Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Shares of the Virtus Japan Alpha ETF Under NYSE Arca Equities Rule 8.600, 37222-37229 [2016-13615]
Download as PDF
<![CDATA[
37222
Federal Register / Vol. 81, No. 111 / Thursday, June 9, 2016 / Notices
II. Discussion
III. Conclusion
sradovich on DSK3TPTVN1PROD with NOTICES
Act 17
Section 19(b)(2)(C) of the
directs the Commission to approve a
proposed rule change of a selfregulatory organization if it finds that
such proposed rule change is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to such organization. Section
17A(b)(3)(F) of the Act 18 requires,
among other things, that the rules of a
clearing agency be designed to achieve
several goals, including (i) promoting
the prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts, and transactions,
(ii) assuring the safeguarding of
securities and funds that are in the
custody or control of the clearing agency
or for which it is responsible, and (iii)
protecting investors and the public
interest.
The Commission finds that the
proposed rule change is consistent with
Section 17A of the Act 19 and the rules
thereunder applicable to FICC. The
proposal will permanently adopt the
rules in the 2015 Pilot Program, which
were intended to advance the TPR’s TriParty Reform recommendations by
moving the morning unwind process to
the afternoon to ensure that such
transactions are collateralized all day
and, therefore, limiting the amount of
intraday credit that is extended by
clearing banks during the day.
Permanently adopting these rules will
serve to minimize systemic risk and
avoid the need for seeking future
approvals of renewing the 2015 Pilot
Program annually, thereby bringing
certainty to market participants as to
FICC’s rules implementing the Tri-Party
Reform recommendations. Accordingly,
the permanent adoption of the 2015
Pilot Program rules should help to
protect investors and promote the
public interest, consistent with Section
17A(b)(3)(F) of the Act.
The proposal also eliminates obsolete
language from the GSD Rules by
codifying the net-of-net settlement
process in the GSD Rules, and makes
non-substantive clarifying corrections to
the GSD Rules. Accordingly, the
changes related to the net-of-net
settlement process and the clarifying
changes to the GSD Rules should
provide for a more well-founded and
transparent legal framework for FICC’s
activities, consistent with Act Rule
17Ad–22(d)(1).20
17 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
19 15 U.S.C. 78q–1.
20 17 CFR 240.17Ad–22(d)(1).
18 15
VerDate Sep<11>2014
15:50 Jun 08, 2016
Jkt 238001
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act, particularly
those set forth in Section 17A,21 and the
rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,22 that the
proposed rule change (SR–FICC–2016–
001) be, and hereby is, approved.23
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Brent J. Fields,
Secretary.
[FR Doc. 2016–13611 Filed 6–8–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77992; File No. SR–
NYSEArca–2016–79]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of Shares of the Virtus
Japan Alpha ETF Under NYSE Arca
Equities Rule 8.600
June 3, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on May 24,
2016, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to list and
trade shares of the Virtus Japan Alpha
ETF under NYSE Arca Equities Rule
8.600 (‘‘Managed Fund Shares’’). The
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
21 15
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
23 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
24 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
22 15
PO 00000
Frm 00046
Fmt 4703
Sfmt 4703
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
under NYSE Arca Equities Rule 8.600,
which governs the listing and trading of
Managed Fund Shares: 4 Virtus Japan
Alpha ETF (‘‘Fund’’).5
The Shares will be offered by Virtus
ETF Trust II (‘‘Trust’’), which is
registered with the Commission as an
open-end management investment
company.6 Virtus ETF Advisers LLC
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
5 The Commission has previously approved
listing and trading on the Exchange of a number of
actively managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
NYSEArca–2008–31) (order approving Exchange
listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 62502 (July 15,
2010), 75 FR 42471 (July 21, 2010) (SR–NYSEArca–
2010–57) (order approving listing and trading of
AdviserShares WCM/BNY Mellon Focused Growth
ADR ETF); 63076 (October 12, 2010), 75 FR 63874
(October 18, 2010) (SR–NYSEArca–2010–79) (order
approving listing and trading of Cambria Global
Tactical ETF); 71540 (February 12, 2014), 79 FR
9515 (February 19, 2014) (SR–NYSEArca–2013–
138) (order approving listing and trading of shares
of the iShares Enhanced International Large-Cap
ETF and iShares Enhanced International Small-Cap
ETF).
6 The Trust is registered under the 1940 Act. On
February 26, 2016, the Trust filed with the
Commission an amendment to its registration
E:\FR\FM\09JNN1.SGM
09JNN1
Federal Register / Vol. 81, No. 111 / Thursday, June 9, 2016 / Notices
sradovich on DSK3TPTVN1PROD with NOTICES
will serve as the investment adviser to
the Fund (‘‘Adviser’’). Euclid Advisors
LLC will serve as the Fund’s sub-adviser
(‘‘Sub-Adviser’’). ETF Distributors LLC
(‘‘Distributor’’) will be the principal
underwriter and distributor of the
Fund’s Shares. Virtus ETF Solutions
LLC will serve as the administrator for
the Fund. The Bank of New York
Mellon (‘‘Transfer Agent’’) will serve as
accounting services administrator,
custodian and transfer agent for the
Fund.
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s
portfolio.7 Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i)
and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 in
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a), and under the 1940 Act
relating to the Fund (File Nos. 333–206600 and
811–23078) (‘‘Registration Statement’’). The
description of the operation of the Trust and the
Fund herein is based, in part, on the Registration
Statement. In addition, the Commission has issued
an order granting certain exemptive relief to the
Trust under the 1940 Act. See Investment Company
Act Release No. 30825 (December 11, 2013) (File
No. 812–14212).
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’). As a result,
the Adviser and its related personnel are subject to
the provisions of Rule 204A–1 under the Advisers
Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that
reflects the fiduciary nature of the relationship to
clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed
to prevent the communication and misuse of nonpublic information by an investment adviser must
be consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
VerDate Sep<11>2014
15:50 Jun 08, 2016
Jkt 238001
37223
connection with the establishment of a
‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. The Adviser and Sub-Adviser are
not registered broker-dealers but are
affiliated with a broker-dealer and each
has implemented a ‘‘fire wall’’ with
respect to such broker-dealer regarding
access to information concerning the
composition and/or changes to the
Fund’s portfolio. In the event (a) the
Adviser or Sub-Adviser becomes
registered as a broker-dealer or newly
affiliated with a broker-dealer or (b) any
new adviser or sub-adviser is a
registered broker-dealer or becomes
affiliated with a broker-dealer, it will
implement a fire wall with respect to its
relevant personnel or broker-dealer
affiliate regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
Depositary Receipts (‘‘ADRs’’) 9 on the
common stock of such Index
components. Securities held by the
Fund may be underweighted or
overweighted relative to their positions
in the Index.
Although the Fund will focus on
investment in securities in the Index as
described above, the Fund may also
invest in common stocks of other
Japanese companies with characteristics
similar to those listed on the Index, as
determined by the Sub-Adviser. With
respect to such common stocks, the
Fund will only invest in securities that
are listed on the Tokyo Stock
Exchange 10 and that have a market
capitalization of $250,000,000 U.S.
dollars or greater. The Fund may also
invest in ADRs on such common stocks.
Positions may be reduced or removed
when the Sub-Adviser determines that a
security has become overweighted
within the Fund’s portfolio, that the
security’s prospects have adversely
changed, that the Fund should raise
funds for new or other investments or
that there are more attractive
opportunities.
Principal Investments
According to the Registration
Statement, under normal
circumstances,8 the Fund will invest not
less than 80% of its assets in the
common stocks of certain Japanese
companies listed in the JPX-Nikkei 400
Total Return Index (‘‘Index’’), a freefloat adjusted market capitalizationweighted equity index composed of 400
Tokyo Stock Exchange-listed securities,
and the financial instruments listed
below.
According to the Registration
Statement, the Fund will be activelymanaged through the selection, at any
given time, of approximately 80–100
common stocks from the Index based on
quantitative and qualitative factors,
including an assessment of the
following characteristics: Cash flow
return on invested capital; earnings
quality and momentum; operational
quality; corporate governance policies;
and capital stewardship. The Fund may
invest in such Index components by
directly purchasing shares of common
stock or investing in American
Other Investments
While the Fund, under normal
circumstances, will invest at least 80%
of its assets in common stock of
Japanese companies listed in the Index,
common stock of certain other Japanese
companies and ADRs, as described
above, the Fund will invest its
remaining assets in the securities and
financial instruments described below.
The Fund may invest in securities
index futures contracts and foreign
currency futures contracts.11 According
to the Registration Statement, in general,
the Fund will not purchase or sell
futures contracts unless either (i) the
futures contracts are purchased for
‘‘bona fida hedging’’ purposes (as
defined under applicable Commodity
Futures Trading Commission
regulations) or (ii) if purchased for other
purposes, the sum of the amounts of
initial margin deposits and premiums
required to establish such positions on
8 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the securities
markets or the financial markets generally;
circumstances under which the Fund’s investments
are made for temporary defensive purposes;
operational issues causing dissemination of
inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance.
