Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 4 to, and Order Instituting Proceedings to Determine Whether to Approve or Disapprove, a Proposed Rule Change, as Modified by Amendment No. 4 Thereto, Amending NYSE Arca Equities Rule 8.600 to Adopt Generic Listing Standards for Managed Fund Shares, 9900-9909 [2016-04112]

Download as PDF 9900 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices presentations to the Clients’ representatives and consultants about the Real Estate Platform Brookfield US manages. The Contributor has no contact with any representative of a Client outside of those presentations and no contact with any member of a Client’s board. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2016–04113 Filed 2–25–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77203; File No. SR– NYSEArca–2015–110] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 4 to, and Order Instituting Proceedings to Determine Whether to Approve or Disapprove, a Proposed Rule Change, as Modified by Amendment No. 4 Thereto, Amending NYSE Arca Equities Rule 8.600 to Adopt Generic Listing Standards for Managed Fund Shares February 22, 2016. mstockstill on DSK4VPTVN1PROD with NOTICES On November 6, 2015, NYSE Arca, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend NYSE Arca Equities Rule 8.600 and to adopt generic listing standards for Managed Fund Shares.3 The proposed rule change was published for comment in the Federal Register on November 27, 2015.4 On November 23, 2015, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and replaced the original proposal in its entirety. On January 4, 2016, pursuant to Section 19(b)(2) of the Act,5 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.6 On January 21, 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See NYSE Arca Equities Rule 8.600(c)(1) (defining Managed Fund Shares). 4 See Securities Exchange Act Release No. 76486 (Nov. 20, 2015), 80 FR 74169 (‘‘Notice’’). 5 15 U.S.C. 78s(b)(2). 6 See Securities Exchange Act Release No. 76819, 81 FR 987 (Jan. 8, 2016). The Commission designated February 25, 2016 as the date by which 2 17 VerDate Sep<11>2014 20:41 Feb 25, 2016 Jkt 238001 2016, the Exchange withdrew Amendment No. 1 and filed Amendment No. 2 to the proposed rule change.7 The proposed rule change, as modified by Amendment No. 2 thereto, was published for comment in the Federal Register on February 1, 2016.8 On February 11, 2016, the Exchange filed Amendment No. 3 to the proposed rule change.9 The Commission has received one comment letter on the proposal.10 Pursuant to Section 19(b)(1) of the Act 11 and Rule 19b–4 thereunder,12 notice is hereby given that, on February 12, 2016, the Exchange filed with the Commission Amendment No. 4 to the proposed rule change, as described in Sections I and II below, which Sections have been prepared by the Exchange.13 the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. See id. 7 In Amendment No. 2 to the proposed rule change, the Exchange added provisions to the proposed generic listing criteria relating to non-U.S. Component Stocks, convertible securities, and listed swaps, among other changes. Amendment No. 2, which amended and replaced the original proposal in its entirety, is available on the Commission’s Web site at: http://www.sec.gov/ comments/sr-nysearca-2015-110/nysearca20151103.pdf. 8 See Securities Exchange Act Release No. 76974 (Jan. 26, 2016), 81 FR 5149. 9 In Amendment No. 3 to the proposed rule change, the Exchange (a) revised the provisions relating to convertible securities, (b) clarified the limitations on non-exchange-traded American Depositary Receipts, (c) eliminated redundant provisions relating to limitations on leveraged and inverse-leveraged Derivative Securities Products, (d) revised the provision relating to limitations on listed derivatives, (e) clarified that, for purposes of the limitations relating to listed and over-thecounter derivatives, a portfolio’s investment in listed and over-the-counter derivatives will be calculated as the total absolute notional value of these derivatives, and (f) provided additional information regarding the statutory basis of the proposal. Amendment No. 3, which amended and replaced the proposed rule change, as modified by Amendment No. 2 thereto, in its entirety, is available on the Commission’s Web site at: http:// www.sec.gov/comments/sr-nysearca-2015-110/ nysearca2015110-4.pdf. 10 See Letter from Rob Ivanoff to the Commission dated Nov. 22, 2015 (commenting that the format of the Exchange’s proposed rule change was unclear and difficult to read, and suggesting a new format that would be easier to understand). All comments on the proposed rule change are available on the Commission’s Web site at: http://www.sec.gov/ comments/sr-nysearca-2015-110/nysearca20151101.htm. 11 15 U.S.C.78s(b)(1). 12 17 CFR 240.19b–4. 13 Specifically, in Amendment No. 4 to the proposed rule change and as described herein, the Exchange (a) confirmed that the generic listing criteria are to be applied on an initial and continuing basis, (b) corrected a typographical error, and (c) corrected a statement regarding the statutory basis of the proposal. Amendment No. 4, which amended and replaced the proposed rule change, as modified by Amendment No. 3 thereto, in its entirety, is available on the Commission’s Web site at: http://www.sec.gov/comments/srnysearca-2015-110/nysearca2015110-5.pdf. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 4 thereto, from interested persons. Additionally, this order institutes proceedings under Section 19(b)(2)(B) of the Act 14 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 4 thereto, as discussed in Section III below. The institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved, nor does it mean that the Commission will ultimately disapprove the proposed rule change. Rather, as described in Section III below, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change to inform the Commission’s analysis of whether to approve or disapprove the proposed rule change. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend NYSE Arca Equities Rule 8.600 to adopt generic listing standards for Managed Fund Shares. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend NYSE Arca Equities Rule 8.600 to adopt generic listing standards for Managed Fund Shares. Under the Exchange’s current rules, a proposed rule change must be filed with the Securities and 14 15 E:\FR\FM\26FEN1.SGM U.S.C. 78s(b)(2)(B). 26FEN1 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) for the listing and trading of each new series of Managed Fund Shares. The Exchange believes that it is appropriate to codify certain rules within Rule 8.600 that would generally eliminate the need for such proposed rule changes, which would create greater efficiency and promote uniform standards in the listing process.15 mstockstill on DSK4VPTVN1PROD with NOTICES Background Rule 8.600 sets forth certain rules related to the listing and trading of Managed Fund Shares.16 Under Rule 8.600(c)(1), the term ‘‘Managed Fund Share’’ means a security that: (a) Represents an interest in a registered investment company (‘‘Investment Company’’) organized as an open-end management investment company or similar entity, that invests in a portfolio of securities selected by the Investment Company’s investment adviser (hereafter ‘‘Adviser’’) consistent with the Investment Company’s investment objectives and policies; (b) is issued in a specified aggregate minimum number in return for a deposit of a specified portfolio of securities and/or a cash amount with a value equal to the next determined net asset value; and (c) when aggregated in the same specified minimum number, may be redeemed at a holder’s request, which holder will be paid a specified portfolio of securities and/or cash with a value equal to the next determined net asset value. Effectively, Managed Fund Shares are securities issued by an activelymanaged open-end Investment 15 The Exchange has previously filed a proposed rule change to amend NYSE Arca Equities Rule 8.600 to adopt generic listing standards for Managed Fund Shares. See Securities Exchange Act Release No. 74433 (March 4, 2015), 80 FR 12690 (March 10, 2015) (SR–NYSEArca–2015–02). On June 3, 2015, the Exchange filed Amendment No. 1 to the proposed rule change. See Securities Exchange Act Release No. 75115 (June 5, 2015), 80 FR 33309 (June 11, 2015). On October 13, 2015, the Exchange withdrew the proposed rule change. See Securities Exchange Act Release No. 76186 (October 19, 2015), 80 FR 64461 (October 23, 2015). This Amendment No. 4 to SR–NYSEArca–2015–110 replaces SR–NYSEArca–2015–110 as originally filed and Amendments No. 2 and 3 thereto, and supersedes such filings in their entirety. The Exchange has withdrawn Amendment No. 1 to SR– NYSEArca–2015–110. 16 See Securities Exchange Act Release No. 57619 (April 4, 2008), 73 FR 19544 (April 10, 2008) (SR– NYSEArca–2008–25) (order approving NYSE Arca Equities Rule 8.600 and listing and trading of shares of certain issues of Managed Fund Shares) (the ‘‘Approval Order’’). The Approval Order approved the rules permitting the listing and trading of Managed Fund Shares, trading hours and halts, listing fees applicable to Managed Fund Shares, and the listing and trading of several individual series of Managed Fund Shares. VerDate Sep<11>2014 20:41 Feb 25, 2016 Jkt 238001 Company (i.e., an actively-managed exchange-traded fund (‘‘ETF’’)). Because Managed Fund Shares are activelymanaged, they do not seek to replicate the performance of a specified passive index of securities. Instead, they generally use an active investment strategy to seek to meet their investment objectives. In contrast, an open-end Investment Company that issues Investment Company Units (‘‘Units’’), listed and traded on the Exchange pursuant to NYSE Arca Equities Rule 5.2(j)(3), seeks to provide investment results that generally correspond to the price and yield performance of a specific foreign or domestic stock index, fixed income securities index or combination thereof. All Managed Fund Shares listed and/ or traded pursuant to Rule 8.600 (including pursuant to unlisted trading privileges) are subject to the full panoply of Exchange rules and procedures that currently govern the trading of equity securities on the Exchange.17 In addition, Rule 8.600(d) currently provides for the criteria that Managed Fund Shares must satisfy for initial and continued listing on the Exchange, including, for example, that a minimum number of Managed Fund Shares are required to be outstanding at the time of commencement of trading on the Exchange. However, the current process for listing and trading new series of Managed Fund Shares on the Exchange requires that the Exchange submit a proposed rule change with the Commission. In this regard, Commentary .01 to Rule 8.600 specifies that the Exchange will file separate proposals under Section 19(b) of the Act (hereafter, a ‘‘proposed rule change’’) before listing and trading of shares of an issue of Managed Fund Shares. Proposed Changes to Rule 8.600 The Exchange would amend Commentary .01 to Rule 8.600 to specify that the Exchange may approve Managed Fund Shares for listing and/or trading (including pursuant to unlisted trading privileges) pursuant to SEC Rule 19b–4(e) under the Act, which pertains to derivative securities products (‘‘SEC Rule 19b–4(e)’’).18 SEC Rule 19b–4(e)(1) provides that the listing and trading of a new derivative securities product by a 17 See Approval Order, supra note 17, at 19547. CFR 240.19b–4(e). As provided under SEC Rule 19b–4(e), the term ‘‘new derivative securities product’’ means any type of option, warrant, hybrid securities product or any other security, other than a single equity option or a security futures product, whose value is based, in whole or in part, upon the performance of, or interest in, an underlying instrument. 18 17 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 9901 self-regulatory organization (‘‘SRO’’) is not deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b–4,19 if the Commission has approved, pursuant to section 19(b) of the Act, the SRO’s trading rules, procedures and listing standards for the product class that would include the new derivative securities product and the SRO has a surveillance program for the product class. This is the current method pursuant to which ‘‘passive’’ ETFs are listed under NYSE Arca Equities Rule 5.2(j)(3). The Exchange would also specify within Commentary .01 to Rule 8.600 that components of Managed Fund Shares listed pursuant to SEC Rule 19b– 4(e) must satisfy on an initial and continued basis certain specific criteria, which the Exchange would include within Commentary .01, as described in greater detail below. As proposed, the Exchange would continue to file separate proposed rule changes before the listing and trading of Managed Fund Shares with components that do not satisfy the additional criteria described below or components other than those specified below. For example, if the components of a Managed Fund Share exceeded one of the applicable thresholds, the Exchange would file a separate proposed rule change before listing and trading such Managed Fund Share. Similarly, if the components of a Managed Fund Share included a security or asset that is not specified below, the Exchange would file a separate proposed rule change. The Exchange would also add to the criteria of Rule 8.600(c) to provide that the Web site for each series of Managed Fund Shares shall disclose certain information regarding the Disclosed Portfolio, to the extent applicable. The required information includes the following, to the extent applicable: ticker symbol, CUSIP or other identifier, a description of the holding, identity of the asset upon which the derivative is based, the strike price for any options, the quantity of each security or other asset held as measured by select metrics, maturity date, coupon rate, effective date, market value and percentage weight of the holding in the portfolio.20 19 17 CFR 240.19b–4(c)(1). As provided under SEC Rule 19b–4(c)(1), a stated policy, practice, or interpretation of the SRO shall be deemed to be a proposed rule change unless it is reasonably and fairly implied by an existing rule of the SRO. 20 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included disclosure requirements with respect to each portfolio holding, as applicable to the type of holding. See, e.g., Securities Exchange Act Release No. 72666 (July 3, 2014), 79 FR 44224 (July 30, E:\FR\FM\26FEN1.SGM Continued 26FEN1 9902 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices In addition, the Exchange would amend Rule 8.600(d) to specify that all Managed Fund Shares must have a stated investment objective, which must be adhered to under normal market conditions.21 Finally, the Exchange would also amend the continued listing requirement in Rule 8.600(d)(2)(A) by changing the requirement that a Portfolio Indicative Value for Managed Fund Shares be widely disseminated by one or more major market data vendors at least every 15 seconds during the time when the Managed Fund Shares trade on the Exchange to a requirement that a Portfolio Indicative Value be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session (as defined in NYSE Arca Equities Rule 7.34). Proposed Managed Fund Share Portfolio Standards mstockstill on DSK4VPTVN1PROD with NOTICES The Exchange is proposing standards that would pertain to Managed Fund Shares to qualify for listing and trading pursuant to SEC Rule 19b–4(e). These standards would be grouped according to security or asset type. The Exchange notes that the standards proposed for a Managed Fund Share portfolio that holds U.S. Component Stocks, Non-U.S. Component Stocks, Derivative Securities Products and Index-Linked Securities are based in large part on the existing equity security standards applicable to Units in Commentary .01 to Rule 5.2(j)(3). The standards proposed for a Managed Fund Share portfolio that holds fixed income securities are based in large part on the existing fixed income security standards applicable to Units in Commentary .02 to Rule 5.2(j)(3). Many of the standards proposed for other types of holdings in a Managed Fund Share portfolio are based on previous proposed rule changes for specific series of Managed Fund Shares.22 2014) (SR–NYSEArca–2013–122) (the ‘‘PIMCO Total Return Use of Derivatives Approval’’), at 44227. 21 The Exchange would also add a new defined term under Rule 8.600(c)(5) to specify that the term ‘‘normal market conditions’’ includes, but is not limited to, the absence of trading halts in the applicable financial markets generally; operational issues causing dissemination of inaccurate market information; or force majeure type events such as systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. 