Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the JPMorgan Diversified Event Driven ETF Under NYSE Arca Equities Rule 8.600, 44339-44348 [2016-16108]
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Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
can instead opt to register with the
Commission as a broker-dealer and, as
a condition to not having to register as
an exchange, must instead comply with
Regulation ATS. Rule 303 of Regulation
ATS (17 CFR 242.303) describes the
record preservation requirements for
ATSs. Rule 303 also describes how such
records must be maintained, what
entities may perform this function, and
how long records must be preserved.
Under Rule 303, ATSs are required to
preserve all records made pursuant to
Rule 302, which includes information
relating to subscribers, trading
summaries, and time-sequenced order
information. Rule 303 also requires
ATSs to preserve any notices provided
to subscribers, including, but not
limited to, notices regarding the ATSs
operations and subscriber access. For an
ATS subject to the fair access
requirements described in Rule
301(b)(5)(ii) of Regulation ATS, Rule
303 further requires the ATS to preserve
at least one copy of its standards for
access to trading, all documents relevant
to the ATS’s decision to grant, deny, or
limit access to any person, and all other
documents made or received by the ATS
in the course of complying with Rule
301(b)(5) of Regulation ATS. For an ATS
subject to the capacity, integrity, and
security requirements for automated
systems under Rule 301(b)(6) of
Regulation ATS, Rule 303 requires an
ATS to preserve all documents made or
received by the ATS related to its
compliance, including all
correspondence, memoranda, papers,
books, notices, accounts, reports, test
scripts, test results and other similar
records. As provided in Rule 303(a)(1),
ATSs are required to keep all of these
records, as applicable, for a period of at
least three years, the first two in an
easily accessible place. In addition, Rule
303 requires ATSs to preserve records of
partnership articles, articles of
incorporation or charter, minute books,
stock certificate books, copies of reports
filed pursuant to Rule 301(b)(2), and
records made pursuant to Rule 301(b)(5)
for the life of the ATS.
The information contained in the
records required to be preserved by Rule
303 will be used by examiners and other
representatives of the Commission, state
securities regulatory authorities, and the
self-regulatory organizations (‘‘SROs’’)
to ensure that ATSs are in compliance
with Regulation ATS as well as other
applicable rules and regulations.
Without the data required by the Rule,
regulators would be limited in their
ability to comply with their statutory
obligations, provide for the protection of
investors, and promote the maintenance
of fair and orderly markets.
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Respondents consist of ATSs that
choose to register as broker-dealers and
comply with the requirements of
Regulation ATS. There are currently 84
respondents. To comply with the record
preservation requirements of Rule 303,
these respondents will spend
approximately 1,260 hours per year (84
respondents at 15 burden hours/
respondent). At an average cost per
burden hour of $109.60, the resultant
total related internal cost of compliance
for these respondents is $138,096 per
year (1,260 burden hours multiplied by
$109.60/hour).
Compliance with Rule 303 is
mandatory. The information required by
Rule 303 is available only for the
examination of the Commission staff,
state securities authorities and the
SROs. Subject to the provisions of the
Freedom of Information Act, 5 U.S.C.
522 (‘‘FOIA’’), and the Commission’s
rules thereunder (17 CFR 200.80(b) (4)
(iii)), the Commission does not generally
publish or make available information
contained in any reports, summaries,
analyses, letters, or memoranda arising
out of, in anticipation of, or in
connection with an examination or
inspection of the books and records of
any person or any other investigation.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
The public may view background
documentation for this information
collection at the following Web site:
www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
or by sending an email to: Shagufta_
Ahmed@omb.eop.gov; and (ii) Pamela
Dyson, Director/Chief Information
Officer, Securities and Exchange
Commission, c/o Remi Pavlik-Simon,
100 F Street NE., Washington, DC
20549, or by sending an email to: PRA_
Mailbox@sec.gov. Comments must be
submitted to OMB within 30 days of
this notice.
Dated: June 30, 2016.
Robert W. Errett,
Deputy Secretary
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78218; File No. SR–
NYSEArca–2016–82]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the JPMorgan Diversified Event
Driven ETF Under NYSE Arca Equities
Rule 8.600
July 1, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 20,
2016, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the JPMorgan Diversified
Event Driven ETF under NYSE Arca
Equities Rule 8.600. The proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
[FR Doc. 2016–16040 Filed 7–6–16; 8:45 am]
BILLING CODE 8011–01–P
PO 00000
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
under NYSE Arca Equities Rule 8.600,
which governs the listing and trading of
Managed Fund Shares 4 on the
Exchange: 5 JPMorgan Diversified Event
Driven ETF (the ‘‘Fund’’).
The Fund is a series of J.P. Morgan
Exchange-Traded Fund Trust (‘‘Trust’’),
a Delaware statutory trust.6 J.P. Morgan
Investment Management Inc.
(‘‘Adviser’’) will be the investment
adviser to the Fund. The Adviser is a
wholly-owned subsidiary of JPMorgan
Asset Management Holdings Inc., which
is a wholly-owned subsidiary of
JPMorgan Chase & Co. (‘‘JPMorgan
Chase’’), a bank holding company. The
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
5 The Commission has previously approved
listing and trading on the Exchange of actively
managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
NYSEArca–2008–31) (order approving Exchange
listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 66321 (February
3, 2012), 77 FR 6850 (February 9, 2012) (SR–
NYSEArca–2011–95) (order approving listing and
trading of PIMCO Total Return Exchange Traded
Fund); 66670 (March 28, 2012), 77 FR 20087 (April
3, 2012) (SR–NYSEArca–2012–09) (order approving
listing and trading of PIMCO Global Advantage
Inflation-Linked Bond Strategy Fund).
6 The Trust is registered under the 1940 Act. On
April 22, 2016, the Trust filed with the Commission
an amendment to its registration statement on Form
N–1A under the Securities Act of 1933 (15 U.S.C.
77a) (‘‘Securities Act’’) and the 1940 Act relating to
the Fund (File Nos. 333–191837 and 811–22903)
(the ‘‘Registration Statement’’) to add the Fund. The
Trust filed an application for an order under
Section 6(c) of the 1940 Act for exemptions from
various provisions of the 1940 Act and rules
thereunder (File No. 812–13761), initially filed
March 10, 2010 and most recently amended on
December 23, 2015 (‘‘Exemptive Application’’); the
Exemptive Application was published for notice in
IC Release No. 31956 on January 14, 2016. An order
(‘‘Exemptive Order’’) was issued regarding the
Exemptive Application on February 19, 2016 (IC
Release No. 31990). Investments made by the Fund
will comply with the conditions set forth in the
Exemptive Order. The description of the operation
of the Trust and the Fund herein is based, in part,
on the Registration Statement and the Exemptive
Application.
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Adviser will also provide administrative
services for and will oversee the other
service providers of the Fund (in such
capacity, the ‘‘Administrator’’). SEI
Investments Distribution Co.
(‘‘Distributor’’) will be the distributor of
the Fund’s Shares.
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s portfolio.
The Adviser is not registered as a
broker-dealer but is affiliated with a
broker-dealer and has implemented and
will maintain a fire wall with respect to
such broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
portfolio. In the event (a) the Adviser
becomes registered as a broker-dealer or
newly affiliated with one or more
broker-dealers, or (b) any new adviser or
sub-adviser is a registered broker-dealer
or becomes affiliated with a brokerdealer, it will implement and maintain
a fire wall with respect to its relevant
personnel or its broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
PO 00000
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subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
According to the Registration
Statement, the Fund will seek to
provide long term, total return. The
Fund will seek to achieve its investment
objective by employing an event-driven
investment strategy, primarily investing
in companies that the Adviser believes
will be impacted by pending or
anticipated corporate or special
situation events. In executing this
investment strategy, the Fund will seek
to capture the price difference between
a security’s market price and the
anticipated value post-event, based on
the assumption that an event or catalyst
will affect future pricing. It will do so
based on its systematic investment
process. The Adviser believes it has
identified (and will continue to identify)
a set of event-driven investment return
sources that have a low correlation to
each other and traditional markets and
have distinct risk and return profiles
(each a ‘‘return factor’’).
Each return factor represents a
potential source of investment return
that results from, among other things,
assuming a particular risk or taking
advantage of a behavioral bias. The
Adviser believes that, in general, the
Fund’s event-driven investment returns
will be attributable to the individual
contributions of the various return
factors. By employing this return factor
based approach, the Fund will seek to
provide positive total returns over time
while maintaining a relatively low
correlation with traditional markets.
The exposure to individual return
factors may vary based on the market
opportunity of the individual return
factors. Additional return factors may be
identified over time.
Under normal market conditions,8 the
Fund will seek to achieve its investment
objective by employing its investment
strategy to access certain return factors.
For example, the return factors that the
Adviser may utilize include, but are not
limited to, the following:
—Merger arbitrage—seeks to capitalize
on reactions and returns generated by
a corporate transaction. The Fund will
purchase the common stock of the
8 The term ‘‘under normal market conditions’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the securities
markets or the financial markets generally;
circumstances under which the Fund’s investments
are made for temporary defensive purposes;
operational issues (e.g., systems failure) causing
dissemination of inaccurate market information; or
force majeure type events such as cyber attacks,
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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company being acquired and may
short the common stock of the
acquirer in expectation of profiting
from changes in price resulting from
merger activity;
—activism tracking—invests in
companies that are the target of
activist investors;
—share buybacks—attempts to exploit
the outperformance of a company
engaged in a share buyback program;
—parents and spinoffs—attempts to
capture positive performance of a
parent company after the spinoff
announcement; this typically leads to
a revaluation of the company;
—index arbitrage—attempts to profit
from the price changes of assets as
they are added to or deleted from
indices;
—post-reorganization equities—
attempts to profit from the mispricing
of companies as they emerge from
bankruptcy.
The Fund will invest its assets
globally to gain exposure to equity
securities (across market capitalizations)
in developed markets. The Fund may
use both long and short positions
(achieved primarily through the use of
derivative instruments as described
below). The Fund generally will
maintain a total net long market
exposure. However, the Fund may have
net long or net short exposure to one or
more industry sectors, individual
markets and/or currencies.
According to the Registration
Statement, the Adviser will make use of
derivatives (as described below), in
implementing its strategies. Under
normal market conditions, the Adviser
currently expects that a significant
portion of the Fund’s exposure will be
attained through the use of derivatives
in addition to its exposure through
direct investment. For example, the
Fund may use a total return swap to
establish both long and short positions
in order to gain the desired exposure
rather than physically purchasing and
selling short each instrument.
Derivatives may also be used to increase
gain, to effectively gain targeted
exposure from its cash positions, to
hedge various investments and/or for
risk management. As a result of the
Fund’s use of derivatives and to serve as
collateral, the Fund may hold
significant amounts of U.S. Treasury
obligations, including Treasury bills,
bonds and notes and other obligations
issued or guaranteed by the U.S.
Treasury, other short-term investments,
including money market funds and
foreign currencies in which certain
derivatives are denominated.