PO 00000
Frm 00047
Fmt 4703
Sfmt 4703
9 ADRs are bought and sold in the United States
and are typically issued by a U.S. bank or trust
company which evidence ownership of underlying
securities by a foreign corporation. No more than
10% of the net assets of the Fund will be invested
in ADRs that are not exchange-listed.
10 Japan Exchange Regulation (‘‘JPX–R’’) is a
member of the Intermarket Surveillance Group and
information relating to transactions in Tokyo Stock
Exchange listed securities is available through JPX–
R.
11 In instances involving the purchase of futures
contracts, the Fund will deposit in a segregated
account with its custodian an amount of cash, cash
equivalents and/or appropriate securities equal to
the cost of such futures contracts, to the extent that
such deposits are required under the 1940 Act.
E:\FR\FM\09JNN1.SGM
09JNN1
37224
Federal Register / Vol. 81, No. 111 / Thursday, June 9, 2016 / Notices
the Fund’s existing futures would not
exceed 5% of the liquidation value of
the Fund’s total assets.
The Fund may also invest in forward
contracts and non-deliverable forward
(‘‘NDF’’) contracts on the foreign
currency spot market.
The Fund may invest in when-issued
and forward commitment securities,
which means delivery and payment take
place a number of days after the date of
the commitment to purchase, if the
Fund holds sufficient liquid assets to
meet the purchase price.
The Fund may invest in the following
equity securities (other than nonexchange traded investment company
securities): Common stocks traded on
U.S. or Japanese securities exchanges
(other than the Tokyo Stock Exchange);
common stocks traded on the over-thecounter market; U.S. and foreign
exchange-traded preferred stocks; U.S.
and foreign exchange-traded convertible
preferred stocks; U.S. and foreign
exchange-traded convertible bonds; U.S.
and foreign exchange-traded warrants;
and U.S. and foreign exchange-traded
rights. The Fund will not invest in
ADRs on any of these equity securities.
In addition, the Fund may invest in,
to the extent permitted by Section
12(d)(1) of the 1940 Act and the rules
thereunder,12 other open-end
investment companies, including other
exchange-traded funds (‘‘ETFs’’).13
The Fund may invest in Currency
Trust Shares.14
The Fund may invest in real estate
investment trusts (‘‘REITs’’) traded on
U.S. exchanges and Japanese exchanges.
The Fund may enter into short sales
of securities. The Fund may also enter
into short sales ‘‘against the box,’’ i.e.,
when the Fund sells a security short
while owning a securities equivalent in
kind and amount to the securities sold
short (or securities convertible or
exchangeable into such securities) and
will hold such securities while the short
sale is outstanding.
The Fund may invest in the following
money market instruments: U.S.
Government obligations; corporate debt
obligations 15 (including, without
12 15
U.S.C. 80a–12(d)(1).
purposes of this filing, ETFs consist of
Investment Company Units (as described in NYSE
Arca Equities Rule 5.2(j)(3)), Portfolio Depositary
Receipts (as described in NYSE Arca Equities Rule
8.100); and Managed Fund Shares (as described in
NYSE Arca Equities Rule 8.600). All ETFs will be
listed and traded in the U.S. on a national securities
exchange. The Fund will not invest in inverse ETFs
or in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
14 Currency Trust Shares are securities such as
those described in NYSE Arca Equities Rule 8.202.
15 The Adviser expects that under normal market
conditions, the Fund will seek to invest at least
75% of its corporate bond assets in issuances that
sradovich on DSK3TPTVN1PROD with NOTICES
13 For
VerDate Sep<11>2014
15:50 Jun 08, 2016
Jkt 238001
limitation, those subject to repurchase
agreements); banker’s acceptances
(credit instruments evidencing the
obligation of a bank to pay a draft drawn
on it by a customer); certificates of
deposit of domestic branches of banks
(certificates representing the obligation
of a bank to repay funds deposited with
it for a specified period of time);
commercial paper 16 (unsecured, shortterm debt obligation of a bank,
corporation or other borrower); and
master notes (unsecured obligations
which are redeemable upon demand of
the holder and which permit the
investment of fluctuating amounts at
varying rates of interest).
The Fund may invest assets in shares
of money market funds.
Investment Restrictions
The Fund may, from time to time,
take temporary defensive positions that
are inconsistent with its principal
investment strategies in an attempt to
respond to adverse market, economic,
political or other conditions. In such
circumstances, the Fund may also hold
up to 100% of its portfolio in cash and
cash equivalent positions.17
The Fund intends to maintain the
required level of diversification and
otherwise conduct its operations so as to
qualify as a ‘‘regulated investment
company’’ for purposes of the Internal
Revenue Code of 1986.18
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid assets, which are investments
that cannot be sold or disposed of in the
ordinary course of business within
seven days at approximately the prices
at which they are valued. Under the
supervision of the Board of Trustees of
the Trust (‘‘Board’’), the Fund will
determine the liquidity of the Fund’s
investments, which will be monitored
by the Board pursuant to reports. If
through a change in values, net assets or
have at least $100,000,000 par amount outstanding
in developed countries or at least $200,000,000 par
amount outstanding in emerging market countries.
16 According to the Registration Statement, the
Fund will directly invest in commercial paper only
if such commercial paper is rated in one of the two
highest rating categories as rated by a major credit
agency or, if unrated, will be of comparable quality
as determined by the Sub-Adviser.
17 Cash equivalents are short-term instruments
with maturities of less than 3 months. Short-term
instruments shall include the following: (i) 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; (ii) certificates of deposit issued
against funds deposited in a bank or savings and
loan association; (iii) bankers’ acceptances; (iv)
repurchase agreements and reverse repurchase
agreements; (v) bank time deposits; (vi) commercial
paper; and (vii)money market funds.
18 26 U.S.C. 851.
PO 00000
Frm 00048
Fmt 4703
Sfmt 4703
other circumstances, the Fund were in
a position where more than 15% of its
net assets were invested in illiquid
assets, it would seek to take appropriate
steps to protect liquidity.
Illiquid assets include securities
subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.19
The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage. That is, while the
Fund will be permitted to borrow as
permitted under the 1940 Act, the
Fund’s investments will not be used to
seek performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
the Index.
Net Asset Value
According to the Registration
Statement, a Share’s net asset value
(‘‘NAV’’) will be determined as of the
close of the regular trading session on
the New York Stock Exchange (‘‘NYSE’’)
(normally at 4:00 p.m., Eastern Time
(‘‘E.T.’’)) on each day that the NYSE is
open for trading. Any assets or liabilities
denominated in currencies other than
the U.S. dollar will be converted into
U.S. dollars at the current market rates
on the date of valuation as quoted by
one or more sources.
The NAV of the Shares for the Fund
is equal to the Fund’s total assets minus
the Fund’s total liabilities divided by
the total number of Shares outstanding.
Interest and investment income on the
Fund’s assets accrue daily and are
included in the Fund’s total assets.
Expenses and fees (including
investment advisory, management,
administration and distribution fees, if
any) accrue daily and are included in
the Fund’s total liabilities. The NAV
that is published is rounded to the
nearest cent; however, for purposes of
19 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the 1933 Act).
E:\FR\FM\09JNN1.SGM
09JNN1
sradovich on DSK3TPTVN1PROD with NOTICES
Federal Register / Vol. 81, No. 111 / Thursday, June 9, 2016 / Notices
determining the price of Creation Units,
the NAV is calculated to five decimal
places.
The pricing and valuation of portfolio
securities is determined in good faith in
accordance with procedures approved
by, and under the direction of, the
Board. In determining the value of the
Fund’s assets, equity securities (other
than non-exchange traded investment
company securities), including shares of
preferred stocks, convertible preferred
stocks, warrants, rights, ETFs, REITs,
Currency Trust Shares and sponsored
and unsponsored ADRs, generally will
be valued at market value using
quotations from the primary market on
which they are traded. The Fund
normally will use third party pricing
services to obtain market quotations.
Money market instruments and cash
equivalents will be valued on the basis
of broker quotes or valuations provided
by a third party pricing service, which
in determining value utilizes
information regarding recent sales,
market transactions in comparable
securities, quotations from dealers and
various relationships between
securities.
Futures contracts will generally be
valued at the settlement price of the
relevant exchange.
Investments in other open end
investment companies (other than ETFs)
that are registered under the 1940 Act,
including money market funds, will be
valued based upon the NAVs reported
by such registered open end investment
companies. The prospectuses for these
companies explain the circumstances
under which they will use fair value
pricing and the effects of using fair
value pricing.
