Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of the Virtus Enhanced U.S. Equity ETF Under Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3), 72630-72636 [2016-25345]
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that imposes conditions on the quality
of or access to collateral for a borrowing
(if the lender is another Fund) or the
same or better conditions (in any other
circumstance).5
5. Applicants also believe that the
limited relief from section 18(f)(1) of the
Act that is necessary to implement the
facility (because the lending Funds are
not banks) is appropriate in light of the
conditions and safeguards described in
the application and because the Funds
would remain subject to the
requirement of section 18(f)(1) that all
borrowings of a Fund, including
combined interfund loans and bank
borrowings, have at least 300% asset
coverage.
6. Section 6(c) of the Act permits the
Commission to exempt any persons or
transactions from any provision of the
Act if such exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities, or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Section 17(b) of the Act authorizes the
Commission to grant an order
permitting a transaction otherwise
prohibited by section 17(a) if it finds
that (a) the terms of the proposed
transaction are fair and reasonable and
do not involve overreaching on the part
of any person concerned; (b) the
proposed transaction is consistent with
the policies of each registered
investment company involved; and (c)
the proposed transaction is consistent
with the general purposes of the Act.
Rule 17d–1(b) under the Act provides
that in passing upon an application filed
under the rule, the Commission will
consider whether the participation of
the registered investment company in a
joint enterprise, joint arrangement or
profit sharing plan on the basis
proposed is consistent with the
provisions, policies and purposes of the
Act and the extent to which such
participation is on a basis different from
or less advantageous than that of the
other participants.
5 Applicants state that any pledge of securities to
secure an interfund loan could constitute a
purchase of securities for purposes of section
17(a)(2) of the Act.
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For the Commission, by the Division of
Investment Management, under delegated
authority.
Brent J. Fields,
Secretary.
[FR Doc. 2016–25346 Filed 10–19–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the Virtus
Self-Regulatory Organizations; NYSE
Enhanced U.S. Equity ETF (‘‘Fund’’)
Arca, Inc.; Notice of Filing of Proposed under Commentary .01 to NYSE Arca
Rule Change Relating to Listing and
Equities Rule 5.2(j)(3), which governs
Trading of Shares of the Virtus
the listing and trading of Investment
Enhanced U.S. Equity ETF Under
Company Units on the Exchange.4 The
Commentary .01 to NYSE Arca Equities Fund will be an index-based exchange
Rule 5.2(j)(3)
traded fund (‘‘ETF’’). The Shares will be
offered by the Virtus ETF Trust II (the
October 14, 2016.
‘‘Trust’’), which is registered with the
1 of the
Pursuant to Section 19(b)(1)
Commission as an investment company
Securities Exchange Act of 1934
and has filed a registration statement on
2 and Rule 19b–4 thereunder,3
(‘‘Act’’)
Form N–1A (the ‘‘Registration
notice is hereby given that, on October
Statement’’) with the Commission on
3, 2016, NYSE Arca, Inc. (the
behalf of the Fund.5
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
The investment adviser to the Fund
the Securities and Exchange
will be Virtus ETF Advisers LLC (the
Commission (‘‘Commission’’) the
‘‘Adviser’’). ETF Distributors LLC will
proposed rule change as described in
serve as the distributor (the
Items I, II, and III below, which Items
‘‘Distributor’’) of Fund shares on an
have been prepared by the selfagency basis. The Bank of New York
regulatory organization. The
Mellon (the ‘‘Administrator’’) will be
Commission is publishing this notice to the administrator, custodian and
solicit comments on the proposed rule
transfer agent for the Fund.6
change from interested persons.
