Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the JPMorgan Global Bond Opportunities ETF, 45546-45554 [2016-16615]
Download as PDF
<![CDATA[
45546
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Reed, 202–268–3179.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on July 8, 2016, it
filed with the Postal Regulatory
Commission a Request of the United
States Postal Service To Add Priority
Mail Express Contract 39 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2016–164,
CP2016–238.
Stanley F. Mires,
Attorney, Federal Compliance.
[FR Doc. 2016–16630 Filed 7–13–16; 8:45 am]
BILLING CODE 7710–12–P
RAILROAD RETIREMENT BOARD
Sunshine Act; Notice of Public Meeting
Notice is hereby given that the
Railroad Retirement Board will hold a
closed meeting on July 28, 2016
beginning at 10:00 a.m. at the Board’s
meeting room on the 8th floor of its
headquarters building, 844 North Rush
Street, Chicago, Illinois 60611. The
agenda for this meeting follows:
Closed meeting notice:
(1) Chief Financial Officer Position
The person to contact for more
information is Martha P. Rico, Secretary
to the Board, Phone No. 312–751–4920.
Martha P. Rico,
Secretary to the Board.
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78264; File No. SRBatsBZX–2016–35]
Self-Regulatory Organizations; Bats
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To List and
Trade Shares of the JPMorgan Global
Bond Opportunities ETF
asabaliauskas on DSK3SPTVN1PROD with NOTICES
July 8, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 1,
2016, Bats BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
company and has filed a registration
statement with respect to the Fund on
Form N–1A (‘‘Registration Statement’’)
with the Commission.4
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to list
and trade shares of the JPMorgan Global
Bond Opportunities ETF (the ‘‘Fund’’)
of the J.P. Morgan Exchange-Traded
Fund Trust (the ‘‘Trust’’) under BZX
Rule 14.11(i) (‘‘Managed Fund Shares’’).
The shares of the Fund are collectively
referred to herein as the ‘‘Shares.’’
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
Description of the Shares and the Fund
J.P. Morgan Investment Management
Inc. will be the investment adviser
(‘‘JPMIM’’ or ‘‘Adviser’’) to the Fund.
The Adviser will serve as the
administrator for the Fund (the
‘‘Administrator’’). SEI Investments
Distribution Co. (the ‘‘Distributor’’)
serves as the distributor for the Trust.
JPMorgan Chase Bank, N.A. will act as
the custodian (the ‘‘Custodian’’) and
transfer agent (‘‘Transfer Agent’’) for the
Trust.
BZX Rule 14.11(i)(7) provides that, if
the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, 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.5 In addition, Rule
14.11(i)(7) further requires that
personnel who make decisions on the
investment company’s portfolio
composition must be subject to
procedures designed to prevent the use
and dissemination of material
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2016–16765 Filed 7–12–16; 4:15 pm]
1 15
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
1. Purpose
The Exchange proposes to list and
trade the Shares under BZX Rule
14.11(i), which governs the listing and
trading of Managed Fund Shares on the
Exchange.3 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
Fund will be an actively managed fund.
The Shares will be offered by the Trust,
which was established as a Delaware
statutory trust on February 25, 2010.
The Trust is registered with the
Commission as an open-end investment
3 The Commission approved BZX Rule 14.11(i) in
Securities Exchange Act Release No. 65225 (August
30, 2011), 76 FR 55148 (September 6, 2011) (SR–
BATS–2011–018).
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
4 See Registration Statement on Form N–1A for
the Trust, dated May 26, 2016 (File Nos. 333–
191837 and 811–22903). The descriptions of the
Fund and the Shares contained herein are based, in
part, on information in the Registration Statement.
The Commission has issued an order granting
certain exemptive relief to the Trust under the
Investment Company Act of 1940 (15 U.S.C. 80a–
1) (‘‘1940 Act’’) (the ‘‘Exemptive Order’’). See
Investment Company Act Release No. 31990
(February 9, 2016) (File No. 812–13761).
5 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.
E:\FR\FM\14JYN1.SGM
14JYN1
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
nonpublic information regarding the
applicable investment company
portfolio. Rule 14.11(i)(7) is similar to
BZX Rule 14.11(b)(5)(A)(i), however,
Rule 14.11(i)(7) in connection with the
establishment of a ‘‘fire wall’’ between
the investment adviser and the brokerdealer reflects the applicable open-end
fund’s portfolio, not an underlying
benchmark index, as is the case with
index-based funds. The Adviser is not
registered as a broker-dealer but the
Adviser is affiliated with a broker-dealer
and has implemented a ‘‘fire wall’’ with
respect to such broker-dealer regarding
access to information concerning the
composition and/or changes to the
Fund’s portfolio. In the event (a) the
Adviser becomes registered as a brokerdealer or newly affiliated with a brokerdealer, or (b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with a broker-dealer,
it will implement a fire wall with
respect to its relevant personnel or
broker-dealer affiliate regarding access
to information concerning the
composition and/or changes to the
portfolio, and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding such
portfolio.
JPMorgan Global Bond Opportunities
ETF
According to the Registration
Statement, the Fund will seek to
provide total return by investing across
sectors in developed and emerging
markets located around the world. The
Fund is an actively-managed fund that
does not seek to replicate the
performance of a specified index.
Because the Fund is not managed to a
benchmark, the Adviser has broad
discretion to shift the Fund’s exposure
to strategies, sectors, countries or
currencies based on changing market
conditions and its view of the best mix
of investment opportunities. In buying
and selling investments for the Fund,
the Adviser allocates the Fund’s
exposure to strategies, sectors, countries
and currencies based on the Adviser’s
analysis of individual investments and
broader economic conditions in
individual countries, regions and the
world. This allows the Adviser to take
a conservative approach during
uncertain periods and move into higher
risk opportunities as market conditions
improve, which may result in the Fund
focusing in only a few markets and
sectors.
Under normal circumstances, the
Fund will invest at least 80% of its net
assets (plus the amount of borrowings
for investment purposes) (‘‘Assets’’) in
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
bonds. Under normal circumstances, the
Fund will invest at least 40% of its
Assets in countries other than the
United States. The Fund may invest in
developed or emerging markets.
Emerging markets currently includes
most countries in the world except
Australia, Canada, Japan, New Zealand,
the U.S., the United Kingdom and most
western European countries and Hong
Kong. In managing the Fund, the
Adviser will seek to diversify the Fund’s
portfolio by investing in issuers in at
least three countries other than the U.S.
The Fund may invest a substantial part
of its assets in just one country and is
not required to allocate its investments
in any set percentages in any particular
countries.
Although the Fund has the flexibility
to invest without limit in securities that
are rated below investment grade (also
known as junk bonds or high yield
securities), or the unrated equivalent,
the Fund generally invests at least 25%
of the Fund’s Assets in securities that at
the time of purchase are rated
investment grade or the unrated
equivalent. The Fund has flexibility to
decrease the percentage of Assets
invested in investment grade securities
at any time to take advantage of higher
risk opportunities when market
conditions are improving.
The Fund currently seeks to maintain
a duration of eight years or less,
although the Fund has the flexibility to
maintain a longer duration under
certain market conditions such as
significant volatility in interest rates and
spreads. Duration is a measure of the
price sensitivity of a debt security or a
portfolio of debt securities to relative
changes in interest rates. For instance, a
duration of three years means that a
security’s or portfolio’s price would be
expected to decrease by approximately
3% with a 1% increase in interest rates
(assuming a parallel shift in yield
curve).
As part of its principal investment
strategy and for temporary defensive
purposes, any portion of the Fund’s
total assets may be invested in cash and
cash equivalents.
Principal Holdings
The Fund intends to achieve its
investment objective by investing, under
normal circumstances,6 80% of its
6 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the fixed
income markets or the financial markets generally;
operational issues causing dissemination of
inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance.
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
45547
Assets in bonds (a debt security with a
maturity of 90 days or more at the time
of its issuance) (‘‘Bonds’’), subject to
certain limits described below. For
purposes of this filing, Bonds will be
defined as the following instruments:
Asset-backed securities 7 (including
mortgages,8 mortgage dollar rolls,9 and
stripped mortgage-backed securities); 10
bank obligations; commercial paper; 11
convertible bonds; corporate debt
securities; 12 inflation-linked debt
securities; inverse floating rate
instruments; 13 municipal securities; 14
7 Asset-backed securities (‘‘ABS’’) include
securities secured by company receivables, home
equity loans, truck and auto loans, leases, and
credit card receivables or other securities backed by
other types of receivables or other assets. ABS
includes mortgage-backed securities (‘‘MBS’’),
which are debt obligations secured by real estate
loans and pools of loans such as collateralized
mortgage obligations (‘‘CMOs’’), commercial
mortgage-backed securities (‘‘CMBS’’), and other
asset-backed structures. The Fund may not invest
more than 20% of its portfolio in a combination of:
Illiquid ABS (as determined in footnote 31, below),
and distressed or defaulted loans, including nonperforming loans and reperforming loans.
8 Mortgages are debt instruments secured by real
property and include adjustable rate mortgage loans
(‘‘ARMs’’), which are loans in a mortgage pool
which provide for a fixed initial mortgage interest
rate for a specified period of time, after which the
rate may be subject to periodic adjustments.
9 Mortgage dollar rolls involve a transaction in
which the Fund sells securities for delivery in a
current month and simultaneously contracts with
the same party to repurchase similar but not
identical securities on a specified future date.
10 Stripped mortgage-backed securities are
securities which are usually structured with two
classes of shares that receive different proportions
of the interest and principal from a pool of mortgage
assets. These include Interest-Only (‘‘IO’’) and
Principal-Only (‘‘PO’’) securities issued outside a
Real Estate Mortgage Investment Conduit
(‘‘REMIC’’) or CMO structure.
11 Secured and unsecured short-term promissory
notes issued by corporations and other entities.
Maturities generally vary from a few days to nine
months.
12 May include bonds and other debt securities of
domestic and foreign issuers, including obligations
of industrial, utility, banking and other corporate
issuers [sic]. While the Fund is permitted to invest
without restriction in corporate bonds, the Adviser
expects that, under normal circumstances, the Fund
will generally seek to invest in corporate bond
issuances that have at least $100,000,000 par
amount outstanding. Further, component corporate
bonds that in the aggregate account for at least 75%
of the weight of corporate bonds will have a
minimum original principal outstanding of $100
million or more.
13 Inverse floating rate instruments are leveraged
variable debt instruments with interest rates that
reset in the opposite direction from the market rate
of interest to which the inverse floater is indexed.