NDFs and foreign forward currency
contracts will be valued intraday using
market quotes, or another proxy as
determined to be appropriate by a third
party market data provider.
Securities and assets for which market
quotations are not readily available or
which cannot be accurately valued
using the Fund’s normal pricing
procedures will be valued by the Trust’s
Fair Value Pricing Committee at fair
value as determined in good faith under
policies approved by the Board. Fair
value pricing may be used, for example,
in situations where (i) portfolio
securities, such as securities with small
capitalizations, are so thinly traded that
there have been no transactions for that
security over an extended period of
time; (ii) an event occurs after the close
of the exchange on which a portfolio
security is principally traded that is
likely to change the value of the
portfolio security prior to the Fund’s
NAV calculation; (iii) the exchange on
VerDate Sep<11>2014
15:50 Jun 08, 2016
Jkt 238001
which the portfolio security is
principally traded closes early; or (iv)
trading of the particular portfolio
security is halted during the day and
does not resume prior to the Fund’s
NAV calculation. In addition, the Trust
may fair value foreign equity portfolio
securities each day the Trust calculates
the Fund’s NAV. Pursuant to policies
adopted by the Board, the Adviser will
consult with Bank of New York Mellon
and the Sub-Adviser on a regular basis
regarding the need for fair value pricing.
The Fund’s policies regarding fair value
pricing are intended to result in a
calculation of the Fund’s NAV that
fairly reflects portfolio security values
as of the time of pricing. A portfolio
security’s ‘‘fair value’’ price may differ
from the price next available for that
portfolio security using the Fund’s
normal pricing procedures, and the fair
value price may differ substantially
from the price at which the security may
ultimately be traded or sold. The Board
will monitor and evaluate the Fund’s
use of fair value pricing, and will
periodically review the results of any
fair valuation under the Trust’s policies.
Creation and Redemption of Shares
According to the Registration
Statement, Shares of the Fund will be
‘‘created’’ at NAV by certain large
institutions only in block-size ‘‘Creation
Units’’ of 50,000 Shares or multiples
thereof. The size of a Creation Unit is
subject to change. Only an ‘‘Authorized
Participant’’ may create or redeem
Creation Units directly with the Fund.
Each Authorized Participant will enter
into an authorized participant
agreement with the Trust, Distributor
and Transfer Agent (‘‘Participant
Agreement’’). An Authorized Participant
must either be (i) a broker-dealer or
other participant (‘‘Participating Party’’)
in the clearing process through the
Continuous Net Settlement System
(‘‘Clearing Process’’) of the National
Securities Clearing Corporation
(‘‘NSCC’’) or a clearing agency that is
registered with the Commission or (ii) a
participant of the Depository Trust
Company (‘‘DTC Participant’’).
A creation transaction generally takes
place when an Authorized Participant
deposits into the Fund a basket of equity
securities included in the Fund’s
portfolio (‘‘Deposit Securities’’) and a
specified cash payment (‘‘Cash
Component’’).
Similarly, Shares can be redeemed
only in Creation Units, generally in
exchange for Deposit Securities and a
Cash Component.
The prices at which creations and
redemptions occur are based on the next
calculation of NAV after a creation or
PO 00000
Frm 00049
Fmt 4703
Sfmt 4703
37225
redemption order is received in an
acceptable form under the Participant
Agreement.
The consideration for purchase of
Creation Units generally will consist of
an in-kind deposit of Deposit Securities
for each Creation Unit constituting a
substantial replication, or a
representation, of the securities
included in the Fund’s portfolio and a
Cash Component (calculated as
described in this section below).
Together, the Deposit Securities and the
Cash Component constitute the ‘‘Fund
Deposit,’’ which represents the
minimum initial and subsequent
investment amount for a Creation Unit
of the Fund.
According to the Registration
Statement, the function of the Cash
Component will be to compensate for
any differences between the NAV per
Creation Unit and the market value of
the Deposit Securities. The Cash
Component would be an amount equal
to the difference between the NAV of
the Shares (per Creation Unit) and the
market value of the Deposit Securities.
If the Cash Component is a positive
number (i.e., the NAV per Creation Unit
exceeds the market value of the Deposit
Securities), the Cash Component will be
such positive amount and the
Authorized Participant will deliver the
Cash Component. If the Cash
Component is a negative number (i.e.,
the NAV per Creation Unit is less than
the market value of the Deposit
Securities), the Cash Component will be
such negative amount, and the
Authorized Participant will be entitled
to receive cash from the Fund in an
amount equal to the Cash Component.
The Fund, through NSCC, will make
available on each day on which the
NYSE is open for business (‘‘Business
Day’’), immediately prior to the opening
of business on the NYSE (currently 9:30
a.m., E.T.), the list of the names and the
required number of shares of each
Deposit Security to be included in the
current Fund Deposit (based on
information at the end of the previous
Business Day) for the Fund. The Fund,
through NSCC, will also make available
on each Business Day the estimated
Cash Component, effective through and
including the previous Business Day,
per outstanding Creation Unit of the
Fund.
According to the Registration
Statement, the identity and number of
shares of the Deposit Securities required
for the Fund Deposit for the Fund may
change as rebalancing adjustments and
corporate action events are reflected
from time to time by the Sub-Adviser
with a view to the investment objective
of the Fund. In addition, the Trust
E:\FR\FM\09JNN1.SGM
09JNN1
sradovich on DSK3TPTVN1PROD with NOTICES
37226
Federal Register / Vol. 81, No. 111 / Thursday, June 9, 2016 / Notices
reserves the right to permit or require
the substitution of an amount of cash,
i.e., a ‘‘cash in lieu’’ amount, to be
added to the Cash Component to replace
any Deposit Security that may not be
available in sufficient quantity for
delivery, that may not be eligible for
transfer through the Clearing Process or
that may not be eligible for trading by
an Authorized Participant or the
investor for which it is acting.
All orders to create Creation Units,
whether through the Clearing Process
(through a Participating Party) or
outside the Clearing Process (through a
DTC Participant), must be received by
the Distributor no later than 3:00 p.m.,
E.T., on the date such order is placed in
order for the creation of Creation Units
to be effected based on the NAV of
Shares of the Fund as next determined
on such date after receipt of the order
in proper form.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form on a Business
Day and only through a Participating
Party or DTC Participant who has
executed a Participant Agreement.
With respect to the Fund, the Trust,
through NSCC, will make available
immediately prior to the opening of
business on the NYSE (currently 9:30
a.m., E.T.) on each Business Day, the
Deposit Securities that will be
applicable (subject to possible
amendment or correction) to
redemption requests received in proper
form on that day. Deposit Securities
received on redemption may not be
identical to Deposit Securities that are
applicable to creations of Creation
Units.
The redemption proceeds for a
Creation Unit will generally consist of
Deposit Securities, as announced by the
Trust on the Business Day of the request
for a redemption received in proper
form, plus cash in an amount equal to
the difference between the NAV of the
Shares being redeemed, as next
determined after receipt of the request,
and the value of the Deposit Securities,
less a redemption transaction fee. In the
event that the Deposit Securities have a
value greater than the NAV of the
Shares, a compensating cash payment
equal to the differential will be required
to be made by or through an Authorized
Participant by the redeeming
shareholder.
If it is not possible to effect deliveries
of the Deposit Securities, the Trust may
in its sole discretion exercise its option
to redeem such Shares in cash. In
addition, an investor may request a
redemption in cash which the Fund
VerDate Sep<11>2014
15:50 Jun 08, 2016
Jkt 238001
may, in its sole discretion, permit.20 The
Fund may also, in its sole discretion,
upon request of the shareholder,
provide such redeemer a portfolio of
securities which differs from the exact
composition of the Deposit Securities
but does not differ in NAV.
The right of redemption may be
suspended or the date of payment
postponed with respect to the Fund: (i)
For any period during which the NYSE
is closed (other than customary
weekend and holiday closings); (ii) for
any period during which trading on the
NYSE is suspended or restricted; (iii) for
any period during which an emergency
exists as a result of which disposal of
the Shares of the Fund or determination
of the Shares’ NAV is not reasonably
practicable; or (iv) in such other
circumstances as permitted by the
Commission.
Availability of Information
The Fund’s Web site
(www.virtus.com), which will be
publicly available prior to the public
offering of Shares, will include
quantitative information on a per-Share
basis updated on a daily basis,
including, for the Fund (i) the prior
Business Day’s NAV and mid-point of
the bid-ask spread at the time of
calculation of such NAV (‘‘Bid-Ask
Price’’),21 and a calculation of the
premium and discount of the Bid-Ask
Price against the NAV, and (ii) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid-Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters (or for the life of the Fund, if
shorter).
On each Business Day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Adviser will disclose on
the Fund’s Web site the Disclosed
Portfolio for the Fund (as defined in
NYSE Arca Equities Rule 8.600(c)(2))
that will form the basis of the Fund’s
calculation of the NAV on that Business
Day.