22 See the PIMCO Total Return Use of Derivatives Approval. See also Securities Exchange Act Release Nos. 66321 (February 3, 2012), 77 FR 6850 (February 9, 2012) (SR–NYSEArca–2011–95) (the ‘‘PIMCO Total Return Approval’’); 69244 (March 27, 2013), 78 FR 19766 (April 2, 2013) (SR–NYSEArca– 2013–08) (the ‘‘SPDR Blackstone/GSO Senior Loan VerDate Sep<11>2014 20:41 Feb 25, 2016 Jkt 238001 Proposed Commentary .01(a) would describe the standards for a Managed Fund Share portfolio that holds equity securities, which are defined to be U.S. Component Stocks,23 Non-U.S. Component Stocks,24 Derivative Securities Products,25 and Index-Linked Securities 26 listed on a national securities exchange. For Derivative Securities Products and Index-Linked Securities, no more than 25% of the equity weight of the portfolio could include leveraged and/or inverse leveraged Derivative Securities Products or Index-Linked Securities. In addition, proposed Commentary .01(a) would provide that, to the extent that a portfolio includes convertible securities, the equity security into which such security is converted would be required to meet the criteria of Commentary .01(a) after converting. As proposed in Commentary .01(a)(1) to Rule 8.600, the component stocks of the equity portion of a portfolio that are U.S. Component Stocks shall meet the following criteria initially and on a continuing basis: (1) Component stocks (excluding Derivative Securities Products and Index-Linked Securities) that in the aggregate account for at least 90% of the equity weight of the portfolio (excluding such Derivative Securities Products and Index-Linked Securities) each must have a minimum market value of at least $75 million; 27 Approval’’); 68870 (February 8, 2013), 78 FR 11245 (February 15, 2013) (SR–NYSEArca–2012–139) (the ‘‘First Trust Preferred Securities and Income Approval’’); 69591 (May 16, 2013), 78 FR 30372 (May 22, 2013) (SR–NYSEArca–2013–33) (the ‘‘International Bear Approval’’); 61697 (March 12, 2010), 75 FR 13616 (March 22, 2010) (SR– NYSEArca–2010–04) (the ‘‘WisdomTree Real Return Approval’’); and 67054 (May 24, 2012), 77 FR 32161 (May 31, 2012) (SR–NYSEArca–2012–25) (the ‘‘WisdomTree Brazil Bond Approval’’). Certain standards proposed herein for Managed Fund Shares are also based on previous proposed rule changes for specific series of Units for which Commission approval for listing was required due to the Units not satisfying certain standards of Commentary .01 and .02 to NYSE Arca Equities Rule 5.2(j)(3). See, e.g., Securities Exchange Act Release No. 69373 (April 15, 2013), 78 FR 23601 (April 19, 2013) (SR–NYSEArca–2012–108) (the ‘‘NYSE Arca U.S. Equity Synthetic Reverse Convertible Index Fund Approval’’). 23 For the purposes of Commentary .01 and this proposal, the term ‘‘U.S. Component Stocks’’ would have the same meaning as defined in NYSE Arca Equities Rule 5.2(j)(3). 24 For the purposes of Commentary .01 and this proposal, the term ‘‘Non-U.S. Component Stocks’’ would have the same meaning as defined in NYSE Arca Equities Rule 5.2(j)(3). 25 For the purposes of Commentary .01 and this proposal, the term ‘‘Derivative Securities Products’’ would have the same meaning as defined in NYSE Arca Equities Rule 7.34(a)(4)(A). 26 Index-Linked Securities are securities listed under NYSE Arca Equities Rule 5.2(j)(6). 27 This proposed text is identical to the corresponding text of Commentary .01(a)(A)(1) to PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 (2) Component stocks (excluding Derivative Securities Products and Index-Linked Securities) that in the aggregate account for at least 70% of the equity weight of the portfolio (excluding such Derivative Securities Products and Index-Linked Securities) each must have a minimum monthly trading volume of 250,000 shares, or minimum notional volume traded per month of $25,000,000, averaged over the last six months; 28 (3) The most heavily weighted component stock (excluding Derivative Securities Products and Index-Linked Securities) must not exceed 30% of the equity weight of the portfolio, and, to the extent applicable, the five most heavily weighted component stocks (excluding Derivative Securities Products and Index-Linked Securities) must not exceed 65% of the equity weight of the portfolio; 29 (4) Where the equity portion of the portfolio does not include Non-U.S. Component Stocks, the equity portion of the portfolio shall include a minimum of 13 component stocks; provided, however, that there shall be no minimum number of component stocks if (a) one or more series of Derivative Securities Products or Index-Linked Securities constitute, at least in part, components underlying a series of Managed Fund Shares, or (b) one or more series of Derivative Securities Products or Index-Linked Securities account for 100% of the equity weight of the portfolio of a series of Managed Fund Shares; 30 (5) Except as provided in proposed Commentary .01(a), equity securities in the portfolio must be U.S. Component Stocks listed on a national securities exchange and must be NMS Stocks as defined in Rule 600 of Regulation NMS; 31 NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable, and the addition of the reference to Index-Linked Securities. 28 This proposed text is identical to the corresponding text of Commentary .01(a)(A)(2) to NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable, and the addition of the reference to Index-Linked Securities. 29 This proposed text is identical to the corresponding text of Commentary .01(a)(A)(3) to NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable, and the addition of the reference to Index-Linked Securities. 30 This proposed text is identical to the corresponding text of Commentary .01(a)(A)(4) to NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable, the addition of the reference to IndexLinked Securities, and the reference to the 100% limit applying to the ‘‘equity portion’’ of the portfolio. 31 17 CFR 240.600. This proposed text is identical to the corresponding text of Commentary E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES (6) American Depositary Receipts (‘‘ADRs’’) may be exchange-traded or non-exchange-traded. However no more than 10% of the equity weight of the portfolio shall consist of non-exchangetraded ADRs.32 As proposed in Commentary .01(a)(2) to Rule 8.600, the component stocks of the equity portion of a portfolio that are Non-U.S. Component Stocks shall meet the following criteria initially and on a continuing basis: (1) Non-U.S. Component Stocks each shall have a minimum market value of at least $100 million; 33 (2) Non-U.S. Component Stocks 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; 34 (3) The most heavily weighted NonU.S. Component Stock shall not exceed 25% of the equity weight of the portfolio, and, to the extent applicable, the five most heavily weighted Non-U.S. Component Stocks shall not exceed 60% of the equity weight of the portfolio; 35 (4) Where the equity portion of the portfolio includes Non-U.S. Component Stocks, the equity portion of the portfolio shall include a minimum of 20 component stocks; provided, however, .01(a)(A)(5) to NYSE Arca Equities Rule 5.2(j)(3), except for the addition of ‘‘equity’’ to make clear that the standard applies to ‘‘equity securities’’, the exclusion of unsponsored ADRs, and the omission of the reference to ‘‘index,’’ which is not applicable. 32 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included the ability for such Managed Fund Share holdings to include not more than 10% of net assets in unsponsored ADRs (which are not exchangelisted). See, e.g., Securities Exchange Act Release No. 71067 (December 12, 20113), 78 FR 76669 (December 18, 2013) (order approving listing and trading of shares of the SPDR MFS Systematic Core Equity ETF, SPDR MFS Systematic Growth Equity ETF, and SPDR MFS Systematic Value Equity ETF under NYSE Arca Equities Rule 8.600). 33 The proposed text is identical to the corresponding representation from the ‘‘SSgA Global Managed Volatility Release’’, as defined in footnote 41, below. The proposed text is also identical to the corresponding text of Commentary .01(a)(B)(1) to NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable, and that each Non-U.S. Component Stock must have a minimum market value of at least $100 million instead of the 90% required under Commentary .01(a)(B)(1) to NYSE Arca Equities Rule 5.2(j)(3). 34 The proposed text is identical to the corresponding representation from the SSgA Global Managed Volatility Release, as defined in footnote 41, below. This proposed text also is identical to the corresponding text of Commentary .01(a)(B)(2) to NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable. 35 This proposed text is identical to the corresponding text of Commentary .01(a)(B)(3) to NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable. VerDate Sep<11>2014 20:41 Feb 25, 2016 Jkt 238001 that there shall be no minimum number of component stocks if (i) one or more series of Derivative Securities Products or Index-Linked Securities constitute, at least in part, components underlying a series of Managed Fund Shares, or (ii) one or more series of Derivative Securities Products or Index-Linked Securities account for 100% of the equity weight of the portfolio of a series of Managed Fund Shares; 36 and (5) Each Non-U.S. Component Stock shall be listed and traded on an exchange that has last-sale reporting.37 The Exchange notes that it is not proposing to require that any of the equity portion of the equity portfolio composed of Non-U.S. Component Stocks be listed on markets that are either a member of the Intermarket Surveillance Group (‘‘ISG’’) or a market with which the Exchange has a comprehensive surveillance sharing agreement (‘‘CSSA’’).38 However, as further detailed below, the regulatory staff of the Exchange, or the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), on behalf of the Exchange, will communicate as needed regarding trading in Managed Fund Shares with other markets that are members of the ISG, including U.S. securities exchanges on which the components are traded. The Exchange notes that the generic listing standards for Units based on foreign indexes in NYSE Arca Equities Rule 5.2(j)(3) do not include specific ISG or CSSA requirements.39 In addition, the Commission has approved listing and trading on the Exchange of shares of an issue of Managed Fund Shares under NYSE Arca Equities Rule 8.600 where non-U.S. equity securities in such issue’s portfolio meet specified criteria and where there is no requirement that such non-U.S. equity 36 This proposed text is similar to the corresponding text of Commentary .01(a)(B)(4) to NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable, the addition of the reference to IndexLinked Securities, the reference to the equity portion of the portfolio including Non-U.S. Component Stocks, and the reference to the 100% limitation applying to the ‘‘equity weight’’ of the portfolio, which is included because the proposed standards in Commentary .01 to Rule 8.600 permit the inclusion of non-equity securities, whereas Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) applies only to equity securities. 37 This proposed text is similar to Commentary .01(a)(B)(5) to NYSE Arca Equities Rule 5.2(j)(3) as it relates to Non-U.S. Component Stocks. 38 A list of ISG members is available at www.isgportal.org. 39 Under Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3), Units with components that include Non-U.S. Component Stocks can hold a portfolio that is entirely composed of Non-U.S. Component Stocks that are listed on markets that are neither members of ISG, nor with which the Exchange has in place a CSSA. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 9903 securities are traded in markets that are members of ISG or with which the Exchange has in place a CSSA.40 Proposed Commentary .01(b) would describe the standards for a Managed Fund Share portfolio that holds fixed income securities, which are debt securities 41 that are notes, bonds, debentures or evidence of indebtedness that include, but are not limited to, U.S. Department of Treasury securities (‘‘Treasury Securities’’), governmentsponsored entity securities (‘‘GSE Securities’’), municipal securities, trust preferred securities, supranational debt and debt of a foreign country or a subdivision thereof, investment grade and high yield corporate debt, bank loans, mortgage and asset backed securities, and commercial paper. In addition, to the extent that a portfolio includes convertible securities, the fixed income security into which such security is converted would be required to meet the criteria of Commentary .01(b) after converting. The components of the fixed income portion of a portfolio must meet the following criteria initially and on a continuing basis: (1) Components that in the aggregate account for at least 75% of the fixed income weight of the portfolio each shall have a minimum original principal amount outstanding of $100 million or more; 42 (2) No component fixed-income security (excluding Treasury Securities and GSE Securities) could represent more than 30% of the fixed income weight of the portfolio, and the five most heavily weighted component fixed income securities in the portfolio must not in the aggregate account for more than 65% of the fixed income weight of the portfolio; 43 (3) An underlying portfolio (excluding exempted securities) that includes fixed income securities must include a minimum of 13 non-affiliated issuers; 40 See Securities Exchange Act Release No. 75023 (May 21, 2015), 80 FR 30519 (May 28, 2015) (SR– NYSEArca-2014–100) (order approving listing and trading on the Exchange of shares of the SPDR SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule 8.600) (‘‘SSgA Global Managed Volatility Release’’). 41 Debt securities include a variety of fixed income obligations, including, but not limited to, corporate debt securities, government securities, municipal securities, convertible securities, and mortgage-backed securities. Debt securities include investment-grade securities, non-investment-grade securities, and unrated securities. Debt securities also include variable and floating rate securities. 42 This text of proposed Commentary .01(b)(1) to Rule 8.600 is based on the corresponding text of Commentary .02(a)(2) to Rule 5.2(j)(3). 43 This proposed text is identical to the corresponding text of Commentary .02(a)(4) to Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable. E:\FR\FM\26FEN1.SGM 26FEN1 9904 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES provided, however, that there shall be no minimum number of non-affiliated issuers required for fixed income securities if at least 70% of the weight of the portfolio consists of equity securities as described in proposed Commentary .01(a).44 (4) Component securities that in aggregate account for at least 90% of the fixed income weight of the portfolio must be either (a) from issuers that are required to file reports pursuant to Sections 13 and 15(d) of the Act; (b) from issuers that have a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (c) from issuers that have outstanding securities that are notes, bonds, debentures, or evidence of indebtedness having a total remaining principal amount of at least $1 billion; (d) exempted securities as defined in Section 3(a)(12) of the Act; or (e) from issuers that are a government of a foreign country or a political subdivision of a foreign country; and (5) Non-agency, non-GSE and privately-issued mortgage-related and other asset-backed securities components of a portfolio shall not account, in the aggregate, for more than 20% of the weight of the fixed income portion of the portfolio.45 Proposed Commentary .01(c) would describe the standards for a Managed Fund Share portfolio that holds cash and cash equivalents.46 Specifically, the portfolio may hold short-term instruments with maturities of less than 3 months. There would be no limitation to the percentage of the portfolio invested in such holdings. Short-term 44 This proposed text is similar to the corresponding text of Commentary .02(a)(5) to Rule 5.2(j)(3), except for the omission of the reference to ‘‘index,’’ which is not applicable, the exclusion of the text ‘‘consisting entirely of exempted securities’’ and the provision that there shall be no minimum number of non-affiliated issuers required for fixed income securities if at least 70% of the weight of the portfolio consists of equity securities as described in proposed Commentary .01(a). 45 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included the ability for such Managed Fund Share holdings to include up to 20% of net assets in nonagency, non-GSE and privately-issued mortgagerelated and other asset-backed securities. See, e.g., Securities Exchange Act Release No. 75566 (July 30, 2015), 80 FR 46612 (August 5, 2015) (SR– NYSEArca-2015–42) (order approving listing and trading of shares of Newfleet Multi-Sector Unconstrained Bond ETF under NYSE Arca Equities Rule 8.600). 46 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included the ability for such Managed Fund Share holdings to include cash and cash equivalents. See, e.g., SPDR Blackstone/GSO Senior Loan Approval, supra note 23, at 19768–69 and First Trust Preferred Securities and Income Approval, supra note 23, at 76150. VerDate Sep<11>2014 20:41 Feb 25, 2016 Jkt 238001 instruments would include the following: 47 (1) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities; (2) certificates of deposit issued against funds deposited in a bank or savings and loan association; (3) bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions; (4) repurchase agreements and reverse repurchase agreements; (5) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; (6) commercial paper, which are short-term unsecured promissory notes; and (7) money market funds. Proposed Commentary .01(d) would describe the standards for a Managed Fund Share portfolio that holds listed derivatives, including futures, options and swaps on commodities, currencies and financial instruments (e.g., stocks, fixed income, interest rates, and volatility) or a basket or index of any of the foregoing.48 There would be no limitation to the percentage of the portfolio invested in such holdings, except that, in the aggregate, at least 90% of the weight of such holdings invested in futures, exchange-traded options and listed swaps shall, on both an initial and continuing basis, consist of futures, options and swaps for which the Exchange may obtain information via the Intermarket Surveillance Group (‘‘ISG’’) from other members or affiliates or for which the principal market is a market with which the Exchange has a comprehensive surveillance sharing agreement.49 The Exchange notes that, for purposes of calculating this limitation, a portfolio’s investment in listed derivatives will be calculated as 47 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly specified short-term instruments with respect to their inclusion in Managed Fund Share holdings. See, e.g., First Trust Preferred Securities and Income Approval, supra note 23, at 76150–51. 