14 Municipal securities held by the Fund will be
rated Baa3/BBB- or higher by at least two of the
following ratings agencies if all three agencies rate
the security: Moody’s, S&P and Fitch. If only two
of the three agencies rate the security, the lower
rating is used. If only one of the three agencies rates
a security, the rating must be at least Baa3/BBB-.
Municipal securities held by the Fund will have an
outstanding par value of at least $7 million and be
issued as part of a transaction of at least $75
million.
E:\FR\FM\14JYN1.SGM
14JYN1
45548
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
obligations of supranational agencies;
private placements, restricted securities,
and other unregistered securities;
securities issued in connection with
reorganizations and corporate
restructurings; sovereign obligations;
structured investments; 15 treasury
receipts; 16 trust preferreds; U.S.
Government Agency Securities; 17 U.S.
Government obligations; 18 and zerocoupon, pay-in-kind, and deferred
payment securities.19 Bonds may have
fixed or variable interest rates 20 and be
of any maturity.
In addition to investing at least 80%
of its Assets in Bonds, the Fund may
also invest in the following instruments
as part of its principal investment
15 A structured investment is a security having a
return tied to an underlying index or other security
or asset class. Structured investments generally are
individually negotiated agreements and may be
traded over-the-counter. Structured investments are
organized and operated to restructure the
investment characteristics of the underlying
security.
16 The Fund may purchase interests in separately
traded interest and principal component parts of
U.S. Treasury obligations that are issued by banks
or brokerage firms and that are created by
depositing U.S. Treasury notes and U.S. Treasury
bonds into a special account at a custodian bank.
Receipts include Treasury Receipts (‘‘TRs’’),
Treasury Investment Growth Receipts (‘‘TIGRs’’),
and Certificates of Accrual on Treasury Securities
(‘‘CATS’’).
17 U.S. Government Agency Securities include
securities issued by agencies and instrumentalities
of the U.S. government. These include all types of
securities issued by the Government National
Mortgage Association (‘‘Ginnie Mae’’), the Federal
National Mortgage Association (‘‘Fannie Mae’’) and
the Federal Home Loan Mortgage Corporation
(‘‘Freddie Mac’’), including funding notes,
subordinated benchmark notes, CMOs and REMICs.
18 U.S. Government obligations 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’’).
19 Zero-coupon securities are securities that are
sold at a discount to par value and on which
interest payments are not made during the life of
the security. Pay-in-kind securities are securities
that have interest payable by delivery of additional
securities. Deferred payment securities are zerocoupon debt securities which convert on a specified
date to interest bearing debt securities.
20 A variable rate security provides for the
automatic establishment of a new interest rate on
set dates. Variable rate obligations whose interest is
readjusted no less frequently than annually will be
deemed to have a maturity equal to the period
remaining until the next readjustment of the
interest rate. The Fund may also purchase floating
rate securities. A floating rate security provides for
the automatic adjustment of its interest rate
whenever a specified interest rate changes. Interest
rates on these securities are ordinarily tied to, and
are a percentage of, a widely recognized interest
rate, such as the yield on 90-day U.S. Treasury bills
or the prime rate of a specified bank. These rates
may change as often as twice daily.
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
strategy (‘‘Non-Bonds’’): Custodial
receipts; 21 derivatives, including
options,22 swaps,23 and futures;
exchange traded funds (‘‘ETFs’’); 24
foreign currency transactions; 25
investment company securities that are
not ETFs; 26 preferred stock; and shortterm funding agreements.27
Other Portfolio Holdings
While the Adviser, under normal
circumstances, will invest at least 80%
of the Fund’s Assets in Bonds and may
invest additionally in Non-Bonds
described above as part of its principal
investment strategy, the Adviser may
invest up to 20% of the Fund’s Assets
in other securities and financial
instruments, as described below.
The Fund may invest in auction rate
securities, which include auction rate
municipal securities and auction rate
preferred securities issued by closedend investment companies.
The Fund may invest in Brady Bonds,
which are securities created through the
21 The Fund may acquire securities in the form of
custodial receipts that evidence ownership of future
interest payments, principal payments or both on
certain U.S. Treasury notes or bonds in connection
with programs sponsored by banks and brokerage
firms. These are not considered to be U.S.
government securities. These notes and bonds are
held in custody by a bank on behalf of the owners
of the receipts.
22 The Fund may invest in OTC and exchangetraded call and put options, including only the
following: Fixed income securities, currencies, and
indexes of fixed income, currencies, or credit
default swaps. All options will be covered.
23 The Fund may invest in swaps, including only
the following: Interest rate swaps, credit default
swaps, currency swaps, and total return swaps.
24 For purposes of this filing, ETFs include Index
Fund Shares (as described in Rule 14.11(c));
Portfolio Depositary Receipts (as described in Rule
14.11(b)); and Managed Fund Shares (as described
in Rule 14.11(i)). The ETFs all will be listed and
traded in the U.S. on registered exchanges. The
Fund may invest in the securities of ETFs registered
under the 1940 Act consistent with the
requirements of Section 12(d)(1) of the 1940 Act, or
any rule, regulation or order of the Commission or
interpretation thereof. The Fund will not invest in
inverse or leveraged (e.g., 2X, –2X, 3X or –3X) ETFs.
25 Foreign currency transactions will be used to
hedge against currency risks, for other risk
management purposes, to increase income or gain
to the Fund, and/or for other investment purposes
and, in addition to the derivative strategies
described above, may include spot and forward
foreign currency transactions (including nondeliverable forwards (‘‘NDFs’’) and forward rate
agreements. The Fund may engage in such
transactions in both U.S. and non-U.S. markets.
26 Investment company securities include shares
of other investment companies, including money
market funds for which the Adviser and/or its
affiliates serve as investment adviser or
administrator. The Adviser will waive certain fees
when investing in funds for which it serves as
investment adviser, to the extent required by law
or contract.
27 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).
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
exchange of existing commercial bank
loans to sovereign entities for new
obligations in connection with a debt
restructuring.
The Fund may invest in commodityrelated pooled investment vehicles,
which include only the following
instruments: Trust Issued Receipts (as
defined in BATS Rule 14.11(f));
Commodity-Based Trust Shares (as
defined in Rule 14.11(e)(4)); Currency
Trust Shares (as defined in Rule
14.11(e)(5)); Commodity Index Trust
Shares (as defined in Rule 14.11(e)(6));
Trust Units (as defined in Rule
14.11(e)(9)); and Paired Class Shares (as
defined in NASDAQ Stock Market LLC
Rule 5713). The Fund will not invest in
inverse or leveraged (e.g., 2X, –2X, 3X
or –3X) commodity-related pooled
investment vehicles pooled investment
vehicles.
The Fund may invest in commoditylinked derivatives, which are
derivatives for which the value derives
from the price of a commodity,
including commodity futures and
commodity options.
The Fund may invest in U.S. equity
securities. Equity securities are
securities that represent an ownership
interest (or the right to acquire such an
interest) in a company and include
common and preferred stock, warrants,
and rights. The Fund’s investments in
such U.S. equity securities may include
securities traded over-the-counter as
well as those traded on a securities
exchange. The Fund may purchase such
securities on a forward commitment or
when-issued or delayed delivery basis,
which means delivery and payment take
place a number of days after the date of
the commitment to purchase.
The Fund may purchase exchangetraded common stocks, exchange-traded
warrants, and exchange-traded rights in
foreign corporations. The Fund’s
investments in common stock of foreign
corporations may also be in the form of
American Depositary Receipts
(‘‘ADRs’’), Global Depositary Receipts
(‘‘GDRs’’) and European Depositary
Receipts (‘‘EDRs’’) (collectively
‘‘Depositary Receipts’’).28
28 Depositary Receipts are receipts, typically
issued by a bank or trust company, which evidence
ownership of underlying securities issued by a
foreign corporation. For ADRs, the depository is
typically a U.S. financial institution and the
underlying securities are issued by a foreign issuer.
For other Depositary Receipts, the depository may
be a foreign or a U.S. entity, and the underlying
securities may have a foreign or a U.S. issuer.
Depositary Receipts will not necessarily be
denominated in the same currency as their
underlying securities. Generally, ADRs, in
registered form, are designed for use in the U.S.
securities market, and EDRs, in bearer form, are
designated for use in European securities markets.
GDRs are tradable both in the United States and in
E:\FR\FM\14JYN1.SGM
14JYN1
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
The Fund may invest in convertible
securities traded on an exchange or OTC
that are not described in the Principal
Holdings section above. Convertible
securities are securities that may be
converted or exchanged (by the holder
or by the issuer) into shares of the
underlying common stock (or cash or
securities of equivalent value) at a stated
exchange ratio. Convertible securities
include contingent convertible
securities.29
The Fund may invest in loan
assignments and participations, which
are assignments of, or participations in,
all or a portion of loans to corporations
or to governments, including
governments in less developed
countries. The Fund may also invest in
commitments to purchase loan
assignments.
The Fund may invest in exchangetraded master limited partnerships
(‘‘MLPs’’).
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Investment Restrictions
The Fund may hold up to an aggregate
amount of 15% of its Assets in illiquid
assets (calculated at the time of
investment), including Restricted
Securities deemed illiquid by the
Adviser 30 under the 1940 Act.31 The
Europe and are designed for use throughout the
world. The Fund will not invest in unsponsored
ADRs. All exchange-traded equity securities in
which the Fund may invest will trade on markets
that are members of the Intermarket Surveillance
Group (‘‘ISG’’) or that have entered into a
comprehensive surveillance agreement with the
Exchange.
29 A contingent convertible security is a hybrid
debt security typically issued by a non-U.S. bank
that may be convertible into equity or may be
written down if a pre-specified trigger event such
as a decline in capital ratio below a prescribed
threshold occurs.
30 In reaching liquidity decisions, the Adviser
may consider factors including: The frequency of
trades and quotes for the security; the number of
dealers wishing to purchase or sell the security and
the number of other potential purchasers; dealer
undertakings to make a market in the security; the
nature of the security and the nature of the
marketplace in which it trades (e.g., the time
needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer).
31 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),
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
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, Assets, or
other circumstances, more than 15% of
the Fund’s Assets are held in illiquid
assets. A security is considered illiquid
if it cannot be ‘‘sold or disposed of in
the ordinary course of business within
7 days at approximately the value’’ at
which it is being carried by the Fund.