On a daily basis, the Adviser, on
behalf of the Fund, will disclose on the
Fund’s Web site the following
information regarding each portfolio
holding, as applicable to the type of
holding: Ticker symbol, CUSIP number
20 The Adviser represents that, to the extent the
Trust effects the creation or redemption of Shares
in cash, such transactions will be effected in the
same manner for all Authorized Participants.
21 The Bid-Ask Price of Shares of the Fund will
be determined using the mid-point of the highest
bid and the lowest offer on the Exchange as of the
time of calculation of the Fund’s NAV. The records
relating to Bid-Ask Prices will be retained by the
Fund and its service providers.
PO 00000
Frm 00050
Fmt 4703
Sfmt 4703
or other identifier, if any; a description
of the holding (including the type of
holding); the identity of the security,
index, or other asset or instrument
underlying the holding, if any; quantity
held (as measured by, for example, par
value, notional value or number of
shares, contracts or units; maturity date,
if any; coupon rate, if any; effective
date, if any; market value of the holding;
and the percentage weighting of the
holding in the Fund’s portfolio. The
Web site information will be publicly
available at no charge.
In addition, a basket composition file,
which includes the security names and
share quantities (as applicable) required
to be delivered in exchange for Fund
Shares, together with estimates and
actual cash components, will be
publicly disseminated daily prior to the
opening of the NYSE via the NSCC. The
basket will represent one Creation Unit
of the Fund.
In order to provide additional
information regarding the indicative
value of Shares of the Fund, one or more
market data vendors will disseminate
every 15 seconds an updated Indicative
Intra-Day Value (‘‘IIV’’) for the Fund as
calculated by an information provider or
market data vendor.
The Fund’s IIV will be calculated
based on the current market value of the
Fund’s portfolio holdings that will form
the basis of the Fund’s calculation of
NAV at the end of the Business Day as
disclosed on the Fund’s Web site prior
to the Business Day’s commencement of
trading.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and the Trust’s Form N–CSR
and Form N–Q, filed twice a year. The
Trust’s SAI and Shareholder Reports
will be available free upon request from
the Trust, and those documents and the
Form N–CSR and Form N–Q may be
viewed on-screen or downloaded from
the Commission’s Web site at
www.sec.gov. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services. Information
regarding the previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last sale information for
the Shares will be available via the
Consolidated Tape Association (‘‘CTA’’)
high-speed line. With respect to U.S.
exchange-listed equity securities, the
intra-day, closing and settlement prices
of common stocks and exchange-traded
equity securities (including shares of
E:\FR\FM\09JNN1.SGM
09JNN1
Federal Register / Vol. 81, No. 111 / Thursday, June 9, 2016 / Notices
sradovich on DSK3TPTVN1PROD with NOTICES
preferred stocks, convertible preferred
stocks, warrants, rights, ETFs, REITs,
Currency Trust Shares and ADRs) will
be readily available from the national
securities exchanges trading such
securities, automated quotation systems,
published or other public sources, or
on-line information services such as
Bloomberg or Reuters. With respect to
non-U.S. exchange-listed equity
securities, intra-day, closing and
settlement prices of common stocks and
other equity securities (including REITs
traded on Japanese exchanges, preferred
stocks, convertible preferred stocks,
warrants and rights), will be available
from the foreign exchanges on which
such securities trade as well as from
major market data vendors. Intra-day
and closing price information relating to
securities regularly traded in an overthe-counter market will be available
from major market data vendors. Price
information from brokers and dealers or
pricing services will be available for
money market instruments, money
market funds, cash equivalents,
forwards and NDFs held by the Fund.
Quotation and last sale information for
futures will be available from the
exchange on which they are listed. Price
information regarding investment
company securities (other than
exchange-traded investment company
securities) will be available from the
applicable fund.
In addition, the IIV,22 which is the
Portfolio Indicative Value as defined in
NYSE Arca Equities Rule 8.600 (c)(3),
will be widely disseminated at least
every 15 seconds during the Exchange’s
Core Trading Session by one or more
major market data vendors.23 The
dissemination of the IIV, together with
the Disclosed Portfolio, will allow
investors to determine the value of the
underlying portfolio of the Fund on a
daily basis and will provide a close
estimate of that value throughout the
trading day. The IIV should not be
viewed as a ‘‘real-time’’ update of the
NAV per Share of the Fund, which will
be calculated once per day.
22 The IIV calculation will be an estimate of the
value of the Fund’s NAV per Share using market
data converted into U.S. dollars at the current
currency rates. The IIV price will be based on
quotes and closing prices from the securities’ local
market and may not reflect events that occur
subsequent to the local market’s close. Premiums
and discounts between the IIV and the market price
of the Shares may occur. This should not be viewed
as a ‘‘real-time’’ update of the NAV per Share of the
Fund, which will be calculated only once a day.
23 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available IIVs taken from CTA or
other data feeds.
VerDate Sep<11>2014
15:50 Jun 08, 2016
Jkt 238001
37227
Trading Halts
Surveillance
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund.24 Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule
7.12 have been reached. Trading also
may be halted because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable. These may
include: (i) The extent to which trading
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund; or
(ii) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets
forth circumstances under which Shares
of the Fund may be halted.
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange, as well
as cross-market surveillances
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws.26 The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, ETFs and certain
exchange-traded securities underlying
the Shares with other markets and other
entities that are members of the
Intermarket Surveillance Group (‘‘ISG’’),
and the Exchange or FINRA, on behalf
of the Exchange, or both, may obtain
trading information regarding trading in
the Shares, ETFs and certain exchangetraded securities underlying the Shares
from such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, ETFs and certain exchangetraded securities underlying the Shares
from markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement
(‘‘CSSA’’).27 FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s Trade Reporting
and Compliance Engine (‘‘TRACE’’).
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the Exchange from 4:00 a.m. to 8:00
p.m., E.T., in accordance with NYSE
Arca Equities Rule 7.34 (Opening, Core
and Late Trading Sessions). The
Exchange has appropriate rules to
facilitate transactions in the Shares
during all trading sessions. As provided
in NYSE Arca Equities Rule 7.6,
Commentary .03, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
the Exchange is $0.01, with the
exception of securities that are priced
less than $1.00 for which the MPV for
order entry is $0.0001.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3 25
under the Act, as provided by NYSE
Arca Equities Rule 5.3. A minimum of
100,000 Shares for the Fund will be
outstanding at the commencement of
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
will be made available to all market
participants at the same time.
24 See
25 17
PO 00000
NYSE Arca Equities Rule 7.12.
CFR 240.10A–3.
Frm 00051
Fmt 4703
Sfmt 4703
26 FINRA conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
27 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund
may trade on markets that are members of ISG or
with which the Exchange has in place a CSSA.
E:\FR\FM\09JNN1.SGM
09JNN1
37228
Federal Register / Vol. 81, No. 111 / Thursday, June 9, 2016 / Notices
sradovich on DSK3TPTVN1PROD with NOTICES
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
Not more than 10% of the net assets
of the Fund in the aggregate invested in
equity securities (other than nonexchange-traded investment company
securities) shall consist of equity
securities whose principal market is not
a member of the ISG or is a market with
which the Exchange does not have a
CSSA. Furthermore, not more than 10%
of the net assets of the Fund in the
aggregate invested in futures contracts
shall consist of futures contracts whose
principal market is not a member of ISG
or is a market with which the Exchange
does not have a CSSA.
All statements and representations
made in this filing regarding (i) the
description of the portfolio, (ii)
limitations on portfolio holdings or
reference assets or (iii) the applicability
of Exchange rules and surveillance
procedures shall constitute continued
listing requirements for listing the
Shares on the Exchange.
The issuer has represented to the
Exchange that it will advise the
Exchange of any failure by the Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Funds [sic] are not
in compliance with the applicable
listing requirements, the Exchange will
commence delisting procedures under
NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (i) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(ii) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its Equity Trading Permit Holders to
learn the essential facts relating to every
customer prior to trading the Shares;
(iii) the risks involved in trading the
Shares during the Opening and Late
Trading Sessions when an updated IIV
will not be calculated or publicly
disseminated; (iv) how information
regarding the IIV and the Disclosed
Portfolio is disseminated; (v) the
requirement that Equity Trading Permit
Holders deliver a prospectus to
investors purchasing newly issued
VerDate Sep<11>2014
15:50 Jun 08, 2016
Jkt 238001
Shares prior to or concurrently with the
confirmation of a transaction; and (vi)
trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action
and interpretive relief granted by the
Commission from any rules under the
Act. The Bulletin will also disclose that
the NAV for the Shares will be
calculated after 4:00 p.m., E.T., each
trading day.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 28 that an
exchange have rules that are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600. The Exchange represents
that trading in the Shares will be subject
to the existing trading surveillances
administered by the Exchange, as well
as cross-market surveillances
administered by FINRA on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws. The
Adviser has implemented a ‘‘fire wall’’
with respect to its affiliated brokerdealer regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. The
Exchange or FINRA, on behalf of the
Exchange, or both, will communicate as
needed regarding trading in the Shares,
ETFs and certain exchange-traded
securities underlying the Shares with
other markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading in the Shares, ETFs
and certain exchange-traded securities
underlying the Shares from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares, ETFs
and certain exchange-traded securities
underlying the Shares from markets and
other entities that are members of ISG or
with which the Exchange has in place
28 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00052
Fmt 4703
Sfmt 4703
a CSSA. FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s TRACE. The Fund
may hold up to an aggregate amount of
15% of its net assets in illiquid assets
(calculated at the time of investment).