48 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included the ability for such Managed Fund Share holdings to include listed derivatives. See, e.g., WisdomTree Real Return Approval, supra note 23, at 13617 and WisdomTree Brazil Bond Approval, supra note 23, at 32163. 49 ISG is comprised of an international group of exchanges, market centers, and market regulators that perform front-line market surveillance in their respective jurisdictions. See https:// www.isgportal.org/home.html. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 the total absolute notional value of the listed derivatives. Proposed Commentary .01(e) would describe the standards for a Managed Fund Share portfolio that holds over the counter (‘‘OTC’’) derivatives, including forwards, options and swaps on commodities, currencies and financial instruments (e.g., stocks, fixed income, interest rates, and volatility) or a basket or index of any of the foregoing.50 Proposed Commentary .01 (e) would provide that no more than 20% of the assets in the portfolio may be invested in OTC derivatives. Proposed Commentary .01(f) would provide that, to the extent that listed or OTC derivatives are used to gain exposure to individual equities and/or fixed income securities, or to indexes of equities and/or fixed income securities, such equities and/or fixed income securities, as applicable, shall meet the criteria set forth in Commentary .01(a) and .01(b) to Rule 8.600, respectively. The Exchange notes that, for purposes of this proposal, a portfolio’s investment in OTC derivatives will be calculated as the total absolute notional value of the OTC derivatives. The Exchange believes that the proposed standards would continue to ensure transparency surrounding the listing process for Managed Fund Shares. Additionally, the Exchange believes that the proposed portfolio standards for listing and trading Managed Fund Shares, many of which track existing Exchange rules relating to Units, are reasonably designed to promote a fair and orderly market for such Managed Fund Shares.51 These proposed standards would also work in conjunction with the existing initial and continued listing criteria related to surveillance procedures and trading guidelines. In support of this proposal, the Exchange represents that: 52 (1) The Managed Fund Shares will continue to conform to the initial and continued listing criteria under Rule 8.600; (2) the Exchange’s surveillance procedures are adequate to continue to properly monitor the trading of the 50 A proposed rule change for series of Units previously listed and traded on the Exchange pursuant to Rule 5.2(j)(3) similarly included the ability for such Units’ holdings to include OTC derivatives, specifically OTC down-and-in put options, which are not NMS Stocks as defined in Rule 600 of Regulation NMS and therefore do not satisfy the requirements of Commentary .01(a)(A) to Rule 5.2(j)(3). See, e.g., NYSE Arca U.S. Equity Synthetic Reverse Convertible Index Fund Approval, supra note 23, at 23602. 51 See Approval Order, supra note 17 at 19548. 52 The Exchange made similar representations in the Approval Order. See id. at 19549. E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices Managed Fund Shares in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange intends to utilize its existing surveillance procedures applicable to derivative products, which will include Managed Fund Shares, to monitor trading in the Managed Fund Shares; (3) prior to the commencement of trading of a particular series of Managed Fund Shares, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in a Bulletin of the special characteristics and risks associated with trading the Managed Fund Shares, including procedures for purchases and redemptions of Managed Fund Shares, suitability requirements under NYSE Arca Equities Rule 9.2(a), the risks involved in trading the Managed Fund Shares during the Opening and Late Trading Sessions when an updated Portfolio Indicative Value will not be calculated or publicly disseminated, information regarding the Portfolio Indicative Value and the Disclosed Portfolio, prospectus delivery requirements, and other trading information. In addition, the Bulletin will disclose that the Managed Fund Shares are subject to various fees and expenses, as described in the applicable registration statement, and will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. Finally, the Bulletin will disclose that the net asset value for the Managed Fund Shares will be calculated after 4 p.m. ET each trading day; and (4) the issuer of a series of Managed Fund Shares will be required to comply with Rule 10A–3 under the Act for the initial and continued listing of Managed Fund Shares, as provided under NYSE Arca Equities Rule 5.3. The Exchange notes that the proposed change is not otherwise intended to address any other issues and that the Exchange is not aware of any problems that ETP Holders or issuers would have in complying with the proposed change. mstockstill on DSK4VPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,53 in general, and furthers the objectives of Section 6(b)(5) of the Act,54 in particular, because it is 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 53 15 54 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 20:41 Feb 25, 2016 open market and, in general, to protect investors and the public interest. 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 because it would facilitate the listing and trading of additional Managed Fund Shares, which would enhance competition among market participants, to the benefit of investors and the marketplace. Specifically, after more than six years under the current process, whereby the Exchange is required to file a proposed rule change with the Commission for the listing and trading of each new series of Managed Fund Shares, the Exchange believes that it is appropriate to codify certain rules within Rule 8.600 that would generally eliminate the need for separate proposed rule changes. The Exchange believes that this would facilitate the listing and trading of additional types of Managed Fund Shares that have investment portfolios that are similar to investment portfolios for Units, which have been approved for listing and trading, thereby creating greater efficiencies in the listing process for the Exchange and the Commission. In this regard, the Exchange notes that the standards proposed for Managed Fund Share portfolios that include U.S. Component Stocks, Non-U.S. Component Stocks, Derivative Securities Products, and Index-Linked Securities are based in large part on the existing equity security standards applicable to Units in Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) and that the standards proposed for Managed Fund Share portfolios that include fixed income securities are based in large part on the existing fixed income standards applicable to Units in Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3). Additionally, many of the standards proposed for other types of holdings of series of Managed Fund Shares are based on previous proposed rule changes for specific series of Managed Fund Shares.55 With respect to the proposed addition to the criteria of Rule 8.600(c) to provide that the Web site for each series of Managed Fund Shares shall disclose certain information regarding the Disclosed Portfolio, to the extent applicable, the Exchange notes that proposed rule changes approved by the Commission for previously-listed series of Managed Fund Shares have similarly included disclosure requirements with respect to each portfolio holding, as applicable to the type of holding.56 With 55 See 56 See Jkt 238001 PO 00000 supra, note 23. supra note 21. Frm 00102 Fmt 4703 Sfmt 4703 9905 respect to the proposed definition of the term ‘‘normal market conditions’’ in proposed Rule 8.600(c)(5), such definition is similar to the definition of normal market conditions approved by the Commission for other issues of Managed Fund Shares.57 In addition, proposed Rule 8.600(d)(1)(C), would specify that a series of Managed Fund Shares would be required to adhere to its stated investment objective during normal market conditions. With respect to the proposed amendment to the continued listing requirement in Rule 8.600(d)(2)(A) to require dissemination of a Portfolio Indicative Value at least every 15 seconds during the Core Trading Session (as defined in NYSE Arca Equities Rule 7.34), such requirement conforms to the requirement applicable to the dissemination of the Intraday Indicative Value for Units in Commentary .01(c) and Commentary .02 (c) to NYSE Arca Equities Rule 5.2(j)(3). In addition, such dissemination is consistent with representations made in proposed rule changes for issues of Managed Fund Shares previously approved by the Commission.58 With respect to the proposed requirement in Commentary .01(a) that no more than 25% of the equity weight of the portfolio shall consist of leveraged and/or inverse leveraged Derivative Securities Products or IndexLinked Securities, such requirement would assure that only a relatively small proportion of a fund’s investments could consist of such leveraged and/or inverse securities. In addition, such limitation would apply to both U.S. Component Stocks and Non-U.S. Component Stocks comprising the equity portion of a portfolio. With respect to the proposed provision in Commentary .01(a) that, to the extent a portfolio includes a convertible security, the equity security into which such security is converted must meet the criteria in Commentary .01(a) after converting, such requirement would assure that the equity securities into which a convertible security could be converted meet the liquidity and other criteria in Commentary .01 applicable to such equity securities. With respect to the proposed exclusion of Derivatives Securities Products and Index-Linked Securities from the requirements of proposed Commentary .01(a) of Rule 57 See, e.g., Securities Exchange Act Release No. 74338 (February 20, 2015), 80 FR 10556 (February 26, 2015) (SR–NYSEArca–2014–143) (order approving listing and trading of shares of the SPDR Doubletree Total Return Tactical ETF under NYSE Arca Equities Rule 8.600). 58 See, e.g., Approval Order, supra note 17; International Bear Approval, supra note 23. E:\FR\FM\26FEN1.SGM 26FEN1 9906 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices 8.600, the Exchange believes it is appropriate to exclude Index-Linked Securities as well as Derivative Securities Products from certain component stock eligibility criteria for Managed Fund Shares in so far as Derivative Securities Products and Index-Linked Securities are themselves subject to specific quantitative listing and continued listing requirements of a national securities exchange on which such securities are listed. Derivative Securities Products and Index-Linked Securities that are components of a fund’s portfolio would have been listed and traded on a national securities exchange pursuant to a proposed rule change approved by the Commission pursuant to Section 19(b)(2) of the Act 59 or submitted by a national securities exchange pursuant to Section 19(b)(3)(A) of the Act 60 or would have been listed by a national securities exchange pursuant to the requirements of Rule 19b–4(e) under the Act.61 The Exchange also notes that Derivative Securities Products and Index-Linked Securities are derivatively priced, and, therefore, the Exchange believes that it would not be necessary to apply the proposed generic quantitative criteria (e.g., market capitalization, trading volume, or portfolio component weighting) applicable to equity securities other than Derivative Securities Products or Index-Linked Securities (e.g., common stocks) to such products.62 With respect to the proposed criteria applicable to U.S. Component Stocks, the Exchange notes that such criteria are similar to those in Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) relating to criteria applicable to an index or portfolio of U.S. Component Stocks. In addition, Non-U.S. Component Stocks also will be required to meet criteria similar to certain generic listing standards in Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) relating to criteria applicable to an index or portfolio of U.S. Component Stocks and Non-U.S. Component Stocks underlying a series of Units to be listed and traded on the Exchange pursuant to Rule 19b–4(e) under the Act. 59 15 U.S.C. 78s(b)(2). U.S.C. 78s(b)(3)(A). 61 17 CFR 240.19b–4(e). 62 See Securities Exchange Act Release Nos. 57561 (March 26, 2008), 73 FR 17390 (April 1, 2008) (SR–NYSEArca–2008–29) (notice of filing of proposed rule change to amend eligibility criteria for components of an index underlying Investment Company Units); 57751 (May 1, 2008), 73 FR 25818 (May 7, 2008) (SR–NYSEArca–2008–29) (order approving proposed rule change to amend eligibility criteria for components of an index underlying Investment Company Units). mstockstill on DSK4VPTVN1PROD with NOTICES 60 15 VerDate Sep<11>2014 20:41 Feb 25, 2016 Jkt 238001 With respect to the proposed requirement in Commentary .01(a)(1)(F) that ADRs in a portfolio may be exchange-traded or non-exchangetraded and that no more than 10% of the equity weight of the portfolio shall consist of non-exchange-traded ADRs, the Exchange notes that such requirement will ensure that unsponsored ADRs, which are traded OTC and which generally have less market transparency than sponsored ADRs, as well as any sponsored ADRs traded OTC, could account for only a small percentage of the equity weight of a portfolio. Further, the requirement is consistent with representations made in proposed rule changes for issues of Managed Fund Shares previously approved by the Commission.63 With respect to the proposed provision in Commentary .01(b) that, to the extent a portfolio includes convertible securities, the fixed income security into which such security is converted must meet the criteria in paragraph (b) of Commentary .01 after converting, such requirement would assure that the fixed income securities into which a convertible security could be converted meet the liquidity and other criteria in Commentary .01(b) applicable to fixed income securities. As proposed, pursuant to Commentary .01(b)(3) to Rule 8.600, an underlying portfolio (excluding exempted securities) that includes fixed income securities must include a minimum of 13 non-affiliated issuers, but there would be no minimum number of non-affiliated issuers required for fixed income securities if at least 70% of the weight of the portfolio consists of equity securities, as described in Commentary .01(a). The Exchange notes that, when evaluated in conjunction with proposed Commentary .01(b)(2), the proposed rule is consistent with Commentary .02(a)(4) and (5) of NYSE Arca Equities Rule 5.2(j)(3) in that it provides for a maximum weighting of a fixed income security in the fixed income portion of the portfolio of a fund that is comparable to the existing rules applicable to Investment Company Units based on fixed income indexes. With respect to the proposed requirement in Commentary .01(b)(5) that non-agency, non-GSE and privatelyissued mortgage-related and other assetbacked securities components of a portfolio shall not account, in the aggregate, for more than 20% of the weight of the fixed income portion of the portfolio, the Exchange notes that such requirement is consistent with representations made in proposed rule 63 See PO 00000 note 33, supra. Frm 00103 Fmt 4703 Sfmt 4703 changes for issues of Managed Fund Shares previously approved by the Commission.64 With respect to the proposed amendment to Commentary .01(c) relating to cash and cash equivalents, while there is no limitation on the amount of cash and cash equivalents that can make up the portfolio, such instruments are short-term, highly liquid, and of high credit quality, making them less susceptible than other asset classes both to price manipulation and volatility. Further, the requirement is consistent with representations made in proposed rule changes for issues of Managed Fund Shares previously approved by the Commission.65 With respect to proposed Commentary .01(d)(1) to Rule 8.600 relating to listed derivatives, the Exchange believes that it is appropriate that there be no limit to the percentage of a portfolio invested in such holdings, provided that, in the aggregate, at least 90% of the weight of such holdings invested in futures, exchange-traded options, and listed swaps would consist of futures, options, and swaps for which the Exchange may obtain information via ISG from other members or affiliates or for which the principal market is a market with which the Exchange has a CSSA. Such a requirement would facilitate information sharing among market participants trading shares of a series of Managed Fund Shares as well as futures and options that such series may hold. In addition, listed swaps would be centrally cleared, reducing counterparty risk and thereby furthering investor protection.66 With respect to proposed Commentary .01(e) to Rule 8.600 relating to OTC derivatives, the Exchange believes that the limitation to 20% of a fund’s assets would assure that the preponderance of fund investments would not be in derivatives that are not listed and centrally cleared. The Exchange believes that such a limitation is sufficient to mitigate the risks associated with price manipulation because a 20% cap on OTC derivatives will ensure that any series of Managed Fund Shares will be sufficiently broadbased in scope to minimize potential manipulation associated with OTC 64 See note 46, supra. note 47, supra. 