According to the Registration
Statement, the amount that may be
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invested in any one instrument will
vary and generally depend on the return
factors employed by the Adviser at that
time. However, with the exception of
specified investment limitations for
certain assets described below, there are
no stated percentage limitations on the
amount that can be invested in any one
type of instrument, and the Adviser
may, at times, focus on a smaller
number of instruments. Moreover, the
Fund will generally be unconstrained by
any particular capitalization, style or
sector and may invest in any developed
region or country.
The Fund will purchase a particular
instrument when the Adviser believes
that such instrument will allow the
Fund to gain the desired exposure to a
return factor. Conversely, the Fund will
consider selling a particular instrument
when it no longer provides the desired
exposure to a return factor. In addition,
investment decisions will take into
account a return factor’s contribution to
the Fund’s overall volatility.
In addition to its main return factors,
the Fund may utilize return factors that
use debt securities. The Fund may
invest, either directly or through
financial derivative instruments, debt
securities that are subject to a
downgrade from investment grade to
non-investment grade (also known as
high yield/junk bond) status. For
example, the Fund may invest in the
bonds that have been downgraded while
hedging credit risk more broadly by
using credit default swaps indices in
order to attempt to keep the Fund’s
exposure market neutral.
Principal Investments
According to the Registration
Statement, under normal market
conditions, the Fund will invest
principally (i.e., more than 50% of the
Fund’s assets) in the securities and
financial instruments described below,
which may be represented by
derivatives, as discussed below.
The Fund may invest in exchangelisted-and-traded common stocks,
preferred stocks,9 warrants and rights 10
of U.S. and foreign corporations
(including emerging market securities);
and U.S. and non-U.S. real estate
9 Preferred stock is a class of stock that generally
pays a dividend at a specified rate and has
preference over common stock in the payment of
dividends and in liquidation (U.S. and non-U.S.,
including emerging markets).
10 Rights are securities, typically issued with
preferred stock or bonds, that give the holder the
right to buy a proportionate amount of common
stock at a specified price (U.S. and non-U.S.,
including emerging markets).
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44341
investment trusts (‘‘REITs’’).11
Exchange-listed-and-traded common
stocks, preferred stocks, warrants and
rights of U.S. corporations and U.S.
REITs will be traded on U.S. national
securities exchanges.
The Fund may invest in exchangelisted and over-the-counter (‘‘OTC’’)
‘‘Depositary Receipts’’ 12 as described
below.
The Fund may invest in the following
cash and cash equivalents: Investments
in money market funds (for which the
Adviser and/or its affiliates serve as
investment adviser or administrator),
bank obligations,13 commercial paper,14
repurchase agreements and short-term
funding agreements.15
The Fund may invest in corporate
debt.16
In addition to money market funds
referenced above, the Fund may invest
in shares of non-exchange-traded
investment company securities
including investment company
securities for which the Adviser and/or
its affiliates may serve as investment
11 REITs are pooled investment vehicles which
invest primarily in income producing real estate or
real estate related loans or interest.
12 Depositary Receipts include American
Depositary Receipts (‘‘ADRs’’), Global Depositary
Receipts (‘‘GDRs’’) and European Depositary
Receipts (‘‘EDRs’’). ADRs are receipts typically
issued by an American bank or trust company that
evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued
by a European bank or trust company evidencing
ownership of securities issued by a foreign
corporation. GDRs are receipts issued throughout
the world that evidence a similar arrangement.
ADRs, EDRs and GDRs may trade in foreign
currencies that differ from the currency the
underlying security for each ADR, EDR or GDR
principally trades in. Generally, ADRs, in registered
form, are designed for use in the U.S. securities
markets. EDRs, in registered form, are used to
access European markets. GDRs, in registered form,
are tradable both in the United States and in Europe
and are designed for use throughout the world. No
more than 10% of the net assets of the Fund will
be invested in ADRs that are not exchange-listed.
13 Bank obligations include the following:
Bankers’ acceptances, certificates of deposit and
time deposits. Bankers’ acceptances are bills of
exchange or time drafts drawn on and accepted by
a commercial bank. Maturities are generally six
months or less. Certificates of deposit are negotiable
certificates issued by a bank for a specified period
of time and earning a specified return. Time
deposits are non-negotiable receipts issued by a
bank in exchange for the deposit of funds.
14 Commercial paper consists of secured and
unsecured short-term promissory notes issued by
corporations and other entities. Maturities generally
vary from a few days to nine months.
15 Short-term funding agreements are agreements
issued by banks and highly rated U.S. insurance
companies such as Guaranteed Investment
Contracts (‘‘GICs’’) and Bank Investment Contracts
(‘‘BICs’’).
16 The Adviser expects that, under normal market
conditions, the Fund will invest at least 75% of its
corporate debt securities in issuances that have at
least $100,000,000 par amount outstanding in
developed countries or at least $200,000,000 par
amount outstanding in emerging market countries.
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adviser or administrator, to the extent
permitted by Section 12(d)(1) 17 of the
1940 Act and the rules thereunder.
The Fund may invest in exchange
traded funds (‘‘ETFs’’).18
The Fund may purchase and sell
futures contracts on indexes of
securities.
The Fund may invest in swaps as
follows: Credit default swaps (‘‘CDSs’’),
CDS indices and total return swaps on
equity securities, equity indexes, fixed
income securities, and fixed income
futures.
The Fund may invest in forward and
spot currency transactions.19 Such
investments consist of non-deliverable
forwards (‘‘NDFs’’), foreign forward
currency contracts, and spot currency
transactions.
The Fund may invest in OTC and
exchange-traded call and put options on
equities, fixed income securities and
currencies or options on indexes of
equities, fixed income securities and
currencies.
The Fund may invest in U.S.
Government obligations, which may
include direct obligations of the U.S.
Treasury, including Treasury bills, notes
and bonds, all of which are backed as
to principal and interest payments by
the full faith and credit of the United
States, and separately traded principal
and interest component parts of such
obligations that are transferable through
the Federal book-entry system known as
Separate Trading of Registered Interest
and Principal of Securities (‘‘STRIPS’’)
and Coupons Under Book Entry
Safekeeping (‘‘CUBES’’).
Other Investments
While the Fund, under normal market
conditions, will invest at least fifty
percent (50%) of its assets in the
securities and financial instruments
described above, the Fund may invest
its remaining assets in other assets and
17 15
U.S.C. 80a–12(d)(1).
ETFs in which the Fund may invest will
be registered under the 1940 Act and include
Investment Company Units (as described in NYSE
Arca Equities Rule 5.2(j)(3)); Portfolio Depositary
Receipts (as described in NYSE Arca Equities Rule
8.100); and Managed Fund Shares (as described in
NYSE Arca Equities Rule 8.600). Such ETFs all will
be listed and traded in the U.S. on registered
exchanges. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged or
inverse leveraged (e.g., 2X, ¥2X, 3X or ¥3X) ETFs.
19 The Fund will limit its investments in
currencies to those currencies with a minimum
average daily foreign exchange turnover of USD $1
billion as determined by the Bank for International
Settlements (‘‘BIS’’) Triennial Central Bank Survey.
As of the most recent BIS Triennial Central Bank
Survey, at least 52 separate currencies had
minimum average daily foreign exchange turnover
of USD $1 billion. For a list of eligible BIS
currencies, see www.bis.org.
financial instruments, as described
below.
The Fund may invest in U.S. and nonU.S. convertible securities, which are
bonds or preferred stock that can
convert to common stock.
The Fund may invest in reverse
repurchase agreements.
The Fund may invest in sovereign
obligations, which are investments in
debt obligations issued or guaranteed by
a foreign sovereign government or its
agencies, authorities or political
subdivisions.
The Fund may invest no more than
5% of its assets in equity and debt
securities that are restricted securities
(Rule 144A securities), in addition to
Rule 144A securities deemed illiquid by
the Adviser, as referenced below.
Under normal market conditions, the
Fund may invest no more than 5% of its
assets in OTC common stocks, preferred
stocks, warrants, rights and contingent
value rights (‘‘CVRs’’) of U.S. and
foreign corporations (including
emerging market securities).
Other Restrictions
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid assets (calculated at the time of
investment), including Rule 144A
securities deemed illiquid by the
Adviser, consistent with Commission
guidance. The Fund will monitor its
portfolio liquidity on an ongoing basis
to determine whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid assets. Illiquid assets include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.20
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20 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
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The Fund may invest in other
investment companies to the extent
permitted by Section12(d)(1) of the 1940
Act and rules thereunder and/or any
applicable exemption or exemptive
order under the 1940 Act with respect
to such investments.
The Fund may invest in securities
denominated in U.S. dollars, major
reserve currencies, and currencies of
other countries in which the Fund may
invest.
The Fund may invest in both
investment grade and high yield debt
securities.
The Fund intends to qualify for and
to elect treatment as a separate regulated
investment company (‘‘RIC’’) under
Subchapter M of the Internal Revenue
Code.21 Furthermore, the Fund may not
concentrate investments in a particular
industry or group of industries, as
concentration is defined under the 1940
Act, the rules or regulations thereunder
or any exemption therefrom, as such
statute, rules or regulations may be
amended or interpreted from time to
time.22
The Fund is a diversified series of the
Trust. The Fund intends to meet the
diversification requirements of the 1940
Act.23
The Fund’s investments, including
derivatives, will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage
(although certain derivatives may result
in leverage). That is, while the Fund
will be permitted to borrow as permitted
under the 1940 Act, the Fund’s
investments will not be used to seek
performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
the Fund’s primary broad-based
securities benchmark index (as defined
in Form N–1A).24
The Fund’s Use of Derivatives
The Fund proposes to seek certain
exposures through transactions in the
specific derivative instruments
described above. The derivatives to be
used are futures, swaps, NDFs, foreign
forward currency contracts, and call and
put options. Derivatives, which are
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act).
21 26 U.S.C. 851 et seq.
22 The Registration Statement states that, for
purposes of the Fund’s fundamental investment
policy regarding industry concentration, ‘‘to
concentrate’’ generally means to invest more than
25% of the Fund’s total assets, taken at market
value at the time of investment.
23 The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act.
24 The Fund’s broad-based securities benchmark
index will be identified in a future amendment to
the Registration Statement following the Fund’s
first full calendar year of performance.
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instruments that have a value based on
another instrument, exchange rate or
index, may also be used as substitutes
for securities in which the Fund can
invest. The Fund may use these
derivative instruments to increase gain,
to effectively gain targeted exposure
from its cash positions, to hedge various
investments and/or for risk
management.