The Fund intends to qualify each year
as a regulated investment company (a
‘‘RIC’’) under Subchapter M of the
Internal Revenue Code of 1986, as
amended.32 The Fund will invest its
assets, and otherwise conduct its
operations, in a manner that is intended
to satisfy the qualifying income,
diversification, and distribution
requirements necessary to establish and
maintain RIC qualification under
Subchapter M.
The Fund does not have an
investment objective seeking to return
two times or three times the Fund’s
benchmark.
Net Asset Value
According to the Registration
Statement, the NAV of the Fund’s
Shares generally will be calculated once
daily Monday through Friday as of the
close of regular trading on the Exchange,
generally 4:00 p.m. Eastern Time (the
‘‘NAV Calculation Time’’) on each day
that the Exchange is open for trading,
based on prices at the NAV Calculation
Time. NAV per Share is calculated by
dividing the Fund’s Assets by the
number of Fund Shares outstanding.
The Fund’s Assets are valued primarily
on the basis of market quotations.
Expenses and fees, including the
management fees, will be accrued daily
and taken into account for purposes of
determining NAV.
Convertible bonds, ARMs, ABS, bank
obligations, corporate debt securities,
inflation-linked debt securities, inverse
floating rate instruments, mortgage
dollar rolls, municipal securities,
obligations of supranational agencies,
private placements, restricted securities,
and other unregistered securities,
securities issued in connection with
reorganizations and corporate
restructurings, short-term funding
agreements, sovereign obligations,
stripped mortgage-backed securities,
structured investments, treasury
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933).
32 26 U.S.C. 851.
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
45549
receipts, trust preferreds, U.S.
Government Agency Securities, U.S.
Government obligations, zero-coupon,
pay-in-kind, and deferred payment
securities, commercial paper, auction
rate securities, when-issued securities,
delayed delivery securities, and forward
commitments, loan assignments and
participations, and Brady Bonds will be
valued at prices supplied by approved
pricing services which is generally
based on bid-side quotations. Non-ARM
mortgages will be valued based on
prices received from pricing vendor
who provides bid prices. CDS will be
valued at market quotations supplied by
approved pricing services.
Common stocks and other exchangetraded equity securities (including
shares of preferred securities,
convertible securities, MLPs,
commodity-related pooled investment
vehicles, and ETFs) generally will be
valued at the last sale price or official
closing price on the primary exchange.
Warrants and rights are generally valued
at their intrinsic value. Custodial
receipts are valued at their intrinsic
value based on the terms of the receipts.
Foreign equities and exchange-listed
Depositary Receipts will be valued at
the last sale price or official market
closing price on the primary exchange
and is subject to adjustment (fair value)
each day by applying a fair value factor
provided by approved pricing services.
U.S. equity securities traded OTC, OTCtraded preferred securities, and OTCtraded convertible securities will be
valued based on price quotations
obtained from a broker-dealer who
makes markets in such securities or
other equivalent indications of value
provided by a third-party pricing
service. Securities of non-exchange
traded investment companies will be
valued at NAV.
Listed futures will generally be valued
at the settlement price determined by
the applicable exchange. Exchangetraded options on U.S. equity exchanges
are generally valued at the composite
mean price, using the National Best Bid
and Offer quotes. Other exchange traded
options are valued at the settlement
price of the relevant exchange. Listed
swaps will be valued on the basis of
quotations or equivalent indication of
value supplied by a third-party pricing
service or broker-dealer who makes
markets in such instruments. Nonexchange traded derivatives, including
OTC-traded options and swaps are
priced utilizing market quotations
provided by approved pricing services.
Foreign currency transactions will be
valued based on foreign exchange rates
obtained from an approved pricing
service, using spot and forward rates
E:\FR\FM\14JYN1.SGM
14JYN1
45550
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
available at the time net asset values of
the fund is calculated.
Creation and Redemption of Shares
The NAV of Shares of the Fund will
be determined once each business day,
normally 4:00 p.m. Eastern time. The
Fund currently anticipates that a
Creation Unit will consist of 100,000
Shares, though this number may change
from time to time, including prior to the
listing of the Fund. The exact number of
Shares that will comprise a Creation
Unit will be disclosed in the
Registration Statement of the Fund. The
Trust will issue and sell Shares of the
Fund only in Creation Units on a
continuous basis, without a sales load
(but subject to transaction fees), at their
NAV per Share next determined after
receipt of an order, on any business day,
in proper form. Creation and
redemption will typically occur in cash,
however, the Trust retains discretion to
conduct such transactions on an in-kind
basis or a combination of cash and inkind, as further described below.
The consideration for purchase of a
Creation Unit of the Fund generally will
consist of either (i) the in-kind deposit
of a designated portfolio of securities
(the ‘‘Deposit Securities’’) per each
Creation Unit and the Cash Component
(defined below), computed as described
below, or (ii) the cash value of the
Deposit Securities (‘‘Deposit Cash’’) and
the ‘‘Cash Component,’’ computed as
described below. When accepting
purchases of Creation Units for cash, the
Fund may incur additional costs
associated with the acquisition of
Deposit Securities that would otherwise
be provided by an in-kind purchaser.
Together, the Deposit Securities or
Deposit Cash, as applicable, and the
Cash Component constitute the ‘‘Fund
Deposit,’’ which represents the
minimum initial and subsequent
investment amount for a Creation Unit
of the Fund. The ‘‘Cash Component’’ is
an amount equal to the difference
between the NAV of the Shares (per
Creation Unit) and the market value of
the Deposit Securities or Deposit Cash,
as applicable. If the Cash Component is
a positive number (i.e., the NAV per
Creation Unit exceeds the market value
of the Deposit Securities or Deposit
Cash, as applicable), the Cash
Component shall be such positive
amount. If the Cash Component is a
negative number (i.e., the NAV per
Creation Unit is less than the market
value of the Deposit Securities or
Deposit Cash, as applicable), the Cash
Component will be such negative
amount and the creator will be entitled
to receive cash in an amount equal to
the Cash Component. The Cash
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
Component serves the function of
compensating for any differences
between the NAV per Creation Unit and
the market value of the Deposit
Securities or Deposit Cash, as
applicable.
The Custodian, through the National
Securities Clearing Corporation
(‘‘NSCC’’), will make available on each
business day, prior to the opening of
business on the Exchange, the list of the
names and the required amount of each
Deposit Security or the required amount
of Deposit Cash, as applicable, to be
included in the current Fund Deposit
(based on information at the end of the
previous business day) for the Fund.
Such Fund Deposit is subject to any
applicable adjustments as described in
the Registration Statement, in order to
effect purchases of Creation Units of the
Fund until such time as the nextannounced composition of the Deposit
Securities or the required amount of
Deposit Cash, as applicable, is made
available.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the Fund
through the Transfer Agent and only on
a business day.
With respect to the Fund, the
Custodian, through the NSCC, will make
available immediately prior to the
opening of business on the Exchange
(9:30 a.m. Eastern time) on each
business day, the list of the names and
share quantities of the Fund’s portfolio
securities that will be applicable
(subject to possible amendment or
correction) to redemption requests
received in proper form on that day
(‘‘Fund Securities’’). Fund Securities
received on redemption may not be
identical to Deposit Securities.
Redemption proceeds for a Creation
Unit will be paid either in-kind or in
cash or a combination thereof, as
determined by the Trust. With respect to
in-kind redemptions of the Fund,
redemption proceeds for a Creation Unit
will consist of Fund Securities as
announced by the Custodian on the
business day of the request for
redemption received in proper form
plus cash in an amount equal to the
difference between the NAV of the
Shares being redeemed, as next
determined after a receipt of a request
in proper form, and the value of the
Fund Securities (the ‘‘Cash Redemption
Amount’’), less a fixed redemption
transaction fee and any applicable
additional variable charge as set forth in
the Registration Statement. In the event
that the Fund Securities have a value
greater than the NAV of the Shares, a
compensating cash payment equal to the
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
differential will be required to be made
by or through an authorized participant
by the redeeming shareholder.
Notwithstanding the foregoing, at the
Trust’s discretion, an authorized
participant may receive the
corresponding cash value of the
securities in lieu of the in-kind
securities value representing one or
more Fund Securities.33
The creation/redemption order cut-off
time for the Fund is expected to be 4:00
p.m. Eastern time. Creation/redemption
order cut-off times may be earlier on any
day that the Securities Industry and
Financial Markets Association
(‘‘SIFMA’’) (or applicable exchange or
market on which the Fund’s
investments are traded) announces an
early closing time. On days when the
Exchange closes earlier than normal, the
Fund may require orders for Creation
Units to be placed earlier in the day.
Availability of Information
The Fund’s Web site, 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 Web site will
include additional quantitative
information updated on a daily basis,
including, for the Fund: (1) The prior
business day’s reported NAV, mid-point
of the bid/ask spread at the time of
calculation of such NAV (the ‘‘Bid/Ask
Price’’),34 daily trading volume, 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. Daily
trading volume information for the
Fund will also be available through
subscription services such as
Bloomberg, Thomson Reuters, and
International Data Corporation, which
can be accessed by authorized
participants and other investors, as well
as through other electronic services,
including major public Web sites. On
each business day, before
commencement of trading in Shares
during Regular Trading Hours 35 on the
33 The Adviser represents that, to the extent that
the Trust permits or requires a ‘‘cash in lieu’’
amount, such transactions will be effected in the
same or equitable manner for all Authorized
Participants.
34 The Bid/Ask Price of the Fund will be
determined using the midpoint of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
35 Regular Trading Hours are 9:30 a.m. to 4:00
p.m. Eastern Time.
E:\FR\FM\14JYN1.SGM
14JYN1
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Exchange, the Fund will disclose on its
Web site the identities and quantities of
the portfolio of securities and other
assets (the ‘‘Disclosed Portfolio’’) held
by the Fund that will form the basis for
the Fund’s calculation of NAV at the
end of the business day.36 The Disclosed
Portfolio will include, as applicable:
The ticker symbol; CUSIP number or
other identifier, if any; a description of
the holding (including the type of
holding, such as the type of swap); the
identity of the security, commodity,
index or other asset or instrument
underlying the holding, if any; for
options, the option strike price; quantity
held (as measured by, for example, par
value, notional value or number of
shares, contracts, or units); maturity
date, if any; coupon rate, if any;
effective date, if any; market value of the
holding; and the percentage weighting
of the holding in the Fund’s portfolio.
The Web site and information will be
publicly available at no charge.