66 The Commission has noted that ‘‘[c]entral clearing mitigates counterparty risk among dealers and other institutions by shifting that risk from individual counterparties to [central counterparties (‘‘CCPs’’)], thereby protecting CCPs from each other’s potential failures.’’ See Securities Exchange Act Release No. 67286 (June 28, 2012) (File No. S7– 44–10) (Process for Submissions for Review of Security-Based Swaps for Mandatory Clearing and Notice Filing Requirements for Clearing Agencies). 65 See E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES derivatives and because the remaining 80% of the portfolio will consist of instruments subject to numerous restrictions designed to prevent manipulation, including equity securities (which, as proposed, would be subject to market cap, trading volume, and diversity requirements, among others), fixed income securities (which, as proposed, would be subject to principal amount outstanding, diversity, and issuer requirements, among others), cash and cash equivalents (which, as proposed, would be limited to short-term, highly liquid, and high credit quality instruments), and/or listed derivatives (which would be subject to the limitations in proposed Commentary .01(d)). The Exchange notes that a fund’s investments in derivative instruments would be subject to limits on leverage imposed by the 1940 Act. Section 18(f) of the 1940 Act and related Commission guidance limit the amount of leverage an investment company can obtain. A fund’s investments would be consistent with its investment objective and would not be used to enhance leverage. To limit the potential risk associated with a fund’s use of derivatives, a fund will segregate or ‘‘earmark’’ assets determined to be liquid by a fund in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under derivative instruments. With respect to proposed Commentary .01(f) to Rule 8.600 relating to a fund’s use of listed or OTC derivatives to gain exposure to individual equities and/or fixed income securities, or to indexes of equities and/ or indexes of fixed income securities, the Exchange notes that such exposure would be required to meet the numerical and other criteria set forth in proposed Commentary .01(a) and .01(b) to Rule 8.600 respectively. Quotation and other market information relating to listed futures and options is available from the exchanges listing such instruments as well as from market data vendors. With respect to centrally-cleared swaps 67 and non-centrally-cleared swaps regulated by the CFTC,68 the Dodd-Frank Act mandates that swap information be 67 There are currently five categories of swaps eligible for central clearing: Interest rate swaps; credit default swaps; foreign exchange swaps; equity swaps; and commodity swaps. The following entities provide central clearing for OTC derivatives: ICE Clear Credit (US); ICE Clear (EU); CME Group; LCH.Clearnet; and Eurex. 68 Pursuant to the Dodd-Frank Act, OTC and centrally-cleared swaps are regulated by the CFTC with the exception of security-based swaps, which are regulated by the Commission. VerDate Sep<11>2014 20:41 Feb 25, 2016 Jkt 238001 reported to swap data repositories (‘‘SDRs’’).69 SDRs provide a central facility for swap data reporting and recordkeeping and are required to comply with data standards set by the CFTC, including real-time public reporting of swap transaction data to a derivatives clearing organization or SEF.70 SDRs require real-time reporting of all OTC and centrally cleared derivatives, including public reporting of the swap price and size. The parties responsible for reporting swaps information are CFTC-registered swap dealers (‘‘RSDs’’), major swap participants, and swap execution facilities (‘‘SEFs’’). If swap counterparties do not fall into the above categories, then one of the parties to the swap must report the trade to the SDR. Cleared swaps regulated by the CFTC must be executed on a Designated Contract Market (‘‘DCM’’) or SEF. Such cleared swaps have the same reporting requirements as futures, including endof-day price, volume, and open interest. CFTC swaps reporting requirements require public dissemination of, among other items, product ID (if available); asset class; underlying reference asset, reference issuer, or reference index; termination date; date and time of execution; price, including currency; notional amounts, including currency; whether direct or indirect counterparties include an RSD; whether cleared or un-cleared; and platform ID of where the contract was executed (if applicable). With respect to security-based swaps regulated by the Commission, the Commission has adopted Regulation SBSR under the Act implementing requirements for regulatory reporting and public dissemination of securitybased swap transactions set forth in Title VII of the Dodd-Frank Act. Regulation SBSR provides for the reporting of security-based swap information to registered security-based swap data repositories (‘‘Registered SDRs’’) or the Commission, and the public dissemination of security-based swap transaction, volume, and pricing information by Registered SDRs.71 Price information relating to forwards and OTC options will be available from major market data vendors. 69 The following entities are provisionally registered with the CFTC as SDRs: BSDR LLC., Chicago Mercantile Exchange, Inc., DTCC Data Repository, and ICE Trade Vault. 70 Approximately eighteen entities are currently registered with the CFTC as SEFs. 71 See Securities Exchange Act Release No. 74244 (February 11, 2015), 80 FR 14564 (March 19, 2015) (Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 9907 A fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of a fund’s broad-based securities market index (as defined in Form N–1A).72 In addition, the Exchange notes that, under proposed Commentary .01(a) to Rule 8.600, for Derivative Securities Products and Index-Linked Securities, no more than 25% of the equity weight of a fund’s portfolio could include leveraged and/or inverse leveraged Derivative Securities Products or Index-Linked Securities. The proposed rule change is also designed to protect investors and the public interest because Managed Fund Shares listed and traded pursuant to Rule 8.600, including pursuant to the proposed new portfolio standards, would continue to be subject to the full panoply of Exchange rules and procedures that currently govern the trading of equity securities on the Exchange.73 The proposed rule change is also designed to protect investors and the public interest as well as to promote just and equitable principles of trade in that any Non-U.S. Component Stocks will each meet the following criteria initially and on a continuing basis: (1) Have a minimum market value of at least $100 million; (2) 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) most heavily weighted NonU.S. Component Stock shall not exceed 25% of the equity weight of the portfolio, and, to the extent applicable, the five most heavily weighted Non-U.S. Component Stocks shall not exceed 60% of the equity weight of the portfolio; and (4) each Non-U.S. Component Stock shall be listed and traded on an exchange that has last-sale reporting. The Exchange believes that such quantitative criteria are sufficient to mitigate any concerns that may arise on the basis of a series of Managed Fund Shares potentially holding 100% of its assets in Non-U.S. Component Stocks that are neither listed on members of ISG nor exchanges with which the Exchange has in place a CSSA because, as stated above, such criteria are either the same or more stringent than the portfolio requirements for Units that hold Non-U.S. Component Stocks and there are no such requirements related to such securities being listed on an 72 See, e.g., Securities Exchange Act Release No. 74842 (April 29, 2015), 86 FR 25723 (May 5, 2015) (SR–NYSEArca–2014–89) (order approving listing and trading of shares of eight PIMCO exchangetraded funds). 73 See Approval Order, supra note 17, at 19547. E:\FR\FM\26FEN1.SGM 26FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 9908 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices exchange that is a member of ISG or with which the Exchange has in place a CSSA. Further, the Exchange has not encountered and is not aware of any instances of manipulation or other negative impact in any series of Units that has occurred by virtue of the Units holding such Non-U.S. Component Stocks. As such, the Exchange believes that there should be no difference in the portfolio requirements for Managed Fund Shares and Units as it relates to holding Non-U.S. Component Stocks that are not listed on an exchange that is a member of ISG or with which the Exchange has in place a CSSA. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices because the Managed Fund Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in Rule 8.600. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Managed Fund Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. FINRA, on behalf of the Exchange, or the regulatory staff of the Exchange, will communicate as needed regarding trading in Managed Fund Shares with other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the components are traded. In addition, the Exchange may obtain information regarding trading in Managed Fund Shares from other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the components are traded, or with which the Exchange has in place a CSSA. The Exchange also believes that the proposed rule change would fulfill the intended objective of Rule 19b–4(e) under the Act by allowing Managed Fund Shares that satisfy the proposed listing standards to be listed and traded without separate Commission approval. However, as proposed, the Exchange would continue to file separate proposed rule changes before the listing and trading of Managed Fund Shares that do not satisfy the additional criteria described above. For these reasons, the Exchange believes that the proposal is consistent with the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,74 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 purposes of the Act. Instead, the Exchange believes that the proposed rule change would facilitate the listing and trading of additional types of Managed Fund Shares and result in a significantly more efficient process surrounding the listing and trading of Managed Fund Shares, which will enhance competition among market participants, to the benefit of investors and the marketplace. The Exchange believes that this would reduce the time frame for bringing Managed Fund Shares to market, thereby reducing the burdens on issuers and other market participants and promoting competition. In turn, the Exchange believes that the proposed change would make the process for listing Managed Fund Shares more competitive by applying uniform listing standards with respect to Managed Fund Shares. 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. Proceedings to Determine Whether to Approve or Disapprove SR– NYSEArca–2015–110 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 75 to determine whether the proposed rule change, as modified by Amendment No. 4 thereto, should be approved or disapproved. Institution of proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change, as discussed below. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,76 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of the proposed rule change’s consistency with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be 75 15 74 15 U.S.C. 78f(b)(8). VerDate Sep<11>2014 20:41 Feb 25, 2016 U.S.C. 78s(b)(2)(B). 76 Id. Jkt 238001 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 ‘‘designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade,’’ and ‘‘to protect investors and the public interest.’’ 77 IV. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal, as modified by Amendment No. 4 thereto. In particular, the Commission invites the written views of interested persons concerning whether the proposal, as modified by Amendment No. 4 thereto, is consistent with Section 6(b)(5) or any other provision of the Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval which would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.78 In addition, interested persons are invited to submit written data, views, and arguments regarding whether the proposal, as modified by Amendment No. 4 thereto, should be approved or disapproved by March 18, 2016. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by April 1, 2016. The Commission asks that commenters address the sufficiency of the Exchange’s statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. Specifically, the Commission seeks comment on the statements of the Exchange contained in the Notice,79 as modified by Amendment No. 4 thereto,80 and any other issues raised by the proposed amendments to Rule 8.600 related to the listing and trading of Managed Fund Shares on the Exchange. 77 15 U.S.C. 78f(b)(5). 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Public Law 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 79 See Notice, supra note 4. 80 See supra notes 8–10 and 14 and accompanying text, respectively. 78 Section E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 81, No. 38 / Friday, February 26, 2016 / Notices In particular, the Commission seeks comment on the following: 1. As described above, the Exchange has proposed listing standards with respect to certain asset classes held by actively managed exchange-traded funds that are substantively the same as the standards applied to those asset classes when held by an index-based fund. Do commenters believe that these standards are appropriate for both types of funds? 2. Do commenters believe that the limitations and standards proposed for specific assets classes are appropriate? 3. In general, do commenters believe that the proposed listing requirements are adequate to deter manipulation with respect to generically listed Managed Fund Shares? 4. With respect to the proposed generic listing standards, which set forth requirements for the listing and trading of Managed Fund Shares on an initial and continuing basis, do commenters have views on how or whether the Exchange would be able to monitor compliance with respect to these continuing listing standards? Do commenters have views on what actions, if any, should be taken by the Exchange if a series of Managed Fund Shares listed and trading on the Exchange falls out of compliance with any of the proposed generic criteria? Comments may be submitted by any of the following methods: mstockstill on DSK4VPTVN1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2015–110 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 Numbers SR–NYSEArca–2015–110. 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 (http:// www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the VerDate Sep<11>2014 20:41 Feb 25, 2016 Jkt 238001 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 these filings 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–2015–110 and should be submitted on or before March 18, 2016. Rebuttal comments should be submitted by April 1, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.81 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–04112 Filed 2–25–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77199; File No. SR–ISE– 2016–05] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Correct the Text of ISE Rule 313 February 22, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’ or the ‘‘Exchange Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 9, 2016, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange 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. 81 17 CFR 200.30–3(a)(12) and 17 CFR 200.30– 3(a)(57). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 9909 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change ISE proposes to correct, .08 of Supplementary Material to Rule 313, Registration Requirements, which describes the categories of registration and respective qualification examinations required for individual associated persons (‘‘associated persons’’) that engage in the securities activities of members on the Exchange. This amendment proposes to replace the inadvertent use of the term ‘‘Permit Holder’’ with ‘‘Member’’ which is the correct term used throughout the ISE Rulebook to describe a member of the Exchange. The text of the proposed rule change is available on the Exchange’s Web site at www.ise.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 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to make corrections to .08 of Supplementary Material to Rule 313, Registration Requirements, which describes the categories of registration and respective qualification examinations required for associated persons that engage in the securities activities of members on the Exchange. This amendment proposes to replace the inadvertent use of the term ‘‘Permit Holder’’ with ‘‘Member’’ because ‘‘Member’’ is the correct term used throughout the ISE Rulebook to describe a member of the Exchange. In December of 2015, ISE proposed to, among other things, (1) replace the Proprietary Trader registration category and the Series 56 Proprietary Trader registration qualification examination with the Securities Trader category of registration and the Series 57 Securities E:\FR\FM\26FEN1.SGM 26FEN1

