Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of the JPMorgan Diversified Alternative ETF Under NYSE Arca Equities Rule 8.600, 9521-9531 [2016-03940]

Download as PDF Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices POSTAL SERVICE Product Change—First-Class Package Service Negotiated Service Agreement Postal ServiceTM. ACTION: Notice. AGENCY: The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. DATES: Effective date: February 25, 2016. FOR FURTHER INFORMATION CONTACT: Elizabeth A. Reed, 202–268–3179. SUPPLEMENTARY INFORMATION: The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on February 18, 2016, it filed with the Postal Regulatory Commission a Request of the United States Postal Service to Add First-Class Package Service Contract 43 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2016–81, CP2016–106. SUMMARY: Stanley F. Mires, Attorney, Federal Compliance. [FR Doc. 2016–03973 Filed 2–24–16; 8:45 am] I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the following under NYSE Arca Equities Rule 8.600 (‘‘Managed Fund Shares’’): JPMorgan Diversified Alternative 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 BILLING CODE 7710–12–P SECURITIES AND EXCHANGE COMMISSION 1. Purpose [Release No. 34–77179; File No. SR– NYSEArca–2016–17] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of the JPMorgan Diversified Alternative ETF Under NYSE Arca Equities Rule 8.600 The Exchange proposes to list and trade shares (‘‘Shares’’) of the following under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares 4 on the mstockstill on DSK4VPTVN1PROD with NOTICES February 19, 2016. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on February 5, 2016, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 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. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 9521 Exchange5: JPMorgan Diversified Alternative ETF (the ‘‘Fund’’).6 The Fund is a series of J.P. Morgan Exchange-Traded Fund Trust (‘‘Trust’’), a Delaware statutory trust. J.P. Morgan Investment Management Inc. (‘‘Adviser’’) will be the investment adviser to the Fund. The Adviser is a wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc., which is a wholly-owned subsidiary of JPMorgan Chase & Co. (‘‘JPMorgan Chase’’), a bank holding company. JPMorgan Funds Management, Inc. (‘‘Administrator’’) will provide administrative services for and will oversee the other service providers of the Fund. SEI Investments Distribution Co. (‘‘Distributor’’) will be the 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.7 In addition, 5 The Commission has previously approved listing and trading on the Exchange of actively managed funds under Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) (SR– NYSEArca–2008–31) (order approving Exchange listing and trading of twelve actively-managed funds of the WisdomTree Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9, 2012) (SR– NYSEArca–2011–95) (order approving listing and trading of PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 77 FR 20087 (April 3, 2012) (SR–NYSEArca–2012–09) (order approving listing and trading of PIMCO Global Advantage Inflation-Linked Bond Strategy Fund). 6 The Trust is registered under the 1940 Act. On December 14, 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 the 1940 Act relating to the Fund (File Nos. 333–191837 and 811–22903) (the ‘‘Registration Statement’’). The Trust filed an Application for an Order under Section 6(c) of the 1940 Act for exemptions from various provisions of the 1940 Act and rules thereunder (File No. 812– 13761), initially filed March 10, 2010 and most recently amended on December 23, 2015 (‘‘Exemptive Application’’); the Exemptive Application was published for notice in IC Release No. 31956 on January 14, 2016. The Shares will not be listed on the Exchange until an order (‘‘Exemptive Order’’) under the 1940 Act has been issued by the Commission with respect to the Exemptive Application. Investments made by the Fund will comply with the conditions set forth in the Exemptive Order. The description of the operation of the Trust and the Fund herein is based, in part, on the Registration Statement and the Exemptive Application. 7 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). As a result, the Adviser and its related personnel are subject to the provisions of Rule 204A–1 under the E:\FR\FM\25FEN1.SGM Continued 25FEN1 9522 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Commentary .06 further requires that personnel who make decisions on the open-end fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the open-end fund’s portfolio. The Adviser is not registered as a broker-dealer but is affiliated with a broker-dealer and has implemented and will maintain a fire wall with respect to such broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio. In the event (a) the Adviser becomes registered as a broker-dealer or newly affiliated with one or more broker-dealers, or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a brokerdealer, it will implement a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolios, and will be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding such portfolios. According to the Registration Statement, the Fund will seek to provide long term, total return. The Fund will seek to achieve its investment objective by allocating assets across several different investment strategies, including traditional and alternative investment strategies, such as those utilized by certain hedged funds. The strategies identified by the Adviser for the Fund fall into the following broad categories: ‘‘Equity Long/Short’’, ‘‘Event Driven’’ and ‘‘Global Macro Based’’ (including equities, fixed income, currency and commodities) strategies, as described below. Within these broad strategies, the Adviser believes that it has identified a 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. VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 set of return sources present in markets that result from, among other things, assuming a particular risk or taking advantage of a behavioral bias (each a ‘‘return factor’’). According to the Registration Statement, under normal market conditions,8 the Fund will seek to achieve its investment objective by employing the above-referenced investment strategies to access certain of these return factors. Return factors utilized by the Fund will fall into the following broad categories depending on the strategy: Equity, fixed income, currency and commodities. Each represents a potential source of investment return that results from, among other things, assuming a particular risk or taking advantage of a behavioral bias. For example, the Adviser may gain exposure to a ‘‘momentum return factor’’ by employing a strategy that buys securities with strong positive price momentum and shorts securities with strong negative price momentum. This strategy would seek to exploit a behavioral bias present in the market, in which investors tend to purchase securities that have recently performed well, thereby helping to contribute to continued positive price movement, and sell securities that have recently performed poorly, thereby helping to contribute to continued negative price movement. The Adviser believes that, in general, the Fund’s investment returns are attributable to the individual contributions of the various return factors. By employing this return factor based approach, the Fund will seek to provide positive total returns over time while maintaining a relatively low correlation with traditional markets. The exposure to individual return factors may vary based on the market opportunity of the individual return factors. The Fund may employ the following investment strategies: • Equity Long/Short: 9 Equity Long/ Short strategies involve simultaneous 8 The term ‘‘under normal market conditions’’ includes, but is not limited to, the absence of extreme volatility or trading halts in the securities markets or the financial markets generally; circumstances under which the Fund’s investments are made for temporary defensive purposes; operational issues causing dissemination of inaccurate market information; or force majeure type events such as systems failure, cyber attacks, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. 9 In the Equity Long/Short strategies, the Fund may hold equity securities, primarily common stock, long and sell equity securities short or achieve the long and short positions through the use of a swap. The Fund may also utilize futures in these strategies. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 investing in equities (investing long) that the Adviser expects to increase in value and selling equities (i.e., selling short) that the adviser expects to decrease in value. Equity Long/Short seeks to profit by exploiting pricing inefficiencies between related equity securities by maintaining long and short positions. • Event Driven: 10 Event Driven strategies seek to profit from investing in securities of companies on the basis that a specific event or catalyst will affect future pricing. For example, merger arbitrage strategies seek to capitalize on price discrepancies and returns generated by a corporate transaction. For example, the Fund may purchase the common stock of the company being acquired and short the common stock of the acquirer in expectation of profiting from the price differential between the purchase price of the securities and the value received for the securities as a result of or in expectation of the consummation of the merger. • Global Macro Based Strategies: 11 Macro based strategies aim to exploit macro economic imbalances across the globe. The macro based strategies may be implemented through a broad range of asset classes including, but not limited to, equities, fixed income, currency and commodities. For example, this strategy will invest in the long-end of the government bond markets with the highest inflation adjusted yields and sell short the longend of the government bond markets with the lowest inflation adjusted yields. As an alternative example, the strategy will seek to exploit supply and demand imbalances that occur in a given commodity market by utilizing long and short exposures achieved through different derivative instruments. See ‘‘Principal Investments’’ and ‘‘Other Investments’’ below for a description of all the investments that may be used within the Fund. According to the Registration Statement, the Fund will invest its assets globally (including in emerging 10 In the Event Driven strategies, the Fund may hold equity securities, primarily common stock, long and sell equity securities short or achieve the long and short positions through the use of a swap. The Fund may also utilize futures in these strategies. In the future, the Fund may utilize long and short positions in debt securities (as described below) through the use of both physical securities or swaps. 11 The Global Macro Based strategies may be implemented through equity securities, debt securities (including through investment in another fund), currency futures and forward contracts and commodities (through its investment in its Subsidiary, as described below). E:\FR\FM\25FEN1.SGM 25FEN1 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES markets) to gain exposure to equity securities (across market capitalizations), debt securities,12 commodities (through its subsidiary as described below) and currencies. The Fund may use both long and short positions (achieved primarily through the use of derivative instruments, as described below). At all times, the Fund will maintain a total net long market exposure. However, the Fund may have net long or net short exposure to one or more industry sectors, individual markets and/or currencies. According to the Registration Statement, the Adviser will make use of derivatives as described below,13 in implementing its strategies. Under normal market conditions, the Adviser currently expects that a significant portion of the Fund’s exposure will be attained through the use of derivatives in addition to its exposure through direct investment. The derivatives usage will occur in both the Fund and in the Diversified Alternative Fund CS Ltd., a wholly owned subsidiary of the Fund organized under the laws of the Cayman Islands (the ‘‘Subsidiary’’).14 For example, in implementing Equity Long/ Short strategies and Global Macro Based strategies, the Fund may use a total return swap to establish both long and short positions in order to gain the desired exposure rather than physically purchasing and selling short each instrument. Derivatives may also be used to increase gain, to effectively gain targeted equity exposure from its cash positions, to hedge various investments and/or for risk management. As a result of the Fund’s and the Subsidiary’s use of derivatives and to serve as collateral, the Fund or the Subsidiary may hold significant amounts of U.S. Treasury obligations, including Treasury bills, bonds and notes and other obligations issued or guaranteed by the U.S. Treasury, and other short-term investments, including money market funds and foreign currencies in which certain derivatives are denominated. According to the Registration Statement, the amount that may be 12 For purposes of this filing, the term ‘‘debt securities’’ shall mean the following, as described further below: Corporate debt, bank obligations, commercial paper, repurchase agreements and short-term funding agreements, U.S. Government obligations, inflation-linked debt securities, U.S. government sponsored mortgage-backed securities, Brady Bonds, convertible securities, obligations of supranational agencies, reverse repurchase agreements, sovereign obligations, U.S. government agency securities, and restricted securities (144A securities). 13 See the description of derivatives in ‘‘Principal Investments’’ and ‘‘The Fund’s and the Subsidiary’s, Use of Derivatives’’, infra. 14 As described below, the Subsidiary will invest only in commodity futures. VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 invested in any one instrument will vary and generally depend on the investment strategies and return factors employed by the Adviser at that time. However, with the exception of specified investment limitations for certain assets described below, there are no stated percentage limitations on the amount that can be invested in any one type of instrument, and the Adviser may, at times, invest in a smaller number of instruments. Moreover, the Fund will generally be unconstrained by any particular capitalization, style or sector and may invest in any region or country, including emerging markets. The Fund will purchase a particular instrument when the Adviser believes that such instrument will allow the Fund to gain the desired exposure to a return factor. Conversely, the Fund will consider selling a particular instrument when it no longer provides the desired exposure to a return factor. In addition, investment decisions will take into account a return factor’s contribution to the Fund’s overall volatility. Principal Investments According to the Registration Statement, under normal market conditions, the Fund will invest principally (i.e., more than 50% of the Fund’s assets) in the securities and financial instruments described below, which may be represented by derivatives, as discussed below. The Fund may invest in exchangelisted-and-traded common stocks, preferred stocks,15 warrants and rights 16 of U.S. and foreign corporations,17 15 Preferred stock is a class of stock that generally pays a dividend at a specified rate and has preference over common stock in the payment of dividends and in liquidation (U.S. and non-U.S., including emerging markets). 