In addition, for the Fund, an
estimated value, defined in BZX Rule
14.11(i)(3)(C) as the ‘‘Intraday Indicative
Value,’’ that reflects an estimated
intraday value of the Fund’s portfolio,
will be disseminated. Moreover, the
Intraday Indicative Value will be based
upon the current value for the
components of the Disclosed Portfolio
and will be updated and widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Exchange’s Regular
Trading Hours.37 In addition, the
quotations of certain of the Fund’s
holdings may not be updated during
U.S. trading hours if such holdings do
not trade in the United States or if
updated prices cannot be ascertained.
The dissemination of the Intraday
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of the Fund on a daily basis
and provide a close estimate of that
value throughout the trading day.
Intraday, closing, and settlement
prices of common stocks and other
exchange-listed instruments (including
futures, options, Depositary Receipts,
preferred securities, convertible
securities, warrants, rights, MLPs,
36 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.
37 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Intraday Indicative Values
published via the Consolidated Tape Association
(‘‘CTA’’) or other data feeds.
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
commodity-related pooled investment
vehicles, and ETFs) will be readily
available from the exchanges trading
such securities as well as automated
quotation systems, published or other
public sources, or online information
services such as Bloomberg or Reuters.
In addition, price information for U.S.
exchange-traded options will be
available from the Options Price
Reporting Authority. Quotation
information from brokers and dealers or
pricing services will be available for
Fixed Income Securities and U.S.
government obligations. Quotation and
price information for convertible bonds,
ARMs, ABS, bank obligations, custodial
receipts, corporate debt securities,
inflation-linked debt securities, inverse
floating rate instruments, mortgage
dollar rolls, municipal securities,
obligations of supranational agencies,
private placements, restricted securities,
and other unregistered securities,
securities issued in connection with
reorganizations and corporate
restructurings, short-term funding
agreements, sovereign obligations,
stripped mortgage-backed securities,
structured investments, treasury
receipts, trust preferreds, U.S.
Government Agency Securities, U.S.
Government obligations, zero-coupon,
pay-in-kind, and deferred payment
securities, commercial paper, auction
rate securities, when-issued securities,
delayed delivery securities, and forward
commitments, loan assignments and
participations, Brady Bonds, mortgages,
common stock warrants and rights, CDS,
and foreign currency transactions will
be available via major market data
vendors or broker dealers that make
markets in such instruments.
Information regarding market price
and volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. The previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last sale information for
the Shares will be available on the
facilities of the CTA.
Initial and Continued Listing
The Shares will be subject to BZX
Rule 14.11(i), which sets forth the initial
and continued listing criteria applicable
to Managed Fund Shares. The Exchange
represents that, for initial and/or
continued listing, the Fund must be in
compliance with Rule 10A–3 under the
Act.38 A minimum of 100,000 Shares
will be outstanding at the
PO 00000
38 See
17 CFR 240.10A–3.
Frm 00103
Fmt 4703
Sfmt 4703
45551
commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time.
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. The Exchange will halt
trading in the Shares under the
conditions specified in BZX Rule 11.18.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments composing 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 also will be subject to Rule
14.11(i)(4)(B)(iv), 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. The Exchange will
allow trading in the Shares from 8:00
a.m. until 5:00 p.m. Eastern Time. The
Exchange has appropriate rules to
facilitate transactions in the Shares
during all trading sessions. As provided
in BZX Rule 14.11(i)(2)(C), the
minimum price variation for quoting
and entry of orders in Managed Fund
Shares traded on the Exchange is $0.01.
Surveillance
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of the
Shares on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
Trading of the Shares through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including Managed
Fund Shares. 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
Exchange Act, the Exchange will surveil
E:\FR\FM\14JYN1.SGM
14JYN1
45552
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
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
Exchange Rule 14.12. The Exchange
may obtain information regarding
trading in the Shares and the underlying
shares in exchange traded investment
companies, U.S. equity securities,
foreign equity securities, futures, and
options via the ISG, from other
exchanges who are members or affiliates
of the ISG, or with which the Exchange
has entered into a comprehensive
surveillance sharing agreement.39 In
addition, the Exchange is able to access,
as needed, trade information for certain
fixed income instruments reported to
FINRA’s Trade Reporting and
Compliance Engine (‘‘TRACE’’). The
Exchange can also access municipal
bond trading activity for surveillance
purposes in connection with trading in
the Shares through the Electronic
Municipal Market Access (‘‘EMMA’’) 40
of the Municipal Securities Rulemaking
Board (‘‘MSRB’’). The Exchange
prohibits the distribution of material
non-public information by its
employees.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Information Circular
Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) BZX Rule 3.7, which
imposes suitability obligations on
Exchange members with respect to
recommending transactions in the
Shares to customers; (3) how
information regarding the Intraday
Indicative Value and the Disclosed
Portfolio is disseminated; (4) the risks
involved in trading the Shares during
the Pre-Opening 41 and After Hours
39 For a list of the current members and affiliate
members of ISG, see www.isgportal.com. 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. The Exchange also
notes that all exchange-traded instruments,
including ETFs, commodity-related pooled
investment vehicles, futures, and options will trade
on markets that are a member of ISG or with which
the Exchange has in place a comprehensive
surveillance sharing agreement.
40 Information available from EMMA includes
next-day information regarding municipal securities
transactions and par amounts traded.
41 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m. Eastern Time.
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
Trading Sessions 42 when an updated
Intraday Indicative Value will not be
calculated or publicly disseminated; (5)
the requirement that members 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 Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Fund. Members
purchasing Shares from the Fund for
resale to investors will deliver a
prospectus to such investors. The
Information Circular will also discuss
any exemptive, no-action, and
interpretive relief granted by the
Commission from any rules under the
Act.
In addition, the Information Circular
will reference that the Fund is subject
to various fees and expenses described
in the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares of the
Fund and the applicable NAV
Calculation Time for the Shares. The
Information Circular will disclose that
information about the Shares of the
Fund will be publicly available on the
Fund’s Web site. In addition, the
Information Circular will reference that
the Trust is subject to various fees and
expenses described in the Fund’s
Registration Statement.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 43 in general and Section
6(b)(5) of the Act 44 in particular in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system 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 BZX Rule 14.11(i). The
Exchange believes that its surveillance
procedures are adequate to properly
monitor the trading of the Shares on the
42 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m. Eastern Time.
43 15 U.S.C. 78f.
44 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
Exchange during all trading sessions
and to deter and detect violations of
Exchange rules and the applicable
federal securities laws. If the investment
adviser to the investment company
issuing Managed Fund Shares is
affiliated with a broker-dealer, such
investment adviser to the investment
company 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. The Adviser is not a
registered broker-dealer, but is affiliated
with a broker-dealer and has
implemented a ‘‘fire wall’’ with respect
to such broker-dealer regarding access to
information concerning the composition
and/or changes to the Fund’s portfolio.
In the event (a) the Adviser becomes
registered as a broker-dealer or newly
affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a
registered broker-dealer or becomes
affiliated with a broker-dealer, it will
implement a fire wall with respect to its
relevant personnel or broker-dealer
affiliate regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio. The Exchange
may obtain information regarding
trading in the Shares and the underlying
Depositary Receipts, exchange traded
shares of investment companies, U.S.
equity securities, futures, and exchange
listed options via the ISG, from other
exchanges who are members or affiliates
of the ISG, or with which the Exchange
has entered into a comprehensive
surveillance sharing agreement.45 In
addition, the Exchange is able to access,
as needed, trade information for certain
fixed income instruments reported to
FINRA’s TRACE.
The Fund’s investments will be
consistent with the Fund’s investment
objective and the Fund does not have an
investment objective seeking to return
two times or three times the Fund’s
benchmark, as stated above.
In addition to the holdings in Bonds
and Non-Bonds described above as part
of the Fund’s principal investment
45 For a list of the current members and affiliate
members of ISG, see www.isgportal.com. 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. The Exchange also
notes that all of the ETFs, commodity-related
pooled investment vehicles, futures, and options
will trade on markets that are a member of ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement.
E:\FR\FM\14JYN1.SGM
14JYN1
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
strategy, the Fund may also, to a limited
extent (under normal circumstances,
less than 20% of the Fund’s Assets) and
as further described above, engage in
transactions in the following:
Auction rate securities, Brady Bonds,
commodity-related pooled investment
vehicles, commodity-linked derivatives,
U.S. equity securities, exchange-traded
common stocks of foreign corporations,
exchange-traded warrants of foreign
corporations, exchange-traded rights in
foreign corporations, ADRs, GDRs,
EDRS, convertible securities, and MLPs.
The Fund may hold up to an aggregate
amount of 15% of its Assets in illiquid
assets (calculated at the time of
investment), including Restricted
Securities deemed illiquid by the
Adviser 46 under the 1940 Act.47 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, Assets, or
other circumstances, more than 15% of
the Fund’s Assets are held in illiquid
assets. A security is considered illiquid
if it cannot be ‘‘sold or disposed of in
the ordinary course of business within
7 days at approximately the value’’ at
which it is being carried by the fund.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
46 In reaching liquidity decisions, the Adviser
may consider factors including: The frequency of
trades and quotes for the security; the number of
dealers wishing to purchase or sell the security and
the number of other potential purchasers; dealer
undertakings to make a market in the security; the
nature of the security and the nature of the
marketplace in which it trades (e.g., the time
needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer).
47 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 of 1933).
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. Moreover, the
Intraday Indicative Value will be
disseminated by one or more major
market data vendors at least every 15
seconds during Regular Trading Hours.
On each business day, before
commencement of trading in Shares
during Regular Trading Hours, the Fund
will disclose on its Web site the
Disclosed Portfolio that will form the
basis for the Fund’s calculation of NAV
at the end of the business day. Pricing
information will be available on the
Fund’s Web site including: (1) The prior
business day’s reported NAV, the Bid/
Ask Price of the Fund, 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. Additionally, information
regarding market price and trading of
the Shares will be continually available
on a real-time basis throughout the day
on brokers’ computer screens and other
electronic services, and quotation and
last sale information for the Shares will
be available on the facilities of the CTA.
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. Trading in Shares of the
Fund will be halted under the
conditions specified in BZX Rule 11.18.
Trading may also be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. Finally,
trading in the Shares will be subject to
BZX Rule 14.11(i)(4)(B)(iv), which sets
forth circumstances under which Shares
of the Fund may be halted. In addition,
the Exchange is able to access, as
needed, trade information for certain
fixed income instruments reported to
FINRA’s TRACE. As noted above,
investors will also have ready access to
information regarding the Fund’s
holdings, the Intraday Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
Intraday, closing, and settlement
prices of common stocks and other
exchange-listed instruments (including
futures, options, Depositary Receipts,
preferred securities, convertible
securities, warrants, rights, MLPs,
commodity-related pooled investment
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
45553
vehicles, and ETFs) will be readily
available from the exchanges trading
such securities as well as automated
quotation systems, published or other
public sources, or online information
services such as Bloomberg or Reuters.