Agencies

[Federal Register Volume 81, Number 38 (Friday, February 26, 2016)]
[Notices]
[Pages 9900-9909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04112]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77203; File No. SR-NYSEArca-2015-110]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 4 to, and Order Instituting Proceedings to Determine 
Whether to Approve or Disapprove, a Proposed Rule Change, as Modified 
by Amendment No. 4 Thereto, Amending NYSE Arca Equities Rule 8.600 to 
Adopt Generic Listing Standards for Managed Fund Shares

February 22, 2016.
    On November 6, 2015, NYSE Arca, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend NYSE Arca 
Equities Rule 8.600 and to adopt generic listing standards for Managed 
Fund Shares.\3\ The proposed rule change was published for comment in 
the Federal Register on November 27, 2015.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See NYSE Arca Equities Rule 8.600(c)(1) (defining Managed 
Fund Shares).
    \4\ See Securities Exchange Act Release No. 76486 (Nov. 20, 
2015), 80 FR 74169 (``Notice'').
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    On November 23, 2015, the Exchange filed Amendment No. 1 to the 
proposed rule change, which amended and replaced the original proposal 
in its entirety. On January 4, 2016, pursuant to Section 19(b)(2) of 
the Act,\5\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\6\ On January 21, 2016, the Exchange withdrew 
Amendment No. 1 and filed Amendment No. 2 to the proposed rule 
change.\7\ The proposed rule change, as modified by Amendment No. 2 
thereto, was published for comment in the Federal Register on February 
1, 2016.\8\ On February 11, 2016, the Exchange filed Amendment No. 3 to 
the proposed rule change.\9\ The Commission has received one comment 
letter on the proposal.\10\
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    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 76819, 81 FR 987 
(Jan. 8, 2016). The Commission designated February 25, 2016 as the 
date by which the Commission shall either approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change. See id.
    \7\ In Amendment No. 2 to the proposed rule change, the Exchange 
added provisions to the proposed generic listing criteria relating 
to non-U.S. Component Stocks, convertible securities, and listed 
swaps, among other changes. Amendment No. 2, which amended and 
replaced the original proposal in its entirety, is available on the 
Commission's Web site at: http://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-3.pdf.
    \8\ See Securities Exchange Act Release No. 76974 (Jan. 26, 
2016), 81 FR 5149.
    \9\ In Amendment No. 3 to the proposed rule change, the Exchange 
(a) revised the provisions relating to convertible securities, (b) 
clarified the limitations on non-exchange-traded American Depositary 
Receipts, (c) eliminated redundant provisions relating to 
limitations on leveraged and inverse-leveraged Derivative Securities 
Products, (d) revised the provision relating to limitations on 
listed derivatives, (e) clarified that, for purposes of the 
limitations relating to listed and over-the-counter derivatives, a 
portfolio's investment in listed and over-the-counter derivatives 
will be calculated as the total absolute notional value of these 
derivatives, and (f) provided additional information regarding the 
statutory basis of the proposal. Amendment No. 3, which amended and 
replaced the proposed rule change, as modified by Amendment No. 2 
thereto, in its entirety, is available on the Commission's Web site 
at: http://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-4.pdf.
    \10\ See Letter from Rob Ivanoff to the Commission dated Nov. 
22, 2015 (commenting that the format of the Exchange's proposed rule 
change was unclear and difficult to read, and suggesting a new 
format that would be easier to understand). All comments on the 
proposed rule change are available on the Commission's Web site at: 
http://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-1.htm.
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    Pursuant to Section 19(b)(1) of the Act \11\ and Rule 19b-4 
thereunder,\12\ notice is hereby given that, on February 12, 2016, the 
Exchange filed with the Commission Amendment No. 4 to the proposed rule 
change, as described in Sections I and II below, which Sections have 
been prepared by the Exchange.\13\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as modified by 
Amendment No. 4 thereto, from interested persons.
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    \11\ 15 U.S.C.78s(b)(1).
    \12\ 17 CFR 240.19b-4.
    \13\ Specifically, in Amendment No. 4 to the proposed rule 
change and as described herein, the Exchange (a) confirmed that the 
generic listing criteria are to be applied on an initial and 
continuing basis, (b) corrected a typographical error, and (c) 
corrected a statement regarding the statutory basis of the proposal. 
Amendment No. 4, which amended and replaced the proposed rule 
change, as modified by Amendment No. 3 thereto, in its entirety, is 
available on the Commission's Web site at: http://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-5.pdf.
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    Additionally, this order institutes proceedings under Section 
19(b)(2)(B) of the Act \14\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 4 
thereto, as discussed in Section III below. The institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved, nor does it 
mean that the Commission will ultimately disapprove the proposed rule 
change. Rather, as described in Section III below, the Commission seeks 
and encourages interested persons to provide additional comment on the 
proposed rule change to inform the Commission's analysis of whether to 
approve or disapprove the proposed rule change.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 8.600 to 
adopt generic listing standards for Managed Fund Shares. The text of 
the proposed rule change is available on the Exchange's Web site at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend NYSE Arca Equities Rule 8.600 to 
adopt generic listing standards for Managed Fund Shares. Under the 
Exchange's current rules, a proposed rule change must be filed with the 
Securities and

[[Page 9901]]

Exchange Commission (``SEC'' or ``Commission'') for the listing and 
trading of each new series of Managed Fund Shares. The Exchange 
believes that it is appropriate to codify certain rules within Rule 
8.600 that would generally eliminate the need for such proposed rule 
changes, which would create greater efficiency and promote uniform 
standards in the listing process.\15\
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    \15\ The Exchange has previously filed a proposed rule change to 
amend NYSE Arca Equities Rule 8.600 to adopt generic listing 
standards for Managed Fund Shares. See Securities Exchange Act 
Release No. 74433 (March 4, 2015), 80 FR 12690 (March 10, 2015) (SR-
NYSEArca-2015-02). On June 3, 2015, the Exchange filed Amendment No. 
1 to the proposed rule change. See Securities Exchange Act Release 
No. 75115 (June 5, 2015), 80 FR 33309 (June 11, 2015). On October 
13, 2015, the Exchange withdrew the proposed rule change. See 
Securities Exchange Act Release No. 76186 (October 19, 2015), 80 FR 
64461 (October 23, 2015). This Amendment No. 4 to SR-NYSEArca-2015-
110 replaces SR-NYSEArca-2015-110 as originally filed and Amendments 
No. 2 and 3 thereto, and supersedes such filings in their entirety. 
The Exchange has withdrawn Amendment No. 1 to SR-NYSEArca-2015-110.
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Background
    Rule 8.600 sets forth certain rules related to the listing and 
trading of Managed Fund Shares.\16\ Under Rule 8.600(c)(1), the term 
``Managed Fund Share'' means a security that:
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release No. 57619 (April 4, 
2008), 73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25) (order 
approving NYSE Arca Equities Rule 8.600 and listing and trading of 
shares of certain issues of Managed Fund Shares) (the ``Approval 
Order''). The Approval Order approved the rules permitting the 
listing and trading of Managed Fund Shares, trading hours and halts, 
listing fees applicable to Managed Fund Shares, and the listing and 
trading of several individual series of Managed Fund Shares.
---------------------------------------------------------------------------

    (a) Represents an interest in a registered investment company 
(``Investment Company'') organized as an open-end management investment 
company or similar entity, that invests in a portfolio of securities 
selected by the Investment Company's investment adviser (hereafter 
``Adviser'') consistent with the Investment Company's investment 
objectives and policies;
    (b) is issued in a specified aggregate minimum number in return for 
a deposit of a specified portfolio of securities and/or a cash amount 
with a value equal to the next determined net asset value; and
    (c) when aggregated in the same specified minimum number, may be 
redeemed at a holder's request, which holder will be paid a specified 
portfolio of securities and/or cash with a value equal to the next 
determined net asset value.
    Effectively, Managed Fund Shares are securities issued by an 
actively-managed open-end Investment Company (i.e., an actively-managed 
exchange-traded fund (``ETF'')). Because Managed Fund Shares are 
actively-managed, they do not seek to replicate the performance of a 
specified passive index of securities. Instead, they generally use an 
active investment strategy to seek to meet their investment objectives. 
In contrast, an open-end Investment Company that issues Investment 
Company Units (``Units''), listed and traded on the Exchange pursuant 
to NYSE Arca Equities Rule 5.2(j)(3), seeks to provide investment 
results that generally correspond to the price and yield performance of 
a specific foreign or domestic stock index, fixed income securities 
index or combination thereof.
    All Managed Fund Shares listed and/or traded pursuant to Rule 8.600 
(including pursuant to unlisted trading privileges) are subject to the 
full panoply of Exchange rules and procedures that currently govern the 
trading of equity securities on the Exchange.\17\
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    \17\ See Approval Order, supra note 17, at 19547.
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    In addition, Rule 8.600(d) currently provides for the criteria that 
Managed Fund Shares must satisfy for initial and continued listing on 
the Exchange, including, for example, that a minimum number of Managed 
Fund Shares are required to be outstanding at the time of commencement 
of trading on the Exchange. However, the current process for listing 
and trading new series of Managed Fund Shares on the Exchange requires 
that the Exchange submit a proposed rule change with the Commission. In 
this regard, Commentary .01 to Rule 8.600 specifies that the Exchange 
will file separate proposals under Section 19(b) of the Act (hereafter, 
a ``proposed rule change'') before listing and trading of shares of an 
issue of Managed Fund Shares.
Proposed Changes to Rule 8.600
    The Exchange would amend Commentary .01 to Rule 8.600 to specify 
that the Exchange may approve Managed Fund Shares for listing and/or 
trading (including pursuant to unlisted trading privileges) pursuant to 
SEC Rule 19b-4(e) under the Act, which pertains to derivative 
securities products (``SEC Rule 19b-4(e)'').\18\ SEC Rule 19b-4(e)(1) 
provides that the listing and trading of a new derivative securities 
product by a self-regulatory organization (``SRO'') is not deemed a 
proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4,\19\ 
if the Commission has approved, pursuant to section 19(b) of the Act, 
the SRO's trading rules, procedures and listing standards for the 
product class that would include the new derivative securities product 
and the SRO has a surveillance program for the product class. This is 
the current method pursuant to which ``passive'' ETFs are listed under 
NYSE Arca Equities Rule 5.2(j)(3).
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    \18\ 17 CFR 240.19b-4(e). As provided under SEC Rule 19b-4(e), 
the term ``new derivative securities product'' means any type of 
option, warrant, hybrid securities product or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest in, an underlying instrument.
    \19\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO 
shall be deemed to be a proposed rule change unless it is reasonably 
and fairly implied by an existing rule of the SRO.
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    The Exchange would also specify within Commentary .01 to Rule 8.600 
that components of Managed Fund Shares listed pursuant to SEC Rule 19b-
4(e) must satisfy on an initial and continued basis certain specific 
criteria, which the Exchange would include within Commentary .01, as 
described in greater detail below. As proposed, the Exchange would 
continue to file separate proposed rule changes before the listing and 
trading of Managed Fund Shares with components that do not satisfy the 
additional criteria described below or components other than those 
specified below. For example, if the components of a Managed Fund Share 
exceeded one of the applicable thresholds, the Exchange would file a 
separate proposed rule change before listing and trading such Managed 
Fund Share. Similarly, if the components of a Managed Fund Share 
included a security or asset that is not specified below, the Exchange 
would file a separate proposed rule change.
    The Exchange would also add to the criteria of Rule 8.600(c) to 
provide that the Web site for each series of Managed Fund Shares shall 
disclose certain information regarding the Disclosed Portfolio, to the 
extent applicable. The required information includes the following, to 
the extent applicable: ticker symbol, CUSIP or other identifier, a 
description of the holding, identity of the asset upon which the 
derivative is based, the strike price for any options, the quantity of 
each security or other asset held as measured by select metrics, 
maturity date, coupon rate, effective date, market value and percentage 
weight of the holding in the portfolio.\20\
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    \20\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included disclosure requirements 
with respect to each portfolio holding, as applicable to the type of 
holding. See, e.g., Securities Exchange Act Release No. 72666 (July 
3, 2014), 79 FR 44224 (July 30, 2014) (SR-NYSEArca-2013-122) (the 
``PIMCO Total Return Use of Derivatives Approval''), at 44227.

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[[Page 9902]]

    In addition, the Exchange would amend Rule 8.600(d) to specify that 
all Managed Fund Shares must have a stated investment objective, which 
must be adhered to under normal market conditions.\21\
---------------------------------------------------------------------------

    \21\ The Exchange would also add a new defined term under Rule 
8.600(c)(5) to specify that the term ``normal market conditions'' 
includes, but is not limited to, the absence of trading halts in the 
applicable financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance.
---------------------------------------------------------------------------

    Finally, the Exchange would also amend the continued listing 
requirement in Rule 8.600(d)(2)(A) by changing the requirement that a 
Portfolio Indicative Value for Managed Fund Shares be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the time when the Managed Fund Shares trade on the 
Exchange to a requirement that a Portfolio Indicative Value be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session (as defined in NYSE Arca 
Equities Rule 7.34).
Proposed Managed Fund Share Portfolio Standards
    The Exchange is proposing standards that would pertain to Managed 
Fund Shares to qualify for listing and trading pursuant to SEC Rule 
19b-4(e). These standards would be grouped according to security or 
asset type. The Exchange notes that the standards proposed for a 
Managed Fund Share portfolio that holds U.S. Component Stocks, Non-U.S. 
Component Stocks, Derivative Securities Products and Index-Linked 
Securities are based in large part on the existing equity security 
standards applicable to Units in Commentary .01 to Rule 5.2(j)(3). The 
standards proposed for a Managed Fund Share portfolio that holds fixed 
income securities are based in large part on the existing fixed income 
security standards applicable to Units in Commentary .02 to Rule 
5.2(j)(3). Many of the standards proposed for other types of holdings 
in a Managed Fund Share portfolio are based on previous proposed rule 
changes for specific series of Managed Fund Shares.\22\
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    \22\ See the PIMCO Total Return Use of Derivatives Approval. See 
also Securities Exchange Act Release Nos. 66321 (February 3, 2012), 
77 FR 6850 (February 9, 2012) (SR-NYSEArca-2011-95) (the ``PIMCO 
Total Return Approval''); 69244 (March 27, 2013), 78 FR 19766 (April 
2, 2013) (SR-NYSEArca-2013-08) (the ``SPDR Blackstone/GSO Senior 
Loan Approval''); 68870 (February 8, 2013), 78 FR 11245 (February 
15, 2013) (SR-NYSEArca-2012-139) (the ``First Trust Preferred 
Securities and Income Approval''); 69591 (May 16, 2013), 78 FR 30372 
(May 22, 2013) (SR-NYSEArca-2013-33) (the ``International Bear 
Approval''); 61697 (March 12, 2010), 75 FR 13616 (March 22, 2010) 
(SR-NYSEArca-2010-04) (the ``WisdomTree Real Return Approval''); and 
67054 (May 24, 2012), 77 FR 32161 (May 31, 2012) (SR-NYSEArca-2012-
25) (the ``WisdomTree Brazil Bond Approval''). Certain standards 
proposed herein for Managed Fund Shares are also based on previous 
proposed rule changes for specific series of Units for which 
Commission approval for listing was required due to the Units not 
satisfying certain standards of Commentary .01 and .02 to NYSE Arca 
Equities Rule 5.2(j)(3). See, e.g., Securities Exchange Act Release 
No. 69373 (April 15, 2013), 78 FR 23601 (April 19, 2013) (SR-
NYSEArca-2012-108) (the ``NYSE Arca U.S. Equity Synthetic Reverse 
Convertible Index Fund Approval'').
---------------------------------------------------------------------------

    Proposed Commentary .01(a) would describe the standards for a 
Managed Fund Share portfolio that holds equity securities, which are 
defined to be U.S. Component Stocks,\23\ Non-U.S. Component Stocks,\24\ 
Derivative Securities Products,\25\ and Index-Linked Securities \26\ 
listed on a national securities exchange. For Derivative Securities 
Products and Index-Linked Securities, no more than 25% of the equity 
weight of the portfolio could include leveraged and/or inverse 
leveraged Derivative Securities Products or Index-Linked Securities. In 
addition, proposed Commentary .01(a) would provide that, to the extent 
that a portfolio includes convertible securities, the equity security 
into which such security is converted would be required to meet the 
criteria of Commentary .01(a) after converting.
---------------------------------------------------------------------------