Description of the Shares and the Fund
I. Self-Regulatory Organization’s
As discussed in more detail below,
Statement of the Terms of Substance of
the Fund’s investment objective is to
the Proposed Rule Change
seek investment results that, before fees
The Exchange proposes to list and
and expenses, closely correspond to the
trade the shares of the Virtus Enhanced
price and yield performance of the
U.S. Equity ETF (the ‘‘Fund’’), a series
Rampart Enhanced U.S. Equity Index
of Virtus ETF Trust II (the ‘‘Trust’’),
(the ‘‘Index’’). The Index was developed
under Commentary .01 to NYSE Arca
by Rampart Investment Management
Equities Rule 5.2(j)(3) (‘‘Investment
Company, LLC (the ‘‘Index Provider’’),
Company Units’’). The proposed rule
and the Index is calculated and
change is available on the Exchange’s
4 NYSE Arca Equities Rule 5.2(j)(3)(A) provides
Web site at www.nyse.com, at the
that an Investment Company Unit is a security that
principal office of the Exchange, and at
represents an interest in a registered investment
the Commission’s Public Reference
company that holds securities comprising, or
Room.
otherwise based on or representing an interest in,
[Release No. 34–79101; File No. SR–
NYSEArca–2016–131]
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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an index or portfolio of securities (or holds
securities in another registered investment
company that holds securities comprising, or
otherwise based on or representing an interest in,
an index or portfolio of securities).
5 See the Trust’s registration statement on Form
N–1A, dated September 1, 2016 (File Nos. 333–
206600 and 811–23078). The descriptions of the
Fund and the Shares contained herein are based, in
part, on information in the Registration Statement.
6 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’’). See Investment Company Act
Release No. 30825 (December 11, 2013) (File No.
812–14212) (‘‘Exemptive Order’’). Investments
made by the Fund will comply with the conditions
in the Exemptive Order.
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maintained by NYSE Global Index
Group (the ‘‘Index Calculation Agent’’).
The Index Provider is affiliated with the
Adviser and the Distributor. The Index
Calculation Agent is not affiliated with
the Adviser, Distributor, Administrator,
or the Trust.
Commentary .01(b)(1) to Rule 5.2(j)(3)
provides that, if the applicable index is
maintained by a fund advisor or a
broker-dealer, such fund advisor or
broker-dealer shall erect a ‘‘fire wall’’
around the personnel who have access
to information concerning changes and
adjustments to the index, and the index
shall be calculated by a third party who
is not a broker-dealer or fund advisor.7
The Index Provider is registered as an
investment adviser, but does not serve
as adviser or sub-adviser to the Fund,
and is affiliated with one or more
broker-dealers. The Adviser is not
registered as a broker-dealer. The
Adviser and Index Provider are
affiliated with one or more brokerdealers, and the Adviser and Index
Provider each have implemented and
will maintain a fire wall with respect to
each such broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio and Index.8 In
addition, Adviser personnel who make
decisions regarding the Fund’s portfolio
are subject to procedures designed to
prevent the use and dissemination of
material nonpublic information
regarding the Fund’s portfolio.9
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser 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.
8 The Adviser and the Index Provider have
represented that a fire wall exists around the
respective personnel who have access to
information concerning changes and adjustments to
the Index.
9 The Exchange represents that the Adviser, and
its related personnel, are subject to Advisers Act
Rule 204A–1. This rule specifically requires the
adoption of a code of ethics by an investment
adviser to include, at a minimum: (i) Standards of
business conduct that reflect the firm’s/personnel
fiduciary obligations; (ii) provisions requiring
supervised persons to comply with applicable
federal securities laws; (iii) provisions that require
all access persons to report, and the firm to review,
their personal securities transactions and holdings
periodically as specifically set forth in Rule 204A–
1; (iv) provisions requiring supervised persons to
report any violations of the code of ethics promptly
to the chief compliance officer (‘‘CCO’’) or,
provided the CCO also receives reports of all
violations, to other persons designated in the code
of ethics; and (v) provisions requiring the
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In the event (a) the Adviser or Index
Provider becomes registered as a brokerdealer or newly affiliated with a brokerdealer, or (b) any new adviser or index
provider 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.
