Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 6 to a Proposed Rule Change To Amend NYSE Arca Equities Rule 8.600 To Adopt Generic Listing Standards for Managed Fund Shares, 38759-38769 [2016-13965]
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Federal Register / Vol. 81, No. 114 / Tuesday, June 14, 2016 / Notices
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.7 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 8 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitation transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 9 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the proposed rule change
allows for an extension of the Pilot
Program for the benefit of market
participants.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Specifically,
the Exchange believes that, by extending
the expiration of the Pilot Program, the
proposed rule change will allow for
further analysis of the Pilot Program and
a determination of how the Program
shall be structured in the future. In
doing so, the proposed rule change will
also serve to promote regulatory clarity
and consistency, thereby reducing
burdens on the marketplace and
facilitating investor protection. In
addition, the Exchange has been
authorized to act jointly in extending
the Pilot Program and believes the other
exchanges will be filing similar
extensions.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
7 15
8 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
19:36 Jun 13, 2016
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–
CBOE–2016–048 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–CBOE–2016–048. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2016–048 and should be submitted on
or before July 5, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–13962 Filed 6–13–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78016; File No. SR–
NYSEArca–2015–110]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 6 to a Proposed Rule
Change To Amend NYSE Arca Equities
Rule 8.600 To Adopt Generic Listing
Standards for Managed Fund Shares
June 8, 2016.
I. Introduction
On November 6, 2015, NYSE Arca,
Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend NYSE Arca Equities
Rule 8.600 by, among other things,
adopting generic listing standards for
12 17
10 15
U.S.C. 78s(b)(3)(A).
11 17 CFR 240.19b–4(f)(6).
9 Id.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A) of the Act 10 and Rule 19b–
4(f)(6) 11 thereunder. Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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38759
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Managed Fund Shares. The proposed
rule change was published for comment
in the Federal Register on November 27,
2015.3 On January 4, 2016, the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.4
On November 23, 2015, the Exchange
filed Amendment No. 1 to the proposed
rule change. On February 21, 2016, the
Exchange withdrew Amendment No. 1
to the proposed rule change and filed
Amendment No. 2 to the proposed rule
change, which replaced the proposed
rule change as originally filed. The
proposed rule change, as modified by
Amendment No. 2, was published for
comment in the Federal Register on
February 1, 2016.5 On February 11,
2016, the Exchange filed Amendment
No. 3 to the proposed rule change,
which amended and replaced the
proposed rule change as modified by
Amendment No. 2 in its entirety.
On February 12, 2016, the Exchange
filed Amendment No. 4 to the proposed
rule change, which superseded the
proposed rule change as modified by
Amendment No. 3. On February 22,
2016, the Commission published notice
of filing of Amendment No. 4. and
instituted proceedings under Section
19(b)(2)(B) of the Act 6 to determine
whether to approve or disapprove the
proposed rule change, as modified by
Amendment No 4.7 In the Order
Instituting Proceedings, the Commission
solicited comment on specified matters
related to the proposal.8
On May 20, 2016, the Commission
designated a longer period for
Commission action on the proposed rule
change.9 On June 3, 2016, the Exchange
3 See Securities Exchange Act Release No. 76486
(Nov. 20, 2015), 80 FR 74169 (‘‘Notice’’).
4 See Securities Exchange Act Release No. 76819,
81 FR 987 (Jan. 8, 2016). The Commission
designated February 25, 2016 as the date by which
the Commission shall either approve or disapprove,
or institute proceedings to determine whether to
disapprove, the proposed rule change. See id.
5 See Securities Exchange Act Release No. 76974
(Jan. 26, 2016), 81 FR 5149.
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 77203,
81 FR 9900 (Feb. 26, 2016) (‘‘Order Instituting
Proceedings’’). Specifically, the Commission
instituted proceedings to allow for additional
analysis of the proposed rule change’s consistency
with Section 6(b)(5) of the Act, which requires,
among other things, that the rules of a national
securities exchange be ‘‘designed to prevent
fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade,’’ and
‘‘to protect investors and the public interest.’’ See
id., 81 FR at 9908.
8 See id. at 9909.
9 See Securities Exchange Act Release No. 77872,
81 FR 33570 (May 26, 2016) (designating July 22,
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19:36 Jun 13, 2016
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filed Amendment No. 5 to the proposed
rule change, which superseded
Amendment No 4 to the proposed rule
change. The Commission has received
one comment on the proposed rule
change.10
Pursuant to Section 19(b)(1) of the
Act 11 and Rule 19b–4 thereunder,12
notice is hereby given that, on June 6,
2016, the Exchange filed Amendment
No. 6 to the proposed rule change,
which supersedes the originally filed
proposed rule change, as modified by
Amendment No. 5, in its entirety.13 The
proposed rule change, as modified by
Amendment No. 6, is as described in
Items II and III below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
6, from interested persons.
II. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
NYSE Arca Equities Rule 8.600 to adopt
generic listing standards for Managed
Fund Shares. The 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.
III. 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 V below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
2016 as the date by which the Commission must
either approve or disapprove the proposed rule
change).
10 See Letter from Rob Ivanoff to the Commission
dated Nov. 22, 2015 (commenting that the format
of the Exchange’s proposed rule change was unclear
and difficult to read, and suggesting a new format
that would be easier to understand). This comment
is available on the Commission’s Web site at: https://
www.sec.gov/comments/sr-nysearca-2015-110/
nysearca2015110-1.htm.
11 15 U.S.C. 78s(b)(1).
12 17 CFR 240.19b–4.
13 The Commission notes that each of the Exhibits
4 to the Exchange’s amendments depict the changes
to the proposed rule text. The amendments,
including the Exhibits 4, are available at the
Commission’s Web site at: https://www.sec.gov/
comments/sr-nysearca-2015-10/
nysearca2015110.shtml.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
NYSE Arca Equities Rule 8.600 to adopt
generic listing standards for Managed
Fund Shares. Under the Exchange’s
current rules, a proposed rule change
must be filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) for the listing and
trading of each new series of Managed
Fund Shares. The Exchange believes
that it is appropriate to codify certain
rules within Rule 8.600 that would
generally eliminate the need for such
proposed rule changes, which would
create greater efficiency and promote
uniform standards in the listing
process.14
Background
Rule 8.600 sets forth certain rules
related to the listing and trading of
Managed Fund Shares.15 Under Rule
8.600(c)(1), the term ‘‘Managed Fund
Share’’ means a security that:
(a) Represents an interest in a
registered investment company
(‘‘Investment Company’’) organized as
an open-end management investment
company or similar entity, that invests
in a portfolio of securities selected by
the Investment Company’s investment
adviser (hereafter ‘‘Adviser’’) consistent
with the Investment Company’s
investment objectives and policies;
(b) is issued in a specified aggregate
minimum number in return for a
deposit of a specified portfolio of
securities and/or a cash amount with a
14 The Exchange has previously filed a proposed
rule change to amend NYSE Arca Equities Rule
8.600 to adopt generic listing standards for
Managed Fund Shares. See Securities Exchange Act
Release No. 74433 (March 4, 2015), 80 FR 12690
(March 10, 2015) (SR–NYSEArca–2015–02). On
June 3, 2015, the Exchange filed Amendment No.
1 to the proposed rule change. See Securities
Exchange Act Release No. 75115 (June 5, 2015), 80
FR 33309 (June 11, 2015). On October 13, 2015, the
Exchange withdrew the proposed rule change. See
Securities Exchange Act Release No. 76186 (October
19, 2015), 80 FR 64461 (October 23, 2015). This
Amendment No. 6 to SR–NYSEArca–2015–110
replaces SR–NYSEArca–2015–110 as originally
filed and Amendments No. 2, 3, 4 and 5 thereto,
and supersedes such filings in their entirety. The
Exchange has withdrawn Amendment No. 1 to SR–
NYSEArca–2015–110.
15 See Securities Exchange Act Release No. 57619
(April 4, 2008), 73 FR 19544 (April 10, 2008) (SR–
NYSEArca–2008–25) (order approving NYSE Arca
Equities Rule 8.600 and listing and trading of shares
of certain issues of Managed Fund Shares) (the
‘‘Approval Order’’). The Approval Order approved
the rules permitting the listing and trading of
Managed Fund Shares, trading hours and halts,
listing fees applicable to Managed Fund Shares, and
the listing and trading of several individual series
of Managed Fund Shares.
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value equal to the next determined net
asset value; and
(c) when aggregated in the same
specified minimum number, may be
redeemed at a holder’s request, which
holder will be paid a specified portfolio
of securities and/or cash with a value
equal to the next determined net asset
value.
Effectively, Managed Fund Shares are
securities issued by an activelymanaged open-end Investment
Company (i.e., an actively-managed
exchange-traded fund (‘‘ETF’’)). Because
Managed Fund Shares are activelymanaged, they do not seek to replicate
the performance of a specified passive
index of securities. Instead, they
generally use an active investment
strategy to seek to meet their investment
objectives. In contrast, an open-end
Investment Company that issues
Investment Company Units (‘‘Units’’),
listed and traded on the Exchange
pursuant to NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment
results that generally correspond to the
price and yield performance of a
specific foreign or domestic stock index,
fixed income securities index or
combination thereof. All Managed Fund
Shares listed and/or traded pursuant to
Rule 8.600 (including pursuant to
unlisted trading privileges) are subject
to the full panoply of Exchange rules
and procedures that currently govern
the trading of equity securities on the
Exchange.16
In addition, Rule 8.600(d) currently
provides for the criteria that Managed
Fund Shares must satisfy for initial and
continued listing on the Exchange,
including, for example, that a minimum
number of Managed Fund Shares are
required to be outstanding at the time of
commencement of trading on the
Exchange. However, the current process
for listing and trading new series of
Managed Fund Shares on the Exchange
requires that the Exchange submit a
proposed rule change with the
Commission. In this regard,
Commentary .01 to Rule 8.600 specifies
that the Exchange will file separate
proposals under Section 19(b) of the Act
(hereafter, a ‘‘proposed rule change’’)
before listing and trading of shares of an
issue of Managed Fund Shares.
Proposed Changes to Rule 8.600
The Exchange would amend
Commentary .01 to Rule 8.600 to specify
that the Exchange may approve
Managed Fund Shares for listing and/or
trading (including pursuant to unlisted
trading privileges) pursuant to SEC Rule
19b–4(e) under the Act, which pertains
16 See
Approval Order, supra note 15, at 19547.
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19:36 Jun 13, 2016
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to derivative securities products (‘‘SEC
Rule 19b–4(e)’’).17 SEC Rule 19b–4(e)(1)
provides that the listing and trading of
a new derivative securities product by a
self-regulatory organization (‘‘SRO’’) is
not deemed a proposed rule change,
pursuant to paragraph (c)(1) of Rule
19b–4,18 if the Commission has
approved, pursuant to section 19(b) of
the Act, the SRO’s trading rules,
procedures and listing standards for the
product class that would include the
new derivative securities product and
the SRO has a surveillance program for
the product class. This is the current
method pursuant to which ‘‘passive’’
ETFs are listed under NYSE Arca
Equities Rule 5.2(j)(3).
The Exchange would also specify
within Commentary .01 to Rule 8.600
that components of Managed Fund
Shares listed pursuant to SEC
Rule 19b–4(e) must satisfy on an initial
and continued basis certain specific
criteria, which the Exchange would
include within Commentary .01, as
described in greater detail below. As
proposed, the Exchange would continue
to file separate proposed rule changes
before the listing and trading of
Managed Fund Shares with components
that do not satisfy the additional criteria
described below or components other
than those specified below. For
example, if the components of a
Managed Fund Share exceeded one of
the applicable thresholds, the Exchange
would file a separate proposed rule
change before listing and trading such
Managed Fund Share. Similarly, if the
components of a Managed Fund Share
included a security or asset that is not
specified below, the Exchange would
file a separate proposed rule change.
The Exchange would also add to the
criteria of Rule 8.600(c) to provide that
the Web site for each series of Managed
Fund Shares shall disclose certain
information regarding the Disclosed
Portfolio, to the extent applicable. The
required information includes the
following, to the extent applicable:
ticker symbol, CUSIP or other identifier,
a description of the holding, identity of
the asset upon which the derivative is
based, the strike price for any options,
the quantity of each security or other
17 17 CFR 240.19b–4(e). As provided under SEC
Rule 19b–4(e), the term ‘‘new derivative securities
product’’ means any type of option, warrant, hybrid
securities product or any other security, other than
a single equity option or a security futures product,
whose value is based, in whole or in part, upon the
performance of, or interest in, an underlying
instrument.
18 17 CFR 240.19b–4(c)(1). As provided under
SEC Rule 19b–4(c)(1), a stated policy, practice, or
interpretation of the SRO shall be deemed to be a
proposed rule change unless it is reasonably and
fairly implied by an existing rule of the SRO.
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38761
asset held as measured by select
metrics, maturity date, coupon rate,
effective date, market value and
percentage weight of the holding in the
portfolio.19
In addition, the Exchange would
amend Rule 8.600(d) to specify that all
Managed Fund Shares must have a
stated investment objective, which must
be adhered to under normal market
conditions.20
Finally, the Exchange would also
amend the continued listing
requirement in Rule 8.600(d)(2)(A) by
changing the requirement that a
Portfolio Indicative Value for Managed
Fund Shares be widely disseminated by
one or more major market data vendors
at least every 15 seconds during the
time when the Managed Fund Shares
trade on the Exchange to a requirement
that a Portfolio Indicative Value be
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Core Trading
Session (as defined in NYSE Arca
Equities Rule 7.34).
Proposed Managed Fund Share Portfolio
Standards
The Exchange is proposing standards
that would pertain to Managed Fund
Shares to qualify for listing and trading
pursuant to SEC Rule 19b–4(e). These
standards would be grouped according
to security or asset type. The Exchange
notes that the standards proposed for a
Managed Fund Share portfolio that
holds U.S. Component Stocks, Non-U.S.
Component Stocks, Derivative
Securities Products and Index-Linked
Securities are based in large part on the
existing equity security standards
applicable to Units in Commentary .01
to Rule 5.2(j)(3). The standards
proposed for a Managed Fund Share
portfolio that holds fixed income
securities are based in large part on the
existing fixed income security standards
applicable to Units in Commentary .02
to Rule 5.2(j)(3). Many of the standards
proposed for other types of holdings in
19 Proposed rule changes for previously-listed
series of Managed Fund Shares have similarly
included disclosure requirements with respect to
each portfolio holding, as applicable to the type of
holding. See, e.g. Securities Exchange Act Release
No. 72666 (July 3, 2014), 79 FR 44224 (July 30,
2014) (SR–NYSEArca–2013–122) (the ‘‘PIMCO
Total Return Use of Derivatives Approval’’), at
44227.
20 The Exchange would also add a new defined
term under Rule 8.600(c)(5) to specify that the term
‘‘normal market conditions’’ includes, but is not
limited to, the absence of trading halts in the
applicable financial markets generally; operational
issues (e.g., systems failure) causing dissemination
of inaccurate market information; or force majeure
type events such as natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening
circumstance.
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a Managed Fund Share portfolio are
based on previous proposed rule
changes for specific series of Managed
Fund Shares.21
Proposed Commentary .01(a) would
describe the standards for a Managed
Fund Share portfolio that holds equity
securities, which are defined to be U.S.
Component Stocks,22 Non-U.S.
Component Stocks,23 Derivative
Securities Products,24 and Index-Linked
Securities 25 listed on a national
securities exchange. For Derivative
Securities Products and Index-Linked
Securities, no more than 25% of the
equity weight of the portfolio could
include leveraged and/or inverse
leveraged Derivative Securities Products
or Index-Linked Securities. In addition,
proposed Commentary .01(a) would
provide that, to the extent that a
portfolio includes convertible securities,
the equity security into which such
security is converted would be required
to meet the criteria of Commentary
.01(a) after converting.