Investments in derivative instruments
will be made in accordance with the
1940 Act and consistent with the Fund’s
investment objective and policies. To
limit the potential risk associated with
such transactions, the Fund will
segregate or ‘‘earmark’’ assets
determined to be liquid by the Adviser
in accordance with procedures
established by the Trust’s Board of
Trustees (the ‘‘Board’’) and in
accordance with the 1940 Act (or, as
permitted by applicable regulation,
enter into certain offsetting positions) to
cover its obligations under derivative
instruments. These procedures have
been adopted consistent with Section 18
of the 1940 Act and related Commission
guidance. In addition, the Fund will
include appropriate risk disclosure in
its offering documents, including
leveraging risk. Leveraging risk is the
risk that certain transactions of the
Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.25
Because the markets for certain assets,
or the assets themselves, may be
unavailable or cost prohibitive as
compared to derivative instruments,
suitable derivative transactions may be
an efficient alternative for the Fund to
obtain the desired asset exposure.
srobinson on DSK5SPTVN1PROD with NOTICES
Creation and Redemption of Shares
According to the Registration
Statement, the consideration for a
purchase of Creation Units will
generally be cash, but may consist of an
in-kind deposit of a designated portfolio
of equity securities and other
investments (the ‘‘Deposit Instruments’’)
and an amount of cash computed as
described below (the ‘‘Cash Amount’’)
under some circumstances. The size of
a Creation Unit will be 100,000 Shares
and will be subject to change. The Cash
Amount together with the Deposit
Instruments, as applicable, are referred
to as the ‘‘Portfolio Deposit’’, which
represents the minimum initial and
subsequent investment amount for a
Creation Unit of the Fund.
25 To mitigate leveraging risk, the Adviser will
segregate or ‘‘earmark’’ liquid assets or otherwise
cover the transactions that may give rise to such
risk.
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In the event the Fund requires Deposit
Instruments and a Cash Amount in
consideration for purchasing a Creation
Unit, the function of the Cash Amount
is to compensate for any differences
between the net asset value (‘‘NAV’’) per
Creation Unit and the Deposit Amount
(as defined below). The Cash Amount
would be an amount equal to the
difference between the NAV of the
Shares (per Creation Unit) and the
‘‘Deposit Amount,’’ which is an amount
equal to the aggregate market value of
the Deposit Instruments. If the Cash
Amount is a positive number (the NAV
per Creation Unit exceeds the Deposit
Amount), the ‘‘Authorized Participant’’
(as defined below) will deliver the Cash
Amount. If the Cash Amount is a
negative number (the NAV per Creation
Unit is less than the Deposit Amount),
the Authorized Participant will receive
the Cash Amount. The Administrator,
through the National Securities Clearing
Corporation (‘‘NSCC’’), will make
available on each business day,
immediately prior to the opening of
business on the Exchange (currently
9:30 a.m. Eastern time (‘‘E.T.’’)), the list
of the names and the required number
of shares of each Deposit Instrument to
be included in the current Portfolio
Deposit (based on information at the
end of the previous business day), as
well as information regarding the Cash
Amount for the Fund. Such Portfolio
Deposit is applicable, subject to any
adjustments as described below, in
order to effect creations of Creation
Units of the Fund until such time as the
next-announced Portfolio Deposit
composition is made available.
The identity and number of the
Deposit Instruments and Cash Amount
required for the Portfolio Deposit for the
Fund changes as rebalancing
adjustments and corporate action events
are reflected from time to time. In
addition, the Trust reserves the right to
accept a basket of securities or cash that
differs from Deposit Instruments or to
permit the substitution of an amount of
cash (i.e., a ‘‘cash in lieu’’ amount) to be
added to the Cash Amount to replace
any Deposit Instrument which may,
among other reasons, not be available in
sufficient quantity for delivery, not be
permitted to be re-registered in the
name of the Trust as a result of an inkind creation order pursuant to local
law or market convention or for other
reasons as described in the Registration
Statement, or which may not be eligible
for trading by a Participating Party
(defined below). In light of the
foregoing, in order to seek to replicate
the in-kind creation order process, the
Trust expects to purchase the Deposit
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44343
Instruments represented by the cash in
lieu amount in the secondary market.
In addition to the list of names and
numbers of securities constituting the
current Deposit Instruments of a
Portfolio Deposit, the Administrator,
through the NSCC, also will make
available on each business day, the
estimated Cash Component adjusted
through the close of the trading day.
Procedures for Creation of Creation
Units
To be eligible to place orders with the
Distributor to create Creation Units of
the Fund, an entity or person either
must be (1) a ‘‘Participating Party,’’ i.e.,
a broker-dealer or other participant in
the clearing process through the
Continuous Net Settlement System of
the NSCC; or (2) a Depositary Trust
Company (‘‘DTC’’) Participant, which,
in either case, must have executed an
agreement with the Distributor (as it
may be amended from time to time in
accordance with its terms) (‘‘Participant
Agreement’’) (discussed below). A
Participating Party and DTC Participant
are collectively referred to as an
‘‘Authorized Participant.’’ All orders to
create Creation Units must be received
by the Distributor no later than the
closing time of the regular trading
session on the Exchange (‘‘Closing
Time’’) (ordinarily 4:00 p.m. E.T.), in
each case on the date such order is
placed in order for creation of Creation
Units to be effected based on the NAV
of the Fund as determined on such date.
Redemption of Creation Units
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the
Distributor, only on a business day and
only through an Authorized Participant.
The Trust will not redeem Shares in
amounts less than Creation Units.
Although the Fund will generally pay
redemption proceeds in cash, there may
be instances when it will make
redemptions in-kind. In these instances,
the Administrator, through NSCC, will
make available immediately prior to the
opening of business on the Exchange
(currently 9:30 a.m. E.T.) on each day
that the Exchange is open for business,
the identity of the Fund’s assets and/or
an amount of cash that will be
applicable (subject to possible
amendment or correction) to
redemption requests received in proper
form on that day. Unless cash
redemptions are permitted or required
for the Fund, the redemption proceeds
for a Creation Unit generally consist of
‘‘Redemption Instruments’’ as
announced by the Administrator on the
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business day of the request for
redemption, plus cash in an amount
equal to the difference between the NAV
of the Shares being redeemed, as next
determined after a receipt of a request
in proper form, and the value of the
Redemption Instruments, less the
redemption transaction fee and variable
fees described below.
Should the Redemption Instruments
have a value greater than the NAV of the
Shares being redeemed, a compensating
cash payment to the Trust equal to the
differential plus the applicable
redemption transaction fee will be
required to be arranged for by or on
behalf of the redeeming shareholder.
The Fund reserves the right to honor a
redemption request by delivering a
basket of securities or cash that differs
from the Redemption Instruments.26
srobinson on DSK5SPTVN1PROD with NOTICES
Valuation Methodology for Purposes of
Determining Net Asset Value
The NAV of Shares, under normal
market conditions, will be calculated
each business day as of the close of the
Exchange, which is typically 4:00 p.m.
E.T. On occasion, the Exchange will
close before 4:00 p.m. E.T. When that
happens, NAV will be calculated as of
the time the Exchange closes. The price
at which a purchase of a Creation Unit
is effected will be based on the next
calculation of NAV after the order is
received in proper form.
Securities for which market
quotations are readily available will
generally be valued at their current
market value. Other securities and
assets, including securities for which
market quotations are not readily
available or market quotations are
determined not to be reliable; or, if their
value has been materially affected by
events occurring after the close of
trading on the exchange or market on
which the security is principally traded
but before the Fund’s NAV is calculated,
may be valued at fair value in
accordance with policies and
procedures adopted by the Trust’s Board
of Trustees. Fair value represents a good
faith determination of the value of a
security or other asset based upon
specifically applied procedures. Fair
valuation may require subjective
determinations.
U.S. exchange-traded common stocks,
preferred stocks, warrants, rights, REITs,
and Depositary Receipts will be valued
at the last sale price or official market
closing price on the primary exchange
on which such security trades.
26 The Adviser represents that, to the extent the
Trust effects the creation or redemption of Shares
in cash, such transactions will be effected in the
same manner for all Authorized Participants.
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Exchange-traded non-U.S. equity
securities will be valued at the last sale
price or official market closing price on
the primary exchange on which such
security trades.
OTC equity securities will be priced
utilizing market quotations provided by
approved pricing services or by broker
quotation. For OTC warrants, rights and
CVRs, if no pricing service or broker
quotation is available, then the warrant,
right or CVR will be valued intrinsically
based on the terms of issuance.
Shares of non-exchange-traded openend investment companies will be
valued at their current day NAV
published by the relevant fund. ETFs
will be valued at the last sale price or
official market closing price on the
primary exchange on which such ETF
trades.
CDS and total return swaps will be
priced utilizing market quotations
provided by approved pricing services.
Forward and spot currency
transactions will be valued based on
foreign exchange rates obtained from an
approved pricing service, using spot and
forward rates available at the time NAV
of the Fund is calculated.
Commercial paper will be valued at
prices supplied by approved pricing
services which is generally based on
bid-side quotations.
Options traded on U.S. exchanges will
be valued at the composite mean price,
using the National Best Bid and Offer
quotes (‘‘NBBO’’) on the valuation date.
NBBO consists of the highest bid price
and lowest ask price across any of the
exchanges on which an option is
quoted.
Options traded on foreign exchanges
will be valued at the settled price on the
valuation date, or if no settled price is
available, at the last sale price available
prior to the calculation of the Fund’s
NAV.
Futures traded on U.S. and foreign
exchanges are valued at the settled
price, or if no settled price is available,
at the last sale price as of the close of
the exchanges on the valuation date.
OTC derivatives will be priced
utilizing market quotations provided by
approved pricing services.
In addition, non-Western Hemisphere
equity securities or derivatives
involving non-Western Hemisphere
equity reference obligations will
normally be subject to adjustment (fair
value) each day by applying a fair value
factor provided by approved pricing
services to the values obtained as
described above.
Convertible securities will be valued
at prices supplied by approved pricing
services which is generally based on
bid-side quotations.
PO 00000
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Corporate debt securities will be
valued at prices supplied by approved
pricing services which is generally
based on bid-side quotations.
Bank obligations, short-term funding
agreements, repurchase agreements,
reverse repurchase agreements, U.S.
Government obligations, sovereign
obligations, and Rule 144A securities
will be valued at prices supplied by
approved pricing services which is
generally based on bid-side quotations.
Derivatives Valuation Methodology for
Purposes of Determining Intra-Day
Indicative Value
On each business day, before
commencement of trading in Fund
Shares on NYSE Arca, the Fund will
disclose on its Web site the identities
and quantities of the portfolio
instruments and other assets held by the
Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the business day.
In order to provide additional
information regarding the intra-day
value of Shares of the Fund, the NYSE
Arca or a market data vendor will
disseminate every 15 seconds through
the facilities of the Consolidated Tape
Association or other widely
disseminated means an updated IntraDay Indicative Value (‘‘IIV’’) for the
Fund as calculated by a third party
market data provider.
A third party market data provider
will calculate the IIV for the Fund. The
third party market data provider may
use market quotes if available or may
fair value securities against proxies
(such as swap or yield curves).
With respect to specific derivatives:
• NDFs and foreign forward currency
contracts may be valued intraday using
market quotes, or another proxy as
determined to be appropriate by the
third party market data provider.
• Futures may be valued intraday
using the relevant futures exchange
data, or another proxy as determined to
be appropriate by the third party market
data provider.