The Exchange is submitting this
proposed rule change because the Index
for the Fund does not meet all of the
‘‘generic’’ listing requirements of
Commentary .01(a)(A) to NYSE Arca
Equities Rule 5.2(j)(3), applicable to the
listing of Investment Company Units
based upon an index of ‘‘US Component
Stocks.’’ 10 Specifically, Commentary
.01(a)(A) to NYSE Arca Equities Rule
5.2(j)(3) sets forth the requirements to be
met by components of an index or
portfolio of US Component Stocks.
Because, as discussed in more detail
herein, the Index may consist partially
of options on the S&P 500 Index, rather
than entirely US Component Stocks, the
Index does not satisfy the requirements
of Commentary .01(a)(A) to NYSE Arca
Equities Rule 5.2(j)(3).11
investment adviser to provide each of the
supervised persons with a copy of the code of ethics
with an acknowledgement by said supervised
persons. 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.
10 NYSE Arca Equities Rule 5.2(j)(3) provides that
the term ‘‘US Component Stock’’ shall mean an
equity security that is registered under Sections
12(b) or 12(g) of the Act and an American
Depositary Receipt, the underlying equity securities
of which is registered under Sections 12(b) or 12(g)
of the Act.
11 The Exchange notes that the S&P 500 Index has
been previously approved by the Commission
under Section 19(b)(2) of the Act in connection
with the listing and trading of index options and
Portfolio Depositary Receipts, as well as other
securities. See, e.g., Securities Exchange Act
Release Nos. 19907 (June 24, 1983), 48 FR 30814
(July 5, 1983) (SR–CBOE–83–8) (approving the
listing and trading of options on the S&P 500
Index); 31591 (December 18, 1992), 57 FR 60253
(December 18, 1992) (SR–Amex–92–18) (approving
the listing and trading of Portfolio Depositary
Receipts based on the S&P 500 Index). NYSE Arca
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72631
Except for the requirements of
Commentary .01(a)(A) to NYSE Arca
Equities Rule 5.2(j)(3), the Index meets
all other requirements of Commentary
.01 to NYSE Arca Equities Rule 5.2(j)(3).
Virtus Enhanced U.S. Equity ETF
Index Methodology
The Index is comprised of an equity
portfolio enhanced by an ‘‘Options
Strategy Overlay’’. The equity portfolio
is comprised of the largest 400 U.S.
exchange-listed stocks as measured by
market capitalization. The portfolio is
market capitalization-weighted and is
reconstituted and rebalanced on a
quarterly basis. The Options Strategy
Overlay uses an objective, rules-based
methodology to transact in options
linked to the S&P 500 Index (SPX). SPX
options are traded on the Chicago Board
Options Exchange. Each week, out of
the money SPX put options and out of
the money SPX call options are sold.
The proceeds are used to buy an SPX
call option. The strike prices of the
options are systematically selected
according to the prevailing volatility
environment. In general, in higher
volatility environments the short
options will be struck farther out of the
money.
Principal Investments of the Fund
Under normal market conditions,12
the Fund will invest not less than 80%
of its total assets in component
securities of the Index. Additionally,
under normal market conditions, the
Fund will invest not less than 80% of
its total assets in U.S. exchange-traded
common stocks. The Fund will also seek
Equities Rule 5.2(j)(3), Commentary .01(a)(A)(5)
provides that all securities in the applicable index
or portfolio shall be US Component Stocks listed on
a national securities exchange and shall be NMS
Stocks as defined in Rule 600 under Regulation
NMS of the Act. Each component stock of the S&P
500 Index is a US Component Stock that is listed
on a national securities exchange and is an NMS
Stock. Options are excluded from the definition of
NMS Stock. The Fund and the Index meet all of the
requirements of the listing standards for Investment
Company Units in Rule 5.2(j)(3) and the
requirements of Commentary .01, except the
requirements in Commentary .01(a)(A)(1)–(5), as the
Index consists of options on the S&P 500 Index. The
S&P 500 Index consists of US Component Stocks
and satisfies the requirements of Commentary
.01(a)(A)(1)–(5).