As proposed in Commentary .01(a)(1)
to Rule 8.600, the component stocks of
21 See the PIMCO Total Return Use of Derivatives
Approval. See also, Securities Exchange Act
Release Nos. 66321 (February 3, 2012), 77 FR 6850
(February 9, 2012) (SR–NYSEArca–2011–95) (the
‘‘PIMCO Total Return Approval’’); 69244 (March 27,
2013), 78 FR 19766 (April 2, 2013) (SR–NYSEArca–
2013–08) (the ‘‘SPDR Blackstone/GSO Senior Loan
Approval’’); 68870 (February 8, 2013), 78 FR 11245
(February 15, 2013) (SR–NYSEArca–2012–139) (the
‘‘First Trust Preferred Securities and Income
Approval’’); 69591 (May 16, 2013), 78 FR 30372
(May 22, 2013) (SR–NYSEArca–2013–33) (the
‘‘International Bear Approval’’); 61697 (March 12,
2010), 75 FR 13616 (March 22, 2010) (SR–
NYSEArca–2010–04) (the ‘‘WisdomTree Real
Return Approval’’); and 67054 (May 24, 2012), 77
FR 32161 (May 31, 2012) (SR–NYSEArca–2012–25)
(the ‘‘WisdomTree Brazil Bond Approval’’). Certain
standards proposed herein for Managed Fund
Shares are also based on previous proposed rule
changes for specific series of Units for which
Commission approval for listing was required due
to the Units not satisfying certain standards of
Commentary .01 and .02 to NYSE Arca Equities
Rule 5.2(j)(3). See, e.g., Securities Exchange Act
Release No. 69373 (April 15, 2013), 78 FR 23601
(April 19, 2013) (SR–NYSEArca–2012–108) (the
‘‘NYSE Arca U.S. Equity Synthetic Reverse
Convertible Index Fund Approval’’).
22 For the purposes of Commentary .01 and this
proposal, the term ‘‘U.S. Component Stocks’’ would
have the same meaning as described in NYSE Arca
Equities Rule 5.2(j)(3).
23 For the purposes of Commentary .01 and this
proposal, the term ‘‘Non-U.S. Component Stocks’’
would have the same meaning as described in
NYSE Arca Equities Rule 5.2(j)(3).
24 For the purposes of Commentary .01 and this
proposal, the term ‘‘Derivative Securities Products’’
would mean Investment Company Units and
securities described in Section 2 of Rule 8.
25 Index-Linked Securities are securities that
qualify for Exchange listing and trading under
NYSE Arca Equities Rule 5.2(j)(6). The securities
described in Rule 5.2(j)(3), Rule 5.2(j)(6) and
Section 2 of Rule 8, as referenced above, would
include securities listed on another national
securities exchange pursuant to substantially
equivalent listing rules.
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the equity portion of a portfolio that are
U.S. Component Stocks shall meet the
following criteria initially and on a
continuing basis:
(1) Component stocks (excluding
Derivative Securities Products and
Index-Linked Securities) that in the
aggregate account for at least 90% of the
equity weight of the portfolio (excluding
such Derivative Securities Products and
Index-Linked Securities) each must
have a minimum market value of at least
$75 million; 26
(2) Component stocks (excluding
Derivative Securities Products and
Index-Linked Securities) that in the
aggregate account for at least 70% of the
equity weight of the portfolio (excluding
such Derivative Securities Products and
Index-Linked Securities) each must
have a minimum monthly trading
volume of 250,000 shares, or minimum
notional volume traded per month of
$25,000,000, averaged over the last six
months; 27
(3) The most heavily weighted
component stock (excluding Derivative
Securities Products and Index-Linked
Securities) must not exceed 30% of the
equity weight of the portfolio, and, to
the extent applicable, the five most
heavily weighted component stocks
(excluding Derivative Securities
Products and Index-Linked Securities)
must not exceed 65% of the equity
weight of the portfolio; 28
(4) Where the equity portion of the
portfolio does not include Non-U.S.
Component Stocks, the equity portion of
the portfolio shall include a minimum
of 13 component stocks; provided,
however, that there shall be no
minimum number of component stocks
if (a) one or more series of Derivative
Securities Products or Index-Linked
Securities constitute, at least in part,
components underlying a series of
Managed Fund Shares, or (b) one or
more series of Derivative Securities
Products or Index-Linked Securities
account for 100% of the equity weight
26 This proposed text is identical to the
corresponding text of Commentary .01(a)(A)(1) to
NYSE Arca Equities Rule 5.2(j)(3), except for the
omission of the reference to ‘‘index,’’ which is not
applicable, and the addition of the reference to
Index-Linked Securities.
27 This proposed text is identical to the
corresponding text of Commentary .01(a)(A)(2) to
NYSE Arca Equities Rule 5.2(j)(3), except for the
omission of the reference to ‘‘index,’’ which is not
applicable, and the addition of the reference to
Index-Linked Securities.
28 This proposed text is identical to the
corresponding text of Commentary .01(a)(A)(3) to
NYSE Arca Equities Rule 5.2(j)(3), except for the
omission of the reference to ‘‘index,’’ which is not
applicable, and the addition of the reference to
Index-Linked Securities.
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of the portfolio of a series of Managed
Fund Shares; 29
(5) Except as provided in proposed
Commentary .01(a), equity securities in
the portfolio must be U.S. Component
Stocks listed on a national securities
exchange and must be NMS Stocks as
defined in Rule 600 of Regulation
NMS; 30
(6) American Depositary Receipts
(‘‘ADRs’’) may be exchange-traded or
non-exchange-traded. However no more
than 10% of the equity weight of the
portfolio shall consist of non-exchangetraded ADRs.31
As proposed in Commentary .01(a)(2)
to Rule 8.600, the component stocks of
the equity portion of a portfolio that are
Non-U.S. Component Stocks shall meet
the following criteria initially and on a
continuing basis:
(1) Non-U.S. Component Stocks each
shall have a minimum market value of
at least $100 million; 32
(2) Non-U.S. Component Stocks each
shall have a minimum global monthly
trading volume of 250,000 shares, or
minimum global notional volume traded
per month of $25,000,000, averaged over
the last six months; 33
29 This proposed text is identical to the
corresponding text of Commentary .01(a)(A)(4) to
NYSE Arca Equities Rule 5.2(j)(3), except for the
omission of the reference to ‘‘index,’’ which is not
applicable, the addition of the reference to IndexLinked Securities, and the reference to the 100%
limit applying to the ‘‘equity portion’’ of the
portfolio.
30 17 CFR 240.600. This proposed text is identical
to the corresponding text of Commentary
.01(a)(A)(5) to NYSE Arca Equities Rule 5.2(j)(3),
except for the addition of ‘‘equity’’ to make clear
that the standard applies to ‘‘equity securities’’, the
exclusion of unsponsored ADRs, and the omission
of the reference to ‘‘index,’’ which is not applicable.
31 Proposed rule changes for previously-listed
series of Managed Fund Shares have similarly
included the ability for such Managed Fund Share
holdings to include not more than 10% of net assets
in unsponsored ADRs (which are not exchangelisted). See, e.g., Securities Exchange Act Release
No. 71067 (December 12, 20113[sic]), 78 FR 76669
(December 18, 2013) (order approving listing and
trading of shares of the SPDR MFS Systematic Core
Equity ETF, SPDR MFS Systematic Growth Equity
ETF, and SPDR MFS Systematic Value Equity ETF
under NYSE Arca Equities Rule 8.600).
32 The proposed text is identical to the
corresponding representation from the ‘‘SSgA
Global Managed Volatility Release’’, as defined in
footnote 28, below. The proposed text is also
identical to the corresponding text of Commentary
.01(a)(B)(1) to NYSE Arca Equities Rule 5.2(j)(3),
except for the omission of the reference to ‘‘index,’’
which is not applicable, and that each Non-U.S.
Component Stock must have a minimum market
value of at least $100 million instead of the 90%
required under Commentary .01(a)(B)(1) to NYSE
Arca Equities Rule 5.2(j)(3).
33 The proposed text is identical to the
corresponding representation from the SSgA Global
Managed Volatility Release, as defined in footnote
28, below. This proposed text also is identical to the
corresponding text of Commentary .01(a)(B)(2) to
NYSE Arca Equities Rule 5.2(j)(3), except for the
omission of the reference to ‘‘index,’’ which is not
applicable.
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(3) The most heavily weighted NonU.S. Component Stock shall not exceed
25% of the equity weight of the
portfolio, and, to the extent applicable,
the five most heavily weighted Non-U.S.
Component Stocks shall not exceed
60% of the equity weight of the
portfolio; 34
(4) Where the equity portion of the
portfolio includes Non-U.S. Component
Stocks, the equity portion of the
portfolio shall include a minimum of 20
component stocks; provided, however,
that there shall be no minimum number
of component stocks if (i) one or more
series of Derivative Securities Products
or Index-Linked Securities constitute, at
least in part, components underlying a
series of Managed Fund Shares, or (ii)
one or more series of Derivative
Securities Products or Index-Linked
Securities account for 100% of the
equity weight of the portfolio of a series
of Managed Fund Shares; 35 and
(5) Each Non-U.S. Component Stock
shall be listed and traded on an
exchange that has last-sale reporting.36
The Exchange notes that it is not
proposing to require that any of the
equity portion of the equity portfolio
composed of Non-U.S. Component
Stocks be listed on markets that are
either a member of the Intermarket
Surveillance Group (‘‘ISG’’) or a market
with which the Exchange has a
comprehensive surveillance sharing
agreement (‘‘CSSA’’).37 However, as
further detailed below, the regulatory
staff of the Exchange, or the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), on behalf of the Exchange,
will communicate as needed regarding
trading in Managed Fund Shares with
other markets that are members of the
ISG, including U.S. securities exchanges
34 This proposed text is identical to the
corresponding text of Commentary .01(a)(B)(3) to
NYSE Arca Equities Rule 5.2(j)(3), except for the
omission of the reference to ‘‘index’’, which is not
applicable.
35 This proposed text is similar to the
corresponding text of Commentary .01(a)(B)(4) to
NYSE Arca Equities Rule 5.2(j)(3), except for the
omission of the reference to ‘‘index,’’ which is not
applicable, the addition of the reference to IndexLinked Securities, the reference to the equity
portion of the portfolio including Non-U.S.
Component Stocks, and the reference to the 100%
limitation applying to the ‘‘equity weight’’ of the
portfolio, which is included because the proposed
standards in Commentary .01 to Rule 8.600 permit
the inclusion of non-equity securities, whereas
Commentary .01 to NYSE Arca Equities Rule
5.2(j)(3) applies only to equity securities.
36 This proposed text is similar to Commentary
.01(a)(B)(5) to NYSE Arca Equities Rule 5.2(j)(3) as
it relates to Non-U.S. Component Stocks.
37 ISG is comprised of an international group of
exchanges, market centers, and market regulators
that perform front-line market surveillance in their
respective jurisdictions. See www.isgportal.org. A
list of ISG members is available at
www.isgportal.org.
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on which the components are traded.
The Exchange notes that the generic
listing standards for Units based on
foreign indexes in NYSE Arca Equities
Rule 5.2(j)(3) do not include specific
ISG or CSSA requirements.38 In
addition, the Commission has approved
listing and trading on the Exchange of
shares of an issue of Managed Fund
Shares under NYSE Arca Equities Rule
8.600 where non-U.S. equity securities
in such issue’s portfolio meet specified
criteria and where there is no
requirement that such non-U.S. equity
securities are traded in markets that are
members of ISG or with which the
Exchange has in place a CSSA.39
Proposed Commentary .01(b) would
describe the standards for a Managed
Fund Share portfolio that holds fixed
income securities, which are debt
securities 40 that are notes, bonds,
debentures or evidence of indebtedness
that include, but are not limited to, U.S.
Department of Treasury securities
(‘‘Treasury Securities’’), governmentsponsored entity securities (‘‘GSE
Securities’’), municipal securities, trust
preferred securities, supranational debt
and debt of a foreign country or a
subdivision thereof, investment grade
and high yield corporate debt, bank
loans, mortgage and asset backed
securities, and commercial paper. In
addition, to the extent that a portfolio
includes convertible securities, the fixed
income security into which such
security is converted would be required
to meet the criteria of Commentary
.01(b) after converting.
The components of the fixed income
portion of a portfolio must meet the
following criteria initially and on a
continuing basis:
(1) Components that in the aggregate
account for at least 75% of the fixed
income weight of the portfolio each
shall have a minimum original principal
38 Under Commentary .01 to NYSE Arca Equities
Rule 5.2(j)(3), Units with components that include
Non-U.S. Component Stocks can hold a portfolio
that is entirely composed of Non-U.S. Component
Stocks that are listed on markets that are neither
members of ISG, nor with which the Exchange has
in place a CSSA.
39 See Securities Exchange Act Release No. 75023
(May 21, 2015), 80 FR 30519 (May 28, 2015) (SR–
NYSEArca–2014–100) (order approving listing and
trading on the Exchange of shares of the SPDR SSgA
Global Managed Volatility ETF under NYSE Arca
Equities Rule 8.600) (‘‘SSgA Global Managed
Volatility Release’’).
40 Debt securities include a variety of fixed
income obligations, including, but not limited to,
corporate debt securities, government securities,
municipal securities, convertible securities, and
mortgage-backed securities. Debt securities include
investment-grade securities, non-investment-grade
securities, and unrated securities. Debt securities
also include variable and floating rate securities.
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38763
amount outstanding of $100 million or
more; 41
(2) No component fixed-income
security (excluding Treasury Securities
and GSE Securities) could represent
more than 30% of the fixed income
weight of the portfolio, and the five
most heavily weighted component fixed
income securities in the portfolio
(excluding Treasury Securities and GSE
Securities) must not in the aggregate
account for more than 65% of the fixed
income weight of the portfolio; 42
(3) An underlying portfolio (excluding
exempted securities) that includes fixed
income securities must include a
minimum of 13 non-affiliated issuers;
provided, however, that there shall be
no minimum number of non-affiliated
issuers required for fixed income
securities if at least 70% of the weight
of the portfolio consists of equity
securities as described in proposed
Commentary .01(a).43
(4) Component securities that in
aggregate account for at least 90% of the
fixed income weight of the portfolio
must be either (a) from issuers that are
required to file reports pursuant to
Sections 13 and 15(d) of the Act; (b)
from issuers that have a worldwide
market value of its outstanding common
equity held by non-affiliates of $700
million or more; (c) from issuers that
have outstanding securities that are
notes, bonds debentures, or evidence of
indebtedness having a total remaining
principal amount of at least $1 billion; 44
(d) exempted securities as defined in
Section 3(a)(12) of the Act; or (e) from
issuers that are a government of a
foreign country or a political
subdivision of a foreign country; and
(5) Non-agency, non-GSE and
privately-issued mortgage-related and
other asset-backed securities
components of a portfolio shall not
account, in the aggregate, for more than
41 This text of proposed Commentary .01(b)(1) to
Rule 8.600 is based on the corresponding text of
Commentary .02(a)(2) to Rule 5.2(j)(3) .
42 This proposed text is identical to the
corresponding text of Commentary .02(a)(4) to Rule
5.2(j)(3), except for the omission of the reference to
‘‘index,’’ which is not applicable.
43 This proposed text is similar to the
corresponding text of Commentary .02(a)(5) to Rule
5.2(j)(3), except for the omission of the reference to
‘‘index,’’ which is not applicable, the exclusion of
the text ‘‘consisting entirely of exempted securities’’
and the provision that there shall be no minimum
number of non-affiliated issuers required for fixed
income securities if at least 70% of the weight of
the portfolio consists of equity securities as
described in proposed Commentary .01(a).
44 With respect to subparagraphs (b) and (c)
above, the special purpose vehicle (‘‘SPV’’) that
issues the fixed income security (e.g., an assetbacked or mortgage-backed security) would itself be
required to satisfy the $700 million and $1 billion
criteria, respectively, and not the entity that
controls, owns or is affiliated with the SPV.
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20% of the weight of the fixed income
portion of the portfolio.45
Proposed Commentary .01(c) would
describe the standards for a Managed
Fund Share portfolio that holds cash
and cash equivalents.46 Specifically, the
portfolio may hold short-term
instruments with maturities of less than
3 months. There would be no limitation
to the percentage of the portfolio
invested in such holdings. Short-term
instruments would include the
following: 47
(1) U.S. Government securities,
including bills, notes and bonds
differing as to maturity and rates of
interest, which are either issued or
guaranteed by the U.S. Treasury or by
U.S. Government agencies or
instrumentalities;
(2) certificates of deposit issued
against funds deposited in a bank or
savings and loan association;
(3) bankers’ acceptances, which are
short-term credit instruments used to
finance commercial transactions;
(4) repurchase agreements and reverse
repurchase agreements;
(5) bank time deposits, which are
monies kept on deposit with banks or
savings and loan associations for a
stated period of time at a fixed rate of
interest;
(6) commercial paper, which are
short-term unsecured promissory notes;
and
(7) money market funds.