16 Rights are securities, typically issued with preferred stock or bonds, that give the holder the right to buy a proportionate amount of common stock at a specified price (U.S. and non-U.S., including emerging markets). 17 For purposes of this filing, common stocks, preferred stocks, warrants and rights of foreign corporations; non-U.S. real estate investment trusts (‘‘REITs’’) (as referenced below); and Depositary Receipts (as described below) (excluding Depositary Receipts that are registered under the Act) are referred to collectively as ‘‘non-U.S. equity securities’’. Under normal circumstances, the nonU.S. equity securities in the Fund’s portfolio will meet the following criteria at time of purchase: (1) Non-U.S. equity securities each shall have a minimum market value of at least $100 million; (2) non-U.S. equity securities each shall have a minimum global monthly trading volume of 250,000 shares, or minimum global notional volume traded per month of $25,000,000, averaged over the last six months; (3) the most heavily weighted nonU.S. equity security shall not exceed 25% of the weight of the Fund’s entire portfolio, and, to the extent applicable, the five most heavily weighted non-U.S. equity securities shall not exceed 60% of the weight of the Fund’s entire portfolio; and (4) each non-U.S. equity security shall be listed and traded on an exchange that has last-sale reporting. PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 9523 (including emerging market securities); and U.S. and non-U.S. REITs.18 Exchange-listed-and-traded common stocks, preferred stocks, warrants and rights of U.S. corporations and U.S. REITs will be traded on U.S. national securities exchanges. The Fund may invest in exchangelisted and over-the-counter (‘‘OTC’’) Depositary Receipts.19 The Fund may invest in the following cash and cash equivalents: investments in money market funds (for which the Adviser and/or its affiliates serve as investment adviser or administrator), bank obligations,20 commercial paper,21 repurchase agreements and short-term funding agreements.22 The Fund may invest in corporate debt.23 These could include emerging market securities. The Fund may purchase and sell futures contracts on currencies and fixed income securities, and futures contracts on indexes of securities. The Fund may invest in OTC and exchange-traded call and put options on 18 REITs are pooled investment vehicles which invest primarily in income producing real estate or real estate related loans or interest. 19 Depositary Receipts include American Depositary Receipts (‘‘ADRs’’), Global Depositary Receipts (‘‘GDRs’’) and European Depositary Receipts (‘‘EDRs’’). ADRs are receipts typically issued by an American bank or trust company that evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued by a European bank or trust company evidencing ownership of securities issued by a foreign corporation. GDRs are receipts issued throughout the world that evidence a similar arrangement. ADRs, EDRs and GDRs may trade in foreign currencies that differ from the currency the underlying security for each ADR, EDR or GDR principally trades in. Generally, ADRs, in registered form, are designed for use in the U.S. securities markets. EDRs, in registered form, are used to access European markets. GDRs, in registered form, are tradable both in the United States and in Europe and are designed for use throughout the world. No more than 10% of the net assets of the Fund will be invested in ADRs that are not exchange-listed. 20 Bank obligations include the following: Bankers’ acceptances, certificates of deposit and time deposits. Bankers’ acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Maturities are generally six months or less. Certificates of deposit are negotiable certificates issued by a bank for a specified period of time and earning a specified return. Time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of funds. 21 Commercial paper consists of secured and unsecured short-term promissory notes issued by corporations and other entities. Maturities generally vary from a few days to nine months. 22 Short-term funding agreements are agreements issued by banks and highly rated U.S. insurance companies such as Guaranteed Investment Contracts (‘‘GICs’’) and Bank Investment Contracts (‘‘BICs’’). 23 The Adviser expects that, under normal market conditions, the Fund generally will seek to invest at least 75% of its corporate debt assets in issuances that have at least $100,000,000 par amount outstanding in developed countries or at least $200,000,000 par amount outstanding in emerging market countries. E:\FR\FM\25FEN1.SGM 25FEN1 9524 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices equities, fixed income securities and currencies or options on indexes of equities, fixed income securities and currencies. In addition to money market funds referenced above, the Fund may invest in shares of non-exchange-traded investment company securities including investment company securities for which the Adviser and/or its affiliates may serve as investment adviser or administrator, to the extent permitted by Section 12(d)(1) 24 of the 1940 Act and the rules thereunder. The Fund may invest in exchange traded funds (‘‘ETFs’’).25 The Fund may invest in swaps as follows: credit default swaps (‘‘CDSs’’), interest rate swaps, currency swaps, total return swaps on equity securities and equity index swaps. The Fund may invest in forward and spot currency transactions. Such investments consist of non-deliverable forwards (‘‘NDFs’’), foreign forward currency contracts,26 and spot currency transactions. The Fund may invest in U.S. Government obligations, which may include direct obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all of which are backed as to principal and interest payments by the full faith and credit of the United States, and separately traded principal and interest component parts of such obligations that are transferable through the Federal book-entry system known as Separate Trading of Registered Interest and Principal of Securities (STRIPS) and Coupons Under Book Entry Safekeeping (‘‘CUBES’’). The Fund may invest in U.S. government sponsored mortgage-backed securities. Other Investments While the Fund, under normal market conditions, will invest at least fifty percent (50%) of its assets in the securities and financial instruments described above, the Fund may invest 24 15 U.S.C. 80a–12(d)(1). ETFs in which the Fund may invest will be registered under the 1940 Act and include Investment Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); and Managed Fund Shares (as described in NYSE Arca Equities Rule 8.600). Such ETFs all will be listed and traded in the U.S. on registered exchanges. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged or inverse leveraged (e.g., 2X, ¥2X, 3X or ¥3X) ETFs. 26 A foreign currency forward contract is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. mstockstill on DSK4VPTVN1PROD with NOTICES 25 The VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 its remaining assets in other assets and financial instruments, as described below. The Fund will gain exposure to commodity markets indirectly by investing up to 15% of its total assets in the Subsidiary. The Subsidiary also will be advised by the Adviser. The Subsidiary will only invest in commodity futures contracts and will also hold any necessary cash or other short-term investments as collateral. The Fund will not invest in such commodity futures contracts directly. The Fund may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings. The Fund may invest in U.S. and nonU.S. convertible securities, which are bonds or preferred stock that can convert to common stock. The Fund may invest in inflation-linked debt securities, which include fixed and floating rate debt securities of varying maturities issued by the U.S. government and foreign governments. The Fund may invest in obligations of supranational agencies, which are chartered to promote economic development and are supported by various governments and governmental agencies. The Fund may invest in reverse repurchase agreements. The Fund may invest in sovereign obligations, which are investments in debt obligations issued or guaranteed by a foreign sovereign government or its agencies, authorities or political subdivisions. The Fund may invest in U.S. Government agency securities (excluding U.S. government sponsored mortgage-backed securities, referenced above), which are securities issued or guaranteed by agencies and instrumentalities of the U.S. government. These include all types of securities issued by the Government National Mortgage Association (‘‘Ginnie Mae’’), the Federal National Mortgage Association (‘‘Fannie Mae’’) and the Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’), including funding notes, subordinated benchmark notes, collateralized mortgage obligations (‘‘CMOs’’) and real estate mortgage investment conduits (‘‘REMICs’’). The Fund may invest in equity and debt securities that are restricted securities (Rule 144A securities). Under normal market conditions, the Fund may invest no more than 5% of its assets in OTC common stocks, preferred stocks, warrants, rights and contingent PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 value rights (‘‘CVRs’’) of U.S. and foreign corporations (including emerging market securities). Other Restrictions The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser, consistent with Commission guidance. 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.27 The Fund may invest in other investment companies to the extent permitted by Section12(d)(1) of the 1940 Act and rules thereunder and/or any applicable exemption or exemptive order under the 1940 Act with respect to such investments. The Fund may invest in securities denominated in U.S. dollars, major reserve currencies, and currencies of other countries in which the Fund may invest. The Fund may investment in both investment grade and high yield debt securities. The Fund intends to qualify for and to elect treatment as a separate regulated investment company (‘‘RIC’’) under Subchapter M of the Internal Revenue Code.28 Furthermore, the Fund may not concentrate investments in a particular industry or group of industries, as 27 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). 28 26 U.S.C. 851 et seq. E:\FR\FM\25FEN1.SGM 25FEN1 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices concentration is defined under the 1940 Act, the rules or regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.29 The Fund is a diversified series of the Trust. The Fund intends to meet the diversification requirements of the 1940 Act.30 The Fund’s investments, including derivatives, will be consistent with the Fund’s investment objective and will not be used to enhance leverage (although certain derivatives may result in leverage). That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s (and the Subsidiary’s) investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund’s primary broadbased securities benchmark index (as defined in Form N–1A).31 mstockstill on DSK4VPTVN1PROD with NOTICES The Fund’s and the Subsidiary’s Use of Derivatives The Fund proposes to seek certain exposures through transactions in the specific derivative instruments described above. The derivatives usage may occur in the Fund or the Subsidiary (provided that the Subsidiary will invest only in commodity futures). The 29 The Registration Statement states that, for purposes of the Fund’s fundamental investment policy regarding industry concentration, ‘‘to concentrate’’ generally means to invest more than 25% of the Fund’s total assets, taken at market value at the time of investment. For the Fund this restriction does not apply to securities issued or guaranteed by the U.S. government, any state or territory of the U.S., its agencies, instrumentalities, or political subdivisions, or repurchase agreements secured thereby, and futures and options transactions issued or guaranteed by any of the foregoing. For purposes of fundamental investment policies involving industry concentration, ‘‘group of industries’’ means a group of related industries, as determined in good faith by the Adviser, based on published classifications or other sources. For purposes of fundamental investment policies regarding industry concentration, the Adviser may classify issuers by industry in accordance with classifications set forth in the Directory of Companies Filing Annual Reports with the SEC or other sources. In the absence of such classification or if the Adviser determines in good faith based on its own information that the economic characteristics affecting a particular issuer make it more appropriate to be considered engaged in a different industry, the Adviser may classify an issuer accordingly. Accordingly, the composition of an industry or group of industries may change from time to time. For purposes of fundamental investment policies involving industry concentration, ‘‘group of industries’’ means a group of related industries, as determined in good faith by the Adviser based on published classifications or other sources. 30 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. 31 The Fund’s broad-based securities benchmark index will be identified in a future amendment to the Registration Statement following the Fund’s first full calendar year of performance. VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 derivatives to be used are futures, swaps, NDFs, foreign forward currency contracts, and call and put options. Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may also be used as substitutes for securities in which the Fund can invest. The Fund may use these derivative instruments to increase gain, to effectively gain targeted exposure from its cash positions, to hedge various investments and/or for risk management. Investments in derivative instruments 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 such transactions, the Fund will segregate or ‘‘earmark’’ assets determined to be liquid by the Adviser in accordance with procedures established by the Trust’s Board of Trustees (the ‘‘Board’’) and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under derivative instruments. These procedures have been adopted consistent with Section 18 of the 1940 Act and related Commission guidance. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of the Fund, including the Fund’s use of derivatives, may give rise to leverage, causing the Fund to be more volatile than if it had not been leveraged.32 Because the markets for certain assets, or the assets themselves, may be unavailable or cost prohibitive as compared to derivative instruments, suitable derivative transactions may be an efficient alternative for the Fund to obtain the desired asset exposure. Creation and Redemption of Shares According to the Registration Statement, the consideration for a purchase of Creation Units will generally be cash, but may consist of an in-kind deposit of a designated portfolio of equity securities and other investments (the ‘‘Deposit Instruments’’) and an amount of cash computed as described below (the ‘‘Cash Amount’’) under some circumstances. The Cash Amount together with the Deposit Instruments, as applicable, are referred to as the ‘‘Portfolio Deposit,’’ which represents the minimum initial and 32 To mitigate leveraging risk, the Adviser will segregate or ‘‘earmark’’ liquid assets or otherwise cover the transactions that may give rise to such risk. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 9525 subsequent investment amount for a Creation Unit of the Fund. In the event the Fund requires Deposit Instruments and a Cash Amount in consideration for purchasing a Creation Unit, the function of the Cash Amount is to compensate for any differences between the NAV per Creation Unit and the Deposit Amount (as defined below). The Cash Amount would be an amount equal to the difference between the NAV of the Shares (per Creation Unit) and the ‘‘Deposit Amount,’’ which is an amount equal to the aggregate market value of the Deposit Instruments. If the Cash Amount is a positive number (the NAV per Creation Unit exceeds the Deposit Amount), the Authorized Participant will deliver the Cash Amount. If the Cash Amount is a negative number (the NAV per Creation Unit is less than the Deposit Amount), the Authorized Participant will receive the Cash Amount. The Administrator, through the National Securities Clearing Corporation (‘‘NSCC’’), will make available on each business day, immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time (‘‘E.T.’’)), the list of the names and the required number of shares of each Deposit Instrument to be included in the current Portfolio Deposit (based on information at the end of the previous business day), as well as information regarding the Cash Amount for the Fund. Such Portfolio Deposit is applicable, subject to any adjustments as described below, in order to effect creations of Creation Units of the Fund until such time as the next-announced Portfolio Deposit composition is made available. The identity and number of the Deposit Instruments and Cash Amount required for the Portfolio Deposit for the Fund changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. In addition, the Trust reserves the right to accept a basket of securities or cash that differs from Deposit Instruments or to permit the substitution of an amount of cash (i.e., a ‘‘cash in lieu’’ amount) to be added to the Cash Amount to replace any Deposit Instrument which may, among other reasons, not be available in sufficient quantity for delivery, not be permitted to be re-registered in the name of the Trust as a result of an inkind creation order pursuant to local law or market convention or for other reasons as described in the Registration Statement, or which may not be eligible for trading by a Participating Party (defined below). In light of the foregoing, in order to seek to replicate E:\FR\FM\25FEN1.SGM 25FEN1 9526 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices the in-kind creation order process, the Trust expects to purchase the Deposit Instruments represented by the cash in lieu amount in the secondary market. In addition to the list of names and numbers of securities constituting the current Deposit Instruments of a Portfolio Deposit, the Administrator, through the NSCC, also will make available on each business day, the estimated Cash Component adjusted through the close of the trading day. mstockstill on DSK4VPTVN1PROD with NOTICES Procedures for Creation of Creation Units To be eligible to place orders with the Distributor to create Creation Units of the Fund, an entity or person either must be (1) a ‘‘Participating Party,’’ i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC; or (2) a Depositary Trust Company (‘‘DTC’’) Participant, which, in either case, must have executed an agreement with the Distributor (as it may be amended from time to time in accordance with its terms) (‘‘Participant Agreement’’) (discussed below). A Participating Party and DTC Participant are collectively referred to as an ‘‘Authorized Participant.’’ All orders to create Creation Units must be received by the Distributor no later than the closing time of the regular trading session on the Exchange (‘‘Closing Time’’) (ordinarily 4:00 p.m. E.T.), in each case on the date such order is placed in order for creation of Creation Units to be effected based on the NAV of the Fund as determined on such date. Redemption of Creation Units Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor, only on a business day and only through a Participating Party or DTC Participant who has executed a Participant Agreement. The Trust will not redeem Shares in amounts less than Creation Units. Although the Fund will generally pay redemption proceeds in cash, there may be instances when it will make redemptions in-kind. In these instances, the Administrator, through NSCC, makes available immediately prior to the opening of business on the Exchange (currently 9:30 a.m. E.T.) on each day that the Exchange is open for business, the identity of the Fund’s assets and/or an amount of cash that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form on that day. Unless cash redemptions are permitted or required VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 for the Fund, the redemption proceeds for a Creation Unit generally consist of Redemption Instruments as announced by the Administrator on the business day of the request for redemption, plus cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Redemption Instruments, less the redemption transaction fee and variable fees described below. Should the Redemption Instruments have a value greater than the NAV of the Shares being redeemed, a compensating cash payment to the Trust equal to the differential plus the applicable redemption transaction fee will be required to be arranged for by or on behalf of the redeeming shareholder. The Fund reserves the right to honor a redemption request by delivering a basket of securities or cash that differs from the Redemption Instruments.33 Valuation Methodology for Purposes of Determining Net Asset Value The NAV of Shares, under normal market conditions, will be calculated each business day as of the close of the Exchange, which is typically 4:00 p.m. E.T. On occasion, the Exchange will close before 4:00 p.m. E.T. When that happens, NAV will be calculated as of the time the Exchange closes. The price at which a purchase of a Creation Unit is effected is based on the next calculation of NAV after the order is received in proper form. Securities for which market quotations are readily available will generally be valued at their current market value. Other securities and assets, including securities for which market quotations are not readily available or market quotations are determined not to be reliable; or, if their value has been materially affected by events occurring after the close of trading on the exchange or market on which the security is principally traded but before the Fund’s NAV is calculated, may be valued at fair value in accordance with policies and procedures adopted by the Trust’s Board of Trustees. Fair value represents a good faith determination of the value of a security or other asset based upon specifically applied procedures. Fair valuation may require subjective determinations. U.S. exchange-traded common stocks, preferred stocks, warrants, rights, REITs, 33 The Adviser represents that, to the extent the Trust effects the creation or redemption of Shares in cash, such transactions will be effected in the same manner for all Authorized Participants. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 and Depositary Receipts will be valued at the last sale price or official market closing price on the primary exchange on which such security trades. Exchange-traded non-U.S. equity securities will be valued at the last sale price or official market closing price on the primary exchange on which such security trades. OTC equity securities will be priced utilizing market quotations provided by approved pricing services or by broker quotation. For OTC warrants, rights and CVRs, if no pricing service or broker quotation is available, then the warrant, right or CVR will be valued intrinsically based on the terms of issuance. Shares of non-exchange-traded openend investment companies will be valued at their current day NAV published by the relevant fund. ETFs will be valued at the last sale price or official market closing price on the primary exchange on which such ETF trades. CDS, interest rate swaps, currency swaps, total return swaps, index swaps, and commodity swaps will be priced utilizing market quotations provided by approved pricing services. Forward and spot currency transactions will be valued based on foreign exchange rates obtained from an approved pricing service, using spot and forward rates available at the time net asset value of the Fund is calculated. Commercial paper will be valued at prices supplied by approved pricing services which is generally based on bid-side quotations. Options traded on U.S. exchanges shall be valued at the composite mean price, using the National Best Bid and Offer quotes (‘‘NBBO’’) on the valuation date. NBBO consists of the highest bid price and lowest ask price across any of the exchanges on which an option is quoted. Options traded on foreign exchanges are valued at the settled price on the valuation date, or if no settled price is available, at the last sale price available prior to the calculation of the Fund’s net asset value. Futures traded on U.S. and foreign exchanges are valued at the settled price, or if no settled price is available, at the last sale price as of the close of the exchanges on the valuation date. OTC derivatives are priced utilizing market quotations provided by approved pricing services. In addition, non-Western Hemisphere equity securities or derivatives involving non-Western Hemisphere equity reference obligations are normally subject to adjustment (fair value) each day by applying a fair value factor provided by approved pricing E:\FR\FM\25FEN1.SGM 25FEN1 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES services to the values obtained as described above. Convertible securities will be valued at prices supplied by approved pricing services which is generally based on bid-side quotations. Corporate debt securities will be valued at prices supplied by approved pricing services which is generally based on bid-side quotations. Inflation-linked debt securities, mortgage-backed securities, bank obligations, Brady Bonds, short-term funding agreements, repurchase agreements, reverse repurchase agreements, U.S. Government agency securities, U.S. Government obligations, sovereign obligations, obligations of supranational agencies and Rule 144A securities will be valued at prices supplied by approved pricing services which is generally based on bid-side quotations. Derivatives Valuation Methodology for Purposes of Determining Intra-Day Indicative Value On each business day, before commencement of trading in Fund Shares on NYSE Arca, the Fund will disclose on its Web site the identities and quantities of the portfolio instruments and other assets held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the business day. In order to provide additional information regarding the intra-day value of Shares of the Fund, the NYSE Arca or a market data vendor will disseminate every 15 seconds through the facilities of the Consolidated Tape Association or other widely disseminated means an updated Intraday Indicative Value (‘‘IIV’’) for the Fund as calculated by a third party market data provider. A third party market data provider will calculate the IIV for the Fund. The third party market data provider may use market quotes if available or may fair value securities against proxies (such as swap or yield curves). With respect to specific derivatives: • NDFs and foreign forward currency contracts may be valued intraday using market quotes, or another proxy as determined to be appropriate by the third party market data provider. • Futures may be valued intraday using the relevant futures exchange data, or another proxy as determined to be appropriate by the third party market data provider. • Interest rate swaps and crosscurrency swaps may be mapped to a swap curve and valued intraday based on changes of the swap curve, or another proxy as determined to be VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 appropriate by the third party market data provider. • Credit default swaps may be valued using intraday data from market vendors, or based on underlying asset price, or another proxy as determined to be appropriate by the third party market data provider. • Total return swaps may be valued intraday using the underlying asset price, or another proxy as determined to be appropriate by the third party market data provider. • Exchange listed options may be valued intraday using the relevant exchange data, or another proxy as determined to be appropriate by the third party market data provider. • OTC options may be valued intraday through option valuation models (e.g., Black-Scholes) or using exchange traded options as a proxy, or another proxy as determined to be appropriate by the third party market data provider. Disclosed Portfolio The Fund’s disclosure of derivative positions in the Disclosed Portfolio will include information that market participants can use to value these positions intraday. On a daily basis, the Adviser 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. Impact on Arbitrage Mechanism The Adviser believes there will be minimal impact to the arbitrage mechanism as a result of the use of derivatives. Market makers and participants should be able to value derivatives as long as the positions are disclosed with relevant information. The Adviser believes that the price at which Shares trade will continue to be disciplined by arbitrage opportunities created by the ability to purchase or redeem creation Shares at their NAV, which should ensure that Shares will not trade at a material discount or premium in relation to their NAV. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 9527 The Adviser does not believe there will be any significant impacts to the settlement or operational aspects of the Fund’s arbitrage mechanism due to the use of derivatives. Because derivatives generally are not eligible for in-kind transfer, they will typically be substituted with a ‘‘cash in lieu’’ amount when the Fund processes purchases or redemptions of creation units in-kind. Availability of Information The Fund’s Web site (www.jpmorganfunds.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 or midpoint of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/ Ask Price’’),34 and a calculation of the premium and discount of the Bid/Ask Price against the NAV, and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Adviser will disclose on the Fund’s Web site the Disclosed Portfolio for the Fund as defined in NYSE Arca Equities Rule 8.600(c)(2) that will form the basis for the Fund’s calculation of NAV at the end of the business day.35 The Fund’s portfolio holdings (including those of the Subsidiary) will be disclosed on its Web site daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. 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 are 34 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. 