The ETFs held by the Fund will be
traded on U.S. national securities
exchanges and will be subject to the
rules of such exchanges, as approved by
the Commission. The Fund’s
investments will be consistent with its
investment objective and will not be
used to enhance leverage.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. The Fund’s
portfolio holdings will be disclosed on
its Web site daily after the close of
trading on the Exchange and prior to the
opening of trading on the Exchange the
following day. Moreover, the IIV will be
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Exchange’s Core
Trading Session. These criteria are
similar to certain ‘‘generic’’ listing
criteria in NYSE Arca Equities Rule
5.2(j)(3), Commentary .01(a)(B), which
relate to criteria applicable to an index
or portfolio of U.S. and non-U.S. stocks
underlying a series of Investment
Company Units to be listed and traded
on the Exchange pursuant to Rule 19b–
4(e) under the Act. On each Business
Day, before commencement of trading in
Shares in the Core Trading Session on
the Exchange, the Fund will disclose on
its Web site the Disclosed Portfolio that
will form the basis for the Fund’s
calculation of NAV at the end of the
Business Day. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
last sale information will be available
via the CTA high-speed line. The Web
site for the Fund will include additional
data relating to NAV and other
applicable quantitative information.
Moreover, prior to the commencement
of trading, the Exchange will inform its
Equity Trading Permit Holders in an
E:\FR\FM\09JNN1.SGM
09JNN1
Federal Register / Vol. 81, No. 111 / Thursday, June 9, 2016 / Notices
[sic] Bulletin of the special
characteristics and risks associated with
trading the Shares. Trading in Shares of
the Fund will be halted if the circuit
breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable, and trading in the Shares
will be subject to NYSE Arca Equities
Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. The intra-day,
closing and settlement prices of the
portfolio securities are also readily
available from the national securities
exchanges trading such securities,
automated quotation systems, published
or other public sources, or on-line
information services such as Bloomberg
or Reuters. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the IIV, the Disclosed
Portfolio, and quotation and last sale
information for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a CSSA. In
addition, as noted above, investors will
have ready access to information
regarding the Fund’s holdings, the IIV,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
sradovich on DSK3TPTVN1PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
actively-managed exchange-traded
product that will principally hold nonU.S. equity securities and that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
VerDate Sep<11>2014
15:50 Jun 08, 2016
Jkt 238001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2016–79 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2016–79. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
Frm 00053
Fmt 4703
Sfmt 4703
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
offices of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2016–79, and should be
submitted on or before June 30, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Brent J. Fields,
Secretary.
[FR Doc. 2016–13615 Filed 6–8–16; 8:45 am]
BILLING CODE 8011–01–P
IV. Solicitation of Comments
PO 00000
37229
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77990; File No. SR–NSCC–
2016–001]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Order Approving
Proposed Rule Change To Remove
From the DTCC Limit Monitoring Tool
the 50% Early Warning Limit Alert and
Make Technical Revisions to the Rules
June 3, 2016.
On April 18, 2016, National Securities
Clearing Corporation (‘‘NSCC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–NSCC–2016–001
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to
amend NSCC’s Rules and Procedures
(‘‘Rules’’) 3 in order to (i) remove from
the DTCC Limit Monitoring tool the
alert that is sent to Members when
trading activity in any of their Risk
Entities reaches 50% of the pre-set
trading limits for that Risk Entity and
(ii) to make related technical changes
and corrections to the Rules, as more
fully described below. The proposed
rule change was published for comment
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Available at https://dtcc.com/∼/media/Files/
Downloads/legal/rules/nscc_rules.pdf. Terms not
defined herein are defined in the Rules.
1 15
E:\FR\FM\09JNN1.SGM
09JNN1
]]>Agencies
[Federal Register Volume 81, Number 111 (Thursday, June 9, 2016)]
[Notices]
[Pages 37222-37229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13615]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77992; File No. SR-NYSEArca-2016-79]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of Shares
of the Virtus Japan Alpha ETF Under NYSE Arca Equities Rule 8.600
June 3, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on May 24, 2016, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to list and trade shares of the Virtus Japan
Alpha ETF under NYSE Arca Equities Rule 8.600 (``Managed Fund
Shares''). The proposed rule change is available on the Exchange's Web
site at www.nyse.com, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares: \4\ Virtus Japan Alpha ETF
(``Fund'').\5\
---------------------------------------------------------------------------
\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
\5\ The Commission has previously approved listing and trading
on the Exchange of a number of actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8,
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order
approving Exchange listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 62502 (July 15, 2010), 75 FR 42471
(July 21, 2010) (SR-NYSEArca-2010-57) (order approving listing and
trading of AdviserShares WCM/BNY Mellon Focused Growth ADR ETF);
63076 (October 12, 2010), 75 FR 63874 (October 18, 2010) (SR-
NYSEArca-2010-79) (order approving listing and trading of Cambria
Global Tactical ETF); 71540 (February 12, 2014), 79 FR 9515
(February 19, 2014) (SR-NYSEArca-2013-138) (order approving listing
and trading of shares of the iShares Enhanced International Large-
Cap ETF and iShares Enhanced International Small-Cap ETF).
---------------------------------------------------------------------------
The Shares will be offered by Virtus ETF Trust II (``Trust''),
which is registered with the Commission as an open-end management
investment company.\6\ Virtus ETF Advisers LLC
[[Page 37223]]
will serve as the investment adviser to the Fund (``Adviser''). Euclid
Advisors LLC will serve as the Fund's sub-adviser (``Sub-Adviser'').
ETF Distributors LLC (``Distributor'') will be the principal
underwriter and distributor of the Fund's Shares. Virtus ETF Solutions
LLC will serve as the administrator for the Fund. The Bank of New York
Mellon (``Transfer Agent'') will serve as accounting services
administrator, custodian and transfer agent for the Fund.
---------------------------------------------------------------------------
\6\ The Trust is registered under the 1940 Act. On February 26,
2016, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a), and under the 1940 Act relating to the Fund (File
Nos. 333-206600 and 811-23078) (``Registration Statement''). The
description of the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement. In addition, the
Commission has issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment Company Act Release No.
30825 (December 11, 2013) (File No. 812-14212).
---------------------------------------------------------------------------
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio.\7\ Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds. The
Adviser and Sub-Adviser are not registered broker-dealers but are
affiliated with a broker-dealer and each has implemented a ``fire
wall'' with respect to such broker-dealer regarding access to
information concerning the composition and/or changes to the Fund's
portfolio. In the event (a) the Adviser or Sub-Adviser becomes
registered as a broker-dealer or newly affiliated with a broker-dealer
or (b) any new adviser or sub-adviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, it will implement a fire wall
with respect to its relevant personnel or broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
---------------------------------------------------------------------------
\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
---------------------------------------------------------------------------
Principal Investments
According to the Registration Statement, under normal
circumstances,\8\ the Fund will invest not less than 80% of its assets
in the common stocks of certain Japanese companies listed in the JPX-
Nikkei 400 Total Return Index (``Index''), a free-float adjusted market
capitalization-weighted equity index composed of 400 Tokyo Stock
Exchange-listed securities, and the financial instruments listed below.
---------------------------------------------------------------------------
\8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the securities markets or the financial markets generally;
circumstances under which the Fund's investments are made for
temporary defensive purposes; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund will be actively-
managed through the selection, at any given time, of approximately 80-
100 common stocks from the Index based on quantitative and qualitative
factors, including an assessment of the following characteristics: Cash
flow return on invested capital; earnings quality and momentum;
operational quality; corporate governance policies; and capital
stewardship. The Fund may invest in such Index components by directly
purchasing shares of common stock or investing in American Depositary
Receipts (``ADRs'') \9\ on the common stock of such Index components.
Securities held by the Fund may be underweighted or overweighted
relative to their positions in the Index.
---------------------------------------------------------------------------
\9\ ADRs are bought and sold in the United States and are
typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities by a foreign corporation. No more
than 10% of the net assets of the Fund will be invested in ADRs that
are not exchange-listed.