Proposed Commentary .01(d) would
describe the standards for a Managed
Fund Share portfolio that holds listed
derivatives, including futures, options
and swaps on commodities, currencies
and financial instruments (e.g., stocks,
fixed income, interest rates, and
volatility) or a basket or index of any of
the foregoing.48 There would be no
45 Proposed rule changes for previously-listed
series of Managed Fund Shares have similarly
included the ability for such Managed Fund Share
holdings to include up to 20% of net assets in nonagency, non-GSE and privately-issued mortgagerelated and other asset-backed securities. See, e.g.,
Securities Exchange Act Release No. 75566 (July 30,
2015), 80 FR 46612 (August 5, 2015) (SR–
NYSEArca–2015–42) (order approving listing and
trading of shares of Newfleet Multi-Sector
Unconstrained Bond ETF under NYSE Arca
Equities Rule 8.600).
46 Proposed rule changes for previously-listed
series of Managed Fund Shares have similarly
included the ability for such Managed Fund Share
holdings to include cash and cash equivalents. See,
e.g., SPDR Blackstone/GSO Senior Loan Approval,
supra note 21, at 19768–69 and First Trust Preferred
Securities and Income Approval, supra note 21, at
76150.
47 Proposed rule changes for previously-listed
series of Managed Fund Shares have similarly
specified short-term instruments with respect to
their inclusion in Managed Fund Share holdings.
See, e.g., First Trust Preferred Securities and
Income Approval, supra note 21, at 76150–51.
48 Proposed rule changes for previously-listed
series of Managed Fund Shares have similarly
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limitation to the percentage of the
portfolio invested in such holdings,
subject to the following requirements:
(1) In the aggregate, at least 90% of
the weight of such holdings invested in
futures, exchange-traded options, and
listed swaps shall, on both an initial and
continuing basis, consist of futures,
options, and swaps for which the
Exchange may obtain information via
the ISG from other members or affiliates
of the ISG or for which the principal
market is a market with which the
Exchange has a comprehensive
surveillance sharing agreement (For
purposes of calculating this limitation, a
portfolio’s investment in listed
derivatives will be calculated as the
aggregate gross notional value of the
listed derivatives.); and
(2) the aggregate gross notional value
of listed derivatives based on any five or
fewer underlying reference assets shall
not exceed 65% of the weight of the
portfolio (including gross notional
exposures), and the aggregate gross
notional value of listed derivatives
based on any single underlying
reference asset shall not exceed 30% of
the weight of the portfolio (including
gross notional exposures).
Proposed Commentary .01(e) would
describe the standards for a Managed
Fund Share portfolio that holds over the
counter (‘‘OTC’’) derivatives, including
forwards, options and swaps on
commodities, currencies and financial
instruments (e.g., stocks, fixed income,
interest rates, and volatility) or a basket
or index of any of the foregoing.49
Proposed Commentary .01(e) would
provide that, on both an initial and
continuing basis, no more than 20% of
the assets in the portfolio may be
invested in OTC derivatives. For
purposes of calculating this limitation, a
portfolio’s investment in OTC
derivatives will be calculated as the
aggregate gross notional value of the
OTC derivatives.
Proposed Commentary .01(f) would
provide that, to the extent that listed or
OTC derivatives are used to gain
exposure to individual equities and/or
fixed income securities, or to indexes of
included the ability for such Managed Fund Share
holdings to include listed derivatives. See, e.g.,
WisdomTree Real Return Approval, supra note 21,
at 13617 and WisdomTree Brazil Bond Approval,
supra note 21, at 32163.
49 A proposed rule change for series of Units
previously listed and traded on the Exchange
pursuant to Rule 5.2(j)(3) similarly included the
ability for such Units’ holdings to include OTC
derivatives, specifically OTC down-and-in put
options, which are not NMS Stocks as defined in
Rule 600 of Regulation NMS and therefore do not
satisfy the requirements of Commentary .01(a)(A) to
Rule 5.2(j)(3). See, e.g., NYSE Arca U.S. Equity
Synthetic Reverse Convertible Index Fund
Approval, supra note 21, at 23602.
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equities and/or fixed income securities,
the aggregate gross notional value of
such exposures shall meet the criteria
set forth in Commentary .01(a) and
.01(b) to Rule 8.600 (including gross
notional exposures), respectively. The
Exchange notes that, for purposes of this
proposal, a portfolio’s investment in
OTC derivatives will be calculated as
the aggregate gross notional value of the
OTC derivatives.
The following examples illustrate
how certain of the proposed generic
criteria of Rule 8.600 would be applied:
1. An actively managed ETF holds
non-agency MBS that represent 15% of
the weight of the fixed income portion
of the portfolio. The fixed income
portion of the portfolio meets all the
requirements of Commentary .01(b). The
ETF also holds an OTC swap on a nonagency MBS Index that represents 10%
of the fixed income weight of the
portfolio calculated on a notional value
basis. Separately, the OTC swap and
fixed income portion of the portfolio
would meet the requirements of the
Rule 8.600, Commentary .01. However,
when the 15% weight in non-agency
MBS and the 10% weight in the nonagency MBS Index OTC swap are
combined, as required by proposed
Commentary .01(f) to Rule 8.600, the
25% total weight would exceed the 20%
limit for non-agency GSE and privatelyissued mortgage-related securities in
Commentary .01(b)(5). The portfolio,
therefore, would not meet the proposed
generic criteria of Rule 8.600.
2. An actively managed ETF holds a
portfolio of non-U.S. equity securities,
S&P 500 Index and gold futures. S&P
500 Index futures and the gold futures
held by the fund are listed on an ISG
member exchange. The equity portion of
the portfolio consists of developed and
emerging markets equity securities with
a current aggregate market value of $15
million and all components meet the
requirements under Commentary
.01(a)(2). The gold futures contract
trading unit size is 100 troy ounces and
an ounce of gold is currently worth
$1200. The fund holds 500 gold futures
contracts with a notional value of $60
million (500 * 100 * $1200). One S&P
500 contract represents 250 units of the
S&P 500 Index and the S&P 500 Index
is trading at $2,000. The portfolio holds
50 contracts, so the notional value of the
S&P 500 Index futures position is $25
million (50 * 250 * $2000). The S&P 500
Index futures meet the requirement
under Commentary .01(f), that is, the
S&P 500 Index meets the criteria in
Commentary .01(a). The weights of the
components are as follows: Equity
securities represent 15% of the
portfolio, gold futures represent 60% of
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the portfolio and S&P 500 Index futures
represent 25% of the portfolio. The gold
futures represent 60% of the portfolio
and exceeds the 30% concentration
limitation on any single underlying
reference asset as outlined in proposed
Commentary .01(d)(2). The portfolio,
therefore, would not meet the proposed
generic criteria of Rule 8.600.
3. An actively managed ETF holds a
portfolio of equity securities and call
option contracts on company XYZ. The
equity portion of [sic] portfolio meets
the requirements under Commentary
.01(a). Company XYZ represents 20% of
the weight of the equity portion of the
portfolio. The equity portion of the fund
has a market value of $100 million and
the market value of the fund’s holdings
in company XYZ has a market value of
$20 million. The fund also holds 10,000
call option contracts on company XYZ
which has a current market price of $50
a share and, therefore, a notional value
of $50 million (50 * 100 * 10,000) (that
is, the $50 market price per share times
the multiplier of 100 times 10,000
contracts). The option contracts are
traded on an ISG member exchange. The
total exposure to company XYZ is
therefore $70 million and represents
46.7% ($70 million/$150
million=46.7%) of the portfolio. This
fund would not meet the requirements
of Rule 8.600 because the exposure to
XYZ at 46.7% exceeds the 30%
concentration limitation of proposed
Commentary .01(d)(2).
The Exchange believes that the
proposed standards would continue to
ensure transparency surrounding the
listing process for Managed Fund
Shares. Additionally, the Exchange
believes that the proposed portfolio
standards for listing and trading
Managed Fund Shares, many of which
track existing Exchange rules relating to
Units, are reasonably designed to
promote a fair and orderly market for
such Managed Fund Shares.50 These
proposed standards would also work in
conjunction with the existing initial and
continued listing criteria related to
surveillance procedures and trading
guidelines.
In support of this proposal, the
Exchange represents that: 51
(1) The Managed Fund Shares will
continue to conform to the initial and
continued listing criteria under Rule
8.600;
(2) the Exchange’s surveillance
procedures are adequate to continue to
properly monitor the trading of the
Managed Fund Shares in all trading
Approval Order, supra note 15 at 19548.
Exchange made similar representations in
the Approval Order. See id. at 19549.
sessions and to deter and detect
violations of Exchange rules.
Specifically, the Exchange intends to
utilize its existing surveillance
procedures applicable to derivative
products, which will include Managed
Fund Shares, to monitor trading in the
Managed Fund Shares;
(3) prior to the commencement of
trading of a particular series of Managed
Fund Shares, the Exchange will inform
its Equity Trading Permit (‘‘ETP’’)
Holders in a Bulletin of the special
characteristics and risks associated with
trading the Managed Fund Shares,
including procedures for purchases and
redemptions of Managed Fund Shares,
suitability requirements under NYSE
Arca Equities Rule 9.2(a), the risks
involved in trading the Managed Fund
Shares during the Opening and Late
Trading Sessions when an updated
Portfolio Indicative Value will not be
calculated or publicly disseminated,
information regarding the Portfolio
Indicative Value and the Disclosed
Portfolio, prospectus delivery
requirements, and other trading
information. In addition, the Bulletin
will disclose that the Managed Fund
Shares are subject to various fees and
expenses, as described in the applicable
registration statement, and will discuss
any exemptive, no-action, and
interpretive relief granted by the
Commission from any rules under the
Act. Finally, the Bulletin will disclose
that the net asset value for the Managed
Fund Shares will be calculated after
4 p.m. ET each trading day; and
(4) the issuer of a series of Managed
Fund Shares will be required to comply
with Rule 10A–3 under the Act for the
initial and continued listing of Managed
Fund Shares, as provided under NYSE
Arca Equities Rule 5.3.
The Exchange notes that the proposed
change is not otherwise intended to
address any other issues and that the
Exchange is not aware of any problems
that ETP Holders or issuers would have
in complying with the proposed change.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,52 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,53 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to, and
perfect the mechanism of a free and
50 See
51 The
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52 15
53 15
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U.S.C. 78f(b)(5).
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open market and, in general, to protect
investors and the public interest.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest
because it would facilitate the listing
and trading of additional Managed Fund
Shares, which would enhance
competition among market participants,
to the benefit of investors and the
marketplace. Specifically, after more
than six years under the current process,
whereby the Exchange is required to file
a proposed rule change with the
Commission for the listing and trading
of each new series of Managed Fund
Shares, the Exchange believes that it is
appropriate to codify certain rules
within Rule 8.600 that would generally
eliminate the need for separate
proposed rule changes. The Exchange
believes that this would facilitate the
listing and trading of additional types of
Managed Fund Shares that have
investment portfolios that are similar to
investment portfolios for Units, which
have been approved for listing and
trading, thereby creating greater
efficiencies in the listing process for the
Exchange and the Commission. In this
regard, the Exchange notes that the
standards proposed for Managed Fund
Share portfolios that include U.S.
Component Stocks, Non-U.S.
Component Stocks, Derivative
Securities Products, and Index-Linked
Securities are based in large part on the
existing equity security standards
applicable to Units in Commentary .01
to NYSE Arca Equities Rule 5.2(j)(3) and
that the standards proposed for
Managed Fund Share portfolios that
include fixed income securities are
based in large part on the existing fixed
income standards applicable to Units in
Commentary .02 to NYSE Arca Equities
Rule 5.2(j)(3). Additionally, many of the
standards proposed for other types of
holdings of series of Managed Fund
Shares are based on previous proposed
rule changes for specific series of
Managed Fund Shares.54
With respect to the proposed addition
to the criteria of Rule 8.600(c) to provide
that the Web site for each series of
Managed Fund Shares shall disclose
certain information regarding the
Disclosed Portfolio, to the extent
applicable, the Exchange notes that
proposed rule changes approved by the
Commission for previously-listed series
of Managed Fund Shares have similarly
included disclosure requirements with
respect to each portfolio holding, as
54 See
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supra, note 21.
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applicable to the type of holding.55 With
respect to the proposed definition of the
term ‘‘normal market conditions’’ in
proposed Rule 8.600(c)(5), such
definition is similar to the definition of
normal market conditions approved by
the Commission for other issues of
Managed Fund Shares.56 In addition,
proposed Rule 8.600(d)(1)(C), would
specify that a series of Managed Fund
Shares would be required to adhere to
its stated investment objective during
normal market conditions.
With respect to the proposed
amendment to the continued listing
requirement in Rule 8.600(d)(2)(A) to
require dissemination of a Portfolio
Indicative Value at least every 15
seconds during the Core Trading
Session (as defined in NYSE Arca
Equities Rule 7.34), such requirement
conforms to the requirement applicable
to the dissemination of the Intraday
Indicative Value for Units in
Commentary .01(c) and Commentary .02
(c) to NYSE Arca Equities Rule 5.2(j)(3).
In addition, such dissemination is
consistent with representations made in
proposed rule changes for issues of
Managed Fund Shares previously
approved by the Commission.57
With respect to the proposed
requirement in Commentary .01(a) that
no more than 25% of the equity weight
of the portfolio shall consist of
leveraged and/or inverse leveraged
Derivative Securities Products or IndexLinked Securities, such requirement
would assure that only a relatively small
proportion of a fund’s investments
could consist of such leveraged and/or
inverse securities. In addition, such
limitation would apply to both U.S.
Component Stocks and Non-U.S.
Component Stocks comprising the
equity portion of a portfolio. With
respect to the proposed provision in
Commentary .01(a) that, to the extent a
portfolio includes a convertible security,
the equity security into which such
security is converted must meet the
criteria in Commentary .01(a) after
converting, such requirement would
assure that the equity securities into
which a convertible security could be
converted meet the liquidity and other
criteria in Commentary .01 applicable to
such equity securities. With respect to
the proposed exclusion of Derivatives
Securities Products and Index-Linked
55 See
supra, note 19.
e.g., Securities Exchange Act Release No.
74338 (February 20, 2015), 80 FR 10556 (February
26, 2015) (SR–NYSEArca–2014–143) (order
approving listing and trading of shares of the SPDR
Doubletree Total Return Tactical ETF under NYSE
Arca Equities Rule 8.600).
57 See, e.g., Approval Order, supra note 15;
International Bear Approval, supra note 21.
56 See,
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Securities from the requirements of
proposed Commentary .01(a) of Rule
8.600, the Exchange believes it is
appropriate to exclude Index-Linked
Securities as well as Derivative
Securities Products from certain
component stock eligibility criteria for
Managed Fund Shares in so far as
Derivative Securities Products and
Index-Linked Securities are themselves
subject to specific quantitative listing
and continued listing requirements of a
national securities exchange on which
such securities are listed. Derivative
Securities Products and Index-Linked
Securities that are components of a
fund’s portfolio would have been listed
and traded on a national securities
exchange pursuant to a proposed rule
change approved by the Commission
pursuant to Section 19(b)(2) of the Act 58
or submitted by a national securities
exchange pursuant to Section
19(b)(3)(A) of the Act 59 or would have
been listed by a national securities
exchange pursuant to the requirements
of Rule 19b–4(e) under the Act.60 The
Exchange also notes that Derivative
Securities Products and Index-Linked
Securities are derivatively priced, and,
therefore, the Exchange believes that it
would not be necessary to apply the
proposed generic quantitative criteria
(e.g., market capitalization, trading
volume, or portfolio component
weighting) applicable to equity
securities other than Derivative
Securities Products or Index-Linked
Securities (e.g., common stocks) to such
products.61
With respect to the proposed criteria
applicable to U.S. Component Stocks,
the Exchange notes that such criteria are
similar to those in Commentary .01 to
NYSE Arca Equities Rule 5.2(j)(3)
relating to criteria applicable to an
index or portfolio of U.S. Component
Stocks. In addition, Non-U.S.