In addition, price information for U.S.
exchange-traded options will be
available from the Options Price
Reporting Authority. Quotation
information from brokers and dealers or
pricing services will be available for
Fixed Income Securities and U.S.
government obligations. Quotation and
price information for convertible bonds,
ARMs, ABS, bank obligations, custodial
receipts, corporate debt securities,
inflation-linked debt securities, inverse
floating rate instruments, mortgage
dollar rolls, municipal securities,
obligations of supranational agencies,
private placements, restricted securities,
and other unregistered securities,
securities issued in connection with
reorganizations and corporate
restructurings, short-term funding
agreements, sovereign obligations,
stripped mortgage-backed securities,
structured investments, treasury
receipts, trust preferreds, U.S.
Government Agency Securities, U.S.
Government obligations, zero-coupon,
pay-in-kind, and deferred payment
securities, commercial paper, auction
rate securities, when-issued securities,
delayed delivery securities, and forward
commitments, loan assignments and
participations, Brady Bonds, mortgages,
common stock warrants and rights, CDS,
and foreign currency transactions will
be available via major market data
vendors or broker dealers that make
markets in such instruments.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Intraday Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
For the above reasons, the Exchange
believes that the proposed rule change
E:\FR\FM\14JYN1.SGM
14JYN1
45554
Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Notices
is consistent with the requirements of
Section 6(b)(5) of the Act.
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 actively-managed exchangetraded product 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
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will: (a) By
order approve or disapprove such
proposed rule change; or (b) institute
proceedings to determine whether the
proposed rule change should be
disapproved.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
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 rulecomments@sec.gov. Please include File
Number SR–BatsBZX–2016–35 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–BatsBZX–2016–35. This file
VerDate Sep<11>2014
19:33 Jul 13, 2016
Jkt 238001
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
BatsBZX–2016–35 and should be
submitted on or before August 4, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016–16615 Filed 7–13–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78262; File No. SR–
BatsBZX–2016–30]
Self-Regulatory Organizations; Bats
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change to BZX Rule
14.11(e)(4), Commodity-Based Trust
Shares, To List and Trade Winklevoss
Bitcoin Shares Issued by the
Winklevoss Bitcoin Trust
July 8, 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 30,
PO 00000
48 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
Frm 00106
Fmt 4703
Sfmt 4703
2016, Bats BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to list
and trade Winklevoss Bitcoin Shares
(the ‘‘Shares’’) issued by the Winklevoss
Bitcoin Trust (the ‘‘Trust’’) under BZX
Rule 14.11(e)(4), Commodity-Based
Trust Shares.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade the Shares under BZX Rule
14.11(e)(4),4 which governs the listing
and trading of Commodity-Based Trust
Shares on the Exchange.5 The Shares
will be offered by the Trust, which was
established as a Delaware statutory trust
on December 30, 2014. The Trust will
not be registered as an investment
4 The Commission approved BZX Rule 14.11(e)(4)
in Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(SR–BATS–2011–018).
5 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.
E:\FR\FM\14JYN1.SGM
14JYN1
]]>Agencies
[Federal Register Volume 81, Number 135 (Thursday, July 14, 2016)]
[Notices]
[Pages 45546-45554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16615]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78264; File No. SR-BatsBZX-2016-35]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
JPMorgan Global Bond Opportunities ETF
July 8, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 1, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to list and trade shares of the
JPMorgan Global Bond Opportunities ETF (the ``Fund'') of the J.P.
Morgan Exchange-Traded Fund Trust (the ``Trust'') under BZX Rule
14.11(i) (``Managed Fund Shares''). The shares of the Fund are
collectively referred to herein as the ``Shares.''
The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(i), which governs the listing and trading of Managed Fund Shares
on the Exchange.\3\ 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 Fund
will be an actively managed fund. The Shares will be offered by the
Trust, which was established as a Delaware statutory trust on February
25, 2010. The Trust is registered with the Commission as an open-end
investment company and has filed a registration statement with respect
to the Fund on Form N-1A (``Registration Statement'') with the
Commission.\4\
---------------------------------------------------------------------------
\3\ The Commission approved BZX Rule 14.11(i) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\4\ See Registration Statement on Form N-1A for the Trust, dated
May 26, 2016 (File Nos. 333-191837 and 811-22903). The descriptions
of the Fund and the Shares contained herein are based, in part, on
information in the Registration Statement. The Commission has issued
an order granting certain exemptive relief to the Trust under the
Investment Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') (the
``Exemptive Order''). See Investment Company Act Release No. 31990
(February 9, 2016) (File No. 812-13761).
---------------------------------------------------------------------------
Description of the Shares and the Fund
J.P. Morgan Investment Management Inc. will be the investment
adviser (``JPMIM'' or ``Adviser'') to the Fund. The Adviser will serve
as the administrator for the Fund (the ``Administrator''). SEI
Investments Distribution Co. (the ``Distributor'') serves as the
distributor for the Trust. JPMorgan Chase Bank, N.A. will act as the
custodian (the ``Custodian'') and transfer agent (``Transfer Agent'')
for the Trust.
BZX Rule 14.11(i)(7) 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.\5\ In addition, Rule 14.11(i)(7) further
requires that personnel who make decisions on the investment company's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material
[[Page 45547]]
nonpublic information regarding the applicable investment company
portfolio. Rule 14.11(i)(7) is similar to BZX Rule 14.11(b)(5)(A)(i),
however, Rule 14.11(i)(7) in connection with the establishment of a
``fire wall'' between the investment adviser and the broker-dealer
reflects the applicable open-end fund's portfolio, not an underlying
benchmark index, as is the case with index-based funds. The Adviser is
not registered as a broker-dealer but the Adviser is affiliated with a
broker-dealer and has implemented a ``fire wall'' with respect to such
broker-dealer regarding access to information concerning the
composition and/or changes to the Fund's portfolio. In the event (a)
the Adviser becomes registered as a broker-dealer or newly affiliated
with a broker-dealer, or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes affiliated with a broker-dealer, it
will implement a fire wall with respect to its relevant personnel or
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material
non-public information regarding such portfolio.
---------------------------------------------------------------------------
\5\ 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.
---------------------------------------------------------------------------
JPMorgan Global Bond Opportunities ETF
According to the Registration Statement, the Fund will seek to
provide total return by investing across sectors in developed and
emerging markets located around the world. The Fund is an actively-
managed fund that does not seek to replicate the performance of a
specified index. Because the Fund is not managed to a benchmark, the
Adviser has broad discretion to shift the Fund's exposure to
strategies, sectors, countries or currencies based on changing market
conditions and its view of the best mix of investment opportunities. In
buying and selling investments for the Fund, the Adviser allocates the
Fund's exposure to strategies, sectors, countries and currencies based
on the Adviser's analysis of individual investments and broader
economic conditions in individual countries, regions and the world.
This allows the Adviser to take a conservative approach during
uncertain periods and move into higher risk opportunities as market
conditions improve, which may result in the Fund focusing in only a few
markets and sectors.
Under normal circumstances, the Fund will invest at least 80% of
its net assets (plus the amount of borrowings for investment purposes)
(``Assets'') in bonds. Under normal circumstances, the Fund will invest
at least 40% of its Assets in countries other than the United States.
The Fund may invest in developed or emerging markets. Emerging markets
currently includes most countries in the world except Australia,
Canada, Japan, New Zealand, the U.S., the United Kingdom and most
western European countries and Hong Kong. In managing the Fund, the
Adviser will seek to diversify the Fund's portfolio by investing in
issuers in at least three countries other than the U.S. The Fund may
invest a substantial part of its assets in just one country and is not
required to allocate its investments in any set percentages in any
particular countries.
Although the Fund has the flexibility to invest without limit in
securities that are rated below investment grade (also known as junk
bonds or high yield securities), or the unrated equivalent, the Fund
generally invests at least 25% of the Fund's Assets in securities that
at the time of purchase are rated investment grade or the unrated
equivalent. The Fund has flexibility to decrease the percentage of
Assets invested in investment grade securities at any time to take
advantage of higher risk opportunities when market conditions are
improving.
The Fund currently seeks to maintain a duration of eight years or
less, although the Fund has the flexibility to maintain a longer
duration under certain market conditions such as significant volatility
in interest rates and spreads. Duration is a measure of the price
sensitivity of a debt security or a portfolio of debt securities to
relative changes in interest rates. For instance, a duration of three
years means that a security's or portfolio's price would be expected to
decrease by approximately 3% with a 1% increase in interest rates
(assuming a parallel shift in yield curve).
As part of its principal investment strategy and for temporary
defensive purposes, any portion of the Fund's total assets may be
invested in cash and cash equivalents.
Principal Holdings
The Fund intends to achieve its investment objective by investing,
under normal circumstances,\6\ 80% of its Assets in bonds (a debt
security with a maturity of 90 days or more at the time of its
issuance) (``Bonds''), subject to certain limits described below. For
purposes of this filing, Bonds will be defined as the following
instruments: Asset-backed securities \7\ (including mortgages,\8\
mortgage dollar rolls,\9\ and stripped mortgage-backed securities);
\10\ bank obligations; commercial paper; \11\ convertible bonds;
corporate debt securities; \12\ inflation-linked debt securities;
inverse floating rate instruments; \13\ municipal securities; \14\
[[Page 45548]]
obligations of supranational agencies; private placements, restricted
securities, and other unregistered securities; securities issued in
connection with reorganizations and corporate restructurings; sovereign
obligations; structured investments; \15\ treasury receipts; \16\ trust
preferreds; U.S. Government Agency Securities; \17\ U.S. Government
obligations; \18\ and zero-coupon, pay-in-kind, and deferred payment
securities.\19\ Bonds may have fixed or variable interest rates \20\
and be of any maturity.
---------------------------------------------------------------------------
\6\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
\7\ Asset-backed securities (``ABS'') include securities secured
by company receivables, home equity loans, truck and auto loans,
leases, and credit card receivables or other securities backed by
other types of receivables or other assets. ABS includes mortgage-
backed securities (``MBS''), which are debt obligations secured by
real estate loans and pools of loans such as collateralized mortgage
obligations (``CMOs''), commercial mortgage-backed securities
(``CMBS''), and other asset-backed structures. The Fund may not
invest more than 20% of its portfolio in a combination of: Illiquid
ABS (as determined in footnote 31, below), and distressed or
defaulted loans, including non-performing loans and reperforming
loans.