• CDS and CDS indices swaps may be
valued using intraday data from market
vendors, or based on underlying asset
price, or another proxy as determined to
be appropriate by the third party market
data provider.
• Total return swaps may be valued
intraday using the underlying asset
price, or another proxy as determined to
be appropriate by the third party market
data provider.
• Exchange-listed options may be
valued intraday using the relevant
exchange data, or another proxy as
determined to be appropriate by the
third party market data provider.
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• OTC options may be valued
intraday through option valuation
models (e.g., Black-Scholes) or using
exchange traded options as a proxy, or
another proxy as determined to be
appropriate by the third party market
data provider.
srobinson on DSK5SPTVN1PROD with NOTICES
Disclosed Portfolio
The Fund’s disclosure of derivative
positions in the Disclosed Portfolio will
include information that market
participants can use to value these
positions intraday. On a daily basis, the
Adviser will disclose on the Fund’s Web
site the following information regarding
each portfolio holding, as applicable to
the type of holding: Ticker symbol,
CUSIP number or other identifier, if
any; a description of the holding
(including the type of holding, such as
the type of swap); the identity of the
security, index or other asset or
instrument underlying the holding, if
any; for options, the option strike price;
quantity held (as measured by, for
example, par value, notional value or
number of shares, contracts or units);
maturity date, if any; coupon rate, if
any; effective date, if any; market value
of the holding; and the percentage
weighting of the holding in the Fund’s
portfolio. The Web site information will
be publicly available at no charge.
Impact on Arbitrage Mechanism
The Adviser believes there will be
minimal impact to the arbitrage
mechanism as a result of the use of
derivatives. Market makers and
participants should be able to value
derivatives as long as the positions are
disclosed with relevant information.
The Adviser believes that the price at
which Shares trade will continue to be
disciplined by arbitrage opportunities
created by the ability to purchase or
redeem creation Shares at their NAV,
which should ensure that Shares will
not trade at a material discount or
premium in relation to their NAV.
The Adviser does not believe there
will be any significant impacts to the
settlement or operational aspects of the
Fund’s arbitrage mechanism due to the
use of derivatives. Because derivatives
generally are not eligible for in-kind
transfer, they will typically be
substituted with a ‘‘cash in lieu’’
amount when the Fund processes
purchases or redemptions of creation
units in-kind.
Availability of Information
The Fund’s Web site
(www.jpmorganfunds.com), which will
be publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
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17:23 Jul 06, 2016
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be downloaded. The Fund’s Web site
will include additional quantitative
information updated on a daily basis,
including, for the Fund, (1) daily trading
volume, the prior business day’s
reported closing price, NAV or midpoint of the bid/ask spread at the time
of calculation of such NAV (the ‘‘Bid/
Ask Price’’),27 and a calculation of the
premium and discount of the Bid/Ask
Price against the NAV, and (2) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each business day, before
commencement of trading in Shares in
the Core Trading Session (normally,
9:30 a.m. to 4:00 p.m., E.T.) on the
Exchange, the Adviser will disclose on
the Fund’s Web site the Disclosed
Portfolio for the Fund as defined in
NYSE Arca Equities Rule 8.600(c)(2)
that will form the basis for the Fund’s
calculation of NAV at the end of the
business day.28
The Fund’s portfolio holdings will be
disclosed on its Web site daily after the
close of trading on the Exchange and
prior to the opening of trading on the
Exchange the following day.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and its Form N–CSR and Form
N–SAR, filed twice a year. The Trust’s
SAI and Shareholder Reports are
available free upon request from the
Trust, and those documents and the
Form N–CSR and Form N–SAR may be
viewed on-screen or downloaded from
the Commission’s Web site at
www.sec.gov.
Quotation and last sale information
for the Shares and for portfolio holdings
of the Fund that are U.S. exchange
listed, including common stocks,
preferred stocks, warrants, rights, ETFs,
REITs, and U.S. exchange-traded ADRs
will be available via the Consolidated
Tape Association (‘‘CTA’’) high speed
line. Quotation and last sale information
for such U.S. exchange-listed securities,
as well as futures will be available from
the exchange on which they are listed.
27 The Bid/Ask Price of the Fund’s Shares will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
28 Under accounting procedures to be followed by
the Fund, trades made on the prior business day
(‘‘T’’) will be booked and reflected in NAV on the
current business day (‘‘T+1’’). Accordingly, the
Fund will be able to disclose at the beginning of the
business day the portfolio that will form the basis
for the NAV calculation at the end of the business
day.
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44345
Quotation and last sale information for
exchange-listed options cleared via the
Options Clearing Corporation will be
available via the Options Price
Reporting Authority. Quotation and last
sale information for non-U.S. equity
securities (including GDRs and EDRs)
will be available from the exchanges on
which they trade and from major market
data vendors, as applicable. Price
information for OTC common stocks
(including certain OTC ADRs), preferred
stocks, warrants, rights and CVRs will
be available from one or more major
market data vendors or broker dealers in
the securities.
Quotation information for OTC
options, cash equivalents, swaps, money
market funds, non-exchange-listed
investment company securities (other
than money market funds), Rule 144A
securities, U.S. Government obligations,
U.S. Government agency obligations,
sovereign obligations, corporate debt,
and reverse repurchase agreements may
be obtained from brokers and dealers
who make markets in such securities or
through nationally recognized pricing
services through subscription
agreements. The U.S. dollar value of
foreign securities, instruments and
currencies can be derived by using
foreign currency exchange rate
quotations obtained from nationally
recognized pricing services. Forwards
and spot currency price information
will be available from major market data
vendors.
In addition, the IIV, which is the
Portfolio Indicative Value, as defined in
NYSE Arca Equities Rule 8.600(c)(3),
will be widely disseminated by one or
more major market data vendors at least
every 15 seconds during the Core
Trading Session.29 The dissemination of
the IIV, together with the Disclosed
Portfolio, will allow investors to
determine the approximate value of the
underlying portfolio of the Fund on a
daily basis and will provide a close
estimate of that value throughout the
trading day.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund.30 Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule
7.12 have been reached. Trading also
may be halted because of market
conditions or for reasons that, in the
29 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available IIVs taken from the CTA
or other data feeds.
30 See NYSE Arca Equities Rule 7.12.
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view of the Exchange, make trading in
the Shares of the Fund inadvisable.
These may include: (1) The extent to
which trading is not occurring in the
securities and/or the financial
instruments comprising the Disclosed
Portfolio of the Fund; or (2) whether
other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets
forth circumstances under which Shares
of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00
a.m. to 8:00 p.m. E.T. in accordance
with NYSE Arca Equities Rule 7.34
(Opening, Core, and Late Trading
Sessions). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Equities Rule 7.6, the minimum
price variation (‘‘MPV’’) for quoting and
entry of orders in equity securities
traded on the NYSE Arca Marketplace is
$0.01, with the exception of securities
that are priced less than $1.00 for which
the MPV for order entry is $0.0001.
The Shares of the Fund will conform
to the initial and continued listing
criteria under NYSE Arca Equities Rule
8.600. The Exchange represents that, for
initial and/or continued listing, the
Fund will be in compliance with Rule
10A–3 31 under the Act, as provided by
NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares of the Fund
will be outstanding at the
commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares of the Fund that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time.
srobinson on DSK5SPTVN1PROD with NOTICES
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange as well as
cross-market surveillances administered
by the Financial Industry Regulatory
Authority (‘‘FINRA’’) on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
31 17
CFR 240 10A–3.
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17:23 Jul 06, 2016
Jkt 238001
applicable federal securities laws.32 The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange, or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, certain exchangelisted equity securities (including
Depositary Receipts, ETFs, REITs,
common and preferred stocks, warrants,
rights, certain futures, and certain
exchange-traded options with other
markets and other entities that are
members of the Intermarket
Surveillance Group (‘‘ISG’’), and the
Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading
information regarding trading such
securities and financial instruments
from such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in such
securities and financial instruments
from markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.33
FINRA, on behalf of the Exchange, is
able to access, as needed, trade
information for certain fixed income
securities held by the Fund reported to
FINRA’s Trade Reporting and
Compliance Engine (‘‘TRACE’’).
Not more than 10% of the net assets
of the Fund in the aggregate invested in
equity securities (other than nonexchange-traded investment company
securities) shall consist of equity
securities whose principal market is not
a member of the ISG or is a market with
which the Exchange does not have a
comprehensive surveillance sharing
agreement. Not more than 10% of the
net assets of the Fund in the aggregate
32 FINRA conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
33 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund
may trade on markets that are members of ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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Sfmt 4703
invested in futures contracts or
exchange-traded options shall consist of
futures contracts or options whose
principal market is not a member of ISG
or is a market with which the Exchange
does not have a comprehensive
surveillance sharing agreement.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
All statements and representations
made in this filing regarding (a) the
description of the portfolio, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules and surveillance
procedures shall constitute continued
listing requirements for listing the
Shares on the Exchange.
The issuer has represented to the
Exchange that it will advise the
Exchange of any failure by the Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit (‘‘ETP’’) Holders
in an Information Bulletin (‘‘Bulletin’’)
of the special characteristics and risks
associated with trading the Shares of the
Fund. Specifically, the Bulletin will
discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) NYSE Arca Equities
Rule 9.2(a), which imposes a duty of
due diligence on its ETP Holders to
learn the essential facts relating to every
customer prior to trading the Shares; (3)
the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated IIV will not
be calculated or publicly disseminated;
(4) how information regarding the IIV
and the Disclosed Portfolio is
disseminated; (5) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
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Commission from any rules under the
Act. The Bulletin will also disclose that
the NAV for the Shares of the Fund will
be calculated after 4:00 p.m. E.T. each
trading day.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5)34 that an exchange
have rules that are designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600. The Adviser is not
registered as a broker-dealer but is
affiliated with a broker-dealer and has
implemented and will maintain a fire
wall with respect to such broker-dealer
affiliate regarding access to information
concerning the composition and/or
changes to the portfolio. The Exchange
represents that trading in the Shares
will be subject to the existing trading
surveillances administered by the
Exchange, as well as cross-market
surveillances administered by FINRA on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws. The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and
applicable federal securities laws. The
Exchange, or FINRA, on behalf of the
Exchange, or both, will communicate as
needed regarding trading in the Shares,
certain exchange-listed equity
securities, certain futures, and certain
exchange-traded options with other
markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading such securities and
financial instruments from such markets
and other entities. In addition, the
Exchange may obtain information
regarding trading in such securities and
financial instruments from markets and
other entities that are members of ISG or
with which the Exchange has in place
a comprehensive surveillance sharing
34 15
U.S.C. 78f(b)(5).
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Jkt 238001
agreement. FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s TRACE. Not more
than 10% of the net assets of the Fund
in the aggregate invested in equity
securities (other than non-exchangetraded investment company securities)
shall consist of equity securities whose
principal market is not a member of the
ISG or is a market with which the
Exchange does not have a
comprehensive surveillance sharing
agreement. Not more than 10% of the
net assets of the Fund in the aggregate
invested in futures contracts or
exchange-traded options shall consist of
futures contracts or options whose
principal market is not a member of ISG
or is a market with which the Exchange
does not have a comprehensive
surveillance sharing agreement.