    \23\ For the purposes of Commentary .01 and this proposal, the 
term ``U.S. Component Stocks'' would have the same meaning as 
defined in NYSE Arca Equities Rule 5.2(j)(3).
    \24\ For the purposes of Commentary .01 and this proposal, the 
term ``Non-U.S. Component Stocks'' would have the same meaning as 
defined in NYSE Arca Equities Rule 5.2(j)(3).
    \25\ For the purposes of Commentary .01 and this proposal, the 
term ``Derivative Securities Products'' would have the same meaning 
as defined in NYSE Arca Equities Rule 7.34(a)(4)(A).
    \26\ Index-Linked Securities are securities listed under NYSE 
Arca Equities Rule 5.2(j)(6).
---------------------------------------------------------------------------

    As proposed in Commentary .01(a)(1) to Rule 8.600, the component 
stocks of the equity portion of a portfolio that are U.S. Component 
Stocks shall meet the following criteria initially and on a continuing 
basis:
    (1) Component stocks (excluding Derivative Securities Products and 
Index-Linked Securities) that in the aggregate account for at least 90% 
of the equity weight of the portfolio (excluding such Derivative 
Securities Products and Index-Linked Securities) each must have a 
minimum market value of at least $75 million; \27\
---------------------------------------------------------------------------

    \27\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(A)(1) to NYSE Arca Equities Rule 5.2(j)(3), 
except for the omission of the reference to ``index,'' which is not 
applicable, and the addition of the reference to Index-Linked 
Securities.
---------------------------------------------------------------------------

    (2) Component stocks (excluding Derivative Securities Products and 
Index-Linked Securities) that in the aggregate account for at least 70% 
of the equity weight of the portfolio (excluding such Derivative 
Securities Products and Index-Linked Securities) each must have a 
minimum monthly trading volume of 250,000 shares, or minimum notional 
volume traded per month of $25,000,000, averaged over the last six 
months; \28\
---------------------------------------------------------------------------

    \28\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(A)(2) to NYSE Arca Equities Rule 5.2(j)(3), 
except for the omission of the reference to ``index,'' which is not 
applicable, and the addition of the reference to Index-Linked 
Securities.
---------------------------------------------------------------------------

    (3) The most heavily weighted component stock (excluding Derivative 
Securities Products and Index-Linked Securities) must not exceed 30% of 
the equity weight of the portfolio, and, to the extent applicable, the 
five most heavily weighted component stocks (excluding Derivative 
Securities Products and Index-Linked Securities) must not exceed 65% of 
the equity weight of the portfolio; \29\
---------------------------------------------------------------------------

    \29\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(A)(3) to NYSE Arca Equities Rule 5.2(j)(3), 
except for the omission of the reference to ``index,'' which is not 
applicable, and the addition of the reference to Index-Linked 
Securities.
---------------------------------------------------------------------------

    (4) Where the equity portion of the portfolio does not include Non-
U.S. Component Stocks, the equity portion of the portfolio shall 
include a minimum of 13 component stocks; provided, however, that there 
shall be no minimum number of component stocks if (a) one or more 
series of Derivative Securities Products or Index-Linked Securities 
constitute, at least in part, components underlying a series of Managed 
Fund Shares, or (b) one or more series of Derivative Securities 
Products or Index-Linked Securities account for 100% of the equity 
weight of the portfolio of a series of Managed Fund Shares; \30\
---------------------------------------------------------------------------

    \30\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(A)(4) to NYSE Arca Equities Rule 5.2(j)(3), 
except for the omission of the reference to ``index,'' which is not 
applicable, the addition of the reference to Index-Linked 
Securities, and the reference to the 100% limit applying to the 
``equity portion'' of the portfolio.
---------------------------------------------------------------------------

    (5) Except as provided in proposed Commentary .01(a), equity 
securities in the portfolio must be U.S. Component Stocks listed on a 
national securities exchange and must be NMS Stocks as defined in Rule 
600 of Regulation NMS; \31\
---------------------------------------------------------------------------

    \31\ 17 CFR 240.600. This proposed text is identical to the 
corresponding text of Commentary .01(a)(A)(5) to NYSE Arca Equities 
Rule 5.2(j)(3), except for the addition of ``equity'' to make clear 
that the standard applies to ``equity securities'', the exclusion of 
unsponsored ADRs, and the omission of the reference to ``index,'' 
which is not applicable.

---------------------------------------------------------------------------

[[Page 9903]]

    (6) American Depositary Receipts (``ADRs'') may be exchange-traded 
or non-exchange-traded. However no more than 10% of the equity weight 
of the portfolio shall consist of non-exchange-traded ADRs.\32\
---------------------------------------------------------------------------

    \32\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include not more than 10% of net 
assets in unsponsored ADRs (which are not exchange-listed). See, 
e.g., Securities Exchange Act Release No. 71067 (December 12, 
20113), 78 FR 76669 (December 18, 2013) (order approving listing and 
trading of shares of the SPDR MFS Systematic Core Equity ETF, SPDR 
MFS Systematic Growth Equity ETF, and SPDR MFS Systematic Value 
Equity ETF under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    As proposed in Commentary .01(a)(2) to Rule 8.600, the component 
stocks of the equity portion of a portfolio that are Non-U.S. Component 
Stocks shall meet the following criteria initially and on a continuing 
basis:
    (1) Non-U.S. Component Stocks each shall have a minimum market 
value of at least $100 million; \33\
---------------------------------------------------------------------------

    \33\ The proposed text is identical to the corresponding 
representation from the ``SSgA Global Managed Volatility Release'', 
as defined in footnote 41, below. The proposed text is also 
identical to the corresponding text of Commentary .01(a)(B)(1) to 
NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the 
reference to ``index,'' which is not applicable, and that each Non-
U.S. Component Stock must have a minimum market value of at least 
$100 million instead of the 90% required under Commentary 
.01(a)(B)(1) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------

    (2) Non-U.S. Component Stocks 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; \34\
---------------------------------------------------------------------------

    \34\ The proposed text is identical to the corresponding 
representation from the SSgA Global Managed Volatility Release, as 
defined in footnote 41, below. This proposed text also is identical 
to the corresponding text of Commentary .01(a)(B)(2) to NYSE Arca 
Equities Rule 5.2(j)(3), except for the omission of the reference to 
``index,'' which is not applicable.
---------------------------------------------------------------------------

    (3) The most heavily weighted Non-U.S. Component Stock shall not 
exceed 25% of the equity weight of the portfolio, and, to the extent 
applicable, the five most heavily weighted Non-U.S. Component Stocks 
shall not exceed 60% of the equity weight of the portfolio; \35\
---------------------------------------------------------------------------

    \35\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(B)(3) to NYSE Arca Equities Rule 5.2(j)(3), 
except for the omission of the reference to ``index,'' which is not 
applicable.
---------------------------------------------------------------------------

    (4) Where the equity portion of the portfolio includes Non-U.S. 
Component Stocks, the equity portion of the portfolio shall include a 
minimum of 20 component stocks; provided, however, that there shall be 
no minimum number of component stocks if (i) one or more series of 
Derivative Securities Products or Index-Linked Securities constitute, 
at least in part, components underlying a series of Managed Fund 
Shares, or (ii) one or more series of Derivative Securities Products or 
Index-Linked Securities account for 100% of the equity weight of the 
portfolio of a series of Managed Fund Shares; \36\ and
---------------------------------------------------------------------------

    \36\ This proposed text is similar to the corresponding text of 
Commentary .01(a)(B)(4) to NYSE Arca Equities Rule 5.2(j)(3), except 
for the omission of the reference to ``index,'' which is not 
applicable, the addition of the reference to Index-Linked 
Securities, the reference to the equity portion of the portfolio 
including Non-U.S. Component Stocks, and the reference to the 100% 
limitation applying to the ``equity weight'' of the portfolio, which 
is included because the proposed standards in Commentary .01 to Rule 
8.600 permit the inclusion of non-equity securities, whereas 
Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) applies only to 
equity securities.
---------------------------------------------------------------------------

    (5) Each Non-U.S. Component Stock shall be listed and traded on an 
exchange that has last-sale reporting.\37\
---------------------------------------------------------------------------

    \37\ This proposed text is similar to Commentary .01(a)(B)(5) to 
NYSE Arca Equities Rule 5.2(j)(3) as it relates to Non-U.S. 
Component Stocks.
---------------------------------------------------------------------------

    The Exchange notes that it is not proposing to require that any of 
the equity portion of the equity portfolio composed of Non-U.S. 
Component Stocks be listed on markets that are either a member of the 
Intermarket Surveillance Group (``ISG'') or a market with which the 
Exchange has a comprehensive surveillance sharing agreement 
(``CSSA'').\38\ However, as further detailed below, the regulatory 
staff of the Exchange, or the Financial Industry Regulatory Authority, 
Inc. (``FINRA''), on behalf of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including U.S. securities exchanges on which the 
components are traded. The Exchange notes that the generic listing 
standards for Units based on foreign indexes in NYSE Arca Equities Rule 
5.2(j)(3) do not include specific ISG or CSSA requirements.\39\ In 
addition, the Commission has approved listing and trading on the 
Exchange of shares of an issue of Managed Fund Shares under NYSE Arca 
Equities Rule 8.600 where non-U.S. equity securities in such issue's 
portfolio meet specified criteria and where there is no requirement 
that such non-U.S. equity securities are traded in markets that are 
members of ISG or with which the Exchange has in place a CSSA.\40\
---------------------------------------------------------------------------

    \38\ A list of ISG members is available at www.isgportal.org.
    \39\ Under Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3), 
Units with components that include Non-U.S. Component Stocks can 
hold a portfolio that is entirely composed of Non-U.S. Component 
Stocks that are listed on markets that are neither members of ISG, 
nor with which the Exchange has in place a CSSA.
    \40\ See Securities Exchange Act Release No. 75023 (May 21, 
2015), 80 FR 30519 (May 28, 2015) (SR-NYSEArca-2014-100) (order 
approving listing and trading on the Exchange of shares of the SPDR 
SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule 
8.600) (``SSgA Global Managed Volatility Release'').
---------------------------------------------------------------------------

    Proposed Commentary .01(b) would describe the standards for a 
Managed Fund Share portfolio that holds fixed income securities, which 
are debt securities \41\ that are notes, bonds, debentures or evidence 
of indebtedness that include, but are not limited to, U.S. Department 
of Treasury securities (``Treasury Securities''), government-sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof, investment grade and high yield corporate 
debt, bank loans, mortgage and asset backed securities, and commercial 
paper. In addition, to the extent that a portfolio includes convertible 
securities, the fixed income security into which such security is 
converted would be required to meet the criteria of Commentary .01(b) 
after converting.
---------------------------------------------------------------------------

    \41\ Debt securities include a variety of fixed income 
obligations, including, but not limited to, corporate debt 
securities, government securities, municipal securities, convertible 
securities, and mortgage-backed securities. Debt securities include 
investment-grade securities, non-investment-grade securities, and 
unrated securities. Debt securities also include variable and 
floating rate securities.
---------------------------------------------------------------------------

    The components of the fixed income portion of a portfolio must meet 
the following criteria initially and on a continuing basis:
    (1) Components that in the aggregate account for at least 75% of 
the fixed income weight of the portfolio each shall have a minimum 
original principal amount outstanding of $100 million or more; \42\
---------------------------------------------------------------------------

    \42\ This text of proposed Commentary .01(b)(1) to Rule 8.600 is 
based on the corresponding text of Commentary .02(a)(2) to Rule 
5.2(j)(3).
---------------------------------------------------------------------------

    (2) No component fixed-income security (excluding Treasury 
Securities and GSE Securities) could represent more than 30% of the 
fixed income weight of the portfolio, and the five most heavily 
weighted component fixed income securities in the portfolio must not in 
the aggregate account for more than 65% of the fixed income weight of 
the portfolio; \43\
---------------------------------------------------------------------------

    \43\ This proposed text is identical to the corresponding text 
of Commentary .02(a)(4) to Rule 5.2(j)(3), except for the omission 
of the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------

    (3) An underlying portfolio (excluding exempted securities) that 
includes fixed income securities must include a minimum of 13 non-
affiliated issuers;

[[Page 9904]]

provided, however, that there shall be no minimum number of non-
affiliated issuers required for fixed income securities if at least 70% 
of the weight of the portfolio consists of equity securities as 
described in proposed Commentary .01(a).\44\
---------------------------------------------------------------------------

    \44\ This proposed text is similar to the corresponding text of 
Commentary .02(a)(5) to Rule 5.2(j)(3), except for the omission of 
the reference to ``index,'' which is not applicable, the exclusion 
of the text ``consisting entirely of exempted securities'' and the 
provision that there shall be no minimum number of non-affiliated 
issuers required for fixed income securities if at least 70% of the 
weight of the portfolio consists of equity securities as described 
in proposed Commentary .01(a).
---------------------------------------------------------------------------

    (4) Component securities that in aggregate account for at least 90% 
of the fixed income weight of the portfolio must be either (a) from 
issuers that are required to file reports pursuant to Sections 13 and 
15(d) of the Act; (b) from issuers that have a worldwide market value 
of its outstanding common equity held by non-affiliates of $700 million 
or more; (c) from issuers that have outstanding securities that are 
notes, bonds, debentures, or evidence of indebtedness having a total 
remaining principal amount of at least $1 billion; (d) exempted 
securities as defined in Section 3(a)(12) of the Act; or (e) from 
issuers that are a government of a foreign country or a political 
subdivision of a foreign country; and
    (5) Non-agency, non-GSE and privately-issued mortgage-related and 
other asset-backed securities components of a portfolio shall not 
account, in the aggregate, for more than 20% of the weight of the fixed 
income portion of the portfolio.\45\
---------------------------------------------------------------------------

    \45\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include up to 20% of net assets in 
non-agency, non-GSE and privately-issued mortgage-related and other 
asset-backed securities. See, e.g., Securities Exchange Act Release 
No. 75566 (July 30, 2015), 80 FR 46612 (August 5, 2015) (SR-
NYSEArca-2015-42) (order approving listing and trading of shares of 
Newfleet Multi-Sector Unconstrained Bond ETF under NYSE Arca 
Equities Rule 8.600).
---------------------------------------------------------------------------

    Proposed Commentary .01(c) would describe the standards for a 
Managed Fund Share portfolio that holds cash and cash equivalents.\46\ 
Specifically, the portfolio may hold short-term instruments with 
maturities of less than 3 months. There would be no limitation to the 
percentage of the portfolio invested in such holdings. Short-term 
instruments would include the following: \47\
---------------------------------------------------------------------------

    \46\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include cash and cash equivalents. 
See, e.g., SPDR Blackstone/GSO Senior Loan Approval, supra note 23, 
at 19768-69 and First Trust Preferred Securities and Income 
Approval, supra note 23, at 76150.
    \47\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly specified short-term instruments 
with respect to their inclusion in Managed Fund Share holdings. See, 
e.g., First Trust Preferred Securities and Income Approval, supra 
note 23, at 76150-51.
---------------------------------------------------------------------------