Component Stocks also will be required
to meet criteria similar to certain generic
listing standards in Commentary .01 to
NYSE Arca Equities Rule 5.2(j)(3)
relating to criteria applicable to an
index or portfolio of U.S. Component
Stocks and Non-U.S. Component Stocks
underlying a series of Units to be listed
58 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(3)(A).
60 17 CFR 240.19b–4(e).
61 See Securities Exchange Act Release Nos.
57561 (March 26, 2008), 73 FR 17390 (April 1,
2008) (SR–NYSEArca–2008–29) (notice of filing of
proposed rule change to amend eligibility criteria
for components of an index underlying Investment
Company Units); 57751 (May 1, 2008), 73 FR 25818
(May 7, 2008) (SR–NYSEArca–2008–29) (order
approving proposed rule change to amend
eligibility criteria for components of an index
underlying Investment Company Units).
59 15
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and traded on the Exchange pursuant to
Rule 19b–4(e) under the Act.
With respect to the proposed
requirement in Commentary .01(a)(1)(F)
that ADRs in a portfolio may be
exchange-traded or non-exchangetraded and that no more than 10% of the
equity weight of the portfolio shall
consist of non-exchange-traded ADRs,
the Exchange notes that such
requirement will ensure that
unsponsored ADRs, which are traded
OTC and which generally have less
market transparency than sponsored
ADRs, as well as any sponsored ADRs
traded OTC, could account for only a
small percentage of the equity weight of
a portfolio. Further, the requirement is
consistent with representations made in
proposed rule changes for issues of
Managed Fund Shares previously
approved by the Commission.62
With respect to the proposed
provision in Commentary .01(b) that, to
the extent a portfolio includes
convertible securities, the fixed income
security into which such security is
converted must meet the criteria in
paragraph (b) of Commentary .01 after
converting, such requirement would
assure that the fixed income securities
into which a convertible security could
be converted meet the liquidity and
other criteria in Commentary .01(b)
applicable to fixed income securities.
As proposed, pursuant to
Commentary .01(b)(3) to Rule 8.600, an
underlying portfolio (excluding
exempted securities) that includes fixed
income securities must include a
minimum of 13 non-affiliated issuers,
but there would be no minimum
number of non-affiliated issuers
required for fixed income securities if at
least 70% of the weight of the portfolio
consists of equity securities, as
described in Commentary .01(a). The
Exchange notes that, when evaluated in
conjunction with proposed Commentary
.01(b)(2), the proposed rule is consistent
with Commentary .02(a)(4) and (5) of
NYSE Arca Equities Rule 5.2(j)(3) in that
it provides for a maximum weighting of
a fixed income security in the fixed
income portion of the portfolio of a fund
that is comparable to the existing rules
applicable to Investment Company
Units based on fixed income indexes.
With respect to the proposed
requirement in Commentary .01(b)(5)
that non-agency, non-GSE and privatelyissued mortgage-related and other assetbacked securities components of a
portfolio shall not account, in the
aggregate, for more than 20% of the
weight of the fixed income portion of
the portfolio, the Exchange notes that
62 See
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such requirement is consistent with
representations made in proposed rule
changes for issues of Managed Fund
Shares previously approved by the
Commission.63
With respect to the proposed
amendment to Commentary .01(c)
relating to cash and cash equivalents,
while there is no limitation on the
amount of cash and cash equivalents
that can make up the portfolio, such
instruments are short-term, highly
liquid, and of high credit quality,
making them less susceptible than other
asset classes both to price manipulation
and volatility. Further, the requirement
is consistent with representations made
in proposed rule changes for issues of
Managed Fund Shares previously
approved by the Commission.64
With respect to proposed
Commentary .01(d)(1) to Rule 8.600
relating to listed derivatives, the
Exchange believes that it is appropriate
that there be no limit to the percentage
of a portfolio invested in such holdings,
provided that, in the aggregate, at least
90% of the weight of such holdings
invested in futures, exchange-traded
options, and listed swaps would consist
of futures, options, and swaps for which
the Exchange may obtain information
via ISG from other members or affiliates
or for which the principal market is a
market with which the Exchange has a
CSSA. Such a requirement would
facilitate information sharing among
market participants trading shares of a
series of Managed Fund Shares as well
as futures and options that such series
may hold. In addition, listed swaps
would be centrally cleared, reducing
counterparty risk and thereby furthering
investor protection.65 With respect to
proposed Commentary .01(d)(2) to Rule
8.600, requiring percentage caps on the
aggregate gross notional value of listed
derivatives based on any five or fewer
underlying reference assets or based on
any single underlying reference asset,
the Exchange believes such
requirements will help ensure that
listed derivatives utilized by a fund are
adequately diversified and not unduly
concentrated.
With respect to proposed
Commentary .01(e) to Rule 8.600
relating to OTC derivatives, the
63 See
note 45, supra.
note 46, supra.
65 The Commission has noted that ‘‘[c]entral
clearing mitigates counterparty risk among dealers
and other institutions by shifting that risk from
individual counterparties to [central counterparties
(‘‘CCPs’’)], thereby protecting CCPs from each
other’s potential failures.’’ See Securities Exchange
Act Release No. 67286 (June 28, 2012) (File No. S7–
44–10) (Process for Submissions for Review of
Security-Based Swaps for Mandatory Clearing and
Notice Filing Requirements for Clearing Agencies).
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64 See
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Exchange believes that the limitation to
20% of a fund’s assets would assure that
the preponderance of fund investments
would not be in derivatives that are not
listed and centrally cleared. The
Exchange believes that such a limitation
is sufficient to mitigate the risks
associated with price manipulation
because a 20% cap on OTC derivatives
will ensure that any series of Managed
Fund Shares will be sufficiently broadbased in scope to minimize potential
manipulation associated with OTC
derivatives and because the remaining
80% of the portfolio will consist of
instruments subject to numerous
restrictions designed to prevent
manipulation, including equity
securities (which, as proposed, would
be subject to market cap, trading
volume, and diversity requirements,
among others), fixed income securities
(which, as proposed, would be subject
to principal amount outstanding,
diversity, and issuer requirements,
among others), cash and cash
equivalents (which, as proposed, would
be limited to short-term, highly liquid,
and high credit quality instruments),
and/or listed derivatives (which would
be subject to the limitations in proposed
Commentary .01(d)).
The Exchange notes that a fund’s
investments in derivative instruments
would be subject to limits on leverage
imposed by the 1940 Act. Section 18(f)
of the 1940 Act and related Commission
guidance limit the amount of leverage
an investment company can obtain. A
fund’s investments would be consistent
with its investment objective and would
not be used to enhance leverage. To
limit the potential risk associated with
a fund’s use of derivatives, a fund will
segregate or ‘‘earmark’’ assets
determined to be liquid by a fund in
accordance with the 1940 Act (or, as
permitted by applicable regulation,
enter into certain offsetting positions) to
cover its obligations under derivative
instruments.
With respect to proposed
Commentary .01(f) to Rule 8.600 relating
to a fund’s use of listed or OTC
derivatives to gain exposure to
individual equities and/or fixed income
securities, or to indexes of equities and/
or indexes of fixed income securities,
the Exchange notes that the aggregate
gross notional value of such exposure
would be required to meet the
numerical and other criteria set forth in
proposed Commentary .01(a) and .01(b)
to Rule 8.600 (including gross notional
exposures), respectively.
Quotation and other market
information relating to listed futures
and options is available from the
exchanges listing such instruments as
PO 00000
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38767
well as from market data vendors. With
respect to centrally-cleared swaps 66 and
non-centrally-cleared swaps regulated
by the CFTC,67 the Dodd-Frank Act
mandates that swap information be
reported to swap data repositories
(‘‘SDRs’’).68 SDRs provide a central
facility for swap data reporting and
recordkeeping and are required to
comply with data standards set by the
CFTC, including real-time public
reporting of swap transaction data to a
derivatives clearing organization or
SEF.69 SDRs require real-time reporting
of all OTC and centrally cleared
derivatives, including public reporting
of the swap price and size. The parties
responsible for reporting swaps
information are CFTC-registered swap
dealers (‘‘RSDs’’), major swap
participants, and swap execution
facilities (‘‘SEFs’’). If swap
counterparties do not fall into the above
categories, then one of the parties to the
swap must report the trade to the SDR.
Cleared swaps regulated by the CFTC
must be executed on a Designated
Contract Market (‘‘DCM’’) or SEF. Such
cleared swaps have the same reporting
requirements as futures, including endof-day price, volume, and open interest.
CFTC swaps reporting requirements
require public dissemination of, among
other items, product ID (if available);
asset class; underlying reference asset,
reference issuer, or reference index;
termination date; date and time of
execution; price, including currency;
notional amounts, including currency;
whether direct or indirect
counterparties include an RSD; whether
cleared or un-cleared; and platform ID
of where the contract was executed (if
applicable).
With respect to security-based swaps
regulated by the Commission, the
Commission has adopted Regulation
SBSR under the Act implementing
requirements for regulatory reporting
and public dissemination of securitybased swap transactions set forth in
Title VII of the Dodd-Frank Act.
Regulation SBSR provides for the
reporting of security-based swap
66 There are currently five categories of swaps
eligible for central clearing: Interest rate swaps;
credit default swaps; foreign exchange swaps;
equity swaps; and commodity swaps. The following
entities provide central clearing for OTC
derivatives: ICE Clear Credit (US); ICE Clear (EU);
CME Group; LCH.Clearnet; and Eurex.
67 Pursuant to the Dodd-Frank Act, OTC and
centrally-cleared swaps are regulated by the CFTC
with the exception of security-based swaps, which
are regulated by the Commission.
68 The following entities are provisionally
registered with the CFTC as SDRs: BSDR LLC.,
Chicago Mercantile Exchange, Inc., DTCC Data
Repository, and ICE Trade Vault.
69 Approximately eighteen entities are currently
registered with the CFTC as SEFs.
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information to registered security-based
swap data repositories (‘‘Registered
SDRs’’) or the Commission, and the
public dissemination of security-based
swap transaction, volume, and pricing
information by Registered SDRs.70
Price information relating to forwards
and OTC options will be available from
major market data vendors.
A fund’s investments will not be used
to seek performance that is the multiple
or inverse multiple (i.e., 2Xs and 3Xs) of
a fund’s broad-based securities market
index (as defined in Form N–1A).71 In
addition, the Exchange notes that, under
proposed Commentary .01(a) to Rule
8.600, for Derivative Securities Products
and Index-Linked Securities, no more
than 25% of the equity weight of a
fund’s portfolio could include leveraged
and/or inverse leveraged Derivative
Securities Products or Index-Linked
Securities.
The proposed rule change is also
designed to protect investors and the
public interest because Managed Fund
Shares listed and traded pursuant to
Rule 8.600, including pursuant to the
proposed new portfolio standards,
would continue to be subject to the full
panoply of Exchange rules and
procedures that currently govern the
trading of equity securities on the
Exchange.72
The proposed rule change is also
designed to protect investors and the
public interest as well as to promote just
and equitable principles of trade in that
any Non-U.S. Component Stocks will
each meet the following criteria initially
and on a continuing basis: (1) Have a
minimum market value of at least $100
million; (2) have a minimum global
monthly trading volume of 250,000
shares, or minimum global notional
volume traded per month of
$25,000,000, averaged over the last six
months; (3) most heavily weighted NonU.S. Component Stock shall not exceed
25% of the equity weight of the
portfolio, and, to the extent applicable,
the five most heavily weighted Non-U.S.
Component Stocks shall not exceed
60% of the equity weight of the
portfolio; and (4) each Non-U.S.
Component Stock shall be listed and
traded on an exchange that has last-sale
reporting. The Exchange believes that
such quantitative criteria are sufficient
70 See Securities Exchange Act Release No. 74244
(February 11, 2015), 80 FR 14564 (March 19, 2015)
(Regulation SBSR—Reporting and Dissemination of
Security-Based Swap Information).
71 See, e.g., Securities Exchange Act Release No.
74842 (April 29, 2015), 86 FR 25723 (May 5, 2015)
(SR–NYSEArca–2014–89) (order approving listing
and trading of shares of eight PIMCO exchangetraded funds).
72 See Approval Order, supra note 15, at 19547.
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to mitigate any concerns that may arise
on the basis of a series of Managed Fund
Shares potentially holding 100% of its
assets in Non-U.S. Component Stocks
that are neither listed on members of
ISG nor exchanges with which the
Exchange has in place a CSSA because,
as stated above, such criteria are either
the same or more stringent than the
portfolio requirements for Units that
hold Non-U.S. Component Stocks and
there are no such requirements related
to such securities being listed on an
exchange that is a member of ISG or
with which the Exchange has in place
a CSSA. Further, the Exchange has not
encountered and is not aware of any
instances of manipulation or other
negative impact in any series of Units
that has occurred by virtue of the Units
holding such Non-U.S. Component
Stocks. As such, the Exchange believes
that there should be no difference in the
portfolio requirements for Managed
Fund Shares and Units as it relates to
holding Non-U.S. Component Stocks
that are not listed on an exchange that
is a member of ISG or with which the
Exchange has in place a CSSA.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices because the Managed
Fund Shares will be listed and traded
on the Exchange pursuant to the initial
and continued listing criteria in Rule
8.600. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Managed Fund Shares in all trading
sessions and to deter and detect
violations of Exchange rules and
applicable federal securities laws.
FINRA, on behalf of the Exchange, or
the regulatory staff of the Exchange, will
communicate as needed regarding
trading in Managed Fund Shares with
other markets that are members of the
ISG, including all U.S. securities
exchanges and futures exchanges on
which the components are traded. In
addition, the Exchange may obtain
information regarding trading in
Managed Fund Shares from other
markets that are members of the ISG,
including all U.S. securities exchanges
and futures exchanges on which the
components are traded, or with which
the Exchange has in place a CSSA.
The Exchange also believes that the
proposed rule change would fulfill the
intended objective of Rule 19b–4(e)
under the Act by allowing Managed
Fund Shares that satisfy the proposed
listing standards to be listed and traded
without separate Commission approval.
However, as proposed, the Exchange
would continue to file separate
proposed rule changes before the listing
PO 00000
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and trading of Managed Fund Shares
that do not satisfy the additional criteria
described above.
For these reasons, the Exchange
believes that the proposal is consistent
with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,73 the Exchange does not believe
that the proposed rule change will
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Instead, the Exchange believes that the
proposed rule change would facilitate
the listing and trading of additional
types of Managed Fund Shares and
result in a significantly more efficient
process surrounding the listing and
trading of Managed Fund Shares, which
will enhance competition among market
participants, to the benefit of investors
and the marketplace. The Exchange
believes that this would reduce the time
frame for bringing Managed Fund
Shares to market, thereby reducing the
burdens on issuers and other market
participants and promoting competition.
In turn, the Exchange believes that the
proposed change would make the
process for listing Managed Fund Shares
more competitive by applying uniform
listing standards with respect to
Managed Fund Shares.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
IV. Date of Effectiveness of the
Proposed Rule Change, as Modified by
Amendment No. 6, and Timing for
Commission Action
Section 19(b)(2) of the Act 74 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
notice of the filing of the proposed rule
change. The Commission may, however,
extend the period for issuing an order
approving or disapproving the proposed
rule change by not more than 60 days
if the Commission determines that a
longer period is appropriate and
publishes the reasons for such
determination. On May 20, 2016, the
Commission published notice of its
determination that it was appropriate to
73 15
74 15
E:\FR\FM\14JNN1.SGM
U.S.C. 78f(b)(8).
U.S.C. 78s(b)(2).
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designate a longer period within which
to issue an order approving or
disapproving the proposed rule change
so that it would have sufficient time to
consider the proposed rule change and,
pursuant to Section 19(b)(2) of the
Act,75 designated July 22, 2016, as the
date by which the Commission shall
either approve or disapprove the
proposed rule change.76
V. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 6 to
the proposed rule change is consistent
with the Act. Comments may be
submitted by any of the following
methods:
srobinson on DSK5SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2015–110 on
the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2015–110. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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 will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
75 15
U.S.C. 78s(b)(2).
supra note 9 and accompanying text.
76 See
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the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2015–110 and should be
submitted on or before June 29, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.77
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–13965 Filed 6–13–16; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
Data Collection Available for Public
Comments
60 Day Notice and request for
comments.
ACTION:
In accordance with the
Paperwork Reduction Act of 1995, this
notice announces the Small Business
Administration’s intentions to request
approval on a new and/or currently
approved information collection.
