investment. The Fund may purchase securities on a delayed delivery
basis to the extent that it can anticipate having available cash on the
settlement date. Delayed delivery agreements will not be used as a
speculative or leverage technique.
The Fund may purchase when-issued securities.
The Fund may invest in zero-coupon or pay-in-kind securities. These
securities are debt securities that do not make regular cash interest
payments. Zero-coupon securities are sold at a deep discount to their
face value. Pay-in-kind securities pay interest through the issuance of
additional securities.
Investment Restrictions
The Fund may hold up to an aggregate of 15% of its net assets in
illiquid assets (calculated at the time of investment), including Rule
144A securities deemed illiquid by the Adviser or Sub-
[[Page 25733]]
Adviser.\15\ The Fund will monitor its portfolio liquidity on an
ongoing basis to determine whether, in light of current circumstances,
an adequate level of liquidity is being maintained, and will consider
taking appropriate steps in order to maintain adequate liquidity if
through a change in values, net assets, or other circumstances, more
than 15% of the Fund's net assets are held in illiquid assets. Illiquid
assets include securities subject to contractual or other restrictions
on resale and other instruments that lack readily available markets as
determined in accordance with Commission staff guidance.\16\
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\15\ Rule 144A securities are securities which, while privately
placed, are eligible for purchase and resale pursuant to Rule 144A
under the Securities Act. This rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately placed
securities even though such securities are not registered under the
Securities Act. The Sub-Adviser, under supervision of the Board,
will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's restriction on illiquid
assets. Determination of whether a Rule 144A security is liquid or
not is a question of fact. In making this determination, the Sub-
Adviser will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A security.
In addition, the Sub-Adviser could consider the (i) frequency of
trades and quotes; (ii) number of dealers and potential purchasers;
(iii) dealer undertakings to make a market; and (iv) nature of the
security and of market place trades (for example, the time needed to
dispose of the security, the method of soliciting offers and the
mechanics of transfer). The Sub-Adviser will also monitor the
liquidity of Rule 144A securities, and if, as a result of changed
conditions, the Sub-Adviser determines that a Rule 144A security is
no longer liquid, the Sub-Adviser will review the Fund's holdings of
illiquid securities to determine what, if any, action is required to
assure that the Fund complies with its restriction on investment of
illiquid securities.
\16\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act of 1933 (15 U.S.C.
77a).
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The Fund intends to qualify for and to elect to be treated as a
separate regulated investment company (a ``RIC'') under Subchapter M of
the Internal Revenue Code.\17\
---------------------------------------------------------------------------
\17\ 26 U.S.C. 851 et seq.
---------------------------------------------------------------------------
The Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage.\18\
---------------------------------------------------------------------------
\18\ Investments in derivative instruments by the Fund will be
made in accordance with the 1940 Act and consistent with the Fund's
investment objective and policies. To limit the potential risk
associated with transactions in derivatives, the Fund will segregate
or ``earmark'' assets determined to be liquid by the Adviser in
accordance with procedures that will established by the Trust's
Board of Trustees (``Board'') and in accordance with the 1940 Act
(or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under derivative
instruments. These procedures will be adopted consistent with
Section 18 of the 1940 Act and related Commission guidance. In
addition, the Fund will include appropriate risk disclosure in its
offering documents, including leveraging risk. Leveraging risk is
the risk that certain transactions of the Fund, including the Fund's
use of derivatives, may give rise to leverage, causing the Fund's
Shares to be more volatile than if they had not been leveraged.
---------------------------------------------------------------------------
Net Asset Value
The net asset value (``NAV'') per Share of the Fund will be
computed by dividing the value of the net assets of the Fund (i.e., the
value of its total assets less total liabilities) by the total number
of Shares of the Fund outstanding, rounded to the nearest cent.
Expenses and fees, including without limitation, the management and
administration fees, will be accrued daily and taken into account for
purposes of determining NAV. The NAV per Share will be calculated by
the Custodian and determined as of the close of the regular trading
session on the New York Stock Exchange (``NYSE'') (ordinarily 4:00
p.m., Eastern time) (``NYSE Close'') on each day that such exchange is
open.