    (1) U.S. Government securities, including bills, notes and bonds 
differing as to maturity and rates of interest, which are either issued 
or guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities;
    (2) certificates of deposit issued against funds deposited in a 
bank or savings and loan association;
    (3) bankers' acceptances, which are short-term credit instruments 
used to finance commercial transactions;
    (4) repurchase agreements and reverse repurchase agreements;
    (5) bank time deposits, which are monies kept on deposit with banks 
or savings and loan associations for a stated period of time at a fixed 
rate of interest;
    (6) commercial paper, which are short-term unsecured promissory 
notes; and
    (7) money market funds.
    Proposed Commentary .01(d) would describe the standards for a 
Managed Fund Share portfolio that holds listed derivatives, including 
futures, options and swaps on commodities, currencies and financial 
instruments (e.g., stocks, fixed income, interest rates, and 
volatility) or a basket or index of any of the foregoing.\48\ There 
would be no limitation to the percentage of the portfolio invested in 
such holdings, except that, in the aggregate, at least 90% of the 
weight of such holdings invested in futures, exchange-traded options 
and listed swaps shall, on both an initial and continuing basis, 
consist of futures, options and swaps for which the Exchange may obtain 
information via the Intermarket Surveillance Group (``ISG'') from other 
members or affiliates or for which the principal market is a market 
with which the Exchange has a comprehensive surveillance sharing 
agreement.\49\ The Exchange notes that, for purposes of calculating 
this limitation, a portfolio's investment in listed derivatives will be 
calculated as the total absolute notional value of the listed 
derivatives.
---------------------------------------------------------------------------

    \48\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include listed derivatives. See, 
e.g., WisdomTree Real Return Approval, supra note 23, at 13617 and 
WisdomTree Brazil Bond Approval, supra note 23, at 32163.
    \49\ ISG is comprised of an international group of exchanges, 
market centers, and market regulators that perform front-line market 
surveillance in their respective jurisdictions. See https://www.isgportal.org/home.html.
---------------------------------------------------------------------------

    Proposed Commentary .01(e) would describe the standards for a 
Managed Fund Share portfolio that holds over the counter (``OTC'') 
derivatives, including forwards, options and swaps on commodities, 
currencies and financial instruments (e.g., stocks, fixed income, 
interest rates, and volatility) or a basket or index of any of the 
foregoing.\50\ Proposed Commentary .01 (e) would provide that no more 
than 20% of the assets in the portfolio may be invested in OTC 
derivatives.
---------------------------------------------------------------------------

    \50\ A proposed rule change for series of Units previously 
listed and traded on the Exchange pursuant to Rule 5.2(j)(3) 
similarly included the ability for such Units' holdings to include 
OTC derivatives, specifically OTC down-and-in put options, which are 
not NMS Stocks as defined in Rule 600 of Regulation NMS and 
therefore do not satisfy the requirements of Commentary .01(a)(A) to 
Rule 5.2(j)(3). See, e.g., NYSE Arca U.S. Equity Synthetic Reverse 
Convertible Index Fund Approval, supra note 23, at 23602.
---------------------------------------------------------------------------

    Proposed Commentary .01(f) would provide that, to the extent that 
listed or OTC derivatives are used to gain exposure to individual 
equities and/or fixed income securities, or to indexes of equities and/
or fixed income securities, such equities and/or fixed income 
securities, as applicable, shall meet the criteria set forth in 
Commentary .01(a) and .01(b) to Rule 8.600, respectively. The Exchange 
notes that, for purposes of this proposal, a portfolio's investment in 
OTC derivatives will be calculated as the ~total absolute notional 
value of the OTC derivatives.
    The Exchange believes that the proposed standards would continue to 
ensure transparency surrounding the listing process for Managed Fund 
Shares. Additionally, the Exchange believes that the proposed portfolio 
standards for listing and trading Managed Fund Shares, many of which 
track existing Exchange rules relating to Units, are reasonably 
designed to promote a fair and orderly market for such Managed Fund 
Shares.\51\ These proposed standards would also work in conjunction 
with the existing initial and continued listing criteria related to 
surveillance procedures and trading guidelines.
---------------------------------------------------------------------------

    \51\ See Approval Order, supra note 17 at 19548.
---------------------------------------------------------------------------

    In support of this proposal, the Exchange represents that: \52\
---------------------------------------------------------------------------

    \52\ The Exchange made similar representations in the Approval 
Order. See id. at 19549.
---------------------------------------------------------------------------

    (1) The Managed Fund Shares will continue to conform to the initial 
and continued listing criteria under Rule 8.600;
    (2) the Exchange's surveillance procedures are adequate to continue 
to properly monitor the trading of the

[[Page 9905]]

Managed Fund Shares in all trading sessions and to deter and detect 
violations of Exchange rules. Specifically, the Exchange intends to 
utilize its existing surveillance procedures applicable to derivative 
products, which will include Managed Fund Shares, to monitor trading in 
the Managed Fund Shares;
    (3) prior to the commencement of trading of a particular series of 
Managed Fund Shares, the Exchange will inform its Equity Trading Permit 
(``ETP'') Holders in a Bulletin of the special characteristics and 
risks associated with trading the Managed Fund Shares, including 
procedures for purchases and redemptions of Managed Fund Shares, 
suitability requirements under NYSE Arca Equities Rule 9.2(a), the 
risks involved in trading the Managed Fund Shares during the Opening 
and Late Trading Sessions when an updated Portfolio Indicative Value 
will not be calculated or publicly disseminated, information regarding 
the Portfolio Indicative Value and the Disclosed Portfolio, prospectus 
delivery requirements, and other trading information. In addition, the 
Bulletin will disclose that the Managed Fund Shares are subject to 
various fees and expenses, as described in the applicable registration 
statement, and will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. Finally, 
the Bulletin will disclose that the net asset value for the Managed 
Fund Shares will be calculated after 4 p.m. ET each trading day; and
    (4) the issuer of a series of Managed Fund Shares will be required 
to comply with Rule 10A-3 under the Act for the initial and continued 
listing of Managed Fund Shares, as provided under NYSE Arca Equities 
Rule 5.3.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and that the Exchange is not aware 
of any problems that ETP Holders or issuers would have in complying 
with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\53\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\54\ in particular, because it 
is 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.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78f(b).
    \54\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 because it would facilitate the listing and trading of 
additional Managed Fund Shares, which would enhance competition among 
market participants, to the benefit of investors and the marketplace. 
Specifically, after more than six years under the current process, 
whereby the Exchange is required to file a proposed rule change with 
the Commission for the listing and trading of each new series of 
Managed Fund Shares, the Exchange believes that it is appropriate to 
codify certain rules within Rule 8.600 that would generally eliminate 
the need for separate proposed rule changes. The Exchange believes that 
this would facilitate the listing and trading of additional types of 
Managed Fund Shares that have investment portfolios that are similar to 
investment portfolios for Units, which have been approved for listing 
and trading, thereby creating greater efficiencies in the listing 
process for the Exchange and the Commission. In this regard, the 
Exchange notes that the standards proposed for Managed Fund Share 
portfolios that include U.S. Component Stocks, Non-U.S. Component 
Stocks, Derivative Securities Products, and Index-Linked Securities are 
based in large part on the existing equity security standards 
applicable to Units in Commentary .01 to NYSE Arca Equities Rule 
5.2(j)(3) and that the standards proposed for Managed Fund Share 
portfolios that include fixed income securities are based in large part 
on the existing fixed income standards applicable to Units in 
Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3). Additionally, many 
of the standards proposed for other types of holdings of series of 
Managed Fund Shares are based on previous proposed rule changes for 
specific series of Managed Fund Shares.\55\
---------------------------------------------------------------------------

    \55\ See supra, note 23.
---------------------------------------------------------------------------

    With respect to the proposed addition to the criteria of Rule 
8.600(c) to provide that the Web site for each series of Managed Fund 
Shares shall disclose certain information regarding the Disclosed 
Portfolio, to the extent applicable, the Exchange notes that proposed 
rule changes approved by the Commission for previously-listed series of 
Managed Fund Shares have similarly included disclosure requirements 
with respect to each portfolio holding, as applicable to the type of 
holding.\56\ With respect to the proposed definition of the term 
``normal market conditions'' in proposed Rule 8.600(c)(5), such 
definition is similar to the definition of normal market conditions 
approved by the Commission for other issues of Managed Fund Shares.\57\ 
In addition, proposed Rule 8.600(d)(1)(C), would specify that a series 
of Managed Fund Shares would be required to adhere to its stated 
investment objective during normal market conditions.
---------------------------------------------------------------------------

    \56\ See supra note 21.
    \57\ See, e.g., Securities Exchange Act Release No. 74338 
(February 20, 2015), 80 FR 10556 (February 26, 2015) (SR-NYSEArca-
2014-143) (order approving listing and trading of shares of the SPDR 
Doubletree Total Return Tactical ETF under NYSE Arca Equities Rule 
8.600).
---------------------------------------------------------------------------

    With respect to the proposed amendment to the continued listing 
requirement in Rule 8.600(d)(2)(A) to require dissemination of a 
Portfolio Indicative Value at least every 15 seconds during the Core 
Trading Session (as defined in NYSE Arca Equities Rule 7.34), such 
requirement conforms to the requirement applicable to the dissemination 
of the Intraday Indicative Value for Units in Commentary .01(c) and 
Commentary .02 (c) to NYSE Arca Equities Rule 5.2(j)(3). In addition, 
such dissemination is consistent with representations made in proposed 
rule changes for issues of Managed Fund Shares previously approved by 
the Commission.\58\
---------------------------------------------------------------------------

    \58\ See, e.g., Approval Order, supra note 17; International 
Bear Approval, supra note 23.
---------------------------------------------------------------------------

    With respect to the proposed requirement in Commentary .01(a) that 
no more than 25% of the equity weight of the portfolio shall consist of 
leveraged and/or inverse leveraged Derivative Securities Products or 
Index-Linked Securities, such requirement would assure that only a 
relatively small proportion of a fund's investments could consist of 
such leveraged and/or inverse securities. In addition, such limitation 
would apply to both U.S. Component Stocks and Non-U.S. Component Stocks 
comprising the equity portion of a portfolio. With respect to the 
proposed provision in Commentary .01(a) that, to the extent a portfolio 
includes a convertible security, the equity security into which such 
security is converted must meet the criteria in Commentary .01(a) after 
converting, such requirement would assure that the equity securities 
into which a convertible security could be converted meet the liquidity 
and other criteria in Commentary .01 applicable to such equity 
securities. With respect to the proposed exclusion of Derivatives 
Securities Products and Index-Linked Securities from the requirements 
of proposed Commentary .01(a) of Rule

[[Page 9906]]

8.600, the Exchange believes it is appropriate to exclude Index-Linked 
Securities as well as Derivative Securities Products from certain 
component stock eligibility criteria for Managed Fund Shares in so far 
as Derivative Securities Products and Index-Linked Securities are 
themselves subject to specific quantitative listing and continued 
listing requirements of a national securities exchange on which such 
securities are listed. Derivative Securities Products and Index-Linked 
Securities that are components of a fund's portfolio would have been 
listed and traded on a national securities exchange pursuant to a 
proposed rule change approved by the Commission pursuant to Section 
19(b)(2) of the Act \59\ or submitted by a national securities exchange 
pursuant to Section 19(b)(3)(A) of the Act \60\ or would have been 
listed by a national securities exchange pursuant to the requirements 
of Rule 19b-4(e) under the Act.\61\ The Exchange also notes that 
Derivative Securities Products and Index-Linked Securities are 
derivatively priced, and, therefore, the Exchange believes that it 
would not be necessary to apply the proposed generic quantitative 
criteria (e.g., market capitalization, trading volume, or portfolio 
component weighting) applicable to equity securities other than 
Derivative Securities Products or Index-Linked Securities (e.g., common 
stocks) to such products.\62\
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    \59\ 15 U.S.C. 78s(b)(2).
    \60\ 15 U.S.C. 78s(b)(3)(A).
    \61\ 17 CFR 240.19b-4(e).
    \62\ See Securities Exchange Act Release Nos. 57561 (March 26, 
2008), 73 FR 17390 (April 1, 2008) (SR-NYSEArca-2008-29) (notice of 
filing of proposed rule change to amend eligibility criteria for 
components of an index underlying Investment Company Units); 57751 
(May 1, 2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29) 
(order approving proposed rule change to amend eligibility criteria 
for components of an index underlying Investment Company Units).
---------------------------------------------------------------------------

    With respect to the proposed criteria applicable to U.S. Component 
Stocks, the Exchange notes that such criteria are similar to those in 
Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) relating to 
criteria applicable to an index or portfolio of U.S. Component Stocks. 
In addition, Non-U.S. Component Stocks also will be required to meet 
criteria similar to certain generic listing standards in Commentary .01 
to NYSE Arca Equities Rule 5.2(j)(3) relating to criteria applicable to 
an index or portfolio of U.S. Component Stocks and Non-U.S. Component 
Stocks underlying a series of Units to be listed and traded on the 
Exchange pursuant to Rule 19b-4(e) under the Act.
    With respect to the proposed requirement in Commentary .01(a)(1)(F) 
that ADRs in a portfolio may be exchange-traded or non-exchange-traded 
and that no more than 10% of the equity weight of the portfolio shall 
consist of non-exchange-traded ADRs, the Exchange notes that such 
requirement will ensure that unsponsored ADRs, which are traded OTC and 
which generally have less market transparency than sponsored ADRs, as 
well as any sponsored ADRs traded OTC, could account for only a small 
percentage of the equity weight of a portfolio. Further, the 
requirement is consistent with representations made in proposed rule 
changes for issues of Managed Fund Shares previously approved by the 
Commission.\63\
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    \63\ See note 33, supra.
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    With respect to the proposed provision in Commentary .01(b) that, 
to the extent a portfolio includes convertible securities, the fixed 
income security into which such security is converted must meet the 
criteria in paragraph (b) of Commentary .01 after converting, such 
requirement would assure that the fixed income securities into which a 
convertible security could be converted meet the liquidity and other 
criteria in Commentary .01(b) applicable to fixed income securities.
    As proposed, pursuant to Commentary .01(b)(3) to Rule 8.600, an 
underlying portfolio (excluding exempted securities) that includes 
fixed income securities must include a minimum of 13 non-affiliated 
issuers, but there would be no minimum number of non-affiliated issuers 
required for fixed income securities if at least 70% of the weight of 
the portfolio consists of equity securities, as described in Commentary 
.01(a). The Exchange notes that, when evaluated in conjunction with 
proposed Commentary .01(b)(2), the proposed rule is consistent with 
Commentary .02(a)(4) and (5) of NYSE Arca Equities Rule 5.2(j)(3) in 
that it provides for a maximum weighting of a fixed income security in 
the fixed income portion of the portfolio of a fund that is comparable 
to the existing rules applicable to Investment Company Units based on 
fixed income indexes.
    With respect to the proposed requirement in Commentary .01(b)(5) 
that non-agency, non-GSE and privately-issued mortgage-related and 
other asset-backed securities components of a portfolio shall not 
account, in the aggregate, for more than 20% of the weight of the fixed 
income portion of the portfolio, the Exchange notes that such 
requirement is consistent with representations made in proposed rule 
changes for issues of Managed Fund Shares previously approved by the 
Commission.\64\
---------------------------------------------------------------------------