All statements and representations
made in this filing regarding (a) the
description of the portfolio, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules and surveillance
procedures shall constitute continued
listing requirements for listing the
Shares on the Exchange.
The issuer has represented to the
Exchange that it will advise the
Exchange of any failure by the Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Equities Rule 5.5(m).
The IIV will be widely disseminated
by one or more major market data
vendors at least every 15 seconds during
the Core Trading Session. The Fund
may hold up to an aggregate amount of
15% of its net assets in illiquid assets
(calculated at the time of investment),
including Rule 144A securities deemed
illiquid by the Adviser, consistent with
Commission guidance.
The Shares of the Fund will conform
to the initial and continued listing
criteria under NYSE Arca Equities Rule
8.600. The Exchange represents that, for
initial and/or continued listing, the
Fund will be in compliance with Rule
10A–3 under the Act, as provided by
NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares of the Fund
will be outstanding at the
commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares of the Fund that the NAV per
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Frm 00090
Fmt 4703
Sfmt 4703
44347
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
will be made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the respective Shares, thereby
promoting market transparency. The
Fund’s portfolio holdings will be
disclosed on its Web site daily after the
close of trading on the Exchange and
prior to the opening of trading on the
Exchange the following day. On a daily
basis, the Fund will disclose on its Web
site the following information regarding
each portfolio holding, as applicable to
the type of holding: Ticker symbol,
CUSIP number or other identifier, if
any; a description of the holding
(including the type of holding); the
identity of the security, index or other
asset or instrument underlying the
holding, if any; quantity held (as
measured by, for example, par value,
notional value or number of shares,
contracts or units); maturity date, if any;
coupon rate, if any; effective date, if
any; market value of the holding; and
the percentage weighting of the holding
in the Fund’s portfolio. The Web site
information will be publicly available at
no charge.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and its Form N–CSR and Form
N–SAR, filed twice a year. The Trust’s
SAI and Shareholder Reports are
available free upon request from the
Trust, and those documents and the
Form N–CSR and Form N–SAR may be
viewed on-screen or downloaded from
the Commission’s Web site at
www.sec.gov. Quotation and last sale
information for the Shares and for
portfolio holdings of the Fund that are
U.S. exchange listed, including common
stocks, preferred stocks, warrants,
rights, ETFs, REITs, and U.S. exchangetraded ADRs will be available via the
CTA high speed line. Quotation and last
sale information for such U.S. exchangelisted securities, as well as futures will
be available from the exchange on
which they are listed. Quotation and
last sale information for exchange-listed
options cleared via the Options Clearing
Corporation will be available via the
Options Price Reporting Authority.
Quotation and last sale information for
non-U.S. equity securities will be
available from the exchanges on which
they trade and from major market data
vendors.
Quotation information for OTC
options, cash equivalents, swaps, money
market funds, Rule 144A securities, U.S.
Government obligations, U.S.
Government agency obligations,
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sovereign obligations, corporate debt,
and reverse repurchase agreements may
be obtained from brokers and dealers
who make markets in such securities or
through nationally recognized pricing
services through subscription
agreements. The U.S. dollar value of
foreign securities, instruments and
currencies can be derived by using
foreign currency exchange rate
quotations obtained from nationally
recognized pricing services. Forwards
and spot currency price information
will be available from major market data
vendors.
The Web site for the Fund will
include a form of the prospectus for the
Fund and additional data relating to
NAV and other applicable quantitative
information. Moreover, prior to the
commencement of trading, the Exchange
will inform its ETP Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares of the Fund. Trading
in Shares of the Fund will be halted if
the circuit breaker parameters in NYSE
Arca Equities Rule 7.12 have been
reached or because of market conditions
or for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable, and trading in the Shares
will be subject to NYSE Arca Equities
Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the IIV, the Disclosed
Portfolio, and quotation and last sale
information for the Shares. The Fund’s
investments, including derivatives, will
be consistent with the Fund’s
investment objective and will not be
used to enhance leverage (although
certain derivatives may result in
leverage). That is, while the Fund will
be permitted to borrow as permitted
under the 1940 Act, the Fund’s
investments will not be used to seek
performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
the Fund’s primary broad-based
securities benchmark index (as defined
in Form N–1A).
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares of the Fund and may obtain
information via ISG from other
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exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. In addition, as noted
above, investors will have ready access
to information regarding the Fund’s
holdings, the IIV, the Disclosed Portfolio
for the Fund, and quotation and last sale
information for the Shares of the Fund.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
additional type of actively-managed
exchange-traded product that holds
fixed income and equity securities and
that will enhance competition among
market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2016–82. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2016–82 and should be
submitted on or before July 28, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Brent J. Fields,
Secretary.
[FR Doc. 2016–16108 Filed 7–6–16; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2016–82 on the subject line.
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35 17
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Agencies
[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)]
[Notices]
[Pages 44339-44348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16108]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78218; File No. SR-NYSEArca-2016-82]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the JPMorgan
Diversified Event Driven ETF Under NYSE Arca Equities Rule 8.600
July 1, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 20, 2016, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the JPMorgan
Diversified Event Driven ETF under NYSE Arca Equities Rule 8.600. The
proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 44340]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares \4\ on the Exchange: \5\
JPMorgan Diversified Event Driven ETF (the ``Fund'').
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\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
\5\ The Commission has previously approved listing and trading
on the Exchange of actively managed funds under Rule 8.600. See,
e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73
FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving
Exchange listing and trading of twelve actively-managed funds of the
WisdomTree Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9,
2012) (SR-NYSEArca-2011-95) (order approving listing and trading of
PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 77
FR 20087 (April 3, 2012) (SR-NYSEArca-2012-09) (order approving
listing and trading of PIMCO Global Advantage Inflation-Linked Bond
Strategy Fund).
---------------------------------------------------------------------------
The Fund is a series of J.P. Morgan Exchange-Traded Fund Trust
(``Trust''), a Delaware statutory trust.\6\ J.P. Morgan Investment
Management Inc. (``Adviser'') will be the investment adviser to the
Fund. The Adviser is a wholly-owned subsidiary of JPMorgan Asset
Management Holdings Inc., which is a wholly-owned subsidiary of
JPMorgan Chase & Co. (``JPMorgan Chase''), a bank holding company. The
Adviser will also provide administrative services for and will oversee
the other service providers of the Fund (in such capacity, the
``Administrator''). SEI Investments Distribution Co. (``Distributor'')
will be the distributor of the Fund's Shares.
---------------------------------------------------------------------------
\6\ The Trust is registered under the 1940 Act. On April 22,
2016, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to
the Fund (File Nos. 333-191837 and 811-22903) (the ``Registration
Statement'') to add the Fund. The Trust filed an application for an
order under Section 6(c) of the 1940 Act for exemptions from various
provisions of the 1940 Act and rules thereunder (File No. 812-
13761), initially filed March 10, 2010 and most recently amended on
December 23, 2015 (``Exemptive Application''); the Exemptive
Application was published for notice in IC Release No. 31956 on
January 14, 2016. An order (``Exemptive Order'') was issued
regarding the Exemptive Application on February 19, 2016 (IC Release
No. 31990). Investments made by the Fund will comply with the
conditions set forth in the Exemptive Order. The description of the
operation of the Trust and the Fund herein is based, in part, on the
Registration Statement and the Exemptive Application.
---------------------------------------------------------------------------
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition,
Commentary .06 further requires that personnel who make decisions on
the open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the open-end fund's portfolio. The Adviser is not
registered as a broker-dealer but is affiliated with a broker-dealer
and has implemented and will maintain a fire wall with respect to such
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio. In the event (a) the
Adviser becomes registered as a broker-dealer or newly affiliated with
one or more broker-dealers, or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes affiliated with a broker-dealer, it
will implement and maintain a fire wall with respect to its relevant
personnel or its broker-dealer affiliate regarding access to
information concerning the composition and/or changes to the portfolio,
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio.
---------------------------------------------------------------------------
\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund will seek to
provide long term, total return. The Fund will seek to achieve its
investment objective by employing an event-driven investment strategy,
primarily investing in companies that the Adviser believes will be
impacted by pending or anticipated corporate or special situation
events. In executing this investment strategy, the Fund will seek to
capture the price difference between a security's market price and the
anticipated value post-event, based on the assumption that an event or
catalyst will affect future pricing. It will do so based on its
systematic investment process. The Adviser believes it has identified
(and will continue to identify) a set of event-driven investment return
sources that have a low correlation to each other and traditional
markets and have distinct risk and return profiles (each a ``return
factor'').
Each return factor represents a potential source of investment
return that results from, among other things, assuming a particular
risk or taking advantage of a behavioral bias. The Adviser believes
that, in general, the Fund's event-driven investment returns will be
attributable to the individual contributions of the various return
factors. By employing this return factor based approach, the Fund will
seek to provide positive total returns over time while maintaining a
relatively low correlation with traditional markets. The exposure to
individual return factors may vary based on the market opportunity of
the individual return factors. Additional return factors may be
identified over time.
Under normal market conditions,\8\ the Fund will seek to achieve
its investment objective by employing its investment strategy to access
certain return factors. For example, the return factors that the
Adviser may utilize include, but are not limited to, the following:
---------------------------------------------------------------------------
\8\ The term ``under normal market conditions'' includes, but is
not limited to, the absence of extreme volatility or trading halts
in the securities markets or the financial markets generally;
circumstances under which the Fund's investments are made for
temporary defensive purposes; operational issues (e.g., systems
failure) causing dissemination of inaccurate market information; or
force majeure type events such as cyber attacks, natural or man-made
disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance.
--Merger arbitrage--seeks to capitalize on reactions and returns
generated by a corporate transaction. The Fund will purchase the common
stock of the
[[Page 44341]]
company being acquired and may short the common stock of the acquirer
in expectation of profiting from changes in price resulting from merger
activity;
--activism tracking--invests in companies that are the target of
activist investors;
--share buybacks--attempts to exploit the outperformance of a company
engaged in a share buyback program;
--parents and spinoffs--attempts to capture positive performance of a
parent company after the spinoff announcement; this typically leads to
a revaluation of the company;
--index arbitrage--attempts to profit from the price changes of assets
as they are added to or deleted from indices;
--post-reorganization equities--attempts to profit from the mispricing
of companies as they emerge from bankruptcy.
The Fund will invest its assets globally to gain exposure to equity
securities (across market capitalizations) in developed markets. The
Fund may use both long and short positions (achieved primarily through
the use of derivative instruments as described below). The Fund
generally will maintain a total net long market exposure. However, the
Fund may have net long or net short exposure to one or more industry
sectors, individual markets and/or currencies.
According to the Registration Statement, the Adviser will make use
of derivatives (as described below), in implementing its strategies.