DATES: Submit comments on or before
August 15, 2016.
ADDRESSES: Send all comments
regarding whether this information
collection is necessary for the proper
performance of the function of the
agency, whether the burden estimates
are accurate, and if there are ways to
minimize the estimated burden and
enhance the quality of the collections, to
Louis Cupp, New Markets Policy
Analyst, Office of Investment, Small
Business Administration, 409 3rd Street,
6th Floor, Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT:
Louis Cupp, New Markets Policy
Analyst, 202–619–0511 louis.cupp@
sba.gov Curtis B. Rich, Management
Analyst, 202–205–7030 curtis.rich@
sba.gov.
SUMMARY:
SBA
Forms 1405 and 1405A are used by
Small Business Administration (SBA)
examiners as part of their examination
of licensed small business investment
companies (SBICs). This information is
collected from SBIC’S Stockholders and
partners and provides independent
third party confirmation of an SBIC’s
representations concerning its owners.
The information helps SBA to evaluate
the SBIC’S with applicable laws and
regulations concerning capital
requirements.
SUPPLEMENTARY INFORMATION:
77 17
PO 00000
CFR 200.30–3(a)(12).
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38769
Solicitation of Public Comments: SBA
is requesting comments on (a) Whether
the collection of information is
necessary for the agency to properly
perform its functions; (b) whether the
burden estimates are accurate; (c)
whether there are ways to minimize the
burden, including through the use of
automated techniques or other forms of
information technology; and (d) whether
there are ways to enhance the quality,
utility, and clarity of the information.
Title: ‘‘Stockholders’ Confirmation
(Corporation); Ownership Confirmation
(Partnership)’’.
Description of Respondents: Licensed
small business investment companies
(SBICs).
Form Number’s: 1405, 1405A.
Annual Responses: 600.
Annual Burden: 600.
Curtis Rich,
Management Analyst.
[FR Doc. 2016–14012 Filed 6–13–16; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
Data Collection Available for Public
Comments
60 Day notice and request for
comments.
ACTION:
In accordance with the
Paperwork Reduction Act of 1995, this
notice announces the Small Business
Administration’s intentions to request
approval on a new and/or currently
approved information collection.
DATES: Submit comments on or before
August 15, 2016.
ADDRESSES: Send all comments
regarding whether this information
collection is necessary for the proper
performance of the function of the
agency, whether the burden estimates
are accurate, and if there are ways to
minimize the estimated burden and
enhance the quality of the collections, to
Carol Fendler, Director of Licensing and
Program Standards, Office of Investment
and Innovation, Small Business
Administration, 409 3rd Street, 6th
Floor, Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT:
Carol Fendler, Director, Licensing and
Program Standards, 202–205–7559
carol.fendler@sba.gov
Curtis B. Rich, Management Analyst,
202–205–7030 curtis.rich@sba.gov
SUPPLEMENTARY INFORMATION: SBA
Forms 2181, 2182 and 2183 provide
SBA with the necessary information to
make decisions regarding the approval
or denial of an applicant for a small
business investment company (SBIC)
SUMMARY:
E:\FR\FM\14JNN1.SGM
14JNN1
]]>Agencies
[Federal Register Volume 81, Number 114 (Tuesday, June 14, 2016)]
[Notices]
[Pages 38759-38769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13965]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78016; File No. SR-NYSEArca-2015-110]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 6 to a Proposed Rule Change To Amend NYSE Arca
Equities Rule 8.600 To Adopt Generic Listing Standards for Managed Fund
Shares
June 8, 2016.
I. Introduction
On November 6, 2015, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend NYSE Arca Equities Rule 8.600 by, among
other things, adopting generic listing standards for
[[Page 38760]]
Managed Fund Shares. The proposed rule change was published for comment
in the Federal Register on November 27, 2015.\3\ On January 4, 2016,
the Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 76486 (Nov. 20,
2015), 80 FR 74169 (``Notice'').
\4\ See Securities Exchange Act Release No. 76819, 81 FR 987
(Jan. 8, 2016). The Commission designated February 25, 2016 as the
date by which the Commission shall either approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change. See id.
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On November 23, 2015, the Exchange filed Amendment No. 1 to the
proposed rule change. On February 21, 2016, the Exchange withdrew
Amendment No. 1 to the proposed rule change and filed Amendment No. 2
to the proposed rule change, which replaced the proposed rule change as
originally filed. The proposed rule change, as modified by Amendment
No. 2, was published for comment in the Federal Register on February 1,
2016.\5\ On February 11, 2016, the Exchange filed Amendment No. 3 to
the proposed rule change, which amended and replaced the proposed rule
change as modified by Amendment No. 2 in its entirety.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 76974 (Jan. 26,
2016), 81 FR 5149.
---------------------------------------------------------------------------
On February 12, 2016, the Exchange filed Amendment No. 4 to the
proposed rule change, which superseded the proposed rule change as
modified by Amendment No. 3. On February 22, 2016, the Commission
published notice of filing of Amendment No. 4. and instituted
proceedings under Section 19(b)(2)(B) of the Act \6\ to determine
whether to approve or disapprove the proposed rule change, as modified
by Amendment No 4.\7\ In the Order Instituting Proceedings, the
Commission solicited comment on specified matters related to the
proposal.\8\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 77203, 81 FR 9900
(Feb. 26, 2016) (``Order Instituting Proceedings''). Specifically,
the Commission instituted proceedings to allow for additional
analysis of the proposed rule change's consistency with Section
6(b)(5) of the Act, which requires, among other things, that the
rules of a national securities exchange be ``designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade,'' and ``to protect investors and the
public interest.'' See id., 81 FR at 9908.
\8\ See id. at 9909.
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On May 20, 2016, the Commission designated a longer period for
Commission action on the proposed rule change.\9\ On June 3, 2016, the
Exchange filed Amendment No. 5 to the proposed rule change, which
superseded Amendment No 4 to the proposed rule change. The Commission
has received one comment on the proposed rule change.\10\
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\9\ See Securities Exchange Act Release No. 77872, 81 FR 33570
(May 26, 2016) (designating July 22, 2016 as the date by which the
Commission must either approve or disapprove the proposed rule
change).
\10\ See Letter from Rob Ivanoff to the Commission dated Nov.
22, 2015 (commenting that the format of the Exchange's proposed rule
change was unclear and difficult to read, and suggesting a new
format that would be easier to understand). This comment is
available on the Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-1.htm.
---------------------------------------------------------------------------
Pursuant to Section 19(b)(1) of the Act \11\ and Rule 19b-4
thereunder,\12\ notice is hereby given that, on June 6, 2016, the
Exchange filed Amendment No. 6 to the proposed rule change, which
supersedes the originally filed proposed rule change, as modified by
Amendment No. 5, in its entirety.\13\ The proposed rule change, as
modified by Amendment No. 6, is as described in Items II and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as modified by Amendment No. 6, from interested persons.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(1).
\12\ 17 CFR 240.19b-4.
\13\ The Commission notes that each of the Exhibits 4 to the
Exchange's amendments depict the changes to the proposed rule text.
The amendments, including the Exhibits 4, are available at the
Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2015-10/nysearca2015110.shtml.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE Arca Equities Rule 8.600 to
adopt generic listing standards for Managed Fund Shares. The 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.
III. 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 V below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend NYSE Arca Equities Rule 8.600 to
adopt generic listing standards for Managed Fund Shares. Under the
Exchange's current rules, a proposed rule change must be filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') for the
listing and trading of each new series of Managed Fund Shares. The
Exchange believes that it is appropriate to codify certain rules within
Rule 8.600 that would generally eliminate the need for such proposed
rule changes, which would create greater efficiency and promote uniform
standards in the listing process.\14\
---------------------------------------------------------------------------
\14\ The Exchange has previously filed a proposed rule change to
amend NYSE Arca Equities Rule 8.600 to adopt generic listing
standards for Managed Fund Shares. See Securities Exchange Act
Release No. 74433 (March 4, 2015), 80 FR 12690 (March 10, 2015) (SR-
NYSEArca-2015-02). On June 3, 2015, the Exchange filed Amendment No.
1 to the proposed rule change. See Securities Exchange Act Release
No. 75115 (June 5, 2015), 80 FR 33309 (June 11, 2015). On October
13, 2015, the Exchange withdrew the proposed rule change. See
Securities Exchange Act Release No. 76186 (October 19, 2015), 80 FR
64461 (October 23, 2015). This Amendment No. 6 to SR-NYSEArca-2015-
110 replaces SR-NYSEArca-2015-110 as originally filed and Amendments
No. 2, 3, 4 and 5 thereto, and supersedes such filings in their
entirety. The Exchange has withdrawn Amendment No. 1 to SR-NYSEArca-
2015-110.
---------------------------------------------------------------------------
Background
Rule 8.600 sets forth certain rules related to the listing and
trading of Managed Fund Shares.\15\ Under Rule 8.600(c)(1), the term
``Managed Fund Share'' means a security that:
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 57619 (April 4,
2008), 73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25) (order
approving NYSE Arca Equities Rule 8.600 and listing and trading of
shares of certain issues of Managed Fund Shares) (the ``Approval
Order''). The Approval Order approved the rules permitting the
listing and trading of Managed Fund Shares, trading hours and halts,
listing fees applicable to Managed Fund Shares, and the listing and
trading of several individual series of Managed Fund Shares.
---------------------------------------------------------------------------
(a) Represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management investment
company or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser (hereafter
``Adviser'') consistent with the Investment Company's investment
objectives and policies;
(b) is issued in a specified aggregate minimum number in return for
a deposit of a specified portfolio of securities and/or a cash amount
with a
[[Page 38761]]
value equal to the next determined net asset value; and
(c) when aggregated in the same specified minimum number, may be
redeemed at a holder's request, which holder will be paid a specified
portfolio of securities and/or cash with a value equal to the next
determined net asset value.
Effectively, Managed Fund Shares are securities issued by an
actively-managed open-end Investment Company (i.e., an actively-managed
exchange-traded fund (``ETF'')). Because Managed Fund Shares are
actively-managed, they do not seek to replicate the performance of a
specified passive index of securities. Instead, they generally use an
active investment strategy to seek to meet their investment objectives.
In contrast, an open-end Investment Company that issues Investment
Company Units (``Units''), listed and traded on the Exchange pursuant
to NYSE Arca Equities Rule 5.2(j)(3), seeks to provide investment
results that generally correspond to the price and yield performance of
a specific foreign or domestic stock index, fixed income securities
index or combination thereof. All Managed Fund Shares listed and/or
traded pursuant to Rule 8.600 (including pursuant to unlisted trading
privileges) are subject to the full panoply of Exchange rules and
procedures that currently govern the trading of equity securities on
the Exchange.\16\
---------------------------------------------------------------------------
\16\ See Approval Order, supra note 15, at 19547.
---------------------------------------------------------------------------
In addition, Rule 8.600(d) currently provides for the criteria that
Managed Fund Shares must satisfy for initial and continued listing on
the Exchange, including, for example, that a minimum number of Managed
Fund Shares are required to be outstanding at the time of commencement
of trading on the Exchange. However, the current process for listing
and trading new series of Managed Fund Shares on the Exchange requires
that the Exchange submit a proposed rule change with the Commission. In
this regard, Commentary .01 to Rule 8.600 specifies that the Exchange
will file separate proposals under Section 19(b) of the Act (hereafter,
a ``proposed rule change'') before listing and trading of shares of an
issue of Managed Fund Shares.
Proposed Changes to Rule 8.600
The Exchange would amend Commentary .01 to Rule 8.600 to specify
that the Exchange may approve Managed Fund Shares for listing and/or
trading (including pursuant to unlisted trading privileges) pursuant to
SEC Rule 19b-4(e) under the Act, which pertains to derivative
securities products (``SEC Rule 19b-4(e)'').\17\ SEC Rule 19b-4(e)(1)
provides that the listing and trading of a new derivative securities
product by a self-regulatory organization (``SRO'') is not deemed a
proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4,\18\
if the Commission has approved, pursuant to section 19(b) of the Act,
the SRO's trading rules, procedures and listing standards for the
product class that would include the new derivative securities product
and the SRO has a surveillance program for the product class. This is
the current method pursuant to which ``passive'' ETFs are listed under
NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------
\17\ 17 CFR 240.19b-4(e). As provided under SEC Rule 19b-4(e),
the term ``new derivative securities product'' means any type of
option, warrant, hybrid securities product or any other security,
other than a single equity option or a security futures product,
whose value is based, in whole or in part, upon the performance of,
or interest in, an underlying instrument.
\18\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO
shall be deemed to be a proposed rule change unless it is reasonably
and fairly implied by an existing rule of the SRO.
---------------------------------------------------------------------------
The Exchange would also specify within Commentary .01 to Rule 8.600
that components of Managed Fund Shares listed pursuant to SEC Rule 19b-
4(e) must satisfy on an initial and continued basis certain specific
criteria, which the Exchange would include within Commentary .01, as
described in greater detail below. As proposed, the Exchange would
continue to file separate proposed rule changes before the listing and
trading of Managed Fund Shares with components that do not satisfy the
additional criteria described below or components other than those
specified below. For example, if the components of a Managed Fund Share
exceeded one of the applicable thresholds, the Exchange would file a
separate proposed rule change before listing and trading such Managed
Fund Share. Similarly, if the components of a Managed Fund Share
included a security or asset that is not specified below, the Exchange
would file a separate proposed rule change.
The Exchange would also add to the criteria of Rule 8.600(c) to
provide that the Web site for each series of Managed Fund Shares shall
disclose certain information regarding the Disclosed Portfolio, to the
extent applicable. The required information includes the following, to
the extent applicable: ticker symbol, CUSIP or other identifier, a
description of the holding, identity of the asset upon which the
derivative is based, the strike price for any options, the quantity of
each security or other asset held as measured by select metrics,
maturity date, coupon rate, effective date, market value and percentage
weight of the holding in the portfolio.\19\
---------------------------------------------------------------------------
\19\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included disclosure requirements
with respect to each portfolio holding, as applicable to the type of
holding. See, e.g. Securities Exchange Act Release No. 72666 (July
3, 2014), 79 FR 44224 (July 30, 2014) (SR-NYSEArca-2013-122) (the
``PIMCO Total Return Use of Derivatives Approval''), at 44227.
---------------------------------------------------------------------------
In addition, the Exchange would amend Rule 8.600(d) to specify that
all Managed Fund Shares must have a stated investment objective, which
must be adhered to under normal market conditions.\20\
---------------------------------------------------------------------------
\20\ The Exchange would also add a new defined term under Rule
8.600(c)(5) to specify that the term ``normal market conditions''
includes, but is not limited to, the absence of trading halts in the
applicable financial markets generally; operational issues (e.g.,
systems failure) causing dissemination of inaccurate market
information; or force majeure type events such as natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance.
---------------------------------------------------------------------------
Finally, the Exchange would also amend the continued listing
requirement in Rule 8.600(d)(2)(A) by changing the requirement that a
Portfolio Indicative Value for Managed Fund Shares be widely
disseminated by one or more major market data vendors at least every 15
seconds during the time when the Managed Fund Shares trade on the
Exchange to a requirement that a Portfolio Indicative Value be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session (as defined in NYSE Arca
Equities Rule 7.34).
Proposed Managed Fund Share Portfolio Standards
The Exchange is proposing standards that would pertain to Managed
Fund Shares to qualify for listing and trading pursuant to SEC Rule
19b-4(e). These standards would be grouped according to security or
asset type. The Exchange notes that the standards proposed for a
Managed Fund Share portfolio that holds U.S. Component Stocks, Non-U.S.