\8\ Mortgages are debt instruments secured by real property and
include adjustable rate mortgage loans (``ARMs''), which are loans
in a mortgage pool which provide for a fixed initial mortgage
interest rate for a specified period of time, after which the rate
may be subject to periodic adjustments.
\9\ Mortgage dollar rolls involve a transaction in which the
Fund sells securities for delivery in a current month and
simultaneously contracts with the same party to repurchase similar
but not identical securities on a specified future date.
\10\ Stripped mortgage-backed securities are securities which
are usually structured with two classes of shares that receive
different proportions of the interest and principal from a pool of
mortgage assets. These include Interest-Only (``IO'') and Principal-
Only (``PO'') securities issued outside a Real Estate Mortgage
Investment Conduit (``REMIC'') or CMO structure.
\11\ Secured and unsecured short-term promissory notes issued by
corporations and other entities. Maturities generally vary from a
few days to nine months.
\12\ May include bonds and other debt securities of domestic and
foreign issuers, including obligations of industrial, utility,
banking and other corporate issuers [sic]. While the Fund is
permitted to invest without restriction in corporate bonds, the
Adviser expects that, under normal circumstances, the Fund will
generally seek to invest in corporate bond issuances that have at
least $100,000,000 par amount outstanding. Further, component
corporate bonds that in the aggregate account for at least 75% of
the weight of corporate bonds will have a minimum original principal
outstanding of $100 million or more.
\13\ Inverse floating rate instruments are leveraged variable
debt instruments with interest rates that reset in the opposite
direction from the market rate of interest to which the inverse
floater is indexed.
\14\ Municipal securities held by the Fund will be rated Baa3/
BBB- or higher by at least two of the following ratings agencies if
all three agencies rate the security: Moody's, S&P and Fitch. If
only two of the three agencies rate the security, the lower rating
is used. If only one of the three agencies rates a security, the
rating must be at least Baa3/BBB-. Municipal securities held by the
Fund will have an outstanding par value of at least $7 million and
be issued as part of a transaction of at least $75 million.
\15\ A structured investment is a security having a return tied
to an underlying index or other security or asset class. Structured
investments generally are individually negotiated agreements and may
be traded over-the-counter. Structured investments are organized and
operated to restructure the investment characteristics of the
underlying security.
\16\ The Fund may purchase interests in separately traded
interest and principal component parts of U.S. Treasury obligations
that are issued by banks or brokerage firms and that are created by
depositing U.S. Treasury notes and U.S. Treasury bonds into a
special account at a custodian bank. Receipts include Treasury
Receipts (``TRs''), Treasury Investment Growth Receipts (``TIGRs''),
and Certificates of Accrual on Treasury Securities (``CATS'').
\17\ U.S. Government Agency Securities include securities issued
by agencies and instrumentalities of the U.S. government. These
include all types of securities issued by the Government National
Mortgage Association (``Ginnie Mae''), the Federal National Mortgage
Association (``Fannie Mae'') and the Federal Home Loan Mortgage
Corporation (``Freddie Mac''), including funding notes, subordinated
benchmark notes, CMOs and REMICs.
\18\ U.S. Government obligations 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'').
\19\ Zero-coupon securities are securities that are sold at a
discount to par value and on which interest payments are not made
during the life of the security. Pay-in-kind securities are
securities that have interest payable by delivery of additional
securities. Deferred payment securities are zero-coupon debt
securities which convert on a specified date to interest bearing
debt securities.
\20\ A variable rate security provides for the automatic
establishment of a new interest rate on set dates. Variable rate
obligations whose interest is readjusted no less frequently than
annually will be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate. The Fund
may also purchase floating rate securities. A floating rate security
provides for the automatic adjustment of its interest rate whenever
a specified interest rate changes. Interest rates on these
securities are ordinarily tied to, and are a percentage of, a widely
recognized interest rate, such as the yield on 90-day U.S. Treasury
bills or the prime rate of a specified bank. These rates may change
as often as twice daily.
---------------------------------------------------------------------------
In addition to investing at least 80% of its Assets in Bonds, the
Fund may also invest in the following instruments as part of its
principal investment strategy (``Non-Bonds''): Custodial receipts; \21\
derivatives, including options,\22\ swaps,\23\ and futures; exchange
traded funds (``ETFs''); \24\ foreign currency transactions; \25\
investment company securities that are not ETFs; \26\ preferred stock;
and short-term funding agreements.\27\
---------------------------------------------------------------------------
\21\ The Fund may acquire securities in the form of custodial
receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds
in connection with programs sponsored by banks and brokerage firms.
These are not considered to be U.S. government securities. These
notes and bonds are held in custody by a bank on behalf of the
owners of the receipts.
\22\ The Fund may invest in OTC and exchange-traded call and put
options, including only the following: Fixed income securities,
currencies, and indexes of fixed income, currencies, or credit
default swaps. All options will be covered.
\23\ The Fund may invest in swaps, including only the following:
Interest rate swaps, credit default swaps, currency swaps, and total
return swaps.
\24\ For purposes of this filing, ETFs include Index Fund Shares
(as described in Rule 14.11(c)); Portfolio Depositary Receipts (as
described in Rule 14.11(b)); and Managed Fund Shares (as described
in Rule 14.11(i)). The ETFs all will be listed and traded in the
U.S. on registered exchanges. The Fund may invest in the securities
of ETFs registered under the 1940 Act consistent with the
requirements of Section 12(d)(1) of the 1940 Act, or any rule,
regulation or order of the Commission or interpretation thereof. The
Fund will not invest in inverse or leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
\25\ Foreign currency transactions will be used to hedge against
currency risks, for other risk management purposes, to increase
income or gain to the Fund, and/or for other investment purposes
and, in addition to the derivative strategies described above, may
include spot and forward foreign currency transactions (including
non-deliverable forwards (``NDFs'') and forward rate agreements. The
Fund may engage in such transactions in both U.S. and non-U.S.
markets.
\26\ Investment company securities include shares of other
investment companies, including money market funds for which the
Adviser and/or its affiliates serve as investment adviser or
administrator. The Adviser will waive certain fees when investing in
funds for which it serves as investment adviser, to the extent
required by law or contract.
\27\ 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).
---------------------------------------------------------------------------
Other Portfolio Holdings
While the Adviser, under normal circumstances, will invest at least
80% of the Fund's Assets in Bonds and may invest additionally in Non-
Bonds described above as part of its principal investment strategy, the
Adviser may invest up to 20% of the Fund's Assets in other securities
and financial instruments, as described below.
The Fund may invest in auction rate securities, which include
auction rate municipal securities and auction rate preferred securities
issued by closed-end investment companies.
The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to sovereign
entities for new obligations in connection with a debt restructuring.
The Fund may invest in commodity-related pooled investment
vehicles, which include only the following instruments: Trust Issued
Receipts (as defined in BATS Rule 14.11(f)); Commodity-Based Trust
Shares (as defined in Rule 14.11(e)(4)); Currency Trust Shares (as
defined in Rule 14.11(e)(5)); Commodity Index Trust Shares (as defined
in Rule 14.11(e)(6)); Trust Units (as defined in Rule 14.11(e)(9)); and
Paired Class Shares (as defined in NASDAQ Stock Market LLC Rule 5713).
The Fund will not invest in inverse or leveraged (e.g., 2X, -2X, 3X or
-3X) commodity-related pooled investment vehicles pooled investment
vehicles.
The Fund may invest in commodity-linked derivatives, which are
derivatives for which the value derives from the price of a commodity,
including commodity futures and commodity options.
The Fund may invest in U.S. equity securities. Equity securities
are securities that represent an ownership interest (or the right to
acquire such an interest) in a company and include common and preferred
stock, warrants, and rights. The Fund's investments in such U.S. equity
securities may include securities traded over-the-counter as well as
those traded on a securities exchange. The Fund may purchase such
securities on a forward commitment or when-issued or delayed delivery
basis, which means delivery and payment take place a number of days
after the date of the commitment to purchase.
The Fund may purchase exchange-traded common stocks, exchange-
traded warrants, and exchange-traded rights in foreign corporations.
The Fund's investments in common stock of foreign corporations may also
be in the form of American Depositary Receipts (``ADRs''), Global
Depositary Receipts (``GDRs'') and European Depositary Receipts
(``EDRs'') (collectively ``Depositary Receipts'').\28\
---------------------------------------------------------------------------
\28\ Depositary Receipts are receipts, typically issued by a
bank or trust company, which evidence ownership of underlying
securities issued by a foreign corporation. For ADRs, the depository
is typically a U.S. financial institution and the underlying
securities are issued by a foreign issuer. For other Depositary
Receipts, the depository may be a foreign or a U.S. entity, and the
underlying securities may have a foreign or a U.S. issuer.
Depositary Receipts will not necessarily be denominated in the same
currency as their underlying securities. Generally, ADRs, in
registered form, are designed for use in the U.S. securities market,
and EDRs, in bearer form, are designated for use in European
securities markets. GDRs are tradable both in the United States and
in Europe and are designed for use throughout the world. The Fund
will not invest in unsponsored ADRs. All exchange-traded equity
securities in which the Fund may invest will trade on markets that
are members of the Intermarket Surveillance Group (``ISG'') or that
have entered into a comprehensive surveillance agreement with the
Exchange.
---------------------------------------------------------------------------
[[Page 45549]]
The Fund may invest in convertible securities traded on an exchange
or OTC that are not described in the Principal Holdings section above.
Convertible securities are securities that may be converted or
exchanged (by the holder or by the issuer) into shares of the
underlying common stock (or cash or securities of equivalent value) at
a stated exchange ratio. Convertible securities include contingent
convertible securities.\29\
---------------------------------------------------------------------------
\29\ A contingent convertible security is a hybrid debt security
typically issued by a non-U.S. bank that may be convertible into
equity or may be written down if a pre-specified trigger event such
as a decline in capital ratio below a prescribed threshold occurs.
---------------------------------------------------------------------------
The Fund may invest in loan assignments and participations, which
are assignments of, or participations in, all or a portion of loans to
corporations or to governments, including governments in less developed
countries. The Fund may also invest in commitments to purchase loan
assignments.
The Fund may invest in exchange-traded master limited partnerships
(``MLPs'').