---------------------------------------------------------------------------
Although the Fund will focus on investment in securities in the
Index as described above, the Fund may also invest in common stocks of
other Japanese companies with characteristics similar to those listed
on the Index, as determined by the Sub-Adviser. With respect to such
common stocks, the Fund will only invest in securities that are listed
on the Tokyo Stock Exchange \10\ and that have a market capitalization
of $250,000,000 U.S. dollars or greater. The Fund may also invest in
ADRs on such common stocks.
---------------------------------------------------------------------------
\10\ Japan Exchange Regulation (``JPX-R'') is a member of the
Intermarket Surveillance Group and information relating to
transactions in Tokyo Stock Exchange listed securities is available
through JPX-R.
---------------------------------------------------------------------------
Positions may be reduced or removed when the Sub-Adviser determines
that a security has become overweighted within the Fund's portfolio,
that the security's prospects have adversely changed, that the Fund
should raise funds for new or other investments or that there are more
attractive opportunities.
Other Investments
While the Fund, under normal circumstances, will invest at least
80% of its assets in common stock of Japanese companies listed in the
Index, common stock of certain other Japanese companies and ADRs, as
described above, the Fund will invest its remaining assets in the
securities and financial instruments described below.
The Fund may invest in securities index futures contracts and
foreign currency futures contracts.\11\ According to the Registration
Statement, in general, the Fund will not purchase or sell futures
contracts unless either (i) the futures contracts are purchased for
``bona fida hedging'' purposes (as defined under applicable Commodity
Futures Trading Commission regulations) or (ii) if purchased for other
purposes, the sum of the amounts of initial margin deposits and
premiums required to establish such positions on
[[Page 37224]]
the Fund's existing futures would not exceed 5% of the liquidation
value of the Fund's total assets.
---------------------------------------------------------------------------
\11\ In instances involving the purchase of futures contracts,
the Fund will deposit in a segregated account with its custodian an
amount of cash, cash equivalents and/or appropriate securities equal
to the cost of such futures contracts, to the extent that such
deposits are required under the 1940 Act.
---------------------------------------------------------------------------
The Fund may also invest in forward contracts and non-deliverable
forward (``NDF'') contracts on the foreign currency spot market.
The Fund may invest in when-issued and forward commitment
securities, which means delivery and payment take place a number of
days after the date of the commitment to purchase, if the Fund holds
sufficient liquid assets to meet the purchase price.
The Fund may invest in the following equity securities (other than
non-exchange traded investment company securities): Common stocks
traded on U.S. or Japanese securities exchanges (other than the Tokyo
Stock Exchange); common stocks traded on the over-the-counter market;
U.S. and foreign exchange-traded preferred stocks; U.S. and foreign
exchange-traded convertible preferred stocks; U.S. and foreign
exchange-traded convertible bonds; U.S. and foreign exchange-traded
warrants; and U.S. and foreign exchange-traded rights. The Fund will
not invest in ADRs on any of these equity securities.
In addition, the Fund may invest in, to the extent permitted by
Section 12(d)(1) of the 1940 Act and the rules thereunder,\12\ other
open-end investment companies, including other exchange-traded funds
(``ETFs'').\13\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 80a-12(d)(1).
\13\ For purposes of this filing, ETFs consist of Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)),
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). All ETFs will be listed and traded in the U.S.
on a national securities exchange. The Fund will not invest in
inverse ETFs or in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
---------------------------------------------------------------------------
The Fund may invest in Currency Trust Shares.\14\
---------------------------------------------------------------------------
\14\ Currency Trust Shares are securities such as those
described in NYSE Arca Equities Rule 8.202.
---------------------------------------------------------------------------
The Fund may invest in real estate investment trusts (``REITs'')
traded on U.S. exchanges and Japanese exchanges.
The Fund may enter into short sales of securities. The Fund may
also enter into short sales ``against the box,'' i.e., when the Fund
sells a security short while owning a securities equivalent in kind and
amount to the securities sold short (or securities convertible or
exchangeable into such securities) and will hold such securities while
the short sale is outstanding.
The Fund may invest in the following money market instruments: U.S.
Government obligations; corporate debt obligations \15\ (including,
without limitation, those subject to repurchase agreements); banker's
acceptances (credit instruments evidencing the obligation of a bank to
pay a draft drawn on it by a customer); certificates of deposit of
domestic branches of banks (certificates representing the obligation of
a bank to repay funds deposited with it for a specified period of
time); commercial paper \16\ (unsecured, short-term debt obligation of
a bank, corporation or other borrower); and master notes (unsecured
obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of
interest).
---------------------------------------------------------------------------
\15\ The Adviser expects that under normal market conditions,
the Fund will seek to invest at least 75% of its corporate bond
assets in issuances that have at least $100,000,000 par amount
outstanding in developed countries or at least $200,000,000 par
amount outstanding in emerging market countries.
\16\ According to the Registration Statement, the Fund will
directly invest in commercial paper only if such commercial paper is
rated in one of the two highest rating categories as rated by a
major credit agency or, if unrated, will be of comparable quality as
determined by the Sub-Adviser.
---------------------------------------------------------------------------
The Fund may invest assets in shares of money market funds.
Investment Restrictions
The Fund may, from time to time, take temporary defensive positions
that are inconsistent with its principal investment strategies in an
attempt to respond to adverse market, economic, political or other
conditions. In such circumstances, the Fund may also hold up to 100% of
its portfolio in cash and cash equivalent positions.\17\
---------------------------------------------------------------------------
\17\ Cash equivalents are short-term instruments with maturities
of less than 3 months. Short-term instruments shall include the
following: (i) 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; (ii) certificates of
deposit issued against funds deposited in a bank or savings and loan
association; (iii) bankers' acceptances; (iv) repurchase agreements
and reverse repurchase agreements; (v) bank time deposits; (vi)
commercial paper; and (vii)money market funds.
---------------------------------------------------------------------------
The Fund intends to maintain the required level of diversification
and otherwise conduct its operations so as to qualify as a ``regulated
investment company'' for purposes of the Internal Revenue Code of
1986.\18\
---------------------------------------------------------------------------
\18\ 26 U.S.C. 851.
---------------------------------------------------------------------------
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets, which are investments that cannot be sold or
disposed of in the ordinary course of business within seven days at
approximately the prices at which they are valued. Under the
supervision of the Board of Trustees of the Trust (``Board''), the Fund
will determine the liquidity of the Fund's investments, which will be
monitored by the Board pursuant to reports. If through a change in
values, net assets or other circumstances, the Fund were in a position
where more than 15% of its net assets were invested in illiquid assets,
it would seek to take appropriate steps to protect liquidity.
Illiquid assets include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets as determined in accordance with Commission staff
guidance.\19\
---------------------------------------------------------------------------
\19\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the 1933 Act).
---------------------------------------------------------------------------
The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. That is,
while the Fund will be permitted to borrow as permitted under the 1940
Act, the Fund's investments will not be used to seek performance that
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Index.
Net Asset Value
According to the Registration Statement, a Share's net asset value
(``NAV'') will be determined as of the close of the regular trading
session on the New York Stock Exchange (``NYSE'') (normally at 4:00
p.m., Eastern Time (``E.T.'')) on each day that the NYSE is open for
trading. Any assets or liabilities denominated in currencies other than
the U.S. dollar will be converted into U.S. dollars at the current
market rates on the date of valuation as quoted by one or more sources.
The NAV of the Shares for the Fund is equal to the Fund's total
assets minus the Fund's total liabilities divided by the total number
of Shares outstanding. Interest and investment income on the Fund's
assets accrue daily and are included in the Fund's total assets.
Expenses and fees (including investment advisory, management,
administration and distribution fees, if any) accrue daily and are
included in the Fund's total liabilities. The NAV that is published is
rounded to the nearest cent; however, for purposes of
[[Page 37225]]
determining the price of Creation Units, the NAV is calculated to five
decimal places.
The pricing and valuation of portfolio securities is determined in
good faith in accordance with procedures approved by, and under the
direction of, the Board. In determining the value of the Fund's assets,
equity securities (other than non-exchange traded investment company
securities), including shares of preferred stocks, convertible
preferred stocks, warrants, rights, ETFs, REITs, Currency Trust Shares
and sponsored and unsponsored ADRs, generally will be valued at market
value using quotations from the primary market on which they are
traded. The Fund normally will use third party pricing services to
obtain market quotations.
Money market instruments and cash equivalents will be valued on the
basis of broker quotes or valuations provided by a third party pricing
service, which in determining value utilizes information regarding
recent sales, market transactions in comparable securities, quotations
from dealers and various relationships between securities.
Futures contracts will generally be valued at the settlement price
of the relevant exchange.
Investments in other open end investment companies (other than
ETFs) that are registered under the 1940 Act, including money market
funds, will be valued based upon the NAVs reported by such registered
open end investment companies. The prospectuses for these companies
explain the circumstances under which they will use fair value pricing
and the effects of using fair value pricing.