35 Under accounting procedures to be 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. E:\FR\FM\25FEN1.SGM 25FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 9528 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices 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. Quotation and last sale information for the Shares and for portfolio holdings of the Fund that are U.S. exchange listed, including common stocks, preferred stocks, warrants, rights, ETFs, REITs, and U.S. exchange-traded ADRs will be available via the Consolidated Tape Association (‘‘CTA’’) high speed line. Quotation and last sale information for such U.S. exchange-listed securities, as well as futures will be available from the exchange on which they are listed. Quotation and last sale information for exchange-listed options cleared via the Options Clearing Corporation will be available via the Options Price Reporting Authority. Quotation and last sale information for non-U.S. equity securities will be available from the exchanges on which they trade and from major market data vendors, as applicable. Price information for OTC common stocks, preferred stocks, warrants, rights and CVRs will be available from the Fund’s Web site or from major market data vendors. Quotation information for OTC options, cash equivalents, swaps, Brady Bonds, inflation-linked debt instruments, obligations of supranational agencies, money market funds, non-exchange-listed investment company securities (other than money market funds), Rule 144A securities, U.S. Government obligations, U.S. Government agency obligations, sovereign obligations, corporate debt, inflation-linked debt securities, and reverse repurchase agreements may be obtained from brokers and dealers who make markets in such securities or through nationally recognized pricing services through subscription agreements. The U.S. dollar value of foreign securities, instruments and currencies can be derived by using foreign currency exchange rate quotations obtained from nationally recognized pricing services. Forwards and spot currency price information will be available from major market data vendors. In addition, the Portfolio Indicative Value (‘‘PIV’’), as defined in NYSE Arca Equities Rule 8.600 (c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session.36 The dissemination of the PIV, 36 Currently, it is the Exchange’s understanding that several major market data vendors display and/ VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 together with the Disclosed Portfolio, will allow investors to determine the approximate 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. 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.37 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 of the Fund inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments comprising the Disclosed Portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Shares will trade on the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading Sessions). The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price variation (‘‘MPV’’) for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is $0.0001. The Shares of the Fund will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 38 under the Act, as provided by NYSE Arca Equities Rule 5.3. A or make widely available PIVs taken from the CTA or other data feeds. 37 See NYSE Arca Equities Rule 7.12. 38 17 CFR 240 10A–3. PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by regulatory staff of the Exchange, or 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.39 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 applicable federal securities laws. The surveillances referred to above generally focus on detecting securities trading outside their normal patterns, which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. The regulatory staff of the Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, certain exchangelisted equity securities, certain futures, and certain exchange-traded options 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 such securities and financial instruments from such markets and other entities. In addition, the regulatory staff of the Exchange may obtain information regarding trading in such securities and financial instruments from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.40 39 FINRA surveils certain trading activity on the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 40 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. E:\FR\FM\25FEN1.SGM 25FEN1 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES 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’’). Under normal circumstances, the nonU.S. equity securities in the Fund’s portfolio will meet the following criteria at time of purchase: (1) Non-U.S. equity securities each shall have a minimum market value of at least $100 million; (2) non-U.S. equity securities each shall have a minimum global monthly trading volume of 250,000 shares, or minimum global notional volume traded per month of $25,000,000, averaged over the last six months; (3) the most heavily weighted non-U.S. equity security shall not exceed 25% of the weight of the Fund’s entire portfolio, and, to the extent applicable, the five most heavily weighted non-U.S. equity securities shall not exceed 60% of the weight of the Fund’s entire portfolio; and (4) each non-U.S. equity security shall be listed and traded on an exchange that has lastsale reporting. Not more than 10% of the net assets of the Fund in the aggregate invested in futures contracts or exchange-traded options shall consist of futures contracts or options whose principal market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Information Bulletin Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares of the Fund. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated PIV will not be calculated or publicly disseminated; (4) how information regarding the PIV and the Disclosed Portfolio is disseminated; (5) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 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 of the Fund will be calculated after 4:00 p.m. E.T. each trading day. 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5) 41 that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in NYSE Arca Equities Rule 8.600. The Adviser is not registered as a broker-dealer but is affiliated with a broker-dealer and has implemented and will maintain a fire wall with respect to such broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio. The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by regulatory staff of the Exchange or FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws. The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. The regulatory staff of the Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, certain exchangelisted equity securities, certain futures, and certain exchange-traded options with other markets and other entities that are members of the ISG, and FINRA, on behalf of the Exchange, may obtain trading information regarding trading such securities and financial instruments from such markets and 41 15 PO 00000 U.S.C. 78f(b)(5). Frm 00111 Fmt 4703 Sfmt 4703 9529 other entities. In addition, the regulatory staff of the Exchange may obtain information regarding trading in such securities and financial instruments 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. Under normal circumstances, the nonU.S. equity securities in the Fund’s portfolio will meet the following criteria at time of purchase: (1) Non-U.S. equity securities each shall have a minimum market value of at least $100 million; (2) non-U.S. equity securities each shall have a minimum global monthly trading volume of 250,000 shares, or minimum global notional volume traded per month of $25,000,000, averaged over the last six months; (3) the most heavily weighted non-U.S. equity security shall not exceed 25% of the weight of the Fund’s entire portfolio, and, to the extent applicable, the five most heavily weighted non-U.S. equity securities shall not exceed 60% of the weight of the Fund’s entire portfolio; and (4) each non-U.S. equity security shall be listed and traded on an exchange that has lastsale reporting. Not more than 10% of the net assets of the Fund in the aggregate invested in futures contracts or exchange-traded options shall consist of futures contracts or options whose principal market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. The PIV, as defined in NYSE Arca Equities Rule 8.600 (c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser, consistent with Commission guidance. The Shares of the Fund will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 under the Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund that the NAV per Share will be calculated daily and that E:\FR\FM\25FEN1.SGM 25FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 9530 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. In addition, a large amount of information is publicly available regarding the Fund and the respective Shares, thereby promoting market transparency. The Fund’s portfolio holdings will be disclosed on its Web site daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. On a daily basis, the Fund will disclose on its 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); the identity of the security, commodity, index or other asset or instrument underlying the holding, if any; 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 are 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. Quotation and last sale information for the Shares and for portfolio holdings of the Fund that are U.S. exchange listed, including common stocks, preferred stocks, warrants, rights, ETFs, REITs, and U.S. exchangetraded ADRs will be available via the CTA high speed line. Quotation and last sale information for such U.S. exchangelisted securities, as well as futures will be available from the exchange on which they are listed. Quotation and last sale information for exchange-listed options cleared via the Options Clearing Corporation will be available via the Options Price Reporting Authority. Quotation and last sale information for non-U.S. equity securities will be available from the exchanges on which they trade and from major market data vendors. Quotation information for OTC options, cash equivalents, swaps, Brady Bonds, inflation-linked debt instruments, obligations of supranational agencies, money market funds, Rule 144A securities, U.S. VerDate Sep<11>2014 18:07 Feb 24, 2016 Jkt 238001 Government obligations, U.S. Government agency obligations, sovereign obligations, corporate debt, and reverse repurchase agreements may be obtained from brokers and dealers who make markets in such securities or through nationally recognized pricing services through subscription agreements. The U.S. dollar value of foreign securities, instruments and currencies can be derived by using foreign currency exchange rate quotations obtained from nationally recognized pricing services. Forwards and spot currency price information will be available from major market data vendors. The Web site for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares of the Fund. Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable, and trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the PIV, the Disclosed Portfolio, and quotation and last sale information for the Shares. The Fund’s investments, including derivatives, will be consistent with the Fund’s investment objective and will not be used to enhance leverage (although certain derivatives may result in leverage). That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund’s primary broad-based securities benchmark index (as defined in Form N–1A). The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an additional type of activelymanaged exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 Shares of the Fund and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the PIV, the Disclosed Portfolio for the Fund, and quotation and last sale information for the Shares of the Fund. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of an additional type of actively-managed exchange-traded product that holds fixed income and equity securities and 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 E:\FR\FM\25FEN1.SGM 25FEN1 Federal Register / Vol. 81, No. 37 / Thursday, February 25, 2016 / Notices • Send an email to rule-comments@ sec.gov. Please include File Number SR– SR–NYSEArca–2016–17 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–2016–17. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2016–17 and should be submitted on or before March 17, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.42 Brent J. Fields, Secretary. [FR Doc. 2016–03940 Filed 2–24–16; 8:45 am] mstockstill on DSK4VPTVN1PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77186; File No. SR–Phlx– 2016–20] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Partnerships February 19, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 16, 2016, NASDAQ PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to delete these Rules: 903 entitled, ‘‘Fixed Interest of Partner’’;’’ 904 entitled, ‘‘Use of a Partnership Name;’’ 905 entitled, ‘‘Special or Limited Partners;’’ and 906 entitled, ‘‘Notice of Change in Partnership.’’ The text of the proposed rule change is available on the Exchange’s Web site at https:// www.nasdaqtrader.com/ micro.aspx?id=PHLXRulefilings, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 42 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:07 Feb 24, 2016 2 17 Jkt 238001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00113 Fmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to delete certain Phlx membership rules in order to harmonize and modernize the Exchange’s Rulebook. Specifically, Exchange proposes to delete Rule 903 entitled, ‘‘Fixed Interest of Partner;’’ Rule 904 entitled, ‘‘Use of a Partnership Name;’’ Rule 905 entitled, ‘‘Special or Limited Partners;’’ and Rule 906 entitled, ‘‘Notice of Change in Partnership.’’ Specifically, each proposed rule change is as a result of the demutualization of the Exchange in 2004 and no longer applicable to the business today. The proposed changes related to the former need for the exchange to more acutely understand the ownership structure of the membership and are discussed in greater detail below. These rules were applicable when Phlx offered seats, prior to demutualization. Before demutualization, Phlx seats conveyed ownership which created a greater obligation on Phlx to gather information on the members corporate structure. Specifically, Phlx was obligated to maintain a heighted vigilance on the makeup, ownership, and changes of individuals in a partnership in order to ensure the financial integrity of its ownership structure. Today, permits are issued to Exchange members and member organizations. The Exchange no longer needs to differentiate ownership because the permit structure conveys no ownership to the membership. These membership rules related to partnerships are no longer applicable today. The distinctions regarding the admission of member as a partnership, as compared to a corporation, are no longer relevant. The Exchange proposes to remove these outdated Rules. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 3 in general, and furthers the objectives of Section 6(b)(5) of the Act 4 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market 3 15 4 15 Sfmt 4703 9531 E:\FR\FM\25FEN1.SGM U.S.C. 78f(b). U.S.C. 78(f)(b)(5). 25FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 37 (Thursday, February 25, 2016)]
[Notices]
[Pages 9521-9531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03940]