Investment Restrictions
The Fund may hold up to an aggregate amount of 15% of its Assets in
illiquid assets (calculated at the time of investment), including
Restricted Securities deemed illiquid by the Adviser \30\ under the
1940 Act.\31\ 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, Assets, or other circumstances, more than
15% of the Fund's Assets are held in illiquid assets. A security is
considered illiquid if it cannot be ``sold or disposed of in the
ordinary course of business within 7 days at approximately the value''
at which it is being carried by the Fund.
---------------------------------------------------------------------------
\30\ In reaching liquidity decisions, the Adviser may consider
factors including: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer).
\31\ 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 of 1933).
---------------------------------------------------------------------------
The Fund intends to qualify each year as a regulated investment
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of
1986, as amended.\32\ The Fund will invest its assets, and otherwise
conduct its operations, in a manner that is intended to satisfy the
qualifying income, diversification, and distribution requirements
necessary to establish and maintain RIC qualification under Subchapter
M.
---------------------------------------------------------------------------
\32\ 26 U.S.C. 851.
---------------------------------------------------------------------------
The Fund does not have an investment objective seeking to return
two times or three times the Fund's benchmark.
Net Asset Value
According to the Registration Statement, the NAV of the Fund's
Shares generally will be calculated once daily Monday through Friday as
of the close of regular trading on the Exchange, generally 4:00 p.m.
Eastern Time (the ``NAV Calculation Time'') on each day that the
Exchange is open for trading, based on prices at the NAV Calculation
Time. NAV per Share is calculated by dividing the Fund's Assets by the
number of Fund Shares outstanding. The Fund's Assets are valued
primarily on the basis of market quotations. Expenses and fees,
including the management fees, will be accrued daily and taken into
account for purposes of determining NAV.
Convertible bonds, ARMs, ABS, bank obligations, corporate debt
securities, inflation-linked debt securities, inverse floating rate
instruments, mortgage dollar rolls, municipal securities, obligations
of supranational agencies, private placements, restricted securities,
and other unregistered securities, securities issued in connection with
reorganizations and corporate restructurings, short-term funding
agreements, sovereign obligations, stripped mortgage-backed securities,
structured investments, treasury receipts, trust preferreds, U.S.
Government Agency Securities, U.S. Government obligations, zero-coupon,
pay-in-kind, and deferred payment securities, commercial paper, auction
rate securities, when-issued securities, delayed delivery securities,
and forward commitments, loan assignments and participations, and Brady
Bonds will be valued at prices supplied by approved pricing services
which is generally based on bid-side quotations. Non-ARM mortgages will
be valued based on prices received from pricing vendor who provides bid
prices. CDS will be valued at market quotations supplied by approved
pricing services.
Common stocks and other exchange-traded equity securities
(including shares of preferred securities, convertible securities,
MLPs, commodity-related pooled investment vehicles, and ETFs) generally
will be valued at the last sale price or official closing price on the
primary exchange. Warrants and rights are generally valued at their
intrinsic value. Custodial receipts are valued at their intrinsic value
based on the terms of the receipts. Foreign equities and exchange-
listed Depositary Receipts will be valued at the last sale price or
official market closing price on the primary exchange and is subject to
adjustment (fair value) each day by applying a fair value factor
provided by approved pricing services. U.S. equity securities traded
OTC, OTC-traded preferred securities, and OTC-traded convertible
securities will be valued based on price quotations obtained from a
broker-dealer who makes markets in such securities or other equivalent
indications of value provided by a third-party pricing service.
Securities of non-exchange traded investment companies will be valued
at NAV.
Listed futures will generally be valued at the settlement price
determined by the applicable exchange. Exchange-traded options on U.S.
equity exchanges are generally valued at the composite mean price,
using the National Best Bid and Offer quotes. Other exchange traded
options are valued at the settlement price of the relevant exchange.
Listed swaps will be valued on the basis of quotations or equivalent
indication of value supplied by a third-party pricing service or
broker-dealer who makes markets in such instruments. Non-exchange
traded derivatives, including OTC-traded options and swaps are priced
utilizing market quotations provided by approved pricing services.
Foreign currency transactions will be valued based on foreign exchange
rates obtained from an approved pricing service, using spot and forward
rates
[[Page 45550]]
available at the time net asset values of the fund is calculated.
Creation and Redemption of Shares
The NAV of Shares of the Fund will be determined once each business
day, normally 4:00 p.m. Eastern time. The Fund currently anticipates
that a Creation Unit will consist of 100,000 Shares, though this number
may change from time to time, including prior to the listing of the
Fund. The exact number of Shares that will comprise a Creation Unit
will be disclosed in the Registration Statement of the Fund. The Trust
will issue and sell Shares of the Fund only in Creation Units on a
continuous basis, without a sales load (but subject to transaction
fees), at their NAV per Share next determined after receipt of an
order, on any business day, in proper form. Creation and redemption
will typically occur in cash, however, the Trust retains discretion to
conduct such transactions on an in-kind basis or a combination of cash
and in-kind, as further described below.
The consideration for purchase of a Creation Unit of the Fund
generally will consist of either (i) the in-kind deposit of a
designated portfolio of securities (the ``Deposit Securities'') per
each Creation Unit and the Cash Component (defined below), computed as
described below, or (ii) the cash value of the Deposit Securities
(``Deposit Cash'') and the ``Cash Component,'' computed as described
below. When accepting purchases of Creation Units for cash, the Fund
may incur additional costs associated with the acquisition of Deposit
Securities that would otherwise be provided by an in-kind purchaser.
Together, the Deposit Securities or Deposit Cash, as applicable, and
the Cash Component constitute the ``Fund Deposit,'' which represents
the minimum initial and subsequent investment amount for a Creation
Unit of the Fund. The ``Cash Component'' is an amount equal to the
difference between the NAV of the Shares (per Creation Unit) and the
market value of the Deposit Securities or Deposit Cash, as applicable.
If the Cash Component is a positive number (i.e., the NAV per Creation
Unit exceeds the market value of the Deposit Securities or Deposit
Cash, as applicable), the Cash Component shall be such positive amount.
If the Cash Component is a negative number (i.e., the NAV per Creation
Unit is less than the market value of the Deposit Securities or Deposit
Cash, as applicable), the Cash Component will be such negative amount
and the creator will be entitled to receive cash in an amount equal to
the Cash Component. The Cash Component serves the function of
compensating for any differences between the NAV per Creation Unit and
the market value of the Deposit Securities or Deposit Cash, as
applicable.
The Custodian, through the National Securities Clearing Corporation
(``NSCC''), will make available on each business day, prior to the
opening of business on the Exchange, the list of the names and the
required amount of each Deposit Security or the required amount of
Deposit Cash, as applicable, to be included in the current Fund Deposit
(based on information at the end of the previous business day) for the
Fund. Such Fund Deposit is subject to any applicable adjustments as
described in the Registration Statement, in order to effect purchases
of Creation Units of the Fund until such time as the next-announced
composition of the Deposit Securities or the required amount of Deposit
Cash, as applicable, is made available.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through the Transfer Agent and only on a business day.
With respect to the Fund, the Custodian, through the NSCC, will
make available immediately prior to the opening of business on the
Exchange (9:30 a.m. Eastern time) on each business day, the list of the
names and share quantities of the Fund's portfolio securities that will
be applicable (subject to possible amendment or correction) to
redemption requests received in proper form on that day (``Fund
Securities''). Fund Securities received on redemption may not be
identical to Deposit Securities.
Redemption proceeds for a Creation Unit will be paid either in-kind
or in cash or a combination thereof, as determined by the Trust. With
respect to in-kind redemptions of the Fund, redemption proceeds for a
Creation Unit will consist of Fund Securities as announced by the
Custodian on the business day of the request for redemption received in
proper form plus cash in an amount equal to the difference between the
NAV of the Shares being redeemed, as next determined after a receipt of
a request in proper form, and the value of the Fund Securities (the
``Cash Redemption Amount''), less a fixed redemption transaction fee
and any applicable additional variable charge as set forth in the
Registration Statement. In the event that the Fund Securities have a
value greater than the NAV of the Shares, a compensating cash payment
equal to the differential will be required to be made by or through an
authorized participant by the redeeming shareholder. Notwithstanding
the foregoing, at the Trust's discretion, an authorized participant may
receive the corresponding cash value of the securities in lieu of the
in-kind securities value representing one or more Fund Securities.\33\
---------------------------------------------------------------------------
\33\ The Adviser represents that, to the extent that the Trust
permits or requires a ``cash in lieu'' amount, such transactions
will be effected in the same or equitable manner for all Authorized
Participants.
---------------------------------------------------------------------------
The creation/redemption order cut-off time for the Fund is expected
to be 4:00 p.m. Eastern time. Creation/redemption order cut-off times
may be earlier on any day that the Securities Industry and Financial
Markets Association (``SIFMA'') (or applicable exchange or market on
which the Fund's investments are traded) announces an early closing
time. On days when the Exchange closes earlier than normal, the Fund
may require orders for Creation Units to be placed earlier in the day.
Availability of Information
The Fund's Web site, 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 Web site will include additional
quantitative information updated on a daily basis, including, for the
Fund: (1) The prior business day's reported NAV, mid-point of the bid/
ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\34\ daily trading volume, 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. Daily trading
volume information for the Fund will also be available through
subscription services such as Bloomberg, Thomson Reuters, and
International Data Corporation, which can be accessed by authorized
participants and other investors, as well as through other electronic
services, including major public Web sites. On each business day,
before commencement of trading in Shares during Regular Trading Hours
\35\ on the
[[Page 45551]]
Exchange, the Fund will disclose on its Web site the identities and
quantities of the portfolio of securities and other assets (the
``Disclosed Portfolio'') held by the Fund that will form the basis for
the Fund's calculation of NAV at the end of the business day.\36\ The
Disclosed Portfolio will include, as applicable: The ticker symbol;
CUSIP number or other identifier, if any; a description of the holding
(including the type of holding, such as the type of swap); the identity
of the security, commodity, index or other asset or instrument
underlying the holding, if any; for options, the option strike price;
quantity held (as measured by, for example, par value, notional value
or number of shares, contracts, or units); maturity date, if any;
coupon rate, if any; effective date, if any; market value of the
holding; and the percentage weighting of the holding in the Fund's
portfolio. The Web site and information will be publicly available at
no charge.
---------------------------------------------------------------------------
\34\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\35\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern
Time.
\36\ 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.
---------------------------------------------------------------------------
In addition, for the Fund, an estimated value, defined in BZX Rule
14.11(i)(3)(C) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's portfolio, will be disseminated.