Component Stocks, Derivative Securities Products and Index-Linked
Securities are based in large part on the existing equity security
standards applicable to Units in Commentary .01 to Rule 5.2(j)(3). The
standards proposed for a Managed Fund Share portfolio that holds fixed
income securities are based in large part on the existing fixed income
security standards applicable to Units in Commentary .02 to Rule
5.2(j)(3). Many of the standards proposed for other types of holdings
in
[[Page 38762]]
a Managed Fund Share portfolio are based on previous proposed rule
changes for specific series of Managed Fund Shares.\21\
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\21\ See the PIMCO Total Return Use of Derivatives Approval. See
also, Securities Exchange Act Release Nos. 66321 (February 3, 2012),
77 FR 6850 (February 9, 2012) (SR-NYSEArca-2011-95) (the ``PIMCO
Total Return Approval''); 69244 (March 27, 2013), 78 FR 19766 (April
2, 2013) (SR-NYSEArca-2013-08) (the ``SPDR Blackstone/GSO Senior
Loan Approval''); 68870 (February 8, 2013), 78 FR 11245 (February
15, 2013) (SR-NYSEArca-2012-139) (the ``First Trust Preferred
Securities and Income Approval''); 69591 (May 16, 2013), 78 FR 30372
(May 22, 2013) (SR-NYSEArca-2013-33) (the ``International Bear
Approval''); 61697 (March 12, 2010), 75 FR 13616 (March 22, 2010)
(SR-NYSEArca-2010-04) (the ``WisdomTree Real Return Approval''); and
67054 (May 24, 2012), 77 FR 32161 (May 31, 2012) (SR-NYSEArca-2012-
25) (the ``WisdomTree Brazil Bond Approval''). Certain standards
proposed herein for Managed Fund Shares are also based on previous
proposed rule changes for specific series of Units for which
Commission approval for listing was required due to the Units not
satisfying certain standards of Commentary .01 and .02 to NYSE Arca
Equities Rule 5.2(j)(3). See, e.g., Securities Exchange Act Release
No. 69373 (April 15, 2013), 78 FR 23601 (April 19, 2013) (SR-
NYSEArca-2012-108) (the ``NYSE Arca U.S. Equity Synthetic Reverse
Convertible Index Fund Approval'').
---------------------------------------------------------------------------
Proposed Commentary .01(a) would describe the standards for a
Managed Fund Share portfolio that holds equity securities, which are
defined to be U.S. Component Stocks,\22\ Non-U.S. Component Stocks,\23\
Derivative Securities Products,\24\ and Index-Linked Securities \25\
listed on a national securities exchange. For Derivative Securities
Products and Index-Linked Securities, no more than 25% of the equity
weight of the portfolio could include leveraged and/or inverse
leveraged Derivative Securities Products or Index-Linked Securities. In
addition, proposed Commentary .01(a) would provide that, to the extent
that a portfolio includes convertible securities, the equity security
into which such security is converted would be required to meet the
criteria of Commentary .01(a) after converting.
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\22\ For the purposes of Commentary .01 and this proposal, the
term ``U.S. Component Stocks'' would have the same meaning as
described in NYSE Arca Equities Rule 5.2(j)(3).
\23\ For the purposes of Commentary .01 and this proposal, the
term ``Non-U.S. Component Stocks'' would have the same meaning as
described in NYSE Arca Equities Rule 5.2(j)(3).
\24\ For the purposes of Commentary .01 and this proposal, the
term ``Derivative Securities Products'' would mean Investment
Company Units and securities described in Section 2 of Rule 8.
\25\ Index-Linked Securities are securities that qualify for
Exchange listing and trading under NYSE Arca Equities Rule
5.2(j)(6). The securities described in Rule 5.2(j)(3), Rule
5.2(j)(6) and Section 2 of Rule 8, as referenced above, would
include securities listed on another national securities exchange
pursuant to substantially equivalent listing rules.
---------------------------------------------------------------------------
As proposed in Commentary .01(a)(1) to Rule 8.600, the component
stocks of the equity portion of a portfolio that are U.S. Component
Stocks shall meet the following criteria initially and on a continuing
basis:
(1) Component stocks (excluding Derivative Securities Products and
Index-Linked Securities) that in the aggregate account for at least 90%
of the equity weight of the portfolio (excluding such Derivative
Securities Products and Index-Linked Securities) each must have a
minimum market value of at least $75 million; \26\
---------------------------------------------------------------------------
\26\ This proposed text is identical to the corresponding text
of Commentary .01(a)(A)(1) to NYSE Arca Equities Rule 5.2(j)(3),
except for the omission of the reference to ``index,'' which is not
applicable, and the addition of the reference to Index-Linked
Securities.
---------------------------------------------------------------------------
(2) Component stocks (excluding Derivative Securities Products and
Index-Linked Securities) that in the aggregate account for at least 70%
of the equity weight of the portfolio (excluding such Derivative
Securities Products and Index-Linked Securities) each must have a
minimum monthly trading volume of 250,000 shares, or minimum notional
volume traded per month of $25,000,000, averaged over the last six
months; \27\
---------------------------------------------------------------------------
\27\ This proposed text is identical to the corresponding text
of Commentary .01(a)(A)(2) to NYSE Arca Equities Rule 5.2(j)(3),
except for the omission of the reference to ``index,'' which is not
applicable, and the addition of the reference to Index-Linked
Securities.
---------------------------------------------------------------------------
(3) The most heavily weighted component stock (excluding Derivative
Securities Products and Index-Linked Securities) must not exceed 30% of
the equity weight of the portfolio, and, to the extent applicable, the
five most heavily weighted component stocks (excluding Derivative
Securities Products and Index-Linked Securities) must not exceed 65% of
the equity weight of the portfolio; \28\
---------------------------------------------------------------------------
\28\ This proposed text is identical to the corresponding text
of Commentary .01(a)(A)(3) to NYSE Arca Equities Rule 5.2(j)(3),
except for the omission of the reference to ``index,'' which is not
applicable, and the addition of the reference to Index-Linked
Securities.
---------------------------------------------------------------------------
(4) Where the equity portion of the portfolio does not include Non-
U.S. Component Stocks, the equity portion of the portfolio shall
include a minimum of 13 component stocks; provided, however, that there
shall be no minimum number of component stocks if (a) one or more
series of Derivative Securities Products or Index-Linked Securities
constitute, at least in part, components underlying a series of Managed
Fund Shares, or (b) one or more series of Derivative Securities
Products or Index-Linked Securities account for 100% of the equity
weight of the portfolio of a series of Managed Fund Shares; \29\
---------------------------------------------------------------------------
\29\ This proposed text is identical to the corresponding text
of Commentary .01(a)(A)(4) to NYSE Arca Equities Rule 5.2(j)(3),
except for the omission of the reference to ``index,'' which is not
applicable, the addition of the reference to Index-Linked
Securities, and the reference to the 100% limit applying to the
``equity portion'' of the portfolio.
---------------------------------------------------------------------------
(5) Except as provided in proposed Commentary .01(a), equity
securities in the portfolio must be U.S. Component Stocks listed on a
national securities exchange and must be NMS Stocks as defined in Rule
600 of Regulation NMS; \30\
---------------------------------------------------------------------------
\30\ 17 CFR 240.600. This proposed text is identical to the
corresponding text of Commentary .01(a)(A)(5) to NYSE Arca Equities
Rule 5.2(j)(3), except for the addition of ``equity'' to make clear
that the standard applies to ``equity securities'', the exclusion of
unsponsored ADRs, and the omission of the reference to ``index,''
which is not applicable.
---------------------------------------------------------------------------
(6) American Depositary Receipts (``ADRs'') may be exchange-traded
or non-exchange-traded. However no more than 10% of the equity weight
of the portfolio shall consist of non-exchange-traded ADRs.\31\
---------------------------------------------------------------------------
\31\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included the ability for such
Managed Fund Share holdings to include not more than 10% of net
assets in unsponsored ADRs (which are not exchange-listed). See,
e.g., Securities Exchange Act Release No. 71067 (December 12,
20113[sic]), 78 FR 76669 (December 18, 2013) (order approving
listing and trading of shares of the SPDR MFS Systematic Core Equity
ETF, SPDR MFS Systematic Growth Equity ETF, and SPDR MFS Systematic
Value Equity ETF under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------
As proposed in Commentary .01(a)(2) to Rule 8.600, the component
stocks of the equity portion of a portfolio that are Non-U.S. Component
Stocks shall meet the following criteria initially and on a continuing
basis:
(1) Non-U.S. Component Stocks each shall have a minimum market
value of at least $100 million; \32\
---------------------------------------------------------------------------
\32\ The proposed text is identical to the corresponding
representation from the ``SSgA Global Managed Volatility Release'',
as defined in footnote 28, below. The proposed text is also
identical to the corresponding text of Commentary .01(a)(B)(1) to
NYSE Arca Equities Rule 5.2(j)(3), except for the omission of the
reference to ``index,'' which is not applicable, and that each Non-
U.S. Component Stock must have a minimum market value of at least
$100 million instead of the 90% required under Commentary
.01(a)(B)(1) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------
(2) Non-U.S. Component Stocks each shall have a minimum global
monthly trading volume of 250,000 shares, or minimum global notional
volume traded per month of $25,000,000, averaged over the last six
months; \33\
---------------------------------------------------------------------------
\33\ The proposed text is identical to the corresponding
representation from the SSgA Global Managed Volatility Release, as
defined in footnote 28, below. This proposed text also is identical
to the corresponding text of Commentary .01(a)(B)(2) to NYSE Arca
Equities Rule 5.2(j)(3), except for the omission of the reference to
``index,'' which is not applicable.
---------------------------------------------------------------------------
[[Page 38763]]
(3) The most heavily weighted Non-U.S. Component Stock shall not
exceed 25% of the equity weight of the portfolio, and, to the extent
applicable, the five most heavily weighted Non-U.S. Component Stocks
shall not exceed 60% of the equity weight of the portfolio; \34\
---------------------------------------------------------------------------
\34\ This proposed text is identical to the corresponding text
of Commentary .01(a)(B)(3) to NYSE Arca Equities Rule 5.2(j)(3),
except for the omission of the reference to ``index'', which is not
applicable.
---------------------------------------------------------------------------
(4) Where the equity portion of the portfolio includes Non-U.S.
Component Stocks, the equity portion of the portfolio shall include a
minimum of 20 component stocks; provided, however, that there shall be
no minimum number of component stocks if (i) one or more series of
Derivative Securities Products or Index-Linked Securities constitute,
at least in part, components underlying a series of Managed Fund
Shares, or (ii) one or more series of Derivative Securities Products or
Index-Linked Securities account for 100% of the equity weight of the
portfolio of a series of Managed Fund Shares; \35\ and
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\35\ This proposed text is similar to the corresponding text of
Commentary .01(a)(B)(4) to NYSE Arca Equities Rule 5.2(j)(3), except
for the omission of the reference to ``index,'' which is not
applicable, the addition of the reference to Index-Linked
Securities, the reference to the equity portion of the portfolio
including Non-U.S. Component Stocks, and the reference to the 100%
limitation applying to the ``equity weight'' of the portfolio, which
is included because the proposed standards in Commentary .01 to Rule
8.600 permit the inclusion of non-equity securities, whereas
Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) applies only to
equity securities.
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(5) Each Non-U.S. Component Stock shall be listed and traded on an
exchange that has last-sale reporting.\36\
---------------------------------------------------------------------------
\36\ This proposed text is similar to Commentary .01(a)(B)(5) to
NYSE Arca Equities Rule 5.2(j)(3) as it relates to Non-U.S.
Component Stocks.
---------------------------------------------------------------------------
The Exchange notes that it is not proposing to require that any of
the equity portion of the equity portfolio composed of Non-U.S.
Component Stocks be listed on markets that are either a member of the
Intermarket Surveillance Group (``ISG'') or a market with which the
Exchange has a comprehensive surveillance sharing agreement
(``CSSA'').\37\ However, as further detailed below, the regulatory
staff of the Exchange, or the Financial Industry Regulatory Authority,
Inc. (``FINRA''), on behalf of the Exchange, will communicate as needed
regarding trading in Managed Fund Shares with other markets that are
members of the ISG, including U.S. securities exchanges on which the
components are traded. The Exchange notes that the generic listing
standards for Units based on foreign indexes in NYSE Arca Equities Rule
5.2(j)(3) do not include specific ISG or CSSA requirements.\38\ In
addition, the Commission has approved listing and trading on the
Exchange of shares of an issue of Managed Fund Shares under NYSE Arca
Equities Rule 8.600 where non-U.S. equity securities in such issue's
portfolio meet specified criteria and where there is no requirement
that such non-U.S. equity securities are traded in markets that are
members of ISG or with which the Exchange has in place a CSSA.\39\
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\37\ ISG is comprised of an international group of exchanges,
market centers, and market regulators that perform front-line market
surveillance in their respective jurisdictions. See
www.isgportal.org. A list of ISG members is available at
www.isgportal.org.
\38\ Under Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3),
Units with components that include Non-U.S. Component Stocks can
hold a portfolio that is entirely composed of Non-U.S. Component
Stocks that are listed on markets that are neither members of ISG,
nor with which the Exchange has in place a CSSA.
\39\ See Securities Exchange Act Release No. 75023 (May 21,
2015), 80 FR 30519 (May 28, 2015) (SR-NYSEArca-2014-100) (order
approving listing and trading on the Exchange of shares of the SPDR
SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule
8.600) (``SSgA Global Managed Volatility Release'').
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Proposed Commentary .01(b) would describe the standards for a
Managed Fund Share portfolio that holds fixed income securities, which
are debt securities \40\ that are notes, bonds, debentures or evidence
of indebtedness that include, but are not limited to, U.S. Department
of Treasury securities (``Treasury Securities''), government-sponsored
entity securities (``GSE Securities''), municipal securities, trust
preferred securities, supranational debt and debt of a foreign country
or a subdivision thereof, investment grade and high yield corporate
debt, bank loans, mortgage and asset backed securities, and commercial
paper. In addition, to the extent that a portfolio includes convertible
securities, the fixed income security into which such security is
converted would be required to meet the criteria of Commentary .01(b)
after converting.
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\40\ Debt securities include a variety of fixed income
obligations, including, but not limited to, corporate debt
securities, government securities, municipal securities, convertible
securities, and mortgage-backed securities. Debt securities include
investment-grade securities, non-investment-grade securities, and
unrated securities. Debt securities also include variable and
floating rate securities.
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The components of the fixed income portion of a portfolio must meet
the following criteria initially and on a continuing basis:
(1) Components that in the aggregate account for at least 75% of
the fixed income weight of the portfolio each shall have a minimum
original principal amount outstanding of $100 million or more; \41\
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\41\ This text of proposed Commentary .01(b)(1) to Rule 8.600 is
based on the corresponding text of Commentary .02(a)(2) to Rule
5.2(j)(3) .
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(2) No component fixed-income security (excluding Treasury
Securities and GSE Securities) could represent more than 30% of the
fixed income weight of the portfolio, and the five most heavily
weighted component fixed income securities in the portfolio (excluding
Treasury Securities and GSE Securities) must not in the aggregate
account for more than 65% of the fixed income weight of the portfolio;
\42\
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\42\ This proposed text is identical to the corresponding text
of Commentary .02(a)(4) to Rule 5.2(j)(3), except for the omission
of the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------
(3) An underlying portfolio (excluding exempted securities) that
includes fixed income securities must include a minimum of 13 non-
affiliated issuers; provided, however, that there shall be no minimum
number of non-affiliated issuers required for fixed income securities
if at least 70% of the weight of the portfolio consists of equity
securities as described in proposed Commentary .01(a).\43\
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\43\ This proposed text is similar to the corresponding text of
Commentary .02(a)(5) to Rule 5.2(j)(3), except for the omission of
the reference to ``index,'' which is not applicable, the exclusion
of the text ``consisting entirely of exempted securities'' and the
provision that there shall be no minimum number of non-affiliated
issuers required for fixed income securities if at least 70% of the
weight of the portfolio consists of equity securities as described
in proposed Commentary .01(a).
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(4) Component securities that in aggregate account for at least 90%
of the fixed income weight of the portfolio must be either (a) from
issuers that are required to file reports pursuant to Sections 13 and
15(d) of the Act; (b) from issuers that have a worldwide market value
of its outstanding common equity held by non-affiliates of $700 million
or more; (c) from issuers that have outstanding securities that are
notes, bonds debentures, or evidence of indebtedness having a total
remaining principal amount of at least $1 billion; \44\ (d) exempted
securities as defined in Section 3(a)(12) of the Act; or (e) from
issuers that are a government of a foreign country or a political
subdivision of a foreign country; and
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\44\ With respect to subparagraphs (b) and (c) above, the
special purpose vehicle (``SPV'') that issues the fixed income
security (e.g., an asset-backed or mortgage-backed security) would
itself be required to satisfy the $700 million and $1 billion
criteria, respectively, and not the entity that controls, owns or is
affiliated with the SPV.