=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77179; File No. SR-NYSEArca-2016-17]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of Shares of
the JPMorgan Diversified Alternative ETF Under NYSE Arca Equities Rule
8.600

February 19, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on February 5, 2016, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): JPMorgan
Diversified Alternative ETF. The text of the proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares \4\ on the Exchange\5\:
JPMorgan Diversified Alternative ETF (the ``Fund'').\6\
---------------------------------------------------------------------------

\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 Commission has previously approved listing and trading
on the Exchange of actively managed funds under Rule 8.600. See,
e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73
FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving
Exchange listing and trading of twelve actively-managed funds of the
WisdomTree Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9,
2012) (SR-NYSEArca-2011-95) (order approving listing and trading of
PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 77
FR 20087 (April 3, 2012) (SR-NYSEArca-2012-09) (order approving
listing and trading of PIMCO Global Advantage Inflation-Linked Bond
Strategy Fund).
\6\ The Trust is registered under the 1940 Act. On December 14,
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 the 1940 Act relating to the Fund (File
Nos. 333-191837 and 811-22903) (the ``Registration Statement''). The
Trust filed an Application for an Order under Section 6(c) of the
1940 Act for exemptions from various provisions of the 1940 Act and
rules thereunder (File No. 812-13761), initially filed March 10,
2010 and most recently amended on December 23, 2015 (``Exemptive
Application''); the Exemptive Application was published for notice
in IC Release No. 31956 on January 14, 2016. The Shares will not be
listed on the Exchange until an order (``Exemptive Order'') under
the 1940 Act has been issued by the Commission with respect to the
Exemptive Application. Investments made by the Fund will comply with
the conditions set forth in the Exemptive Order. The description of
the operation of the Trust and the Fund herein is based, in part, on
the Registration Statement and the Exemptive Application.
---------------------------------------------------------------------------

The Fund is a series of J.P. Morgan Exchange-Traded Fund Trust
(``Trust''), a Delaware statutory trust. J.P. Morgan Investment
Management Inc. (``Adviser'') will be the investment adviser to the
Fund. The Adviser is a wholly-owned subsidiary of JPMorgan Asset
Management Holdings Inc., which is a wholly-owned subsidiary of
JPMorgan Chase & Co. (``JPMorgan Chase''), a bank holding company.
JPMorgan Funds Management, Inc. (``Administrator'') will provide
administrative services for and will oversee the other service
providers of the Fund. SEI Investments Distribution Co.
(``Distributor'') will be the 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.\7\ In addition,

[[Page 9522]]

Commentary .06 further requires that personnel who make decisions on
the open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the open-end fund's portfolio. The Adviser is not
registered as a broker-dealer but is affiliated with a broker-dealer
and has implemented and will maintain a fire wall with respect to such
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio. In the event (a) the
Adviser becomes registered as a broker-dealer or newly affiliated with
one or more broker-dealers, or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes affiliated with a broker-dealer, it
will implement a fire wall with respect to its relevant personnel or
its broker-dealer affiliate regarding access to information concerning
the composition and/or changes to the portfolios, and will be subject
to procedures designed to prevent the use and dissemination of material
non-public information regarding such portfolios.
---------------------------------------------------------------------------

\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
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.
---------------------------------------------------------------------------

According to the Registration Statement, the Fund will seek to
provide long term, total return. The Fund will seek to achieve its
investment objective by allocating assets across several different
investment strategies, including traditional and alternative investment
strategies, such as those utilized by certain hedged funds.
The strategies identified by the Adviser for the Fund fall into the
following broad categories: ``Equity Long/Short'', ``Event Driven'' and
``Global Macro Based'' (including equities, fixed income, currency and
commodities) strategies, as described below. Within these broad
strategies, the Adviser believes that it has identified a set of return
sources present in markets that result from, among other things,
assuming a particular risk or taking advantage of a behavioral bias
(each a ``return factor'').
According to the Registration Statement, under normal market
conditions,\8\ the Fund will seek to achieve its investment objective
by employing the above-referenced investment strategies to access
certain of these return factors. Return factors utilized by the Fund
will fall into the following broad categories depending on the
strategy: Equity, fixed income, currency and commodities. Each
represents a potential source of investment return that results from,
among other things, assuming a particular risk or taking advantage of a
behavioral bias. For example, the Adviser may gain exposure to a
``momentum return factor'' by employing a strategy that buys securities
with strong positive price momentum and shorts securities with strong
negative price momentum. This strategy would seek to exploit a
behavioral bias present in the market, in which investors tend to
purchase securities that have recently performed well, thereby helping
to contribute to continued positive price movement, and sell securities
that have recently performed poorly, thereby helping to contribute to
continued negative price movement. The Adviser believes that, in
general, the Fund's investment returns are attributable to the
individual contributions of the various return factors. By employing
this return factor based approach, the Fund will seek to provide
positive total returns over time while maintaining a relatively low
correlation with traditional markets. The exposure to individual return
factors may vary based on the market opportunity of the individual
return factors.
---------------------------------------------------------------------------

\8\ The term ``under normal market conditions'' includes, but is
not limited to, the absence of extreme volatility or trading halts
in the securities markets or the financial markets generally;
circumstances under which the Fund's investments are made for
temporary defensive purposes; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, cyber attacks, 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 employ the following investment strategies:
Equity Long/Short: \9\ Equity Long/Short strategies
involve simultaneous investing in equities (investing long) that the
Adviser expects to increase in value and selling equities (i.e.,
selling short) that the adviser expects to decrease in value. Equity
Long/Short seeks to profit by exploiting pricing inefficiencies between
related equity securities by maintaining long and short positions.
---------------------------------------------------------------------------

\9\ In the Equity Long/Short strategies, the Fund may hold
equity securities, primarily common stock, long and sell equity
securities short or achieve the long and short positions through the
use of a swap. The Fund may also utilize futures in these
strategies.
---------------------------------------------------------------------------

Event Driven: \10\ Event Driven strategies seek to profit
from investing in securities of companies on the basis that a specific
event or catalyst will affect future pricing. For example, merger
arbitrage strategies seek to capitalize on price discrepancies and
returns generated by a corporate transaction. For example, the Fund may
purchase the common stock of the company being acquired and short the
common stock of the acquirer in expectation of profiting from the price
differential between the purchase price of the securities and the value
received for the securities as a result of or in expectation of the
consummation of the merger.
---------------------------------------------------------------------------

\10\ In the Event Driven strategies, the Fund may hold equity
securities, primarily common stock, long and sell equity securities
short or achieve the long and short positions through the use of a
swap. The Fund may also utilize futures in these strategies. In the
future, the Fund may utilize long and short positions in debt
securities (as described below) through the use of both physical
securities or swaps.
---------------------------------------------------------------------------

Global Macro Based Strategies: \11\ Macro based strategies
aim to exploit macro economic imbalances across the globe. The macro
based strategies may be implemented through a broad range of asset
classes including, but not limited to, equities, fixed income, currency
and commodities. For example, this strategy will invest in the long-end
of the government bond markets with the highest inflation adjusted
yields and sell short the long-end of the government bond markets with
the lowest inflation adjusted yields. As an alternative example, the
strategy will seek to exploit supply and demand imbalances that occur
in a given commodity market by utilizing long and short exposures
achieved through different derivative instruments.
---------------------------------------------------------------------------

\11\ The Global Macro Based strategies may be implemented
through equity securities, debt securities (including through
investment in another fund), currency futures and forward contracts
and commodities (through its investment in its Subsidiary, as
described below).
---------------------------------------------------------------------------

See ``Principal Investments'' and ``Other Investments'' below for a
description of all the investments that may be used within the Fund.
According to the Registration Statement, the Fund will invest its
assets globally (including in emerging

[[Page 9523]]

markets) to gain exposure to equity securities (across market
capitalizations), debt securities,\12\ commodities (through its
subsidiary as described below) and currencies. The Fund may use both
long and short positions (achieved primarily through the use of
derivative instruments, as described below). At all times, the Fund
will maintain a total net long market exposure. However, the Fund may
have net long or net short exposure to one or more industry sectors,
individual markets and/or currencies.
---------------------------------------------------------------------------

\12\ For purposes of this filing, the term ``debt securities''
shall mean the following, as described further below: Corporate
debt, bank obligations, commercial paper, repurchase agreements and
short-term funding agreements, U.S. Government obligations,
inflation-linked debt securities, U.S. government sponsored
mortgage-backed securities, Brady Bonds, convertible securities,
obligations of supranational agencies, reverse repurchase
agreements, sovereign obligations, U.S. government agency
securities, and restricted securities (144A securities).
---------------------------------------------------------------------------

According to the Registration Statement, the Adviser will make use
of derivatives as described below,\13\ in implementing its strategies.
Under normal market conditions, the Adviser currently expects that a
significant portion of the Fund's exposure will be attained through the
use of derivatives in addition to its exposure through direct
investment. The derivatives usage will occur in both the Fund and in
the Diversified Alternative Fund CS Ltd., a wholly owned subsidiary of
the Fund organized under the laws of the Cayman Islands (the
``Subsidiary'').\14\ For example, in implementing Equity Long/Short
strategies and Global Macro Based strategies, the Fund may use a total
return swap to establish both long and short positions in order to gain
the desired exposure rather than physically purchasing and selling
short each instrument. Derivatives may also be used to increase gain,
to effectively gain targeted equity exposure from its cash positions,
to hedge various investments and/or for risk management. As a result of
the Fund's and the Subsidiary's use of derivatives and to serve as
collateral, the Fund or the Subsidiary may hold significant amounts of
U.S. Treasury obligations, including Treasury bills, bonds and notes
and other obligations issued or guaranteed by the U.S. Treasury, and
other short-term investments, including money market funds and foreign
currencies in which certain derivatives are denominated.
---------------------------------------------------------------------------

\13\ See the description of derivatives in ``Principal
Investments'' and ``The Fund's and the Subsidiary's, Use of
Derivatives'', infra.
\14\ As described below, the Subsidiary will invest only in
commodity futures.
---------------------------------------------------------------------------

According to the Registration Statement, the amount that may be
invested in any one instrument will vary and generally depend on the
investment strategies and return factors employed by the Adviser at
that time. However, with the exception of specified investment
limitations for certain assets described below, there are no stated
percentage limitations on the amount that can be invested in any one
type of instrument, and the Adviser may, at times, invest in a smaller
number of instruments. Moreover, the Fund will generally be
unconstrained by any particular capitalization, style or sector and may
invest in any region or country, including emerging markets.
The Fund will purchase a particular instrument when the Adviser
believes that such instrument will allow the Fund to gain the desired
exposure to a return factor. Conversely, the Fund will consider selling
a particular instrument when it no longer provides the desired exposure
to a return factor. In addition, investment decisions will take into
account a return factor's contribution to the Fund's overall
volatility.