In computing the Fund's NAV, the Fund's securities holdings traded
on a national securities exchange (including listed put options sold by
the Fund and any exchange-traded equity securities held by the Fund)
will be valued based on their last sale price. Price information on
listed securities will be taken from the exchange where the security is
primarily traded. Other portfolio securities and assets for which
market quotations are not readily available will be valued based on
fair value as determined in good faith in accordance with procedures
adopted by the Trust's Board.
Non-exchange traded investment company securities will be priced at
NAV.
The Fund's debt securities will be valued at market value. Market
value generally means a valuation (i) obtained from an exchange, a
pricing service or a major market maker (or dealer), (ii) based on a
price quotation or other equivalent indication of value supplied by an
exchange, a pricing service or a major market maker (or dealer), or
(iii) based on amortized cost. The Fund's debt securities will be thus
valued by reference to a combination of transactions and quotations for
the same or other securities believed to be comparable in quality,
coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. To the extent
the Fund's debt securities are valued based on price quotations or
other equivalent indications of value provided by a third-party pricing
service, any such third-party pricing service may use a variety of
methodologies to value some or all of the Fund's debt securities to
determine the market price. For example, the prices of securities with
characteristics similar to those held by the Fund may be used to assist
with the pricing process. In addition, the pricing service may use
proprietary pricing models. Short-term fixed income securities having a
remaining maturity of 60 days or less will generally be valued at
amortized cost. The Fund's listed put options, as well as exchange-
traded equity securities held by the Fund, will be valued at the last
reported sale price on the principal exchange on which such securities
are traded, as of the close of regular trading on NYSE Arca on the day
the securities are being valued or, if there are no sales, at the mean
of the most recent bid and asked prices. Other derivatives will
generally be valued on the basis of quotes obtained from brokers and
dealers or pricing services using data reflecting the earlier closing
of the principal markets for those assets. Local closing prices will be
used for all instrument valuation purposes. Foreign currency-
denominated derivatives will generally be valued as of the respective
local region's market close. With respect to specific derivatives, and
[sic] forward rates from major market data vendors will generally be
determined as of the NYSE Close; futures will generally be valued at
the settlement price of the relevant exchange; index swaps will be
valued at the publicly available index price; index options, and
options on futures will generally be valued at the official settlement
price determined by the relevant exchange, if available; OTC and
exchange-traded equity options will generally be valued on the basis of
quotes of quotes received from a quotation reporting system,
established market makers, or pricing services or'for [sic] exchange-
traded options, at the settlement price of the applicable exchange.
Money market instruments (other than debt securities noted above),
structured notes, repurchase
[[Page 25734]]
agreements, reverse repurchase agreements and variable or floating rate
securities will generally be valued on the basis of independent pricing
services or quotes obtained from brokers and dealers. Securities for
which market quotations are not readily available, including Rule 144A
securities, will be valued by a method that the Trust's Board believes
accurately reflects fair value. Securities will be valued at fair value
when market quotations are not readily available or are deemed
unreliable, such as when a security's value or meaningful portion of
the Fund's portfolio is believed to have been materially affected by a
significant event.
Creation and Redemption of Shares
The Trust will issue and sell Shares of the Fund only in ``Creation
Unit Aggregations'' of 50,000 Shares each on a continuous basis through
the Distributor, without a sales load, at its NAV next determined after
receipt, on any business day, of an order in proper form.
Creation Units of the Fund generally will be sold for cash only,
calculated based on the NAV per Share multiplied by the number of
Shares representing a Creation Unit (``Deposit Cash''), plus a
transaction fee.
The Custodian, through the National Securities Clearing Corporation
(``NSCC''), will make available on each business day, prior to the
opening of business on the NYSE Arca (currently 9:30 a.m., Eastern
time), the amount of the Deposit Cash to be deposited in exchange for a
Creation Unit Aggregation of the Fund.
To be eligible to place orders with the Distributor and to create a
Creation Unit Aggregation of the Fund, an entity must be a Depositary
Trust Company (``DTC'') Participant that has executed an agreement with
the Distributor, with respect to creations and redemptions of Creation
Units (``Participant Agreement''). A DTC Participant that has executed
a Participant Agreement is referred to as an ``Authorized
Participant.''