Under normal market conditions, the Adviser currently expects that a
significant portion of the Fund's exposure will be attained through the
use of derivatives in addition to its exposure through direct
investment. For example, the Fund may use a total return swap to
establish both long and short positions in order to gain the desired
exposure rather than physically purchasing and selling short each
instrument. Derivatives may also be used to increase gain, to
effectively gain targeted exposure from its cash positions, to hedge
various investments and/or for risk management. As a result of the
Fund's use of derivatives and to serve as collateral, the Fund may hold
significant amounts of U.S. Treasury obligations, including Treasury
bills, bonds and notes and other obligations issued or guaranteed by
the U.S. Treasury, other short-term investments, including money market
funds and foreign currencies in which certain derivatives are
denominated.
According to the Registration Statement, the amount that may be
invested in any one instrument will vary and generally depend on the
return factors employed by the Adviser at that time. However, with the
exception of specified investment limitations for certain assets
described below, there are no stated percentage limitations on the
amount that can be invested in any one type of instrument, and the
Adviser may, at times, focus on a smaller number of instruments.
Moreover, the Fund will generally be unconstrained by any particular
capitalization, style or sector and may invest in any developed region
or country.
The Fund will purchase a particular instrument when the Adviser
believes that such instrument will allow the Fund to gain the desired
exposure to a return factor. Conversely, the Fund will consider selling
a particular instrument when it no longer provides the desired exposure
to a return factor. In addition, investment decisions will take into
account a return factor's contribution to the Fund's overall
volatility.
In addition to its main return factors, the Fund may utilize return
factors that use debt securities. The Fund may invest, either directly
or through financial derivative instruments, debt securities that are
subject to a downgrade from investment grade to non-investment grade
(also known as high yield/junk bond) status. For example, the Fund may
invest in the bonds that have been downgraded while hedging credit risk
more broadly by using credit default swaps indices in order to attempt
to keep the Fund's exposure market neutral.
Principal Investments
According to the Registration Statement, under normal market
conditions, the Fund will invest principally (i.e., more than 50% of
the Fund's assets) in the securities and financial instruments
described below, which may be represented by derivatives, as discussed
below.
The Fund may invest in exchange-listed-and-traded common stocks,
preferred stocks,\9\ warrants and rights \10\ of U.S. and foreign
corporations (including emerging market securities); and U.S. and non-
U.S. real estate investment trusts (``REITs'').\11\ Exchange-listed-
and-traded common stocks, preferred stocks, warrants and rights of U.S.
corporations and U.S. REITs will be traded on U.S. national securities
exchanges.
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\9\ Preferred stock is a class of stock that generally pays a
dividend at a specified rate and has preference over common stock in
the payment of dividends and in liquidation (U.S. and non-U.S.,
including emerging markets).
\10\ Rights are securities, typically issued with preferred
stock or bonds, that give the holder the right to buy a
proportionate amount of common stock at a specified price (U.S. and
non-U.S., including emerging markets).
\11\ REITs are pooled investment vehicles which invest primarily
in income producing real estate or real estate related loans or
interest.
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The Fund may invest in exchange-listed and over-the-counter
(``OTC'') ``Depositary Receipts'' \12\ as described below.
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\12\ Depositary Receipts include American Depositary Receipts
(``ADRs''), Global Depositary Receipts (``GDRs'') and European
Depositary Receipts (``EDRs''). ADRs are receipts typically issued
by an American bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation. EDRs are
receipts issued by a European bank or trust company evidencing
ownership of securities issued by a foreign corporation. GDRs are
receipts issued throughout the world that evidence a similar
arrangement. ADRs, EDRs and GDRs may trade in foreign currencies
that differ from the currency the underlying security for each ADR,
EDR or GDR principally trades in. Generally, ADRs, in registered
form, are designed for use in the U.S. securities markets. EDRs, in
registered form, are used to access European markets. GDRs, in
registered form, are tradable both in the United States and in
Europe and are designed for use throughout the world. No more than
10% of the net assets of the Fund will be invested in ADRs that are
not exchange-listed.
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The Fund may invest in the following cash and cash equivalents:
Investments in money market funds (for which the Adviser and/or its
affiliates serve as investment adviser or administrator), bank
obligations,\13\ commercial paper,\14\ repurchase agreements and short-
term funding agreements.\15\
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\13\ Bank obligations include the following: Bankers'
acceptances, certificates of deposit and time deposits. Bankers'
acceptances are bills of exchange or time drafts drawn on and
accepted by a commercial bank. Maturities are generally six months
or less. Certificates of deposit are negotiable certificates issued
by a bank for a specified period of time and earning a specified
return. Time deposits are non-negotiable receipts issued by a bank
in exchange for the deposit of funds.
\14\ Commercial paper consists of secured and unsecured short-
term promissory notes issued by corporations and other entities.
Maturities generally vary from a few days to nine months.
\15\ Short-term funding agreements are agreements issued by
banks and highly rated U.S. insurance companies such as Guaranteed
Investment Contracts (``GICs'') and Bank Investment Contracts
(``BICs'').
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The Fund may invest in corporate debt.\16\
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\16\ The Adviser expects that, under normal market conditions,
the Fund will invest at least 75% of its corporate debt securities
in issuances that have at least $100,000,000 par amount outstanding
in developed countries or at least $200,000,000 par amount
outstanding in emerging market countries.
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In addition to money market funds referenced above, the Fund may
invest in shares of non-exchange-traded investment company securities
including investment company securities for which the Adviser and/or
its affiliates may serve as investment
[[Page 44342]]
adviser or administrator, to the extent permitted by Section 12(d)(1)
\17\ of the 1940 Act and the rules thereunder.
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\17\ 15 U.S.C. 80a-12(d)(1).
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The Fund may invest in exchange traded funds (``ETFs'').\18\
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\18\ The ETFs in which the Fund may invest will be registered
under the 1940 Act and include Investment Company Units (as
described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
and Managed Fund Shares (as described in NYSE Arca Equities Rule
8.600). Such ETFs all will be listed and traded in the U.S. on
registered exchanges. While the Fund may invest in inverse ETFs, the
Fund will not invest in leveraged or inverse leveraged (e.g., 2X, -
2X, 3X or -3X) ETFs.
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The Fund may purchase and sell futures contracts on indexes of
securities.
The Fund may invest in swaps as follows: Credit default swaps
(``CDSs''), CDS indices and total return swaps on equity securities,
equity indexes, fixed income securities, and fixed income futures.
The Fund may invest in forward and spot currency transactions.\19\
Such investments consist of non-deliverable forwards (``NDFs''),
foreign forward currency contracts, and spot currency transactions.
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\19\ The Fund will limit its investments in currencies to those
currencies with a minimum average daily foreign exchange turnover of
USD $1 billion as determined by the Bank for International
Settlements (``BIS'') Triennial Central Bank Survey. As of the most
recent BIS Triennial Central Bank Survey, at least 52 separate
currencies had minimum average daily foreign exchange turnover of
USD $1 billion. For a list of eligible BIS currencies, see
www.bis.org.
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The Fund may invest in OTC and exchange-traded call and put options
on equities, fixed income securities and currencies or options on
indexes of equities, fixed income securities and currencies.
The Fund may invest in U.S. Government obligations, which may
include direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, all of which are backed as to principal and
interest payments by the full faith and credit of the United States,
and separately traded principal and interest component parts of such
obligations that are transferable through the Federal book-entry system
known as Separate Trading of Registered Interest and Principal of
Securities (``STRIPS'') and Coupons Under Book Entry Safekeeping
(``CUBES'').
Other Investments
While the Fund, under normal market conditions, will invest at
least fifty percent (50%) of its assets in the securities and financial
instruments described above, the Fund may invest its remaining assets
in other assets and financial instruments, as described below.
The Fund may invest in U.S. and non-U.S. convertible securities,
which are bonds or preferred stock that can convert to common stock.
The Fund may invest in reverse repurchase agreements.
The Fund may invest in sovereign obligations, which are investments
in debt obligations issued or guaranteed by a foreign sovereign
government or its agencies, authorities or political subdivisions.
The Fund may invest no more than 5% of its assets in equity and
debt securities that are restricted securities (Rule 144A securities),
in addition to Rule 144A securities deemed illiquid by the Adviser, as
referenced below.
Under normal market conditions, the Fund may invest no more than 5%
of its assets in OTC common stocks, preferred stocks, warrants, rights
and contingent value rights (``CVRs'') of U.S. and foreign corporations
(including emerging market securities).
Other Restrictions
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser,
consistent with Commission guidance. The Fund will monitor its
portfolio liquidity on an ongoing basis to determine whether, in light
of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of the Fund's net assets are held
in illiquid assets. Illiquid assets include securities subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets as determined in accordance with
Commission staff guidance.\20\
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\20\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act).
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The Fund may invest in other investment companies to the extent
permitted by Section12(d)(1) of the 1940 Act and rules thereunder and/
or any applicable exemption or exemptive order under the 1940 Act with
respect to such investments.
The Fund may invest in securities denominated in U.S. dollars,
major reserve currencies, and currencies of other countries in which
the Fund may invest.
The Fund may invest in both investment grade and high yield debt
securities.
The Fund intends to qualify for and to elect treatment as a
separate regulated investment company (``RIC'') under Subchapter M of
the Internal Revenue Code.\21\ Furthermore, the Fund may not
concentrate investments in a particular industry or group of
industries, as concentration is defined under the 1940 Act, the rules
or regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended or interpreted from time to
time.\22\
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\21\ 26 U.S.C. 851 et seq.
\22\ The Registration Statement states that, for purposes of the
Fund's fundamental investment policy regarding industry
concentration, ``to concentrate'' generally means to invest more
than 25% of the Fund's total assets, taken at market value at the
time of investment.
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The Fund is a diversified series of the Trust. The Fund intends to
meet the diversification requirements of the 1940 Act.\23\
---------------------------------------------------------------------------
\23\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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The Fund's investments, including derivatives, will be consistent
with the Fund's investment objective and will not be used to enhance
leverage (although certain derivatives may result in leverage). That
is, while the Fund will be permitted to borrow as permitted under the
1940 Act, the Fund's investments will not be used to seek performance
that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the
Fund's primary broad-based securities benchmark index (as defined in
Form N-1A).\24\
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\24\ The Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
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The Fund's Use of Derivatives
The Fund proposes to seek certain exposures through transactions in
the specific derivative instruments described above. The derivatives to
be used are futures, swaps, NDFs, foreign forward currency contracts,
and call and put options. Derivatives, which are
[[Page 44343]]
instruments that have a value based on another instrument, exchange
rate or index, may also be used as substitutes for securities in which
the Fund can invest. The Fund may use these derivative instruments to
increase gain, to effectively gain targeted exposure from its cash
positions, to hedge various investments and/or for risk management.