Principal Investments

According to the Registration Statement, under normal market
conditions, the Fund will invest principally (i.e., more than 50% of
the Fund's assets) in the securities and financial instruments
described below, which may be represented by derivatives, as discussed
below.
The Fund may invest in exchange-listed-and-traded common stocks,
preferred stocks,\15\ warrants and rights \16\ of U.S. and foreign
corporations,\17\ (including emerging market securities); and U.S. and
non-U.S. REITs.\18\ Exchange-listed-and-traded common stocks, preferred
stocks, warrants and rights of U.S. corporations and U.S. REITs will be
traded on U.S. national securities exchanges.
---------------------------------------------------------------------------

\15\ Preferred stock is a class of stock that generally pays a
dividend at a specified rate and has preference over common stock in
the payment of dividends and in liquidation (U.S. and non-U.S.,
including emerging markets).
\16\ Rights are securities, typically issued with preferred
stock or bonds, that give the holder the right to buy a
proportionate amount of common stock at a specified price (U.S. and
non-U.S., including emerging markets).
\17\ For purposes of this filing, common stocks, preferred
stocks, warrants and rights of foreign corporations; non-U.S. real
estate investment trusts (``REITs'') (as referenced below); and
Depositary Receipts (as described below) (excluding Depositary
Receipts that are registered under the Act) are referred to
collectively as ``non-U.S. equity securities''. Under normal
circumstances, the non-U.S. equity securities in the Fund's
portfolio will meet the following criteria at time of purchase: (1)
Non-U.S. equity securities each shall have a minimum market value of
at least $100 million; (2) non-U.S. equity securities each shall
have a minimum global monthly trading volume of 250,000 shares, or
minimum global notional volume traded per month of $25,000,000,
averaged over the last six months; (3) the most heavily weighted
non-U.S. equity security shall not exceed 25% of the weight of the
Fund's entire portfolio, and, to the extent applicable, the five
most heavily weighted non-U.S. equity securities shall not exceed
60% of the weight of the Fund's entire portfolio; and (4) each non-
U.S. equity security shall be listed and traded on an exchange that
has last-sale reporting.
\18\ REITs are pooled investment vehicles which invest primarily
in income producing real estate or real estate related loans or
interest.
---------------------------------------------------------------------------

The Fund may invest in exchange-listed and over-the-counter
(``OTC'') Depositary Receipts.\19\
---------------------------------------------------------------------------

\19\ Depositary Receipts include American Depositary Receipts
(``ADRs''), Global Depositary Receipts (``GDRs'') and European
Depositary Receipts (``EDRs''). ADRs are receipts typically issued
by an American bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation. EDRs are
receipts issued by a European bank or trust company evidencing
ownership of securities issued by a foreign corporation. GDRs are
receipts issued throughout the world that evidence a similar
arrangement. ADRs, EDRs and GDRs may trade in foreign currencies
that differ from the currency the underlying security for each ADR,
EDR or GDR principally trades in. Generally, ADRs, in registered
form, are designed for use in the U.S. securities markets. EDRs, in
registered form, are used to access European markets. GDRs, in
registered form, are tradable both in the United States and in
Europe and are designed for use throughout the world. No more than
10% of the net assets of the Fund will be invested in ADRs that are
not exchange-listed.
---------------------------------------------------------------------------

The Fund may invest in the following cash and cash equivalents:
investments in money market funds (for which the Adviser and/or its
affiliates serve as investment adviser or administrator), bank
obligations,\20\ commercial paper,\21\ repurchase agreements and short-
term funding agreements.\22\
---------------------------------------------------------------------------

\20\ Bank obligations include the following: Bankers'
acceptances, certificates of deposit and time deposits. Bankers'
acceptances are bills of exchange or time drafts drawn on and
accepted by a commercial bank. Maturities are generally six months
or less. Certificates of deposit are negotiable certificates issued
by a bank for a specified period of time and earning a specified
return. Time deposits are non-negotiable receipts issued by a bank
in exchange for the deposit of funds.
\21\ Commercial paper consists of secured and unsecured short-
term promissory notes issued by corporations and other entities.
Maturities generally vary from a few days to nine months.
\22\ Short-term funding agreements are agreements issued by
banks and highly rated U.S. insurance companies such as Guaranteed
Investment Contracts (``GICs'') and Bank Investment Contracts
(``BICs'').
---------------------------------------------------------------------------

The Fund may invest in corporate debt.\23\ These could include
emerging market securities.
---------------------------------------------------------------------------

\23\ The Adviser expects that, under normal market conditions,
the Fund generally will seek to invest at least 75% of its corporate
debt assets in issuances that have at least $100,000,000 par amount
outstanding in developed countries or at least $200,000,000 par
amount outstanding in emerging market countries.
---------------------------------------------------------------------------

The Fund may purchase and sell futures contracts on currencies and
fixed income securities, and futures contracts on indexes of
securities.
The Fund may invest in OTC and exchange-traded call and put options
on

[[Page 9524]]

equities, fixed income securities and currencies or options on indexes
of equities, fixed income securities and currencies.
In addition to money market funds referenced above, the Fund may
invest in shares of non-exchange-traded investment company securities
including investment company securities for which the Adviser and/or
its affiliates may serve as investment adviser or administrator, to the
extent permitted by Section 12(d)(1) \24\ of the 1940 Act and the rules
thereunder.
---------------------------------------------------------------------------

\24\ 15 U.S.C. 80a-12(d)(1).
---------------------------------------------------------------------------

The Fund may invest in exchange traded funds (``ETFs'').\25\
---------------------------------------------------------------------------

\25\ The ETFs in which the Fund may invest will be registered
under the 1940 Act and include Investment Company Units (as
described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
and Managed Fund Shares (as described in NYSE Arca Equities Rule
8.600). Such ETFs all will be listed and traded in the U.S. on
registered exchanges. While the Fund may invest in inverse ETFs, the
Fund will not invest in leveraged or inverse leveraged (e.g., 2X, -
2X, 3X or -3X) ETFs.
---------------------------------------------------------------------------

The Fund may invest in swaps as follows: credit default swaps
(``CDSs''), interest rate swaps, currency swaps, total return swaps on
equity securities and equity index swaps.
The Fund may invest in forward and spot currency transactions. Such
investments consist of non-deliverable forwards (``NDFs''), foreign
forward currency contracts,\26\ and spot currency transactions.
---------------------------------------------------------------------------

\26\ A foreign currency forward contract is a negotiated
agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate.
The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.
---------------------------------------------------------------------------

The Fund may invest in U.S. Government obligations, which may
include direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, all of which are backed as to principal and
interest payments by the full faith and credit of the United States,
and separately traded principal and interest component parts of such
obligations that are transferable through the Federal book-entry system
known as Separate Trading of Registered Interest and Principal of
Securities (STRIPS) and Coupons Under Book Entry Safekeeping
(``CUBES'').
The Fund may invest in U.S. government sponsored mortgage-backed
securities.

Other Investments

While the Fund, under normal market conditions, will invest at
least fifty percent (50%) of its assets in the securities and financial
instruments described above, the Fund may invest its remaining assets
in other assets and financial instruments, as described below.
The Fund will gain exposure to commodity markets indirectly by
investing up to 15% of its total assets in the Subsidiary. The
Subsidiary also will be advised by the Adviser. The Subsidiary will
only invest in commodity futures contracts and will also hold any
necessary cash or other short-term investments as collateral. The Fund
will not invest in such commodity futures contracts directly.
The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and
private entities in certain emerging markets for new bonds in
connection with debt restructurings.
The Fund may invest in U.S. and non-U.S. convertible securities,
which are bonds or preferred stock that can convert to common stock.
The Fund may invest in inflation-linked debt securities, which include
fixed and floating rate debt securities of varying maturities issued by
the U.S. government and foreign governments.
The Fund may invest in obligations of supranational agencies, which
are chartered to promote economic development and are supported by
various governments and governmental agencies.
The Fund may invest in reverse repurchase agreements.
The Fund may invest in sovereign obligations, which are investments
in debt obligations issued or guaranteed by a foreign sovereign
government or its agencies, authorities or political subdivisions.
The Fund may invest in U.S. Government agency securities (excluding
U.S. government sponsored mortgage-backed securities, referenced
above), which are securities issued or guaranteed by agencies and
instrumentalities of the U.S. government. These include all types of
securities issued by the Government National Mortgage Association
(``Ginnie Mae''), the Federal National Mortgage Association (``Fannie
Mae'') and the Federal Home Loan Mortgage Corporation (``Freddie
Mac''), including funding notes, subordinated benchmark notes,
collateralized mortgage obligations (``CMOs'') and real estate mortgage
investment conduits (``REMICs'').
The Fund may invest in equity and debt securities that are
restricted securities (Rule 144A securities).
Under normal market conditions, the Fund may invest no more than 5%
of its assets in OTC common stocks, preferred stocks, warrants, rights
and contingent value rights (``CVRs'') of U.S. and foreign corporations
(including emerging market securities).

Other Restrictions

The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser,
consistent with Commission guidance. 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.\27\
---------------------------------------------------------------------------

\27\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act).
---------------------------------------------------------------------------

The Fund may invest in other investment companies to the extent
permitted by Section12(d)(1) of the 1940 Act and rules thereunder and/
or any applicable exemption or exemptive order under the 1940 Act with
respect to such investments.
The Fund may invest in securities denominated in U.S. dollars,
major reserve currencies, and currencies of other countries in which
the Fund may invest.
The Fund may investment in both investment grade and high yield
debt securities.
The Fund intends to qualify for and to elect treatment as a
separate regulated investment company (``RIC'') under Subchapter M of
the Internal Revenue Code.\28\ Furthermore, the Fund may not
concentrate investments in a particular industry or group of
industries, as

[[Page 9525]]

concentration is defined under the 1940 Act, the rules or regulations
thereunder or any exemption therefrom, as such statute, rules or
regulations may be amended or interpreted from time to time.\29\
---------------------------------------------------------------------------

\28\ 26 U.S.C. 851 et seq.
\29\ The Registration Statement states that, for purposes of the
Fund's fundamental investment policy regarding industry
concentration, ``to concentrate'' generally means to invest more
than 25% of the Fund's total assets, taken at market value at the
time of investment. For the Fund this restriction does not apply to
securities issued or guaranteed by the U.S. government, any state or
territory of the U.S., its agencies, instrumentalities, or political
subdivisions, or repurchase agreements secured thereby, and futures
and options transactions issued or guaranteed by any of the
foregoing. For purposes of fundamental investment policies involving
industry concentration, ``group of industries'' means a group of
related industries, as determined in good faith by the Adviser,
based on published classifications or other sources. For purposes of
fundamental investment policies regarding industry concentration,
the Adviser may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing
Annual Reports with the SEC or other sources. In the absence of such
classification or if the Adviser determines in good faith based on
its own information that the economic characteristics affecting a
particular issuer make it more appropriate to be considered engaged
in a different industry, the Adviser may classify an issuer
accordingly. Accordingly, the composition of an industry or group of
industries may change from time to time. For purposes of fundamental
investment policies involving industry concentration, ``group of
industries'' means a group of related industries, as determined in
good faith by the Adviser based on published classifications or
other sources.
---------------------------------------------------------------------------

The Fund is a diversified series of the Trust. The Fund intends to
meet the diversification requirements of the 1940 Act.\30\
---------------------------------------------------------------------------

\30\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

The Fund's investments, including derivatives, will be consistent
with the Fund's investment objective and will not be used to enhance
leverage (although certain derivatives may result in leverage). That
is, while the Fund will be permitted to borrow as permitted under the
1940 Act, the Fund's (and the Subsidiary's) investments will not be
used to seek performance that is the multiple or inverse multiple
(i.e., 2Xs and 3Xs) of the Fund's primary broad-based securities
benchmark index (as defined in Form N-1A).\31\
---------------------------------------------------------------------------

\31\ The Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------

The Fund's and the Subsidiary's Use of Derivatives

The Fund proposes to seek certain exposures through transactions in
the specific derivative instruments described above. The derivatives
usage may occur in the Fund or the Subsidiary (provided that the
Subsidiary will invest only in commodity futures). The derivatives to
be used are futures, swaps, NDFs, foreign forward currency contracts,
and call and put options. Derivatives, which are instruments that have
a value based on another instrument, exchange rate or index, may also
be used as substitutes for securities in which the Fund can invest. The
Fund may use these derivative instruments to increase gain, to
effectively gain targeted exposure from its cash positions, to hedge
various investments and/or for risk management.
Investments in derivative instruments 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 such
transactions, the Fund will segregate or ``earmark'' assets determined
to be liquid by the Adviser in accordance with procedures established
by the Trust's Board of Trustees (the ``Board'') and in accordance with
the 1940 Act (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations under derivative
instruments. These procedures have been adopted consistent with Section
18 of the 1940 Act and related Commission guidance. In addition, the
Fund will include appropriate risk disclosure in its offering
documents, including leveraging risk. Leveraging risk is the risk that
certain transactions of the Fund, including the Fund's use of
derivatives, may give rise to leverage, causing the Fund to be more
volatile than if it had not been leveraged.\32\ Because the markets for
certain assets, or the assets themselves, may be unavailable or cost
prohibitive as compared to derivative instruments, suitable derivative
transactions may be an efficient alternative for the Fund to obtain the
desired asset exposure.
---------------------------------------------------------------------------