All orders to create Creation Unit Aggregations must be received by
the Distributor no later than the closing time of the regular trading
session on the NYSE (``Closing Time'') (ordinarily 4:00 p.m., Eastern
time) in each case on the date such order is placed in order for
creation of Creation Unit Aggregations 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. The date on which an order to create Creation
Unit Aggregations is placed is referred to as the ``Transmittal Date.''
Orders must be transmitted by an Authorized Participant by telephone or
other transmission method acceptable to the Distributor pursuant to
procedures set forth in the ``Participant Agreement''.
Authorized Participants will be required to pay a fixed creation
transaction fee payable regardless of the number of creations made each
day.
Fund Shares may be redeemed only in Creation Unit size at the NAV
next determined after receipt of a redemption request in proper form by
the Fund through the Transfer Agent and only on a business day. The
Fund will not redeem Shares in amounts less than Creation Unit
Aggregations.
With respect to the Fund, the Custodian, through the NSCC, will
make available prior to the opening of business on NYSE Arca on each
business day, the amount of cash that will be paid (subject to possible
amendment or correction) in respect of redemption requests received in
proper form on that day (the ``Redemption Cash'').
The redemption proceeds for a Creation Unit generally consist of
the Redemption Cash--as announced on the business day of the request
for redemption received in proper form--less a redemption transaction
fee.
The right of redemption may be suspended or the date of payment
postponed (i) for any period during which the NYSE is closed (other
than customary weekend and holiday closings); (ii) for any period
during which trading on the NYSE is suspended or restricted; (iii) for
any period during which an emergency exists as a result of which
disposal of the Shares of the Fund or determination of the Fund's NAV
is not reasonably practicable; or (iv) in such other circumstances as
is permitted by the Commission.
Orders to redeem Creation Units must be delivered through a DTC
Participant that has executed the Participant Agreement. An order to
redeem Creation Units is deemed received by the Trust on the
Transmittal Date if (i) such order is received by the Transfer Agent
not later than 4:00 p.m., Eastern time on such Transmittal Date; (ii)
such order is accompanied or followed by the requisite number of Shares
of the Fund, which delivery must be made through DTC to the Custodian
no later than 11:00 a.m., Eastern time (for the Fund Shares), on the
next business day immediately following such Transmittal Date (the
``DTC Cut-Off-Time'') and 2:00 p.m., Eastern time for any cash
component, if any owed to the Fund; and (iii) all other procedures set
forth in the Participant Agreement are properly followed. After the
Trust has deemed an order for redemption received, the Trust will
initiate procedures to transfer the requisite Redemption Cash which is
expected to be delivered within three business days.
Intraday Indicative Value
The approximate value of the Fund's investments on a per-Share
basis, the Indicative Intra-Day Value (``IIV''), which is the Portfolio
Indicative Value as defined in NYSE Arca Equities Rule 8.600(c)(3),
will be disseminated by one or more major market data vendors every 15
seconds during the Exchange's Core Trading Session. The IIV should not
be viewed as a ``real-time'' update of NAV because the IIV will be
calculated by an independent third party calculator and may not be
calculated in the exact same manner as NAV, which will be computed
daily.
The IIV will be calculated during the Exchange's Core Trading
Session by dividing the ``Estimated Fund Value'' as of the time of the
calculation by the total number of outstanding Shares. ``Estimated Fund
Value'' is the sum of the estimated amount of cash held in the Fund's
portfolio, the estimated amount of accrued interest owing to the Fund
and the estimated value of the securities and other assets held in the
Fund's portfolio, minus the estimated amount of liabilities. The IIV
will be calculated based on the same portfolio holdings disclosed on
the Fund's Web site. In determining the estimated value for each of the
component securities and other assets, the IIV will use last sale,
market prices or other methods that would be considered appropriate for
pricing securities held by registered investment companies.
Availability of Information
The Fund's Web site (www.alpsfunds.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''),\19\ and a calculation of the premium and discount of the Bid/
Ask
[[Page 25735]]
Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange (9:30
a.m. to 4:00 p.m., Eastern time), the Fund's Web site will disclose the
Disclosed Portfolio that will form the basis for the Fund's calculation
of NAV at the end of the business day.\20\
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\19\ The Bid/Ask Price of the Fund's Shares will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid/Ask Prices will be retained by the Fund and
its service providers.