    \64\ See note 46, supra.
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    With respect to the proposed amendment to Commentary .01(c) 
relating to cash and cash equivalents, while there is no limitation on 
the amount of cash and cash equivalents that can make up the portfolio, 
such instruments are short-term, highly liquid, and of high credit 
quality, making them less susceptible than other asset classes both to 
price manipulation and volatility. Further, the requirement is 
consistent with representations made in proposed rule changes for 
issues of Managed Fund Shares previously approved by the 
Commission.\65\
---------------------------------------------------------------------------

    \65\ See note 47, supra.
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    With respect to proposed Commentary .01(d)(1) to Rule 8.600 
relating to listed derivatives, the Exchange believes that it is 
appropriate that there be no limit to the percentage of a portfolio 
invested in such holdings, provided that, in the aggregate, at least 
90% of the weight of such holdings invested in futures, exchange-traded 
options, and listed swaps would consist of futures, options, and swaps 
for which the Exchange may obtain information via ISG from other 
members or affiliates or for which the principal market is a market 
with which the Exchange has a CSSA. Such a requirement would facilitate 
information sharing among market participants trading shares of a 
series of Managed Fund Shares as well as futures and options that such 
series may hold. In addition, listed swaps would be centrally cleared, 
reducing counterparty risk and thereby furthering investor 
protection.\66\
---------------------------------------------------------------------------

    \66\ The Commission has noted that ``[c]entral clearing 
mitigates counterparty risk among dealers and other institutions by 
shifting that risk from individual counterparties to [central 
counterparties (``CCPs'')], thereby protecting CCPs from each 
other's potential failures.'' See Securities Exchange Act Release 
No. 67286 (June 28, 2012) (File No. S7-44-10) (Process for 
Submissions for Review of Security-Based Swaps for Mandatory 
Clearing and Notice Filing Requirements for Clearing Agencies).
---------------------------------------------------------------------------

    With respect to proposed Commentary .01(e) to Rule 8.600 relating 
to OTC derivatives, the Exchange believes that the limitation to 20% of 
a fund's assets would assure that the preponderance of fund investments 
would not be in derivatives that are not listed and centrally cleared. 
The Exchange believes that such a limitation is sufficient to mitigate 
the risks associated with price manipulation because a 20% cap on OTC 
derivatives will ensure that any series of Managed Fund Shares will be 
sufficiently broad-based in scope to minimize potential manipulation 
associated with OTC

[[Page 9907]]

derivatives and because the remaining 80% of the portfolio will consist 
of instruments subject to numerous restrictions designed to prevent 
manipulation, including equity securities (which, as proposed, would be 
subject to market cap, trading volume, and diversity requirements, 
among others), fixed income securities (which, as proposed, would be 
subject to principal amount outstanding, diversity, and issuer 
requirements, among others), cash and cash equivalents (which, as 
proposed, would be limited to short-term, highly liquid, and high 
credit quality instruments), and/or listed derivatives (which would be 
subject to the limitations in proposed Commentary .01(d)).
    The Exchange notes that a fund's investments in derivative 
instruments would be subject to limits on leverage imposed by the 1940 
Act. Section 18(f) of the 1940 Act and related Commission guidance 
limit the amount of leverage an investment company can obtain. A fund's 
investments would be consistent with its investment objective and would 
not be used to enhance leverage. To limit the potential risk associated 
with a fund's use of derivatives, a fund will segregate or ``earmark'' 
assets determined to be liquid by a fund in accordance with the 1940 
Act (or, as permitted by applicable regulation, enter into certain 
offsetting positions) to cover its obligations under derivative 
instruments.
    With respect to proposed Commentary .01(f) to Rule 8.600 relating 
to a fund's use of listed or OTC derivatives to gain exposure to 
individual equities and/or fixed income securities, or to indexes of 
equities and/or indexes of fixed income securities, the Exchange notes 
that such exposure would be required to meet the numerical and other 
criteria set forth in proposed Commentary .01(a) and .01(b) to Rule 
8.600 respectively.
    Quotation and other market information relating to listed futures 
and options is available from the exchanges listing such instruments as 
well as from market data vendors. With respect to centrally-cleared 
swaps \67\ and non-centrally-cleared swaps regulated by the CFTC,\68\ 
the Dodd-Frank Act mandates that swap information be reported to swap 
data repositories (``SDRs'').\69\ SDRs provide a central facility for 
swap data reporting and recordkeeping and are required to comply with 
data standards set by the CFTC, including real-time public reporting of 
swap transaction data to a derivatives clearing organization or 
SEF.\70\ SDRs require real-time reporting of all OTC and centrally 
cleared derivatives, including public reporting of the swap price and 
size. The parties responsible for reporting swaps information are CFTC-
registered swap dealers (``RSDs''), major swap participants, and swap 
execution facilities (``SEFs''). If swap counterparties do not fall 
into the above categories, then one of the parties to the swap must 
report the trade to the SDR. Cleared swaps regulated by the CFTC must 
be executed on a Designated Contract Market (``DCM'') or SEF. Such 
cleared swaps have the same reporting requirements as futures, 
including end-of-day price, volume, and open interest. CFTC swaps 
reporting requirements require public dissemination of, among other 
items, product ID (if available); asset class; underlying reference 
asset, reference issuer, or reference index; termination date; date and 
time of execution; price, including currency; notional amounts, 
including currency; whether direct or indirect counterparties include 
an RSD; whether cleared or un-cleared; and platform ID of where the 
contract was executed (if applicable).
---------------------------------------------------------------------------

    \67\ There are currently five categories of swaps eligible for 
central clearing: Interest rate swaps; credit default swaps; foreign 
exchange swaps; equity swaps; and commodity swaps. The following 
entities provide central clearing for OTC derivatives: ICE Clear 
Credit (US); ICE Clear (EU); CME Group; LCH.Clearnet; and Eurex.
    \68\ Pursuant to the Dodd-Frank Act, OTC and centrally-cleared 
swaps are regulated by the CFTC with the exception of security-based 
swaps, which are regulated by the Commission.
    \69\ The following entities are provisionally registered with 
the CFTC as SDRs: BSDR LLC., Chicago Mercantile Exchange, Inc., DTCC 
Data Repository, and ICE Trade Vault.
    \70\ Approximately eighteen entities are currently registered 
with the CFTC as SEFs.
---------------------------------------------------------------------------

    With respect to security-based swaps regulated by the Commission, 
the Commission has adopted Regulation SBSR under the Act implementing 
requirements for regulatory reporting and public dissemination of 
security-based swap transactions set forth in Title VII of the Dodd-
Frank Act. Regulation SBSR provides for the reporting of security-based 
swap information to registered security-based swap data repositories 
(``Registered SDRs'') or the Commission, and the public dissemination 
of security-based swap transaction, volume, and pricing information by 
Registered SDRs.\71\
---------------------------------------------------------------------------

    \71\ See Securities Exchange Act Release No. 74244 (February 11, 
2015), 80 FR 14564 (March 19, 2015) (Regulation SBSR--Reporting and 
Dissemination of Security-Based Swap Information).
---------------------------------------------------------------------------

    Price information relating to forwards and OTC options will be 
available from major market data vendors.
    A fund's investments will not be used to seek performance that is 
the multiple or inverse multiple (i.e., 2Xs and 3Xs) of a fund's broad-
based securities market index (as defined in Form N-1A).\72\ In 
addition, the Exchange notes that, under proposed Commentary .01(a) to 
Rule 8.600, for Derivative Securities Products and Index-Linked 
Securities, no more than 25% of the equity weight of a fund's portfolio 
could include leveraged and/or inverse leveraged Derivative Securities 
Products or Index-Linked Securities.
---------------------------------------------------------------------------

    \72\ See, e.g., Securities Exchange Act Release No. 74842 (April 
29, 2015), 86 FR 25723 (May 5, 2015) (SR-NYSEArca-2014-89) (order 
approving listing and trading of shares of eight PIMCO exchange-
traded funds).
---------------------------------------------------------------------------

    The proposed rule change is also designed to protect investors and 
the public interest because Managed Fund Shares listed and traded 
pursuant to Rule 8.600, including pursuant to the proposed new 
portfolio standards, would continue to be subject to the full panoply 
of Exchange rules and procedures that currently govern the trading of 
equity securities on the Exchange.\73\
---------------------------------------------------------------------------

    \73\ See Approval Order, supra note 17, at 19547.
---------------------------------------------------------------------------

    The proposed rule change is also designed to protect investors and 
the public interest as well as to promote just and equitable principles 
of trade in that any Non-U.S. Component Stocks will each meet the 
following criteria initially and on a continuing basis: (1) Have a 
minimum market value of at least $100 million; (2) 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) most heavily weighted Non-U.S. Component Stock shall 
not exceed 25% of the equity weight of the portfolio, and, to the 
extent applicable, the five most heavily weighted Non-U.S. Component 
Stocks shall not exceed 60% of the equity weight of the portfolio; and 
(4) each Non-U.S. Component Stock shall be listed and traded on an 
exchange that has last-sale reporting. The Exchange believes that such 
quantitative criteria are sufficient to mitigate any concerns that may 
arise on the basis of a series of Managed Fund Shares potentially 
holding 100% of its assets in Non-U.S. Component Stocks that are 
neither listed on members of ISG nor exchanges with which the Exchange 
has in place a CSSA because, as stated above, such criteria are either 
the same or more stringent than the portfolio requirements for Units 
that hold Non-U.S. Component Stocks and there are no such requirements 
related to such securities being listed on an

[[Page 9908]]

exchange that is a member of ISG or with which the Exchange has in 
place a CSSA. Further, the Exchange has not encountered and is not 
aware of any instances of manipulation or other negative impact in any 
series of Units that has occurred by virtue of the Units holding such 
Non-U.S. Component Stocks. As such, the Exchange believes that there 
should be no difference in the portfolio requirements for Managed Fund 
Shares and Units as it relates to holding Non-U.S. Component Stocks 
that are not listed on an exchange that is a member of ISG or with 
which the Exchange has in place a CSSA.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices because the 
Managed Fund Shares will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in Rule 8.600. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Managed Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. FINRA, on behalf of the Exchange, 
or the regulatory staff of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including all U.S. securities exchanges and futures 
exchanges on which the components are traded. In addition, the Exchange 
may obtain information regarding trading in Managed Fund Shares from 
other markets that are members of the ISG, including all U.S. 
securities exchanges and futures exchanges on which the components are 
traded, or with which the Exchange has in place a CSSA.
    The Exchange also believes that the proposed rule change would 
fulfill the intended objective of Rule 19b-4(e) under the Act by 
allowing Managed Fund Shares that satisfy the proposed listing 
standards to be listed and traded without separate Commission approval. 
However, as proposed, the Exchange would continue to file separate 
proposed rule changes before the listing and trading of Managed Fund 
Shares that do not satisfy the additional criteria described above.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\74\ 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 purposes of the Act. Instead, the Exchange believes that the 
proposed rule change would facilitate the listing and trading of 
additional types of Managed Fund Shares and result in a significantly 
more efficient process surrounding the listing and trading of Managed 
Fund Shares, which will enhance competition among market participants, 
to the benefit of investors and the marketplace. The Exchange believes 
that this would reduce the time frame for bringing Managed Fund Shares 
to market, thereby reducing the burdens on issuers and other market 
participants and promoting competition. In turn, the Exchange believes 
that the proposed change would make the process for listing Managed 
Fund Shares more competitive by applying uniform listing standards with 
respect to Managed Fund Shares.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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. Proceedings to Determine Whether to Approve or Disapprove SR-
NYSEArca-2015-110 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \75\ to determine whether the proposed rule 
change, as modified by Amendment No. 4 thereto, should be approved or 
disapproved. Institution of proceedings is appropriate at this time in 
view of the legal and policy issues raised by the proposed rule change, 
as discussed below. Institution of proceedings does not indicate that 
the Commission has reached any conclusions with respect to any of the 
issues involved. Rather, as described below, the Commission seeks and 
encourages interested persons to provide comments on the proposed rule 
change.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\76\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \77\
---------------------------------------------------------------------------

    \76\ Id.
    \77\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal, as modified by Amendment No. 4 thereto. In 
particular, the Commission invites the written views of interested 
persons concerning whether the proposal, as modified by Amendment No. 4 
thereto, is consistent with Section 6(b)(5) or any other provision of 
the Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval which would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\78\
---------------------------------------------------------------------------

    \78\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    In addition, interested persons are invited to submit written data, 
views, and arguments regarding whether the proposal, as modified by 
Amendment No. 4 thereto, should be approved or disapproved by March 18, 
2016. Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by April 1, 2016.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, in addition to any 
other comments they may wish to submit about the proposed rule change. 
Specifically, the Commission seeks comment on the statements of the 
Exchange contained in the Notice,\79\ as modified by Amendment No. 4 
thereto,\80\ and any other issues raised by the proposed amendments to 
Rule 8.600 related to the listing and trading of Managed Fund Shares on 
the Exchange.

[[Page 9909]]

In particular, the Commission seeks comment on the following:
---------------------------------------------------------------------------

    \79\ See Notice, supra note 4.
    \80\ See supra notes 8-10 and 14 and accompanying text, 
respectively.
---------------------------------------------------------------------------

    1. As described above, the Exchange has proposed listing standards 
with respect to certain asset classes held by actively managed 
exchange-traded funds that are substantively the same as the standards 
applied to those asset classes when held by an index-based fund. Do 
commenters believe that these standards are appropriate for both types 
of funds?
    2. Do commenters believe that the limitations and standards 
proposed for specific assets classes are appropriate?
    3. In general, do commenters believe that the proposed listing 
requirements are adequate to deter manipulation with respect to 
generically listed Managed Fund Shares?
    4. With respect to the proposed generic listing standards, which 
set forth requirements for the listing and trading of Managed Fund 
Shares on an initial and continuing basis, do commenters have views on 
how or whether the Exchange would be able to monitor compliance with 
respect to these continuing listing standards? Do commenters have views 
on what actions, if any, should be taken by the Exchange if a series of 
Managed Fund Shares listed and trading on the Exchange falls out of 
compliance with any of the proposed generic criteria?
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2015-110 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 Numbers SR-NYSEArca-2015-110. 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 (http://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 these filings 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-2015-110 and should 
be submitted on or before March 18, 2016. Rebuttal comments should be 
submitted by April 1, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\81\
---------------------------------------------------------------------------

    \81\ 17 CFR 200.30-3(a)(12) and 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04112 Filed 2-25-16; 8:45 am]
 BILLING CODE 8011-01-P