Investments in derivative instruments will be made in accordance
with the 1940 Act and consistent with the Fund's investment objective
and policies. To limit the potential risk associated with such
transactions, the Fund will segregate or ``earmark'' assets determined
to be liquid by the Adviser in accordance with procedures established
by the Trust's Board of Trustees (the ``Board'') and in accordance with
the 1940 Act (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations under derivative
instruments. These procedures have been adopted consistent with Section
18 of the 1940 Act and related Commission guidance. In addition, the
Fund will include appropriate risk disclosure in its offering
documents, including leveraging risk. Leveraging risk is the risk that
certain transactions of the Fund, including the Fund's use of
derivatives, may give rise to leverage, causing the Fund to be more
volatile than if it had not been leveraged.\25\ Because the markets for
certain assets, or the assets themselves, may be unavailable or cost
prohibitive as compared to derivative instruments, suitable derivative
transactions may be an efficient alternative for the Fund to obtain the
desired asset exposure.
---------------------------------------------------------------------------
\25\ To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that
may give rise to such risk.
---------------------------------------------------------------------------
Creation and Redemption of Shares
According to the Registration Statement, the consideration for a
purchase of Creation Units will generally be cash, but may consist of
an in-kind deposit of a designated portfolio of equity securities and
other investments (the ``Deposit Instruments'') and an amount of cash
computed as described below (the ``Cash Amount'') under some
circumstances. The size of a Creation Unit will be 100,000 Shares and
will be subject to change. The Cash Amount together with the Deposit
Instruments, as applicable, are referred to as the ``Portfolio
Deposit'', which represents the minimum initial and subsequent
investment amount for a Creation Unit of the Fund.
In the event the Fund requires Deposit Instruments and a Cash
Amount in consideration for purchasing a Creation Unit, the function of
the Cash Amount is to compensate for any differences between the net
asset value (``NAV'') per Creation Unit and the Deposit Amount (as
defined below). The Cash Amount would be an amount equal to the
difference between the NAV of the Shares (per Creation Unit) and the
``Deposit Amount,'' which is an amount equal to the aggregate market
value of the Deposit Instruments. If the Cash Amount is a positive
number (the NAV per Creation Unit exceeds the Deposit Amount), the
``Authorized Participant'' (as defined below) will deliver the Cash
Amount. If the Cash Amount is a negative number (the NAV per Creation
Unit is less than the Deposit Amount), the Authorized Participant will
receive the Cash Amount. The Administrator, through the National
Securities Clearing Corporation (``NSCC''), will make available on each
business day, immediately prior to the opening of business on the
Exchange (currently 9:30 a.m. Eastern time (``E.T.'')), the list of the
names and the required number of shares of each Deposit Instrument to
be included in the current Portfolio Deposit (based on information at
the end of the previous business day), as well as information regarding
the Cash Amount for the Fund. Such Portfolio Deposit is applicable,
subject to any adjustments as described below, in order to effect
creations of Creation Units of the Fund until such time as the next-
announced Portfolio Deposit composition is made available.
The identity and number of the Deposit Instruments and Cash Amount
required for the Portfolio Deposit for the Fund changes as rebalancing
adjustments and corporate action events are reflected from time to
time. In addition, the Trust reserves the right to accept a basket of
securities or cash that differs from Deposit Instruments or to permit
the substitution of an amount of cash (i.e., a ``cash in lieu'' amount)
to be added to the Cash Amount to replace any Deposit Instrument which
may, among other reasons, not be available in sufficient quantity for
delivery, not be permitted to be re-registered in the name of the Trust
as a result of an in-kind creation order pursuant to local law or
market convention or for other reasons as described in the Registration
Statement, or which may not be eligible for trading by a Participating
Party (defined below). In light of the foregoing, in order to seek to
replicate the in-kind creation order process, the Trust expects to
purchase the Deposit Instruments represented by the cash in lieu amount
in the secondary market.
In addition to the list of names and numbers of securities
constituting the current Deposit Instruments of a Portfolio Deposit,
the Administrator, through the NSCC, also will make available on each
business day, the estimated Cash Component adjusted through the close
of the trading day.
Procedures for Creation of Creation Units
To be eligible to place orders with the Distributor to create
Creation Units of the Fund, an entity or person either must be (1) a
``Participating Party,'' i.e., a broker-dealer or other participant in
the clearing process through the Continuous Net Settlement System of
the NSCC; or (2) a Depositary Trust Company (``DTC'') Participant,
which, in either case, must have executed an agreement with the
Distributor (as it may be amended from time to time in accordance with
its terms) (``Participant Agreement'') (discussed below). A
Participating Party and DTC Participant are collectively referred to as
an ``Authorized Participant.'' All orders to create Creation Units must
be received by the Distributor no later than the closing time of the
regular trading session on the Exchange (``Closing Time'') (ordinarily
4:00 p.m. E.T.), in each case on the date such order is placed in order
for creation of Creation Units to be effected based on the NAV of the
Fund as determined on such date.
Redemption of Creation Units
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Distributor, only on a business day and only through an Authorized
Participant. The Trust will not redeem Shares in amounts less than
Creation Units.
Although the Fund will generally pay redemption proceeds in cash,
there may be instances when it will make redemptions in-kind. In these
instances, the Administrator, through NSCC, will make available
immediately prior to the opening of business on the Exchange (currently
9:30 a.m. E.T.) on each day that the Exchange is open for business, the
identity of the Fund's assets and/or an amount of cash that will be
applicable (subject to possible amendment or correction) to redemption
requests received in proper form on that day. Unless cash redemptions
are permitted or required for the Fund, the redemption proceeds for a
Creation Unit generally consist of ``Redemption Instruments'' as
announced by the Administrator on the
[[Page 44344]]
business day of the request for redemption, plus cash in an amount
equal to the difference between the NAV of the Shares being redeemed,
as next determined after a receipt of a request in proper form, and the
value of the Redemption Instruments, less the redemption transaction
fee and variable fees described below.
Should the Redemption Instruments have a value greater than the NAV
of the Shares being redeemed, a compensating cash payment to the Trust
equal to the differential plus the applicable redemption transaction
fee will be required to be arranged for by or on behalf of the
redeeming shareholder. The Fund reserves the right to honor a
redemption request by delivering a basket of securities or cash that
differs from the Redemption Instruments.\26\
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\26\ The Adviser represents that, to the extent the Trust
effects the creation or redemption of Shares in cash, such
transactions will be effected in the same manner for all Authorized
Participants.
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Valuation Methodology for Purposes of Determining Net Asset Value
The NAV of Shares, under normal market conditions, will be
calculated each business day as of the close of the Exchange, which is
typically 4:00 p.m. E.T. On occasion, the Exchange will close before
4:00 p.m. E.T. When that happens, NAV will be calculated as of the time
the Exchange closes. The price at which a purchase of a Creation Unit
is effected will be based on the next calculation of NAV after the
order is received in proper form.
Securities for which market quotations are readily available will
generally be valued at their current market value. Other securities and
assets, including securities for which market quotations are not
readily available or market quotations are determined not to be
reliable; or, if their value has been materially affected by events
occurring after the close of trading on the exchange or market on which
the security is principally traded but before the Fund's NAV is
calculated, may be valued at fair value in accordance with policies and
procedures adopted by the Trust's Board of Trustees. Fair value
represents a good faith determination of the value of a security or
other asset based upon specifically applied procedures. Fair valuation
may require subjective determinations.
U.S. exchange-traded common stocks, preferred stocks, warrants,
rights, REITs, and Depositary Receipts will be valued at the last sale
price or official market closing price on the primary exchange on which
such security trades. Exchange-traded non-U.S. equity securities will
be valued at the last sale price or official market closing price on
the primary exchange on which such security trades.
OTC equity securities will be priced utilizing market quotations
provided by approved pricing services or by broker quotation. For OTC
warrants, rights and CVRs, if no pricing service or broker quotation is
available, then the warrant, right or CVR will be valued intrinsically
based on the terms of issuance.
Shares of non-exchange-traded open-end investment companies will be
valued at their current day NAV published by the relevant fund. ETFs
will be valued at the last sale price or official market closing price
on the primary exchange on which such ETF trades.
CDS and total return swaps will be priced utilizing market
quotations provided by approved pricing services.
Forward and spot currency transactions will be valued based on
foreign exchange rates obtained from an approved pricing service, using
spot and forward rates available at the time NAV of the Fund is
calculated.
Commercial paper will be valued at prices supplied by approved
pricing services which is generally based on bid-side quotations.
Options traded on U.S. exchanges will be valued at the composite
mean price, using the National Best Bid and Offer quotes (``NBBO'') on
the valuation date. NBBO consists of the highest bid price and lowest
ask price across any of the exchanges on which an option is quoted.
Options traded on foreign exchanges will be valued at the settled
price on the valuation date, or if no settled price is available, at
the last sale price available prior to the calculation of the Fund's
NAV.
Futures traded on U.S. and foreign exchanges are valued at the
settled price, or if no settled price is available, at the last sale
price as of the close of the exchanges on the valuation date.
OTC derivatives will be priced utilizing market quotations provided
by approved pricing services.
In addition, non-Western Hemisphere equity securities or
derivatives involving non-Western Hemisphere equity reference
obligations will normally be subject to adjustment (fair value) each
day by applying a fair value factor provided by approved pricing
services to the values obtained as described above.
Convertible securities will be valued at prices supplied by
approved pricing services which is generally based on bid-side
quotations.
Corporate debt securities will be valued at prices supplied by
approved pricing services which is generally based on bid-side
quotations.
Bank obligations, short-term funding agreements, repurchase
agreements, reverse repurchase agreements, U.S. Government obligations,
sovereign obligations, and Rule 144A securities will be valued at
prices supplied by approved pricing services which is generally based
on bid-side quotations.
Derivatives Valuation Methodology for Purposes of Determining Intra-Day
Indicative Value
On each business day, before commencement of trading in Fund Shares
on NYSE Arca, the Fund will disclose on its Web site the identities and
quantities of the portfolio instruments and other assets held by the
Fund that will form the basis for the Fund's calculation of NAV at the
end of the business day.
In order to provide additional information regarding the intra-day
value of Shares of the Fund, the NYSE Arca or a market data vendor will
disseminate every 15 seconds through the facilities of the Consolidated
Tape Association or other widely disseminated means an updated Intra-
Day Indicative Value (``IIV'') for the Fund as calculated by a third
party market data provider.
A third party market data provider will calculate the IIV for the
Fund. The third party market data provider may use market quotes if
available or may fair value securities against proxies (such as swap or
yield curves).
With respect to specific derivatives:
NDFs and foreign forward currency contracts may be valued
intraday using market quotes, or another proxy as determined to be
appropriate by the third party market data provider.
Futures may be valued intraday using the relevant futures
exchange data, or another proxy as determined to be appropriate by the
third party market data provider.
CDS and CDS indices swaps may be valued using intraday
data from market vendors, or based on underlying asset price, or
another proxy as determined to be appropriate by the third party market
data provider.
Total return swaps may be valued intraday using the
underlying asset price, or another proxy as determined to be
appropriate by the third party market data provider.
Exchange-listed options may be valued intraday using the
relevant exchange data, or another proxy as determined to be
appropriate by the third party market data provider.