Moreover, the Intraday Indicative Value will be based upon the current
value for the components of the Disclosed Portfolio and will be updated
and widely disseminated by one or more major market data vendors at
least every 15 seconds during the Exchange's Regular Trading Hours.\37\
In addition, the quotations of certain of the Fund's holdings may not
be updated during U.S. trading hours if such holdings do not trade in
the United States or if updated prices cannot be ascertained.
---------------------------------------------------------------------------
\37\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Intraday Indicative Values published via the Consolidated Tape
Association (``CTA'') or other data feeds.
---------------------------------------------------------------------------
The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and provide a
close estimate of that value throughout the trading day.
Intraday, closing, and settlement prices of common stocks and other
exchange-listed instruments (including futures, options, Depositary
Receipts, preferred securities, convertible securities, warrants,
rights, MLPs, commodity-related pooled investment vehicles, and ETFs)
will be readily available from the exchanges trading such securities as
well as automated quotation systems, published or other public sources,
or online information services such as Bloomberg or Reuters. In
addition, price information for U.S. exchange-traded options will be
available from the Options Price Reporting Authority. Quotation
information from brokers and dealers or pricing services will be
available for Fixed Income Securities and U.S. government obligations.
Quotation and price information for convertible bonds, ARMs, ABS, bank
obligations, custodial receipts, corporate debt securities, inflation-
linked debt securities, inverse floating rate instruments, mortgage
dollar rolls, municipal securities, obligations of supranational
agencies, private placements, restricted securities, and other
unregistered securities, securities issued in connection with
reorganizations and corporate restructurings, short-term funding
agreements, sovereign obligations, stripped mortgage-backed securities,
structured investments, treasury receipts, trust preferreds, U.S.
Government Agency Securities, U.S. Government obligations, zero-coupon,
pay-in-kind, and deferred payment securities, commercial paper, auction
rate securities, when-issued securities, delayed delivery securities,
and forward commitments, loan assignments and participations, Brady
Bonds, mortgages, common stock warrants and rights, CDS, and foreign
currency transactions will be available via major market data vendors
or broker dealers that make markets in such instruments.
Information regarding market price and volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. The previous
day's closing price and trading volume information for the Shares will
be published daily in the financial section of newspapers. Quotation
and last sale information for the Shares will be available on the
facilities of the CTA.
Initial and Continued Listing
The Shares will be subject to BZX Rule 14.11(i), which sets forth
the initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Fund must be in compliance with Rule 10A-3 under the
Act.\38\ A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.
---------------------------------------------------------------------------
\38\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
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. The Exchange will halt trading in
the Shares under the conditions specified in BZX Rule 11.18. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable. These may
include: (1) The extent to which trading is not occurring in the
securities and/or the financial instruments composing 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 also will be subject to Rule
14.11(i)(4)(B)(iv), 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. The Exchange will
allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern
Time. The Exchange has appropriate rules to facilitate transactions in
the Shares during all trading sessions. As provided in BZX Rule
14.11(i)(2)(C), the minimum price variation for quoting and entry of
orders in Managed Fund Shares traded on the Exchange is $0.01.
Surveillance
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Managed Fund Shares. 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 Exchange Act, the Exchange will surveil
[[Page 45552]]
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 Exchange Rule 14.12.
The Exchange may obtain information regarding trading in the Shares and
the underlying shares in exchange traded investment companies, U.S.
equity securities, foreign equity securities, futures, and options via
the ISG, from other exchanges who are members or affiliates of the ISG,
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.\39\ In addition, the Exchange is able
to access, as needed, trade information for certain fixed income
instruments reported to FINRA's Trade Reporting and Compliance Engine
(``TRACE''). The Exchange can also access municipal bond trading
activity for surveillance purposes in connection with trading in the
Shares through the Electronic Municipal Market Access (``EMMA'') \40\
of the Municipal Securities Rulemaking Board (``MSRB''). The Exchange
prohibits the distribution of material non-public information by its
employees.
---------------------------------------------------------------------------
\39\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. 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. The Exchange
also notes that all exchange-traded instruments, including ETFs,
commodity-related pooled investment vehicles, futures, and options
will trade on markets that are a member of ISG or with which the
Exchange has in place a comprehensive surveillance sharing
agreement.
\40\ Information available from EMMA includes next-day
information regarding municipal securities transactions and par
amounts traded.
---------------------------------------------------------------------------
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) BZX Rule 3.7, which imposes suitability
obligations on Exchange members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the Intraday Indicative Value and the Disclosed Portfolio is
disseminated; (4) the risks involved in trading the Shares during the
Pre-Opening \41\ and After Hours Trading Sessions \42\ when an updated
Intraday Indicative Value will not be calculated or publicly
disseminated; (5) the requirement that members deliver a prospectus to
investors purchasing newly issued Shares prior to or concurrently with
the confirmation of a transaction; and (6) trading information.
---------------------------------------------------------------------------
\41\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.
Eastern Time.
\42\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. Eastern Time.
---------------------------------------------------------------------------
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the
Act.
In addition, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV Calculation Time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund's
Web site. In addition, the Information Circular will reference that the
Trust is subject to various fees and expenses described in the Fund's
Registration Statement.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \43\ in general and Section 6(b)(5) of the Act \44\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78f.
\44\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in BZX Rule 14.11(i). The
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of the Shares on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. If the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser to the investment company
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. The
Adviser is not a registered broker-dealer, but is affiliated with a
broker-dealer and has implemented a ``fire wall'' with respect to such
broker-dealer regarding access to information concerning the
composition and/or changes to the Fund's portfolio. In the event (a)
the Adviser becomes registered as a broker-dealer or newly affiliated
with a broker-dealer, or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes affiliated with a broker-dealer, it
will implement a fire wall with respect to its relevant personnel or
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material
non-public information regarding such portfolio. The Exchange may
obtain information regarding trading in the Shares and the underlying
Depositary Receipts, exchange traded shares of investment companies,
U.S. equity securities, futures, and exchange listed options via the
ISG, from other exchanges who are members or affiliates of the ISG, or
with which the Exchange has entered into a comprehensive surveillance
sharing agreement.\45\ In addition, the Exchange is able to access, as
needed, trade information for certain fixed income instruments reported
to FINRA's TRACE.
---------------------------------------------------------------------------
\45\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. 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. The Exchange
also notes that all of the ETFs, commodity-related pooled investment
vehicles, futures, and options will trade on markets that are a
member of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
The Fund's investments will be consistent with the Fund's
investment objective and the Fund does not have an investment objective
seeking to return two times or three times the Fund's benchmark, as
stated above.
In addition to the holdings in Bonds and Non-Bonds described above
as part of the Fund's principal investment
[[Page 45553]]
strategy, the Fund may also, to a limited extent (under normal
circumstances, less than 20% of the Fund's Assets) and as further
described above, engage in transactions in the following:
Auction rate securities, Brady Bonds, commodity-related pooled
investment vehicles, commodity-linked derivatives, U.S. equity
securities, exchange-traded common stocks of foreign corporations,
exchange-traded warrants of foreign corporations, exchange-traded
rights in foreign corporations, ADRs, GDRs, EDRS, convertible
securities, and MLPs.
The Fund may hold up to an aggregate amount of 15% of its Assets in
illiquid assets (calculated at the time of investment), including
Restricted Securities deemed illiquid by the Adviser \46\ under the
1940 Act.\47\ 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, Assets, or other circumstances, more than
15% of the Fund's Assets are held in illiquid assets. A security is
considered illiquid if it cannot be ``sold or disposed of in the
ordinary course of business within 7 days at approximately the value''
at which it is being carried by the fund.
---------------------------------------------------------------------------
\46\ In reaching liquidity decisions, the Adviser may consider
factors including: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer).
\47\ 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 of 1933).
---------------------------------------------------------------------------
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Moreover, the Intraday
Indicative Value will be disseminated by one or more major market data
vendors at least every 15 seconds during Regular Trading Hours. On each
business day, before commencement of trading in Shares during Regular
Trading Hours, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. Pricing information will be available on
the Fund's Web site including: (1) The prior business day's reported
NAV, the Bid/Ask Price of the Fund, 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. Additionally,
information regarding market price and trading of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last sale information for the Shares will be available on the
facilities of the CTA. 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. Trading in Shares of the
Fund will be halted under the conditions specified in BZX Rule 11.18.
Trading may also be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. Finally, trading in the Shares will be subject to BZX Rule
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares
of the Fund may be halted. In addition, the Exchange is able to access,
as needed, trade information for certain fixed income instruments
reported to FINRA's TRACE. As noted above, investors will also have
ready access to information regarding the Fund's holdings, the Intraday
Indicative Value, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
Intraday, closing, and settlement prices of common stocks and other
exchange-listed instruments (including futures, options, Depositary
Receipts, preferred securities, convertible securities, warrants,
rights, MLPs, commodity-related pooled investment vehicles, and ETFs)
will be readily available from the exchanges trading such securities as
well as automated quotation systems, published or other public sources,
or online information services such as Bloomberg or Reuters. In
addition, price information for U.S. exchange-traded options will be
available from the Options Price Reporting Authority. Quotation
information from brokers and dealers or pricing services will be
available for Fixed Income Securities and U.S. government obligations.
Quotation and price information for convertible bonds, ARMs, ABS, bank
obligations, custodial receipts, corporate debt securities, inflation-
linked debt securities, inverse floating rate instruments, mortgage
dollar rolls, municipal securities, obligations of supranational
agencies, private placements, restricted securities, and other
unregistered securities, securities issued in connection with
reorganizations and corporate restructurings, short-term funding
agreements, sovereign obligations, stripped mortgage-backed securities,
structured investments, treasury receipts, trust preferreds, U.S.
Government Agency Securities, U.S. Government obligations, zero-coupon,
pay-in-kind, and deferred payment securities, commercial paper, auction
rate securities, when-issued securities, delayed delivery securities,
and forward commitments, loan assignments and participations, Brady
Bonds, mortgages, common stock warrants and rights, CDS, and foreign
currency transactions will be available via major market data vendors
or broker dealers that make markets in such instruments.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Intraday Indicative Value, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
For the above reasons, the Exchange believes that the proposed rule
change
[[Page 45554]]
is consistent with the requirements of Section 6(b)(5) of the Act.
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 actively-managed exchange-traded product 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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve or disapprove such 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-BatsBZX-2016-35 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-BatsBZX-2016-35. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BatsBZX-2016-35 and should
be submitted on or before August 4, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
---------------------------------------------------------------------------
\48\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-16615 Filed 7-13-16; 8:45 am]
BILLING CODE 8011-01-P