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(5) Non-agency, non-GSE and privately-issued mortgage-related and
other asset-backed securities components of a portfolio shall not
account, in the aggregate, for more than
[[Page 38764]]
20% of the weight of the fixed income portion of the portfolio.\45\
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\45\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included the ability for such
Managed Fund Share holdings to include up to 20% of net assets in
non-agency, non-GSE and privately-issued mortgage-related and other
asset-backed securities. See, e.g., Securities Exchange Act Release
No. 75566 (July 30, 2015), 80 FR 46612 (August 5, 2015) (SR-
NYSEArca-2015-42) (order approving listing and trading of shares of
Newfleet Multi-Sector Unconstrained Bond ETF under NYSE Arca
Equities Rule 8.600).
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Proposed Commentary .01(c) would describe the standards for a
Managed Fund Share portfolio that holds cash and cash equivalents.\46\
Specifically, the portfolio may hold short-term instruments with
maturities of less than 3 months. There would be no limitation to the
percentage of the portfolio invested in such holdings. Short-term
instruments would include the following: \47\
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\46\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included the ability for such
Managed Fund Share holdings to include cash and cash equivalents.
See, e.g., SPDR Blackstone/GSO Senior Loan Approval, supra note 21,
at 19768-69 and First Trust Preferred Securities and Income
Approval, supra note 21, at 76150.
\47\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly specified short-term instruments
with respect to their inclusion in Managed Fund Share holdings. See,
e.g., First Trust Preferred Securities and Income Approval, supra
note 21, at 76150-51.
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(1) U.S. Government securities, including bills, notes and bonds
differing as to maturity and rates of interest, which are either issued
or guaranteed by the U.S. Treasury or by U.S. Government agencies or
instrumentalities;
(2) certificates of deposit issued against funds deposited in a
bank or savings and loan association;
(3) bankers' acceptances, which are short-term credit instruments
used to finance commercial transactions;
(4) repurchase agreements and reverse repurchase agreements;
(5) bank time deposits, which are monies kept on deposit with banks
or savings and loan associations for a stated period of time at a fixed
rate of interest;
(6) commercial paper, which are short-term unsecured promissory
notes; and
(7) money market funds.
Proposed Commentary .01(d) would describe the standards for a
Managed Fund Share portfolio that holds listed derivatives, including
futures, options and swaps on commodities, currencies and financial
instruments (e.g., stocks, fixed income, interest rates, and
volatility) or a basket or index of any of the foregoing.\48\ There
would be no limitation to the percentage of the portfolio invested in
such holdings, subject to the following requirements:
---------------------------------------------------------------------------
\48\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included the ability for such
Managed Fund Share holdings to include listed derivatives. See,
e.g., WisdomTree Real Return Approval, supra note 21, at 13617 and
WisdomTree Brazil Bond Approval, supra note 21, at 32163.
---------------------------------------------------------------------------
(1) In the aggregate, at least 90% of the weight of such holdings
invested in futures, exchange-traded options, and listed swaps shall,
on both an initial and continuing basis, consist of futures, options,
and swaps for which the Exchange may obtain information via the ISG
from other members or affiliates of the ISG or for which the principal
market is a market with which the Exchange has a comprehensive
surveillance sharing agreement (For purposes of calculating this
limitation, a portfolio's investment in listed derivatives will be
calculated as the aggregate gross notional value of the listed
derivatives.); and
(2) the aggregate gross notional value of listed derivatives based
on any five or fewer underlying reference assets shall not exceed 65%
of the weight of the portfolio (including gross notional exposures),
and the aggregate gross notional value of listed derivatives based on
any single underlying reference asset shall not exceed 30% of the
weight of the portfolio (including gross notional exposures).
Proposed Commentary .01(e) would describe the standards for a
Managed Fund Share portfolio that holds over the counter (``OTC'')
derivatives, including forwards, options and swaps on commodities,
currencies and financial instruments (e.g., stocks, fixed income,
interest rates, and volatility) or a basket or index of any of the
foregoing.\49\ Proposed Commentary .01(e) would provide that, on both
an initial and continuing basis, no more than 20% of the assets in the
portfolio may be invested in OTC derivatives. For purposes of
calculating this limitation, a portfolio's investment in OTC
derivatives will be calculated as the aggregate gross notional value of
the OTC derivatives.
---------------------------------------------------------------------------
\49\ A proposed rule change for series of Units previously
listed and traded on the Exchange pursuant to Rule 5.2(j)(3)
similarly included the ability for such Units' holdings to include
OTC derivatives, specifically OTC down-and-in put options, which are
not NMS Stocks as defined in Rule 600 of Regulation NMS and
therefore do not satisfy the requirements of Commentary .01(a)(A) to
Rule 5.2(j)(3). See, e.g., NYSE Arca U.S. Equity Synthetic Reverse
Convertible Index Fund Approval, supra note 21, at 23602.
---------------------------------------------------------------------------
Proposed Commentary .01(f) would provide that, to the extent that
listed or OTC derivatives are used to gain exposure to individual
equities and/or fixed income securities, or to indexes of equities and/
or fixed income securities, the aggregate gross notional value of such
exposures shall meet the criteria set forth in Commentary .01(a) and
.01(b) to Rule 8.600 (including gross notional exposures),
respectively. The Exchange notes that, for purposes of this proposal, a
portfolio's investment in OTC derivatives will be calculated as the
aggregate gross notional value of the OTC derivatives.
The following examples illustrate how certain of the proposed
generic criteria of Rule 8.600 would be applied:
1. An actively managed ETF holds non-agency MBS that represent 15%
of the weight of the fixed income portion of the portfolio. The fixed
income portion of the portfolio meets all the requirements of
Commentary .01(b). The ETF also holds an OTC swap on a non-agency MBS
Index that represents 10% of the fixed income weight of the portfolio
calculated on a notional value basis. Separately, the OTC swap and
fixed income portion of the portfolio would meet the requirements of
the Rule 8.600, Commentary .01. However, when the 15% weight in non-
agency MBS and the 10% weight in the non-agency MBS Index OTC swap are
combined, as required by proposed Commentary .01(f) to Rule 8.600, the
25% total weight would exceed the 20% limit for non-agency GSE and
privately-issued mortgage-related securities in Commentary .01(b)(5).
The portfolio, therefore, would not meet the proposed generic criteria
of Rule 8.600.
2. An actively managed ETF holds a portfolio of non-U.S. equity
securities, S&P 500 Index and gold futures. S&P 500 Index futures and
the gold futures held by the fund are listed on an ISG member exchange.
The equity portion of the portfolio consists of developed and emerging
markets equity securities with a current aggregate market value of $15
million and all components meet the requirements under Commentary
.01(a)(2). The gold futures contract trading unit size is 100 troy
ounces and an ounce of gold is currently worth $1200. The fund holds
500 gold futures contracts with a notional value of $60 million (500 *
100 * $1200). One S&P 500 contract represents 250 units of the S&P 500
Index and the S&P 500 Index is trading at $2,000. The portfolio holds
50 contracts, so the notional value of the S&P 500 Index futures
position is $25 million (50 * 250 * $2000). The S&P 500 Index futures
meet the requirement under Commentary .01(f), that is, the S&P 500
Index meets the criteria in Commentary .01(a). The weights of the
components are as follows: Equity securities represent 15% of the
portfolio, gold futures represent 60% of
[[Page 38765]]
the portfolio and S&P 500 Index futures represent 25% of the portfolio.
The gold futures represent 60% of the portfolio and exceeds the 30%
concentration limitation on any single underlying reference asset as
outlined in proposed Commentary .01(d)(2). The portfolio, therefore,
would not meet the proposed generic criteria of Rule 8.600.
3. An actively managed ETF holds a portfolio of equity securities
and call option contracts on company XYZ. The equity portion of [sic]
portfolio meets the requirements under Commentary .01(a). Company XYZ
represents 20% of the weight of the equity portion of the portfolio.
The equity portion of the fund has a market value of $100 million and
the market value of the fund's holdings in company XYZ has a market
value of $20 million. The fund also holds 10,000 call option contracts
on company XYZ which has a current market price of $50 a share and,
therefore, a notional value of $50 million (50 * 100 * 10,000) (that
is, the $50 market price per share times the multiplier of 100 times
10,000 contracts). The option contracts are traded on an ISG member
exchange. The total exposure to company XYZ is therefore $70 million
and represents 46.7% ($70 million/$150 million=46.7%) of the portfolio.
This fund would not meet the requirements of Rule 8.600 because the
exposure to XYZ at 46.7% exceeds the 30% concentration limitation of
proposed Commentary .01(d)(2).
The Exchange believes that the proposed standards would continue to
ensure transparency surrounding the listing process for Managed Fund
Shares. Additionally, the Exchange believes that the proposed portfolio
standards for listing and trading Managed Fund Shares, many of which
track existing Exchange rules relating to Units, are reasonably
designed to promote a fair and orderly market for such Managed Fund
Shares.\50\ These proposed standards would also work in conjunction
with the existing initial and continued listing criteria related to
surveillance procedures and trading guidelines.
---------------------------------------------------------------------------
\50\ See Approval Order, supra note 15 at 19548.
---------------------------------------------------------------------------
In support of this proposal, the Exchange represents that: \51\
---------------------------------------------------------------------------
\51\ The Exchange made similar representations in the Approval
Order. See id. at 19549.
---------------------------------------------------------------------------
(1) The Managed Fund Shares will continue to conform to the initial
and continued listing criteria under Rule 8.600;
(2) the Exchange's surveillance procedures are adequate to continue
to properly monitor the trading of the Managed Fund Shares in all
trading sessions and to deter and detect violations of Exchange rules.
Specifically, the Exchange intends to utilize its existing surveillance
procedures applicable to derivative products, which will include
Managed Fund Shares, to monitor trading in the Managed Fund Shares;
(3) prior to the commencement of trading of a particular series of
Managed Fund Shares, the Exchange will inform its Equity Trading Permit
(``ETP'') Holders in a Bulletin of the special characteristics and
risks associated with trading the Managed Fund Shares, including
procedures for purchases and redemptions of Managed Fund Shares,
suitability requirements under NYSE Arca Equities Rule 9.2(a), the
risks involved in trading the Managed Fund Shares during the Opening
and Late Trading Sessions when an updated Portfolio Indicative Value
will not be calculated or publicly disseminated, information regarding
the Portfolio Indicative Value and the Disclosed Portfolio, prospectus
delivery requirements, and other trading information. In addition, the
Bulletin will disclose that the Managed Fund Shares are subject to
various fees and expenses, as described in the applicable registration
statement, and will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. Finally,
the Bulletin will disclose that the net asset value for the Managed
Fund Shares will be calculated after 4 p.m. ET each trading day; and
(4) the issuer of a series of Managed Fund Shares will be required
to comply with Rule 10A-3 under the Act for the initial and continued
listing of Managed Fund Shares, as provided under NYSE Arca Equities
Rule 5.3.
The Exchange notes that the proposed change is not otherwise
intended to address any other issues and that the Exchange is not aware
of any problems that ETP Holders or issuers would have in complying
with the proposed change.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\52\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\53\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\52\ 15 U.S.C. 78f(b).
\53\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest because it would facilitate the listing and trading of
additional Managed Fund Shares, which would enhance competition among
market participants, to the benefit of investors and the marketplace.
Specifically, after more than six years under the current process,
whereby the Exchange is required to file a proposed rule change with
the Commission for the listing and trading of each new series of
Managed Fund Shares, the Exchange believes that it is appropriate to
codify certain rules within Rule 8.600 that would generally eliminate
the need for separate proposed rule changes. The Exchange believes that
this would facilitate the listing and trading of additional types of
Managed Fund Shares that have investment portfolios that are similar to
investment portfolios for Units, which have been approved for listing
and trading, thereby creating greater efficiencies in the listing
process for the Exchange and the Commission. In this regard, the
Exchange notes that the standards proposed for Managed Fund Share
portfolios that include U.S. Component Stocks, Non-U.S. Component
Stocks, Derivative Securities Products, and Index-Linked Securities are
based in large part on the existing equity security standards
applicable to Units in Commentary .01 to NYSE Arca Equities Rule
5.2(j)(3) and that the standards proposed for Managed Fund Share
portfolios that include fixed income securities are based in large part
on the existing fixed income standards applicable to Units in
Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3). Additionally, many
of the standards proposed for other types of holdings of series of
Managed Fund Shares are based on previous proposed rule changes for
specific series of Managed Fund Shares.\54\
---------------------------------------------------------------------------
\54\ See supra, note 21.
---------------------------------------------------------------------------
With respect to the proposed addition to the criteria of Rule
8.600(c) to provide that the Web site for each series of Managed Fund
Shares shall disclose certain information regarding the Disclosed
Portfolio, to the extent applicable, the Exchange notes that proposed
rule changes approved by the Commission for previously-listed series of
Managed Fund Shares have similarly included disclosure requirements
with respect to each portfolio holding, as
[[Page 38766]]
applicable to the type of holding.\55\ With respect to the proposed
definition of the term ``normal market conditions'' in proposed Rule
8.600(c)(5), such definition is similar to the definition of normal
market conditions approved by the Commission for other issues of
Managed Fund Shares.\56\ In addition, proposed Rule 8.600(d)(1)(C),
would specify that a series of Managed Fund Shares would be required to
adhere to its stated investment objective during normal market
conditions.
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\55\ See supra, note 19.
\56\ See, e.g., Securities Exchange Act Release No. 74338
(February 20, 2015), 80 FR 10556 (February 26, 2015) (SR-NYSEArca-
2014-143) (order approving listing and trading of shares of the SPDR
Doubletree Total Return Tactical ETF under NYSE Arca Equities Rule
8.600).
---------------------------------------------------------------------------
With respect to the proposed amendment to the continued listing
requirement in Rule 8.600(d)(2)(A) to require dissemination of a
Portfolio Indicative Value at least every 15 seconds during the Core
Trading Session (as defined in NYSE Arca Equities Rule 7.34), such
requirement conforms to the requirement applicable to the dissemination
of the Intraday Indicative Value for Units in Commentary .01(c) and
Commentary .02 (c) to NYSE Arca Equities Rule 5.2(j)(3). In addition,
such dissemination is consistent with representations made in proposed
rule changes for issues of Managed Fund Shares previously approved by
the Commission.\57\
---------------------------------------------------------------------------
\57\ See, e.g., Approval Order, supra note 15; International
Bear Approval, supra note 21.
---------------------------------------------------------------------------
With respect to the proposed requirement in Commentary .01(a) that
no more than 25% of the equity weight of the portfolio shall consist of
leveraged and/or inverse leveraged Derivative Securities Products or
Index-Linked Securities, such requirement would assure that only a
relatively small proportion of a fund's investments could consist of
such leveraged and/or inverse securities. In addition, such limitation
would apply to both U.S. Component Stocks and Non-U.S. Component Stocks
comprising the equity portion of a portfolio. With respect to the
proposed provision in Commentary .01(a) that, to the extent a portfolio
includes a convertible security, the equity security into which such
security is converted must meet the criteria in Commentary .01(a) after
converting, such requirement would assure that the equity securities
into which a convertible security could be converted meet the liquidity
and other criteria in Commentary .01 applicable to such equity
securities. With respect to the proposed exclusion of Derivatives
Securities Products and Index-Linked Securities from the requirements
of proposed Commentary .01(a) of Rule 8.600, the Exchange believes it
is appropriate to exclude Index-Linked Securities as well as Derivative
Securities Products from certain component stock eligibility criteria
for Managed Fund Shares in so far as Derivative Securities Products and
Index-Linked Securities are themselves subject to specific quantitative
listing and continued listing requirements of a national securities
exchange on which such securities are listed. Derivative Securities
Products and Index-Linked Securities that are components of a fund's
portfolio would have been listed and traded on a national securities
exchange pursuant to a proposed rule change approved by the Commission
pursuant to Section 19(b)(2) of the Act \58\ or submitted by a national
securities exchange pursuant to Section 19(b)(3)(A) of the Act \59\ or
would have been listed by a national securities exchange pursuant to
the requirements of Rule 19b-4(e) under the Act.\60\ The Exchange also
notes that Derivative Securities Products and Index-Linked Securities
are derivatively priced, and, therefore, the Exchange believes that it
would not be necessary to apply the proposed generic quantitative
criteria (e.g., market capitalization, trading volume, or portfolio
component weighting) applicable to equity securities other than
Derivative Securities Products or Index-Linked Securities (e.g., common
stocks) to such products.\61\
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\58\ 15 U.S.C. 78s(b)(2).