\32\ To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that
may give rise to such risk.
---------------------------------------------------------------------------

Creation and Redemption of Shares

According to the Registration Statement, the consideration for a
purchase of Creation Units will generally be cash, but may consist of
an in-kind deposit of a designated portfolio of equity securities and
other investments (the ``Deposit Instruments'') and an amount of cash
computed as described below (the ``Cash Amount'') under some
circumstances. The Cash Amount together with the Deposit Instruments,
as applicable, are referred to as the ``Portfolio Deposit,'' which
represents the minimum initial and subsequent investment amount for a
Creation Unit of the Fund.
In the event the Fund requires Deposit Instruments and a Cash
Amount in consideration for purchasing a Creation Unit, the function of
the Cash Amount is to compensate for any differences between the NAV
per Creation Unit and the Deposit Amount (as defined below). The Cash
Amount would be an amount equal to the difference between the NAV of
the Shares (per Creation Unit) and the ``Deposit Amount,'' which is an
amount equal to the aggregate market value of the Deposit Instruments.
If the Cash Amount is a positive number (the NAV per Creation Unit
exceeds the Deposit Amount), the Authorized Participant will deliver
the Cash Amount. If the Cash Amount is a negative number (the NAV per
Creation Unit is less than the Deposit Amount), the Authorized
Participant will receive the Cash Amount. The Administrator, through
the National Securities Clearing Corporation (``NSCC''), will make
available on each business day, immediately prior to the opening of
business on the Exchange (currently 9:30 a.m. Eastern time (``E.T.'')),
the list of the names and the required number of shares of each Deposit
Instrument to be included in the current Portfolio Deposit (based on
information at the end of the previous business day), as well as
information regarding the Cash Amount for the Fund. Such Portfolio
Deposit is applicable, subject to any adjustments as described below,
in order to effect creations of Creation Units of the Fund until such
time as the next-announced Portfolio Deposit composition is made
available.
The identity and number of the Deposit Instruments and Cash Amount
required for the Portfolio Deposit for the Fund changes as rebalancing
adjustments and corporate action events are reflected from time to time
by the Adviser with a view to the investment objective of the Fund. In
addition, the Trust reserves the right to accept a basket of securities
or cash that differs from Deposit Instruments or to permit the
substitution of an amount of cash (i.e., a ``cash in lieu'' amount) to
be added to the Cash Amount to replace any Deposit Instrument which
may, among other reasons, not be available in sufficient quantity for
delivery, not be permitted to be re-registered in the name of the Trust
as a result of an in-kind creation order pursuant to local law or
market convention or for other reasons as described in the Registration
Statement, or which may not be eligible for trading by a Participating
Party (defined below). In light of the foregoing, in order to seek to
replicate

[[Page 9526]]

the in-kind creation order process, the Trust expects to purchase the
Deposit Instruments represented by the cash in lieu amount in the
secondary market.
In addition to the list of names and numbers of securities
constituting the current Deposit Instruments of a Portfolio Deposit,
the Administrator, through the NSCC, also will make available on each
business day, the estimated Cash Component adjusted through the close
of the trading day.

Procedures for Creation of Creation Units

To be eligible to place orders with the Distributor to create
Creation Units of the Fund, an entity or person either must be (1) a
``Participating Party,'' i.e., a broker-dealer or other participant in
the clearing process through the Continuous Net Settlement System of
the NSCC; or (2) a Depositary Trust Company (``DTC'') Participant,
which, in either case, must have executed an agreement with the
Distributor (as it may be amended from time to time in accordance with
its terms) (``Participant Agreement'') (discussed below). A
Participating Party and DTC Participant are collectively referred to as
an ``Authorized Participant.'' All orders to create Creation Units must
be received by the Distributor no later than the closing time of the
regular trading session on the Exchange (``Closing Time'') (ordinarily
4:00 p.m. E.T.), in each case on the date such order is placed in order
for creation of Creation Units to be effected based on the NAV of the
Fund as determined on such date.

Redemption of Creation Units

Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Distributor, only on a business day and only through a Participating
Party or DTC Participant who has executed a Participant Agreement. The
Trust will not redeem Shares in amounts less than Creation Units.
Although the Fund will generally pay redemption proceeds in cash,
there may be instances when it will make redemptions in-kind. In these
instances, the Administrator, through NSCC, makes available immediately
prior to the opening of business on the Exchange (currently 9:30 a.m.
E.T.) on each day that the Exchange is open for business, the identity
of the Fund's assets and/or an amount of cash that will be applicable
(subject to possible amendment or correction) to redemption requests
received in proper form on that day. Unless cash redemptions are
permitted or required for the Fund, the redemption proceeds for a
Creation Unit generally consist of Redemption Instruments as announced
by the Administrator on the business day of the request for redemption,
plus cash in an amount equal to the difference between the NAV of the
Shares being redeemed, as next determined after a receipt of a request
in proper form, and the value of the Redemption Instruments, less the
redemption transaction fee and variable fees described below.
Should the Redemption Instruments have a value greater than the NAV
of the Shares being redeemed, a compensating cash payment to the Trust
equal to the differential plus the applicable redemption transaction
fee will be required to be arranged for by or on behalf of the
redeeming shareholder. The Fund reserves the right to honor a
redemption request by delivering a basket of securities or cash that
differs from the Redemption Instruments.\33\
---------------------------------------------------------------------------

\33\ The Adviser represents that, to the extent the Trust
effects the creation or redemption of Shares in cash, such
transactions will be effected in the same manner for all Authorized
Participants.
---------------------------------------------------------------------------

Valuation Methodology for Purposes of Determining Net Asset Value

The NAV of Shares, under normal market conditions, will be
calculated each business day as of the close of the Exchange, which is
typically 4:00 p.m. E.T. On occasion, the Exchange will close before
4:00 p.m. E.T. When that happens, NAV will be calculated as of the time
the Exchange closes. The price at which a purchase of a Creation Unit
is effected is based on the next calculation of NAV after the order is
received in proper form.
Securities for which market quotations are readily available will
generally be valued at their current market value. Other securities and
assets, including securities for which market quotations are not
readily available or market quotations are determined not to be
reliable; or, if their value has been materially affected by events
occurring after the close of trading on the exchange or market on which
the security is principally traded but before the Fund's NAV is
calculated, may be valued at fair value in accordance with policies and
procedures adopted by the Trust's Board of Trustees. Fair value
represents a good faith determination of the value of a security or
other asset based upon specifically applied procedures. Fair valuation
may require subjective determinations.
U.S. exchange-traded common stocks, preferred stocks, warrants,
rights, REITs, and Depositary Receipts will be valued at the last sale
price or official market closing price on the primary exchange on which
such security trades. Exchange-traded non-U.S. equity securities will
be valued at the last sale price or official market closing price on
the primary exchange on which such security trades.
OTC equity securities will be priced utilizing market quotations
provided by approved pricing services or by broker quotation. For OTC
warrants, rights and CVRs, if no pricing service or broker quotation is
available, then the warrant, right or CVR will be valued intrinsically
based on the terms of issuance.
Shares of non-exchange-traded open-end investment companies will be
valued at their current day NAV published by the relevant fund. ETFs
will be valued at the last sale price or official market closing price
on the primary exchange on which such ETF trades.
CDS, interest rate swaps, currency swaps, total return swaps, index
swaps, and commodity swaps will be priced utilizing market quotations
provided by approved pricing services.
Forward and spot currency transactions will be valued based on
foreign exchange rates obtained from an approved pricing service, using
spot and forward rates available at the time net asset value of the
Fund is calculated.
Commercial paper will be valued at prices supplied by approved
pricing services which is generally based on bid-side quotations.
Options traded on U.S. exchanges shall be valued at the composite
mean price, using the National Best Bid and Offer quotes (``NBBO'') on
the valuation date. NBBO consists of the highest bid price and lowest
ask price across any of the exchanges on which an option is quoted.
Options traded on foreign exchanges are valued at the settled price
on the valuation date, or if no settled price is available, at the last
sale price available prior to the calculation of the Fund's net asset
value.
Futures traded on U.S. and foreign exchanges are valued at the
settled price, or if no settled price is available, at the last sale
price as of the close of the exchanges on the valuation date.
OTC derivatives are priced utilizing market quotations provided by
approved pricing services.
In addition, non-Western Hemisphere equity securities or
derivatives involving non-Western Hemisphere equity reference
obligations are normally subject to adjustment (fair value) each day by
applying a fair value factor provided by approved pricing

[[Page 9527]]

services to the values obtained as described above.
Convertible securities will be valued at prices supplied by
approved pricing services which is generally based on bid-side
quotations.
Corporate debt securities will be valued at prices supplied by
approved pricing services which is generally based on bid-side
quotations.
Inflation-linked debt securities, mortgage-backed securities, bank
obligations, Brady Bonds, short-term funding agreements, repurchase
agreements, reverse repurchase agreements, U.S. Government agency
securities, U.S. Government obligations, sovereign obligations,
obligations of supranational agencies and Rule 144A securities will be
valued at prices supplied by approved pricing services which is
generally based on bid-side quotations.

Derivatives Valuation Methodology for Purposes of Determining Intra-Day
Indicative Value

On each business day, before commencement of trading in Fund Shares
on NYSE Arca, the Fund will disclose on its Web site the identities and
quantities of the portfolio instruments and other assets held by the
Fund that will form the basis for the Fund's calculation of NAV at the
end of the business day.
In order to provide additional information regarding the intra-day
value of Shares of the Fund, the NYSE Arca or a market data vendor will
disseminate every 15 seconds through the facilities of the Consolidated
Tape Association or other widely disseminated means an updated Intra-
day Indicative Value (``IIV'') for the Fund as calculated by a third
party market data provider.
A third party market data provider will calculate the IIV for the
Fund. The third party market data provider may use market quotes if
available or may fair value securities against proxies (such as swap or
yield curves).
With respect to specific derivatives:
NDFs and foreign forward currency contracts may be valued
intraday using market quotes, or another proxy as determined to be
appropriate by the third party market data provider.
Futures may be valued intraday using the relevant futures
exchange data, or another proxy as determined to be appropriate by the
third party market data provider.
Interest rate swaps and cross-currency swaps may be mapped
to a swap curve and valued intraday based on changes of the swap curve,
or another proxy as determined to be appropriate by the third party
market data provider.
Credit default swaps may be valued using intraday data
from market vendors, or based on underlying asset price, or another
proxy as determined to be appropriate by the third party market data
provider.
Total return swaps may be valued intraday using the
underlying asset price, or another proxy as determined to be
appropriate by the third party market data provider.
Exchange listed options may be valued intraday using the
relevant exchange data, or another proxy as determined to be
appropriate by the third party market data provider.
OTC options may be valued intraday through option
valuation models (e.g., Black-Scholes) or using exchange traded options
as a proxy, or another proxy as determined to be appropriate by the
third party market data provider.