\20\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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The Fund will disclose on the Fund's Web site the following
information regarding each portfolio holding, as applicable to the type
of holding: Ticker symbol, CUSIP number or other identifier, if any; a
description of the holding (including the type of holding, such as the
type of swap); the identity of the security, commodity, index or other
asset or instrument underlying the holding, if any; for options, the
option strike price; quantity held (as measured by, for example, par
value, notional value or number of shares, contracts or units);
maturity date, if any; coupon rate, if any; effective date, if any;
market value of the holding; and the percentage weighting of the
holding in the Fund's portfolio. The Web site information will be
publicly available at no charge.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's shareholder reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports will be available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR 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 U.S.
exchange-listed equities (including SPY) will be available via the
Consolidated Tape Association (``CTA'') high-speed line, and from the
Exchange. Quotation and last sale information for exchange-listed
options cleared via the Options Clearing Corporation will be available
via the Options Price Reporting Authority. Intra-day and closing price
information regarding exchange-traded options (including options on
futures) and futures will be available from the exchange on which such
instruments are traded. Intra-day and closing price information
regarding debt securities; money market instruments; convertible
securities; structured notes; forward foreign currency exchange
contracts; swaps; repurchase agreements; reverse repurchase agreements;
US government securities; MBS and ABS; mortgage pass-throughs; variable
or floating interest rate securities; when-issued securities; delayed
delivery securities; and zero-coupon securities also will be available
from major market data vendors. Price information for non-exchange-
traded investment company securities will be available from major
market data vendors and from the Web site of the applicable investment
company.
In addition, the IIV will be widely disseminated at least every 15
seconds during the Core Trading Session by one or more major market
data vendors.\21\ The dissemination of the IIV, together with the
Disclosed Portfolio, will allow investors to determine the value of the
underlying portfolio of the Fund on a daily basis and will provide a
close estimate of that value throughout the trading day.
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\21\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IIVs
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, 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.\22\ 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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\22\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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If the IIV, Index value or the value of the Index components is not
being disseminated as required, the Exchange may halt trading during
the day in which the disruption occurs; if the interruption persists
past the day in which it occurred, the Exchange will halt trading no
later than the beginning of the trading day following the interruption.
Under NYSE Arca Equities Rule 7.34(a)(5), if the Exchange becomes aware
that the NAV for the Fund is not being disseminated to all market
participants at the same time, it will halt trading in the Shares until
such time as the NAV is available to all market participants.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the actual
components of the Fund's portfolio. The Exchange represents that, for
initial and/or continued listing, the Fund will be in compliance with
Rule 10A-3 \23\ 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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\23\ 17 CFR 240.10A-3.
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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. ET 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
[[Page 25736]]
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.
Surveillance
The Exchange represents that the 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.\24\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
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\24\ 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, other exchange-traded equity
securities, exchange-traded investment company securities, futures
contracts, and exchange-traded options contracts with other markets and
other entities that are members of the Intermarket Surveillance Group
(``ISG''), and FINRA, on behalf of the Exchange, may obtain trading
information regarding trading in the Shares, other exchange-traded
equity securities, exchange-traded investment company securities,
futures contracts and exchange-traded options contracts from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, other exchange-traded
equity securities, exchange-traded investment company securities,
futures contracts and exchange-traded options contracts from markets
and other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement.\25\ All
futures contracts (and options on futures) and listed options held by
the Fund will be traded on U.S. exchanges, all of which are members of
ISG or are exchanges with which the Exchange has in place a
comprehensive surveillance sharing agreement. In addition, 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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\25\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all of the components
of the portfolio for the Fund may trade on exchanges that are
members of the 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 of Shares in the Fund, the
Exchange will inform its ETP Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated IIV or Index value will not be calculated or
publicly disseminated; (4) how information regarding the IIV, the
Disclosed Portfolio and the Index value will be 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., Eastern time each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \26\ 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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\26\ 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 on the Exchange pursuant to the initial and
continued listing criteria in NYSE Arca Equities Rule 8.600. The Shares
will be subject to the existing trading surveillances, administered by
FINRA on behalf of the Exchange, which are designed to deter and detect
violations of Exchange rules and federal securities laws applicable to
trading on the Exchange. FINRA and the Exchange, as applicable, may
each obtain information via ISG from other exchanges that are members
of ISG, and in the case of the Exchange, from other market or entities
with which the Exchange has entered into a comprehensive surveillance
sharing agreement. The Adviser is not a registered broker-dealer but is
affiliated with a broker-dealer and has implemented a ``fire wall''
with respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the Fund's portfolio. The
Sub-Adviser is not registered as a broker-dealer and is not affiliated
with a broker-dealer. The Fund's investments will be consistent with
its investment objective and will not be used to enhance leverage.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser or Sub-
Adviser, consistent with Commission guidance. The proposed rule change
is designed to promote just and equitable principles of trade and to
protect investors and the public interest in that the Exchange will
obtain a representation from the issuer of the Shares that the NAV per
Share will be calculated daily every day the NYSE is open, and that the
NAV will be made available to all market participants at the same time.