NDFs and foreign forward currency contracts will be valued intraday
using market quotes, or another proxy as determined to be appropriate
by a third party market data provider.
Securities and assets for which market quotations are not readily
available or which cannot be accurately valued using the Fund's normal
pricing procedures will be valued by the Trust's Fair Value Pricing
Committee at fair value as determined in good faith under policies
approved by the Board. Fair value pricing may be used, for example, in
situations where (i) portfolio securities, such as securities with
small capitalizations, are so thinly traded that there have been no
transactions for that security over an extended period of time; (ii) an
event occurs after the close of the exchange on which a portfolio
security is principally traded that is likely to change the value of
the portfolio security prior to the Fund's NAV calculation; (iii) the
exchange on which the portfolio security is principally traded closes
early; or (iv) trading of the particular portfolio security is halted
during the day and does not resume prior to the Fund's NAV calculation.
In addition, the Trust may fair value foreign equity portfolio
securities each day the Trust calculates the Fund's NAV. Pursuant to
policies adopted by the Board, the Adviser will consult with Bank of
New York Mellon and the Sub-Adviser on a regular basis regarding the
need for fair value pricing. The Fund's policies regarding fair value
pricing are intended to result in a calculation of the Fund's NAV that
fairly reflects portfolio security values as of the time of pricing. A
portfolio security's ``fair value'' price may differ from the price
next available for that portfolio security using the Fund's normal
pricing procedures, and the fair value price may differ substantially
from the price at which the security may ultimately be traded or sold.
The Board will monitor and evaluate the Fund's use of fair value
pricing, and will periodically review the results of any fair valuation
under the Trust's policies.
Creation and Redemption of Shares
According to the Registration Statement, Shares of the Fund will be
``created'' at NAV by certain large institutions only in block-size
``Creation Units'' of 50,000 Shares or multiples thereof. The size of a
Creation Unit is subject to change. Only an ``Authorized Participant''
may create or redeem Creation Units directly with the Fund. Each
Authorized Participant will enter into an authorized participant
agreement with the Trust, Distributor and Transfer Agent (``Participant
Agreement''). An Authorized Participant must either be (i) a broker-
dealer or other participant (``Participating Party'') in the clearing
process through the Continuous Net Settlement System (``Clearing
Process'') of the National Securities Clearing Corporation (``NSCC'')
or a clearing agency that is registered with the Commission or (ii) a
participant of the Depository Trust Company (``DTC Participant'').
A creation transaction generally takes place when an Authorized
Participant deposits into the Fund a basket of equity securities
included in the Fund's portfolio (``Deposit Securities'') and a
specified cash payment (``Cash Component'').
Similarly, Shares can be redeemed only in Creation Units, generally
in exchange for Deposit Securities and a Cash Component.
The prices at which creations and redemptions occur are based on
the next calculation of NAV after a creation or redemption order is
received in an acceptable form under the Participant Agreement.
The consideration for purchase of Creation Units generally will
consist of an in-kind deposit of Deposit Securities for each Creation
Unit constituting a substantial replication, or a representation, of
the securities included in the Fund's portfolio and a Cash Component
(calculated as described in this section below). Together, the Deposit
Securities and the Cash Component constitute the ``Fund Deposit,''
which represents the minimum initial and subsequent investment amount
for a Creation Unit of the Fund.
According to the Registration Statement, the function of the Cash
Component will be to compensate for any differences between the NAV per
Creation Unit and the market value of the Deposit Securities. The Cash
Component would be an amount equal to the difference between the NAV of
the Shares (per Creation Unit) and the market value of the Deposit
Securities. If the Cash Component is a positive number (i.e., the NAV
per Creation Unit exceeds the market value of the Deposit Securities),
the Cash Component will be such positive amount and the Authorized
Participant will deliver the Cash Component. If the Cash Component is a
negative number (i.e., the NAV per Creation Unit is less than the
market value of the Deposit Securities), the Cash Component will be
such negative amount, and the Authorized Participant will be entitled
to receive cash from the Fund in an amount equal to the Cash Component.
The Fund, through NSCC, will make available on each day on which
the NYSE is open for business (``Business Day''), immediately prior to
the opening of business on the NYSE (currently 9:30 a.m., E.T.), the
list of the names and the required number of shares of each Deposit
Security to be included in the current Fund Deposit (based on
information at the end of the previous Business Day) for the Fund. The
Fund, through NSCC, will also make available on each Business Day the
estimated Cash Component, effective through and including the previous
Business Day, per outstanding Creation Unit of the Fund.
According to the Registration Statement, the identity and number of
shares of the Deposit Securities required for the Fund Deposit for the
Fund may change as rebalancing adjustments and corporate action events
are reflected from time to time by the Sub-Adviser with a view to the
investment objective of the Fund. In addition, the Trust
[[Page 37226]]
reserves the right to permit or require the substitution of an amount
of cash, i.e., a ``cash in lieu'' amount, to be added to the Cash
Component to replace any Deposit Security that may not be available in
sufficient quantity for delivery, that may not be eligible for transfer
through the Clearing Process or that may not be eligible for trading by
an Authorized Participant or the investor for which it is acting.
All orders to create Creation Units, whether through the Clearing
Process (through a Participating Party) or outside the Clearing Process
(through a DTC Participant), must be received by the Distributor no
later than 3:00 p.m., E.T., on the date such order is placed in order
for the creation of Creation Units to be effected based on the NAV of
Shares of the Fund as next determined on such date after receipt of the
order in proper form.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form on a
Business Day and only through a Participating Party or DTC Participant
who has executed a Participant Agreement.
With respect to the Fund, the Trust, through NSCC, will make
available immediately prior to the opening of business on the NYSE
(currently 9:30 a.m., E.T.) on each Business Day, the Deposit
Securities that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form on that day.
Deposit Securities received on redemption may not be identical to
Deposit Securities that are applicable to creations of Creation Units.
The redemption proceeds for a Creation Unit will generally consist
of Deposit Securities, as announced by the Trust on the Business Day of
the request for a redemption received in proper form, plus cash in an
amount equal to the difference between the NAV of the Shares being
redeemed, as next determined after receipt of the request, and the
value of the Deposit Securities, less a redemption transaction fee. In
the event that the Deposit Securities have a value greater than the NAV
of the Shares, a compensating cash payment equal to the differential
will be required to be made by or through an Authorized Participant by
the redeeming shareholder.
If it is not possible to effect deliveries of the Deposit
Securities, the Trust may in its sole discretion exercise its option to
redeem such Shares in cash. In addition, an investor may request a
redemption in cash which the Fund may, in its sole discretion,
permit.\20\ The Fund may also, in its sole discretion, upon request of
the shareholder, provide such redeemer a portfolio of securities which
differs from the exact composition of the Deposit Securities but does
not differ in NAV.
---------------------------------------------------------------------------
\20\ The Adviser represents that, to the extent the Trust
effects the creation or redemption of Shares in cash, such
transactions will be effected in the same manner for all Authorized
Participants.
---------------------------------------------------------------------------
The right of redemption may be suspended or the date of payment
postponed with respect to the Fund: (i) For any period during which the
NYSE is closed (other than customary weekend and holiday closings);
(ii) for any period during which trading on the NYSE is suspended or
restricted; (iii) for any period during which an emergency exists as a
result of which disposal of the Shares of the Fund or determination of
the Shares' NAV is not reasonably practicable; or (iv) in such other
circumstances as permitted by the Commission.
Availability of Information
The Fund's Web site (www.virtus.com), which will be publicly
available prior to the public offering of Shares, will include
quantitative information on a per-Share basis updated on a daily basis,
including, for the Fund (i) the prior Business Day's NAV and mid-point
of the bid-ask spread at the time of calculation of such NAV (``Bid-Ask
Price''),\21\ and a calculation of the premium and discount of the Bid-
Ask Price against the NAV, and (ii) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid-Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters (or for the life of the Fund, if shorter).
---------------------------------------------------------------------------
\21\ The Bid-Ask Price of Shares of the Fund will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid-Ask Prices will be retained by the Fund and
its service providers.
---------------------------------------------------------------------------
On each Business Day, before commencement of trading in Shares in
the Core Trading Session on the Exchange, the Adviser will disclose on
the Fund's Web site the Disclosed Portfolio for the Fund (as defined in
NYSE Arca Equities Rule 8.600(c)(2)) that will form the basis of the
Fund's calculation of the NAV on that Business Day.
On a daily basis, the Adviser, on behalf of the Fund, will disclose
on the Fund's Web site the following information regarding each
portfolio holding, as applicable to the type of holding: Ticker symbol,
CUSIP number or other identifier, if any; a description of the holding
(including the type of holding); the identity of the security, index,
or other asset or instrument underlying the holding, if any; quantity
held (as measured by, for example, par value, notional value or number
of shares, contracts or units; maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities (as applicable) required to be delivered in
exchange for Fund Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via the NSCC. The basket will represent one Creation Unit of
the Fund.