\59\ 15 U.S.C. 78s(b)(3)(A).
\60\ 17 CFR 240.19b-4(e).
\61\ See Securities Exchange Act Release Nos. 57561 (March 26,
2008), 73 FR 17390 (April 1, 2008) (SR-NYSEArca-2008-29) (notice of
filing of proposed rule change to amend eligibility criteria for
components of an index underlying Investment Company Units); 57751
(May 1, 2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29)
(order approving proposed rule change to amend eligibility criteria
for components of an index underlying Investment Company Units).
---------------------------------------------------------------------------
With respect to the proposed criteria applicable to U.S. Component
Stocks, the Exchange notes that such criteria are similar to those in
Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) relating to
criteria applicable to an index or portfolio of U.S. Component Stocks.
In addition, Non-U.S. Component Stocks also will be required to meet
criteria similar to certain generic listing standards in Commentary .01
to NYSE Arca Equities Rule 5.2(j)(3) relating to criteria applicable to
an index or portfolio of U.S. Component Stocks and Non-U.S. Component
Stocks underlying a series of Units to be listed and traded on the
Exchange pursuant to Rule 19b-4(e) under the Act.
With respect to the proposed requirement in Commentary .01(a)(1)(F)
that ADRs in a portfolio may be exchange-traded or non-exchange-traded
and that no more than 10% of the equity weight of the portfolio shall
consist of non-exchange-traded ADRs, the Exchange notes that such
requirement will ensure that unsponsored ADRs, which are traded OTC and
which generally have less market transparency than sponsored ADRs, as
well as any sponsored ADRs traded OTC, could account for only a small
percentage of the equity weight of a portfolio. Further, the
requirement is consistent with representations made in proposed rule
changes for issues of Managed Fund Shares previously approved by the
Commission.\62\
---------------------------------------------------------------------------
\62\ See note 31, supra.
---------------------------------------------------------------------------
With respect to the proposed provision in Commentary .01(b) that,
to the extent a portfolio includes convertible securities, the fixed
income security into which such security is converted must meet the
criteria in paragraph (b) of Commentary .01 after converting, such
requirement would assure that the fixed income securities into which a
convertible security could be converted meet the liquidity and other
criteria in Commentary .01(b) applicable to fixed income securities.
As proposed, pursuant to Commentary .01(b)(3) to Rule 8.600, an
underlying portfolio (excluding exempted securities) that includes
fixed income securities must include a minimum of 13 non-affiliated
issuers, but there would be no minimum number of non-affiliated issuers
required for fixed income securities if at least 70% of the weight of
the portfolio consists of equity securities, as described in Commentary
.01(a). The Exchange notes that, when evaluated in conjunction with
proposed Commentary .01(b)(2), the proposed rule is consistent with
Commentary .02(a)(4) and (5) of NYSE Arca Equities Rule 5.2(j)(3) in
that it provides for a maximum weighting of a fixed income security in
the fixed income portion of the portfolio of a fund that is comparable
to the existing rules applicable to Investment Company Units based on
fixed income indexes.
With respect to the proposed requirement in Commentary .01(b)(5)
that non-agency, non-GSE and privately-issued mortgage-related and
other asset-backed securities components of a portfolio shall not
account, in the aggregate, for more than 20% of the weight of the fixed
income portion of the portfolio, the Exchange notes that
[[Page 38767]]
such requirement is consistent with representations made in proposed
rule changes for issues of Managed Fund Shares previously approved by
the Commission.\63\
---------------------------------------------------------------------------
\63\ See note 45, supra.
---------------------------------------------------------------------------
With respect to the proposed amendment to Commentary .01(c)
relating to cash and cash equivalents, while there is no limitation on
the amount of cash and cash equivalents that can make up the portfolio,
such instruments are short-term, highly liquid, and of high credit
quality, making them less susceptible than other asset classes both to
price manipulation and volatility. Further, the requirement is
consistent with representations made in proposed rule changes for
issues of Managed Fund Shares previously approved by the
Commission.\64\
---------------------------------------------------------------------------
\64\ See note 46, supra.
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With respect to proposed Commentary .01(d)(1) to Rule 8.600
relating to listed derivatives, the Exchange believes that it is
appropriate that there be no limit to the percentage of a portfolio
invested in such holdings, provided that, in the aggregate, at least
90% of the weight of such holdings invested in futures, exchange-traded
options, and listed swaps would consist of futures, options, and swaps
for which the Exchange may obtain information via ISG from other
members or affiliates or for which the principal market is a market
with which the Exchange has a CSSA. Such a requirement would facilitate
information sharing among market participants trading shares of a
series of Managed Fund Shares as well as futures and options that such
series may hold. In addition, listed swaps would be centrally cleared,
reducing counterparty risk and thereby furthering investor
protection.\65\ With respect to proposed Commentary .01(d)(2) to Rule
8.600, requiring percentage caps on the aggregate gross notional value
of listed derivatives based on any five or fewer underlying reference
assets or based on any single underlying reference asset, the Exchange
believes such requirements will help ensure that listed derivatives
utilized by a fund are adequately diversified and not unduly
concentrated.
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\65\ The Commission has noted that ``[c]entral clearing
mitigates counterparty risk among dealers and other institutions by
shifting that risk from individual counterparties to [central
counterparties (``CCPs'')], thereby protecting CCPs from each
other's potential failures.'' See Securities Exchange Act Release
No. 67286 (June 28, 2012) (File No. S7-44-10) (Process for
Submissions for Review of Security-Based Swaps for Mandatory
Clearing and Notice Filing Requirements for Clearing Agencies).
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With respect to proposed Commentary .01(e) to Rule 8.600 relating
to OTC derivatives, the Exchange believes that the limitation to 20% of
a fund's assets would assure that the preponderance of fund investments
would not be in derivatives that are not listed and centrally cleared.
The Exchange believes that such a limitation is sufficient to mitigate
the risks associated with price manipulation because a 20% cap on OTC
derivatives will ensure that any series of Managed Fund Shares will be
sufficiently broad-based in scope to minimize potential manipulation
associated with OTC derivatives and because the remaining 80% of the
portfolio will consist of instruments subject to numerous restrictions
designed to prevent manipulation, including equity securities (which,
as proposed, would be subject to market cap, trading volume, and
diversity requirements, among others), fixed income securities (which,
as proposed, would be subject to principal amount outstanding,
diversity, and issuer requirements, among others), cash and cash
equivalents (which, as proposed, would be limited to short-term, highly
liquid, and high credit quality instruments), and/or listed derivatives
(which would be subject to the limitations in proposed Commentary
.01(d)).
The Exchange notes that a fund's investments in derivative
instruments would be subject to limits on leverage imposed by the 1940
Act. Section 18(f) of the 1940 Act and related Commission guidance
limit the amount of leverage an investment company can obtain. A fund's
investments would be consistent with its investment objective and would
not be used to enhance leverage. To limit the potential risk associated
with a fund's use of derivatives, a fund will segregate or ``earmark''
assets determined to be liquid by a fund in accordance with the 1940
Act (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under derivative
instruments.
With respect to proposed Commentary .01(f) to Rule 8.600 relating
to a fund's use of listed or OTC derivatives to gain exposure to
individual equities and/or fixed income securities, or to indexes of
equities and/or indexes of fixed income securities, the Exchange notes
that the aggregate gross notional value of such exposure would be
required to meet the numerical and other criteria set forth in proposed
Commentary .01(a) and .01(b) to Rule 8.600 (including gross notional
exposures), respectively.
Quotation and other market information relating to listed futures
and options is available from the exchanges listing such instruments as
well as from market data vendors. With respect to centrally-cleared
swaps \66\ and non-centrally-cleared swaps regulated by the CFTC,\67\
the Dodd-Frank Act mandates that swap information be reported to swap
data repositories (``SDRs'').\68\ SDRs provide a central facility for
swap data reporting and recordkeeping and are required to comply with
data standards set by the CFTC, including real-time public reporting of
swap transaction data to a derivatives clearing organization or
SEF.\69\ SDRs require real-time reporting of all OTC and centrally
cleared derivatives, including public reporting of the swap price and
size. The parties responsible for reporting swaps information are CFTC-
registered swap dealers (``RSDs''), major swap participants, and swap
execution facilities (``SEFs''). If swap counterparties do not fall
into the above categories, then one of the parties to the swap must
report the trade to the SDR. Cleared swaps regulated by the CFTC must
be executed on a Designated Contract Market (``DCM'') or SEF. Such
cleared swaps have the same reporting requirements as futures,
including end-of-day price, volume, and open interest. CFTC swaps
reporting requirements require public dissemination of, among other
items, product ID (if available); asset class; underlying reference
asset, reference issuer, or reference index; termination date; date and
time of execution; price, including currency; notional amounts,
including currency; whether direct or indirect counterparties include
an RSD; whether cleared or un-cleared; and platform ID of where the
contract was executed (if applicable).
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\66\ There are currently five categories of swaps eligible for
central clearing: Interest rate swaps; credit default swaps; foreign
exchange swaps; equity swaps; and commodity swaps. The following
entities provide central clearing for OTC derivatives: ICE Clear
Credit (US); ICE Clear (EU); CME Group; LCH.Clearnet; and Eurex.
\67\ Pursuant to the Dodd-Frank Act, OTC and centrally-cleared
swaps are regulated by the CFTC with the exception of security-based
swaps, which are regulated by the Commission.
\68\ The following entities are provisionally registered with
the CFTC as SDRs: BSDR LLC., Chicago Mercantile Exchange, Inc., DTCC
Data Repository, and ICE Trade Vault.
\69\ Approximately eighteen entities are currently registered
with the CFTC as SEFs.
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With respect to security-based swaps regulated by the Commission,
the Commission has adopted Regulation SBSR under the Act implementing
requirements for regulatory reporting and public dissemination of
security-based swap transactions set forth in Title VII of the Dodd-
Frank Act. Regulation SBSR provides for the reporting of security-based
swap
[[Page 38768]]
information to registered security-based swap data repositories
(``Registered SDRs'') or the Commission, and the public dissemination
of security-based swap transaction, volume, and pricing information by
Registered SDRs.\70\
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\70\ See Securities Exchange Act Release No. 74244 (February 11,
2015), 80 FR 14564 (March 19, 2015) (Regulation SBSR--Reporting and
Dissemination of Security-Based Swap Information).
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Price information relating to forwards and OTC options will be
available from major market data vendors.
A fund's investments will not be used to seek performance that is
the multiple or inverse multiple (i.e., 2Xs and 3Xs) of a fund's broad-
based securities market index (as defined in Form N-1A).\71\ In
addition, the Exchange notes that, under proposed Commentary .01(a) to
Rule 8.600, for Derivative Securities Products and Index-Linked
Securities, no more than 25% of the equity weight of a fund's portfolio
could include leveraged and/or inverse leveraged Derivative Securities
Products or Index-Linked Securities.
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\71\ See, e.g., Securities Exchange Act Release No. 74842 (April
29, 2015), 86 FR 25723 (May 5, 2015) (SR-NYSEArca-2014-89) (order
approving listing and trading of shares of eight PIMCO exchange-
traded funds).
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The proposed rule change is also designed to protect investors and
the public interest because Managed Fund Shares listed and traded
pursuant to Rule 8.600, including pursuant to the proposed new
portfolio standards, would continue to be subject to the full panoply
of Exchange rules and procedures that currently govern the trading of
equity securities on the Exchange.\72\
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\72\ See Approval Order, supra note 15, at 19547.
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The proposed rule change is also designed to protect investors and
the public interest as well as to promote just and equitable principles
of trade in that any Non-U.S. Component Stocks will each meet the
following criteria initially and on a continuing basis: (1) Have a
minimum market value of at least $100 million; (2) have a minimum
global monthly trading volume of 250,000 shares, or minimum global
notional volume traded per month of $25,000,000, averaged over the last
six months; (3) most heavily weighted Non-U.S. Component Stock shall
not exceed 25% of the equity weight of the portfolio, and, to the
extent applicable, the five most heavily weighted Non-U.S. Component
Stocks shall not exceed 60% of the equity weight of the portfolio; and
(4) each Non-U.S. Component Stock shall be listed and traded on an
exchange that has last-sale reporting. The Exchange believes that such
quantitative criteria are sufficient to mitigate any concerns that may
arise on the basis of a series of Managed Fund Shares potentially
holding 100% of its assets in Non-U.S. Component Stocks that are
neither listed on members of ISG nor exchanges with which the Exchange
has in place a CSSA because, as stated above, such criteria are either
the same or more stringent than the portfolio requirements for Units
that hold Non-U.S. Component Stocks and there are no such requirements
related to such securities being listed on an exchange that is a member
of ISG or with which the Exchange has in place a CSSA. Further, the
Exchange has not encountered and is not aware of any instances of
manipulation or other negative impact in any series of Units that has
occurred by virtue of the Units holding such Non-U.S. Component Stocks.
As such, the Exchange believes that there should be no difference in
the portfolio requirements for Managed Fund Shares and Units as it
relates to holding Non-U.S. Component Stocks that are not listed on an
exchange that is a member of ISG or with which the Exchange has in
place a CSSA.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices because the
Managed Fund Shares will be listed and traded on the Exchange pursuant
to the initial and continued listing criteria in Rule 8.600. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Managed Fund Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. FINRA, on behalf of the Exchange,
or the regulatory staff of the Exchange, will communicate as needed
regarding trading in Managed Fund Shares with other markets that are
members of the ISG, including all U.S. securities exchanges and futures
exchanges on which the components are traded. In addition, the Exchange
may obtain information regarding trading in Managed Fund Shares from
other markets that are members of the ISG, including all U.S.
securities exchanges and futures exchanges on which the components are
traded, or with which the Exchange has in place a CSSA.
The Exchange also believes that the proposed rule change would
fulfill the intended objective of Rule 19b-4(e) under the Act by
allowing Managed Fund Shares that satisfy the proposed listing
standards to be listed and traded without separate Commission approval.
However, as proposed, the Exchange would continue to file separate
proposed rule changes before the listing and trading of Managed Fund
Shares that do not satisfy the additional criteria described above.
For these reasons, the Exchange believes that the proposal is
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\73\ the Exchange
does not believe that the proposed rule change will impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act. Instead, the Exchange believes that the
proposed rule change would facilitate the listing and trading of
additional types of Managed Fund Shares and result in a significantly
more efficient process surrounding the listing and trading of Managed
Fund Shares, which will enhance competition among market participants,
to the benefit of investors and the marketplace. The Exchange believes
that this would reduce the time frame for bringing Managed Fund Shares
to market, thereby reducing the burdens on issuers and other market
participants and promoting competition. In turn, the Exchange believes
that the proposed change would make the process for listing Managed
Fund Shares more competitive by applying uniform listing standards with
respect to Managed Fund Shares.
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\73\ 15 U.S.C. 78f(b)(8).
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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.
IV. Date of Effectiveness of the Proposed Rule Change, as Modified by
Amendment No. 6, and Timing for Commission Action
Section 19(b)(2) of the Act \74\ provides that, after initiating
disapproval proceedings, the Commission shall issue an order approving
or disapproving the proposed rule change not later than 180 days after
the date of publication of notice of the filing of the proposed rule
change. The Commission may, however, extend the period for issuing an
order approving or disapproving the proposed rule change by not more
than 60 days if the Commission determines that a longer period is
appropriate and publishes the reasons for such determination. On May
20, 2016, the Commission published notice of its determination that it
was appropriate to
[[Page 38769]]
designate a longer period within which to issue an order approving or
disapproving the proposed rule change so that it would have sufficient
time to consider the proposed rule change and, pursuant to Section
19(b)(2) of the Act,\75\ designated July 22, 2016, as the date by which
the Commission shall either approve or disapprove the proposed rule
change.\76\
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\74\ 15 U.S.C. 78s(b)(2).
\75\ 15 U.S.C. 78s(b)(2).
\76\ See supra note 9 and accompanying text.
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V. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 6
to the proposed rule change is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2015-110 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2015-110. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (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 will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2015-110 and should
be submitted on or before June 29, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\77\
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\77\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-13965 Filed 6-13-16; 8:45 am]
BILLING CODE 8011-01-P