In addition, a large amount of publicly available information will be
publicly available
[[Page 25737]]
regarding the Fund and the Shares, thereby promoting market
transparency.
Moreover, the IIV will be widely disseminated by one or more major
market data vendors at least every 15 seconds during the Exchange's
Core Trading Session. On each business day, before commencement of
trading in the Shares in the Core Session on the Exchange, the Fund
will disclose on its Web site the portfolio that will form the basis
for the Fund's calculation of NAV at the end of the business day.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services, and
quotations and last sale information will be available via the CTA
high-speed line. Quotation and last sale information for the Shares
will be available via the CTA high-speed line, and from the Exchange.
Quotation and last sale information for exchange-listed options cleared
via the Options Clearing Corporation will be available via the Options
Price Reporting Authority. Intra-day and closing price information
regarding exchange-traded options (including options on futures) and
futures will be available from the exchange on which such instruments
are traded. Intra-day and closing price information regarding debt
securities; money market instruments; convertible securities;
structured notes; forward foreign currency exchange contracts; swaps;
US government securities; MBS and ABS; mortgage pass-throughs; variable
or floating interest rate securities; when-issued securities; delayed
delivery securities; zero-coupon securities; repurchase agreements;
reverse repurchase agreements; and pay-in-kind securities also will be
available from major market data vendors.
In addition, the IIV will be widely disseminated at least every 15
seconds during the Core Trading Session by one or more major market
data. The Web site for the Fund will include the prospectus for the
Fund and additional data relating to NAV and other applicable
quantitative information. Moreover, prior to commencement of trading,
the Exchange will inform its ETP Holders in an Information Bulletin of
the special characteristics and risks associated with trading the
Shares. 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 the Shares inadvisable. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the IIV, the Fund's portfolio, and quotation and last
sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Shares will be subject to the
existing trading surveillances, administered by FINRA on behalf of the
Exchange, which are designed to detect violations of Exchange rules and
federal securities laws applicable to trading on the Exchange. FINRA,
on behalf of the Exchange, will communicate as needed regarding trading
in the Shares, other exchange-traded equity securities, exchange-traded
investment company securities, futures contracts, and exchange-traded
options contracts with other market and other entities that are members
of ISG, and FINRA, on behalf of the Exchange, may obtain trading
information in the Shares, other exchange-traded equity securities,
exchange-traded investment company securities, futures contracts, and
exchange-traded options contracts from such markets and other entities.
In addition, the Exchange may obtain information regarding trading in
the Shares, other exchange-traded equity securities, exchange-traded
investment company securities, futures contracts, and exchange-traded
options contracts from markets and other entities that are members of
ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. FINRA, on behalf of the Exchange, is
able to access, as needed, trade information for certain fixed income
securities held by the Fund reported to FINRA's TRACE. In addition, as
noted above, investors will have ready access to information regarding
the Fund's holdings, the IIV, 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 an
additional type of actively managed ETF 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.
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-2015-23 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-2015-23. 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
[[Page 25738]]
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street
NE., Washington, DC 20549 on official business days between 10:00 a.m.
and 3:00 p.m. Copies of the filing will also be available for
inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. 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-2015-23 and should be submitted on or before
May 26, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-10406 Filed 5-4-15; 8:45 am]
BILLING CODE 8011-01-P