In order to provide additional information regarding the indicative
value of Shares of the Fund, one or more market data vendors will
disseminate every 15 seconds an updated Indicative Intra-Day Value
(``IIV'') for the Fund as calculated by an information provider or
market data vendor.
The Fund's IIV will be calculated based on the current market value
of the Fund's portfolio holdings that will form the basis of the Fund's
calculation of NAV at the end of the Business Day as disclosed on the
Fund's Web site prior to the Business Day's commencement of trading.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's
Form N-CSR and Form N-Q, filed twice a year. The Trust's SAI and
Shareholder Reports will be available free upon request from the Trust,
and those documents and the Form N-CSR and Form N-Q may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line. With respect to U.S. exchange-listed equity
securities, the intra-day, closing and settlement prices of common
stocks and exchange-traded equity securities (including shares of
[[Page 37227]]
preferred stocks, convertible preferred stocks, warrants, rights, ETFs,
REITs, Currency Trust Shares and ADRs) will be readily available from
the national securities exchanges trading such securities, automated
quotation systems, published or other public sources, or on-line
information services such as Bloomberg or Reuters. With respect to non-
U.S. exchange-listed equity securities, intra-day, closing and
settlement prices of common stocks and other equity securities
(including REITs traded on Japanese exchanges, preferred stocks,
convertible preferred stocks, warrants and rights), will be available
from the foreign exchanges on which such securities trade as well as
from major market data vendors. Intra-day and closing price information
relating to securities regularly traded in an over-the-counter market
will be available from major market data vendors. Price information
from brokers and dealers or pricing services will be available for
money market instruments, money market funds, cash equivalents,
forwards and NDFs held by the Fund. Quotation and last sale information
for futures will be available from the exchange on which they are
listed. Price information regarding investment company securities
(other than exchange-traded investment company securities) will be
available from the applicable fund.
In addition, the IIV,\22\ which is the Portfolio Indicative Value
as defined in NYSE Arca Equities Rule 8.600 (c)(3), will be widely
disseminated at least every 15 seconds during the Exchange's Core
Trading Session by one or more major market data vendors.\23\ The
dissemination of the IIV, together with the Disclosed Portfolio, will
allow investors to determine the value of the underlying portfolio of
the Fund on a daily basis and will provide a close estimate of that
value throughout the trading day. The IIV should not be viewed as a
``real-time'' update of the NAV per Share of the Fund, which will be
calculated once per day.
---------------------------------------------------------------------------
\22\ The IIV calculation will be an estimate of the value of the
Fund's NAV per Share using market data converted into U.S. dollars
at the current currency rates. The IIV price will be based on quotes
and closing prices from the securities' local market and may not
reflect events that occur subsequent to the local market's close.
Premiums and discounts between the IIV and the market price of the
Shares may occur. This should not be viewed as a ``real-time''
update of the NAV per Share of the Fund, which will be calculated
only once a day.
\23\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IIVs
taken from CTA or other data feeds.
---------------------------------------------------------------------------
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\24\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (i) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
or (ii) whether other unusual conditions or circumstances detrimental
to the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted.
---------------------------------------------------------------------------
\24\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the Exchange from 4:00 a.m. to 8:00 p.m., E.T., in accordance with NYSE
Arca Equities Rule 7.34 (Opening, Core and Late Trading Sessions). The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in NYSE Arca Equities Rule
7.6, Commentary .03, the minimum price variation (``MPV'') for quoting
and entry of orders in equity securities traded on the Exchange is
$0.01, with the exception of securities that are priced less than $1.00
for which the MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents
that, for initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 \25\ under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares for the Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio will be made available to all market
participants at the same time.
---------------------------------------------------------------------------
\25\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\26\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
---------------------------------------------------------------------------
\26\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, ETFs and certain
exchange-traded securities underlying the Shares with other markets and
other entities that are members of the Intermarket Surveillance Group
(``ISG''), and the Exchange or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading in the Shares,
ETFs and certain exchange-traded securities underlying the Shares from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, ETFs and certain exchange-
traded securities underlying the Shares from markets and other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement (``CSSA'').\27\ FINRA, on
behalf of the Exchange, is able to access, as needed, trade information
for certain fixed income securities held by the Fund reported to
FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------
\27\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a CSSA.
---------------------------------------------------------------------------
[[Page 37228]]
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Not more than 10% of the net assets of the Fund in the aggregate
invested in equity securities (other than non-exchange-traded
investment company securities) shall consist of equity securities whose
principal market is not a member of the ISG or is a market with which
the Exchange does not have a CSSA. Furthermore, not more than 10% of
the net assets of the Fund in the aggregate invested in futures
contracts shall consist of futures contracts whose principal market is
not a member of ISG or is a market with which the Exchange does not
have a CSSA.
All statements and representations made in this filing regarding
(i) the description of the portfolio, (ii) limitations on portfolio
holdings or reference assets or (iii) the applicability of Exchange
rules and surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Fund to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Funds [sic] are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'')
of the special characteristics and risks associated with trading the
Shares. Specifically, the Bulletin will discuss the following: (i) The
procedures for purchases and redemptions of Shares in Creation Unit
aggregations (and that Shares are not individually redeemable); (ii)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its Equity Trading Permit Holders to learn the essential facts
relating to every customer prior to trading the Shares; (iii) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated IIV will not be calculated or publicly
disseminated; (iv) how information regarding the IIV and the Disclosed
Portfolio is disseminated; (v) the requirement that Equity Trading
Permit Holders deliver a prospectus to investors purchasing newly
issued Shares prior to or concurrently with the confirmation of a
transaction; and (vi) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m., E.T., each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \28\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange represents that trading in the Shares will be
subject to the existing trading surveillances administered by the
Exchange, as well as cross-market surveillances administered by FINRA
on behalf of the Exchange, which are designed to detect violations of
Exchange rules and applicable federal securities laws. The Adviser has
implemented a ``fire wall'' with respect to its affiliated broker-
dealer regarding access to information concerning the composition and/
or changes to the Fund's portfolio. The Exchange or FINRA, on behalf of
the Exchange, or both, will communicate as needed regarding trading in
the Shares, ETFs and certain exchange-traded securities underlying the
Shares with other markets and other entities that are members of the
ISG, and the Exchange or FINRA, on behalf of the Exchange, or both, may
obtain trading information regarding trading in the Shares, ETFs and
certain exchange-traded securities underlying the Shares from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, ETFs and certain exchange-
traded securities underlying the Shares from markets and other entities
that are members of ISG or with which the Exchange has in place a CSSA.
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's TRACE. The Fund may hold up to an aggregate amount
of 15% of its net assets in illiquid assets (calculated at the time of
investment). The ETFs held by the Fund will be traded on U.S. national
securities exchanges and will be subject to the rules of such
exchanges, as approved by the Commission. The Fund's investments will
be consistent with its investment objective and will not be used to
enhance leverage.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. The Fund's portfolio holdings
will be disclosed on its Web site daily after the close of trading on
the Exchange and prior to the opening of trading on the Exchange the
following day. Moreover, the IIV will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Exchange's Core Trading Session. These criteria are similar to certain
``generic'' listing criteria in NYSE Arca Equities Rule 5.2(j)(3),
Commentary .01(a)(B), which relate to criteria applicable to an index
or portfolio of U.S. and non-U.S. stocks underlying a series of
Investment Company Units to be listed and traded on the Exchange
pursuant to Rule 19b-4(e) under the Act. On each Business Day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the Business Day. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services, and quotation and last sale information will be
available via the CTA high-speed line. The Web site for the Fund will
include additional data relating to NAV and other applicable
quantitative information. Moreover, prior to the commencement of
trading, the Exchange will inform its Equity Trading Permit Holders in
an
[[Page 37229]]
[sic] Bulletin of the special characteristics and risks associated with
trading the Shares. Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been
reached or because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable, and
trading in the Shares will be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth circumstances under which Shares of
the Fund may be halted. The intra-day, closing and settlement prices of
the portfolio securities are also readily available from the national
securities exchanges trading such securities, automated quotation
systems, published or other public sources, or on-line information
services such as Bloomberg or Reuters. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the IIV, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a CSSA. In addition, as
noted above, investors will have ready access to information regarding
the Fund's holdings, the IIV, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
actively-managed exchange-traded product that will principally hold
non-U.S. equity securities and that will enhance competition among
market participants, to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2016-79 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2016-79. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal offices of the Exchange.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NYSEArca-2016-
79, and should be submitted on or before June 30, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
---------------------------------------------------------------------------
\29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Brent J. Fields,
Secretary.
[FR Doc. 2016-13615 Filed 6-8-16; 8:45 am]
BILLING CODE 8011-01-P