Disclosed Portfolio

The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Adviser 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.

Impact on Arbitrage Mechanism

The Adviser believes there will be minimal impact to the arbitrage
mechanism as a result of the use of derivatives. Market makers and
participants should be able to value derivatives as long as the
positions are disclosed with relevant information. The Adviser believes
that the price at which Shares trade will continue to be disciplined by
arbitrage opportunities created by the ability to purchase or redeem
creation Shares at their NAV, which should ensure that Shares will not
trade at a material discount or premium in relation to their NAV.
The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of the Fund's arbitrage
mechanism due to the use of derivatives. Because derivatives generally
are not eligible for in-kind transfer, they will typically be
substituted with a ``cash in lieu'' amount when the Fund processes
purchases or redemptions of creation units in-kind.

Availability of Information

The Fund's Web site (www.jpmorganfunds.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 or mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\34\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Adviser will disclose on the Fund's Web site the Disclosed Portfolio
for the Fund as defined in NYSE Arca Equities Rule 8.600(c)(2) that
will form the basis for the Fund's calculation of NAV at the end of the
business day.\35\
---------------------------------------------------------------------------

\34\ 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.
\35\ Under accounting procedures to be 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.
---------------------------------------------------------------------------

The Fund's portfolio holdings (including those of the Subsidiary)
will be disclosed on its Web site daily after the close of trading on
the Exchange and prior to the opening of trading on the Exchange the
following day.
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 are

[[Page 9528]]

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.
Quotation and last sale information for the Shares and for
portfolio holdings of the Fund that are U.S. exchange listed, including
common stocks, preferred stocks, warrants, rights, ETFs, REITs, and
U.S. exchange-traded ADRs will be available via the Consolidated Tape
Association (``CTA'') high speed line. Quotation and last sale
information for such U.S. exchange-listed securities, as well as
futures will be available from the exchange on which they are listed.
Quotation and last sale information for exchange-listed options cleared
via the Options Clearing Corporation will be available via the Options
Price Reporting Authority. Quotation and last sale information for non-
U.S. equity securities will be available from the exchanges on which
they trade and from major market data vendors, as applicable. Price
information for OTC common stocks, preferred stocks, warrants, rights
and CVRs will be available from the Fund's Web site or from major
market data vendors.
Quotation information for OTC options, cash equivalents, swaps,
Brady Bonds, inflation-linked debt instruments, obligations of
supranational agencies, money market funds, non-exchange-listed
investment company securities (other than money market funds), Rule
144A securities, U.S. Government obligations, U.S. Government agency
obligations, sovereign obligations, corporate debt, inflation-linked
debt securities, and reverse repurchase agreements may be obtained from
brokers and dealers who make markets in such securities or through
nationally recognized pricing services through subscription agreements.
The U.S. dollar value of foreign securities, instruments and currencies
can be derived by using foreign currency exchange rate quotations
obtained from nationally recognized pricing services. Forwards and spot
currency price information will be available from major market data
vendors.
In addition, the Portfolio Indicative Value (``PIV''), as defined
in NYSE Arca Equities Rule 8.600 (c)(3), will be widely disseminated by
one or more major market data vendors at least every 15 seconds during
the Core Trading Session.\36\ The dissemination of the PIV, together
with the Disclosed Portfolio, will allow investors to determine the
approximate 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.
---------------------------------------------------------------------------

\36\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available PIVs
taken from the CTA or other data feeds.
---------------------------------------------------------------------------

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.\37\ 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 of the Fund 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.
---------------------------------------------------------------------------

\37\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

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 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
The Shares of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. The Exchange
represents that, for initial and/or continued listing, the Fund will be
in compliance with Rule 10A-3 \38\ under the Act, as provided by NYSE
Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
the Fund that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time.
---------------------------------------------------------------------------

\38\ 17 CFR 240 10A-3.
---------------------------------------------------------------------------

Surveillance

The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by regulatory staff
of the Exchange, or 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.\39\ 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 applicable
federal securities laws.
---------------------------------------------------------------------------

\39\ FINRA surveils certain trading activity on the Exchange
pursuant to a regulatory services agreement. The Exchange is
responsible for FINRA's performance under this regulatory services
agreement.
---------------------------------------------------------------------------

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.
The regulatory staff of the Exchange or FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares,
certain exchange-listed equity securities, certain futures, and certain
exchange-traded options 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 such securities and financial instruments from such markets and
other entities. In addition, the regulatory staff of the Exchange may
obtain information regarding trading in such securities and financial
instruments from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.\40\

[[Page 9529]]

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'').
---------------------------------------------------------------------------

\40\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

Under normal circumstances, the non-U.S. equity securities in the
Fund's portfolio will meet the following criteria at time of purchase:
(1) Non-U.S. equity securities each shall have a minimum market value
of at least $100 million; (2) non-U.S. equity securities each shall
have a minimum global monthly trading volume of 250,000 shares, or
minimum global notional volume traded per month of $25,000,000,
averaged over the last six months; (3) the most heavily weighted non-
U.S. equity security shall not exceed 25% of the weight of the Fund's
entire portfolio, and, to the extent applicable, the five most heavily
weighted non-U.S. equity securities shall not exceed 60% of the weight
of the Fund's entire portfolio; and (4) each non-U.S. equity security
shall be listed and traded on an exchange that has last-sale reporting.
Not more than 10% of the net assets of the Fund in the aggregate
invested in futures contracts or exchange-traded options shall consist
of futures contracts or options whose principal market is not a member
of ISG or is a market with which the Exchange does not have a
comprehensive surveillance sharing agreement.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.

Information Bulletin

Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares of the Fund. Specifically, the Bulletin will discuss
the following: (1) The procedures for purchases and redemptions of
Shares in Creation Units (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated PIV will not be calculated or publicly
disseminated; (4) how information regarding the PIV and the Disclosed
Portfolio is disseminated; (5) the requirement that ETP Holders deliver
a prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares of the Fund
will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \41\ 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.
---------------------------------------------------------------------------

\41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Adviser is not registered as a broker-dealer but is
affiliated with a broker-dealer and has implemented and will maintain a
fire wall with respect to such broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
portfolio. The Exchange represents that trading in the Shares will be
subject to the existing trading surveillances, administered by
regulatory staff of the Exchange or FINRA on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws. The Exchange represents that these
procedures are adequate to properly monitor Exchange trading of the
Shares in all trading sessions and to deter and detect violations of
Exchange rules and applicable federal securities laws. The regulatory
staff of the Exchange or FINRA, on behalf of the Exchange, will
communicate as needed regarding trading in the Shares, certain
exchange-listed equity securities, certain futures, and certain
exchange-traded options with other markets and other entities that are
members of the ISG, and FINRA, on behalf of the Exchange, may obtain
trading information regarding trading such securities and financial
instruments from such markets and other entities. In addition, the
regulatory staff of the Exchange may obtain information regarding
trading in such securities and financial instruments 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. Under normal circumstances, the non-U.S. equity
securities in the Fund's portfolio will meet the following criteria at
time of purchase: (1) Non-U.S. equity securities each shall have a
minimum market value of at least $100 million; (2) non-U.S. equity
securities each shall have a minimum global monthly trading volume of
250,000 shares, or minimum global notional volume traded per month of
$25,000,000, averaged over the last six months; (3) the most heavily
weighted non-U.S. equity security shall not exceed 25% of the weight of
the Fund's entire portfolio, and, to the extent applicable, the five
most heavily weighted non-U.S. equity securities shall not exceed 60%
of the weight of the Fund's entire portfolio; and (4) each non-U.S.
equity security shall be listed and traded on an exchange that has
last-sale reporting. Not more than 10% of the net assets of the Fund in
the aggregate invested in futures contracts or exchange-traded options
shall consist of futures contracts or options whose principal market is
not a member of ISG or is a market with which the Exchange does not
have a comprehensive surveillance sharing agreement.
The PIV, as defined in NYSE Arca Equities Rule 8.600 (c)(3), will
be widely disseminated by one or more major market data vendors at
least every 15 seconds during the Core Trading Session. The Fund may
hold up to an aggregate amount of 15% of its net assets in illiquid
assets (calculated at the time of investment), including Rule 144A
securities deemed illiquid by the Adviser, consistent with Commission
guidance.
The Shares of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. The Exchange
represents that, for initial and/or continued listing, the Fund will be
in compliance with Rule 10A-3 under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
the Fund that the NAV per Share will be calculated daily and that

[[Page 9530]]

the NAV and the Disclosed Portfolio will be made available to all
market participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the respective
Shares, thereby promoting market transparency. The Fund's portfolio
holdings will be disclosed on its Web site daily after the close of
trading on the Exchange and prior to the opening of trading on the
Exchange the following day. On a daily basis, the Fund will disclose on
its 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); the identity of the security,
commodity, index or other asset or instrument underlying the holding,
if any; 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 are 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. Quotation and
last sale information for the Shares and for portfolio holdings of the
Fund that are U.S. exchange listed, including common stocks, preferred
stocks, warrants, rights, ETFs, REITs, and U.S. exchange-traded ADRs
will be available via the CTA high speed line. Quotation and last sale
information for such U.S. exchange-listed securities, as well as
futures will be available from the exchange on which they are listed.
Quotation and last sale information for exchange-listed options cleared
via the Options Clearing Corporation will be available via the Options
Price Reporting Authority. Quotation and last sale information for non-
U.S. equity securities will be available from the exchanges on which
they trade and from major market data vendors.
Quotation information for OTC options, cash equivalents, swaps,
Brady Bonds, inflation-linked debt instruments, obligations of
supranational agencies, money market funds, Rule 144A securities, U.S.
Government obligations, U.S. Government agency obligations, sovereign
obligations, corporate debt, and reverse repurchase agreements may be
obtained from brokers and dealers who make markets in such securities
or through nationally recognized pricing services through subscription
agreements. The U.S. dollar value of foreign securities, instruments
and currencies can be derived by using foreign currency exchange rate
quotations obtained from nationally recognized pricing services.
Forwards and spot currency price information will be available from
major market data vendors.
The Web site for the Fund will include a form of the prospectus for
the Fund and additional data relating to NAV and other applicable
quantitative information. Moreover, prior to the commencement of
trading, the Exchange will inform its ETP Holders in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares of the Fund. Trading in Shares of the Fund will be
halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached or because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable, and trading in the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the PIV, the Disclosed Portfolio, and quotation and last sale
information for the Shares. The Fund's investments, including
derivatives, will be consistent with the Fund's investment objective
and will not be used to enhance leverage (although certain derivatives
may result in leverage). That is, while the Fund will be permitted to
borrow as permitted under the 1940 Act, the Fund's investments will not
be used to seek performance that is the multiple or inverse multiple
(i.e., 2Xs and 3Xs) of the Fund's primary broad-based securities
benchmark index (as defined in Form N-1A).
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares of the
Fund and may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the PIV, the Disclosed Portfolio for the Fund, and
quotation and last sale information for the Shares of the Fund.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded product that holds
fixed income and equity securities and 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

[[Page 9531]]

Send an email to rule-comments@sec.gov. Please include
File Number SR- SR-NYSEArca-2016-17 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-2016-17. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2016-17 and should
be submitted on or before March 17, 2016.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
---------------------------------------------------------------------------

\42\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-03940 Filed 2-24-16; 8:45 am]
BILLING CODE 8011-01-P

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