[[Page 44345]]
OTC options may be valued intraday through option
valuation models (e.g., Black-Scholes) or using exchange traded options
as a proxy, or another proxy as determined to be appropriate by the
third party market data provider.
Disclosed Portfolio
The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Adviser will
disclose on the Fund's Web site the following information regarding
each portfolio holding, as applicable to the type of holding: Ticker
symbol, CUSIP number or other identifier, if any; a description of the
holding (including the type of holding, such as the type of swap); the
identity of the security, index or other asset or instrument underlying
the holding, if any; for options, the option strike price; quantity
held (as measured by, for example, par value, notional value or number
of shares, contracts or units); maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge.
Impact on Arbitrage Mechanism
The Adviser believes there will be minimal impact to the arbitrage
mechanism as a result of the use of derivatives. Market makers and
participants should be able to value derivatives as long as the
positions are disclosed with relevant information. The Adviser believes
that the price at which Shares trade will continue to be disciplined by
arbitrage opportunities created by the ability to purchase or redeem
creation Shares at their NAV, which should ensure that Shares will not
trade at a material discount or premium in relation to their NAV.
The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of the Fund's arbitrage
mechanism due to the use of derivatives. Because derivatives generally
are not eligible for in-kind transfer, they will typically be
substituted with a ``cash in lieu'' amount when the Fund processes
purchases or redemptions of creation units in-kind.
Availability of Information
The Fund's Web site (www.jpmorganfunds.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV or mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\27\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session (normally, 9:30 a.m.
to 4:00 p.m., E.T.) on the Exchange, the Adviser will disclose on the
Fund's Web site the Disclosed Portfolio for the Fund as defined in NYSE
Arca Equities Rule 8.600(c)(2) that will form the basis for the Fund's
calculation of NAV at the end of the business day.\28\
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\27\ The Bid/Ask Price of the Fund's Shares will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid/Ask Prices will be retained by the Fund and
its service providers.
\28\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
the Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day.
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The Fund's portfolio holdings will be disclosed on its Web site
daily after the close of trading on the Exchange and prior to the
opening of trading on the Exchange the following day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov.
Quotation and last sale information for the Shares and for
portfolio holdings of the Fund that are U.S. exchange listed, including
common stocks, preferred stocks, warrants, rights, ETFs, REITs, and
U.S. exchange-traded ADRs will be available via the Consolidated Tape
Association (``CTA'') high speed line. Quotation and last sale
information for such U.S. exchange-listed securities, as well as
futures will be available from the exchange on which they are listed.
Quotation and last sale information for exchange-listed options cleared
via the Options Clearing Corporation will be available via the Options
Price Reporting Authority. Quotation and last sale information for non-
U.S. equity securities (including GDRs and EDRs) will be available from
the exchanges on which they trade and from major market data vendors,
as applicable. Price information for OTC common stocks (including
certain OTC ADRs), preferred stocks, warrants, rights and CVRs will be
available from one or more major market data vendors or broker dealers
in the securities.
Quotation information for OTC options, cash equivalents, swaps,
money market funds, non-exchange-listed investment company securities
(other than money market funds), Rule 144A securities, U.S. Government
obligations, U.S. Government agency obligations, sovereign obligations,
corporate debt, and reverse repurchase agreements may be obtained from
brokers and dealers who make markets in such securities or through
nationally recognized pricing services through subscription agreements.
The U.S. dollar value of foreign securities, instruments and currencies
can be derived by using foreign currency exchange rate quotations
obtained from nationally recognized pricing services. Forwards and spot
currency price information will be available from major market data
vendors.
In addition, the IIV, which is the Portfolio Indicative Value, as
defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session.\29\ The dissemination of the
IIV, together with the Disclosed Portfolio, will allow investors to
determine the approximate value of the underlying portfolio of the Fund
on a daily basis and will provide a close estimate of that value
throughout the trading day.
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\29\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IIVs
taken from the CTA or other data feeds.
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Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\30\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the
[[Page 44346]]
view of the Exchange, make trading in the Shares of the Fund
inadvisable. These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments comprising
the Disclosed Portfolio of the Fund; or (2) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. Trading in the Shares will be subject
to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Fund may be halted.
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\30\ See NYSE Arca Equities Rule 7.12.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, the minimum price variation (``MPV'') for
quoting and entry of orders in equity securities traded on the NYSE
Arca Marketplace is $0.01, with the exception of securities that are
priced less than $1.00 for which the MPV for order entry is $0.0001.
The Shares of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. The Exchange
represents that, for initial and/or continued listing, the Fund will be
in compliance with Rule 10A-3 \31\ under the Act, as provided by NYSE
Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
the Fund that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time.
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\31\ 17 CFR 240 10A-3.
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Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange as
well as cross-market surveillances administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\32\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and applicable federal securities laws.
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\32\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange, or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, certain
exchange-listed equity securities (including Depositary Receipts, ETFs,
REITs, common and preferred stocks, warrants, rights, certain futures,
and certain exchange-traded options with other markets and other
entities that are members of the Intermarket Surveillance Group
(``ISG''), and the Exchange or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading such securities
and financial instruments from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in such
securities and financial instruments from markets and other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\33\ FINRA, on behalf of
the Exchange, is able to access, as needed, trade information for
certain fixed income securities held by the Fund reported to FINRA's
Trade Reporting and Compliance Engine (``TRACE'').
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\33\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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Not more than 10% of the net assets of the Fund in the aggregate
invested in equity securities (other than non-exchange-traded
investment company securities) shall consist of equity securities whose
principal market is not a member of the ISG or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement. Not more than 10% of the net assets of the Fund in the
aggregate invested in futures contracts or exchange-traded options
shall consist of futures contracts or options whose principal market is
not a member of ISG or is a market with which the Exchange does not
have a comprehensive surveillance sharing agreement.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) the applicability of Exchange
rules and surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Fund to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Fund is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares of the Fund. Specifically, the Bulletin will discuss
the following: (1) The procedures for purchases and redemptions of
Shares in Creation Units (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated IIV will not be calculated or publicly
disseminated; (4) how information regarding the IIV and the Disclosed
Portfolio is disseminated; (5) the requirement that ETP Holders deliver
a prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the
[[Page 44347]]
Commission from any rules under the Act. The Bulletin will also
disclose that the NAV for the Shares of the Fund will be calculated
after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5)\34\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\34\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Adviser is not registered as a broker-dealer but is
affiliated with a broker-dealer and has implemented and will maintain a
fire wall with respect to such broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
portfolio. The Exchange represents that trading in the Shares will be
subject to the existing trading surveillances administered by the
Exchange, as well as cross-market surveillances administered by FINRA
on behalf of the Exchange, which are designed to detect violations of
Exchange rules and applicable federal securities laws. The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws. The Exchange, or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, certain
exchange-listed equity securities, certain futures, and certain
exchange-traded options with other markets and other entities that are
members of the ISG, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading
such securities and financial instruments from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in such securities and financial instruments from markets and
other entities that are members of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement. FINRA, on
behalf of the Exchange, is able to access, as needed, trade information
for certain fixed income securities held by the Fund reported to
FINRA's TRACE. Not more than 10% of the net assets of the Fund in the
aggregate invested in equity securities (other than non-exchange-traded
investment company securities) shall consist of equity securities whose
principal market is not a member of the ISG or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement. Not more than 10% of the net assets of the Fund in the
aggregate invested in futures contracts or exchange-traded options
shall consist of futures contracts or options whose principal market is
not a member of ISG or is a market with which the Exchange does not
have a comprehensive surveillance sharing agreement.
All statements and representations made in this filing regarding
(a) the description of the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) the applicability of Exchange
rules and surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Fund to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Fund is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Equities Rule 5.5(m).
The IIV will be widely disseminated by one or more major market
data vendors at least every 15 seconds during the Core Trading Session.
The Fund may hold up to an aggregate amount of 15% of its net assets in
illiquid assets (calculated at the time of investment), including Rule
144A securities deemed illiquid by the Adviser, consistent with
Commission guidance.
The Shares of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. The Exchange
represents that, for initial and/or continued listing, the Fund will be
in compliance with Rule 10A-3 under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
the Fund that the NAV per Share will be calculated daily and that the
NAV and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the respective
Shares, thereby promoting market transparency. The Fund's portfolio
holdings will be disclosed on its Web site daily after the close of
trading on the Exchange and prior to the opening of trading on the
Exchange the following day. On a daily basis, the Fund will disclose on
its Web site the following information regarding each portfolio
holding, as applicable to the type of holding: Ticker symbol, CUSIP
number or other identifier, if any; a description of the holding
(including the type of holding); the identity of the security, index or
other asset or instrument underlying the holding, if any; quantity held
(as measured by, for example, par value, notional value or number of
shares, contracts or units); maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov. Quotation and
last sale information for the Shares and for portfolio holdings of the
Fund that are U.S. exchange listed, including common stocks, preferred
stocks, warrants, rights, ETFs, REITs, and U.S. exchange-traded ADRs
will be available via the CTA high speed line. Quotation and last sale
information for such U.S. exchange-listed securities, as well as
futures will be available from the exchange on which they are listed.
Quotation and last sale information for exchange-listed options cleared
via the Options Clearing Corporation will be available via the Options
Price Reporting Authority. Quotation and last sale information for non-
U.S. equity securities will be available from the exchanges on which
they trade and from major market data vendors.
Quotation information for OTC options, cash equivalents, swaps,
money market funds, Rule 144A securities, U.S. Government obligations,
U.S. Government agency obligations,
[[Page 44348]]
sovereign obligations, corporate debt, and reverse repurchase
agreements may be obtained from brokers and dealers who make markets in
such securities or through nationally recognized pricing services
through subscription agreements. The U.S. dollar value of foreign
securities, instruments and currencies can be derived by using foreign
currency exchange rate quotations obtained from nationally recognized
pricing services. Forwards and spot currency price information will be
available from major market data vendors.
The Web site for the Fund will include a form of the prospectus for
the Fund and additional data relating to NAV and other applicable
quantitative information. Moreover, prior to the commencement of
trading, the Exchange will inform its ETP Holders in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares of the Fund. Trading in Shares of the Fund will be
halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached or because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable, and trading in the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the IIV, the Disclosed Portfolio, and quotation and last sale
information for the Shares. The Fund's investments, including
derivatives, will be consistent with the Fund's investment objective
and will not be used to enhance leverage (although certain derivatives
may result in leverage). That is, while the Fund will be permitted to
borrow as permitted under the 1940 Act, the Fund's investments will not
be used to seek performance that is the multiple or inverse multiple
(i.e., 2Xs and 3Xs) of the Fund's primary broad-based securities
benchmark index (as defined in Form N-1A).
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares of the
Fund and may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the IIV, the Disclosed Portfolio for the Fund, and
quotation and last sale information for the Shares of the Fund.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded product that holds
fixed income and equity securities and that will enhance competition
among market participants, to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2016-82 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2016-82. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2016-82 and should
be submitted on or before July 28, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-16108 Filed 7-6-16; 8:45 am]
BILLING CODE 8011-01-P