12 The term ‘‘normal market conditions’’ is
defined in NYSE Arca Equities Rule 8.600 (c)(5). On
a temporary basis, including for defensive purposes,
during the initial invest-up period and during
periods of high cash inflows or outflows, the Fund
may depart from its principal investment strategies;
for example, it may hold a higher than normal
proportion of its assets in cash. During such
periods, the Fund may not be able to achieve its
investment objectives. The Fund may adopt a
defensive strategy when the Adviser believes
securities in which the Fund normally invests have
elevated risks due to political or economic factors
and in other extraordinary circumstances.
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to generate additional income by writing
SPX call options and will seek
additional capital appreciation by
purchasing SPX call options.
Other Investments
While the Fund, under normal market
conditions will invest at least 80% of its
net assets in the securities and financial
instruments described above, the Fund
may invest its remaining assets in the
securities and financial instruments
described below.
The Fund may invest in short-term,
high quality securities issued or
guaranteed by the U.S. government (in
addition to U.S. Treasury securities) and
non-U.S. governments, and each of their
agencies and instrumentalities; debt
securities issued by U.S. government
sponsored enterprises; repurchase
agreements backed by U.S. government
and non-U.S. government securities;
money market mutual funds; and
deposit and other obligations of U.S.
and non-U.S. banks and financial
institutions (‘‘Money Market
Instruments’’).
The Fund may invest in exchangetraded funds (‘‘ETFs’’).13
The Fund may invest in U.S.
exchange-traded equity index futures
contracts.
The Fund may invest in U.S.
exchange-traded index options (other
than SPX) and U.S. exchange-traded
options on ETFs.
The Fund may invest in U.S.
exchange-traded options on futures
contacts and U.S. exchange-traded
options on stocks.
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Investment Restrictions
The Fund will not invest in any nonU.S. equity securities. The Fund’s
investments will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage.14
The Fund intends to qualify each year
as a regulated investment company (a
13 The ETFs in which the Fund may invest are
Investment Company Units (as described in NYSE
Arca Equities Rule 5.2(j)(3)), Portfolio Depositary
Receipts (as described in NYSE Arca Equities Rule
8.100), and Managed Fund Shares (as described in
NYSE Arca Equities Rule 8.600). The Fund will not
invest in leveraged ETFs (e.g., 2X or 3X) or inverse
or inverse leveraged ETFs (e.g., –1X or –2X).
14 The Fund will include appropriate risk
disclosure in its offering documents, including
leveraging risk. Leveraging risk is the risk that
certain transactions of a fund, including a fund’s
use of derivatives, may give rise to leverage, causing
a fund to be more volatile than if it had not been
leveraged. To mitigate leveraging risk, the Adviser
will segregate or earmark liquid assets or otherwise
cover the transactions that give rise to such risk. See
15 U.S.C. 80a–18; Investment Company Act Release
No. 10666 (April 18, 1979), 44 FR 25128 (April 27,
1979); Dreyfus Strategic Investing, Commission NoAction Letter (June 22, 1987); Merrill Lynch Asset
Management, L.P., Commission No-Action Letter
(July 2, 1996).
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‘‘RIC’’) under Subchapter M of the
Internal Revenue Code of 1986, as
amended.15
Creation and Redemption of Shares
The Fund will issue and redeem
Shares on a continuous basis at net asset
value (‘‘NAV’’),16 only in large blocks of
Shares (‘‘Creation Units’’), in
transactions with ‘‘Authorized
Participants’’ (as described below).
Creation Units generally will consist of
50,000 Shares, though the size of a
Creation Unit may change from time to
time.
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 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. Because certain listed
derivatives are not currently eligible for
in-kind transfer, they will be substituted
with an amount of cash of equal value
(i.e., Deposit Cash) when the Fund
processes purchases of Creation Units
in-kind. Specifically, the Fund will not
accept exchange-traded options as
Deposit Securities.
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 inkind purchase. 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. The Cash
Component serves the function of
compensating for any difference
between the NAV per Creation Unit and
the market value of the Deposit
Securities or Deposit Cash, as
applicable.
A portfolio composition file, to be
sent via the National Securities Clearing
Corporation (‘‘NSCC’’), will be made
15 26
U.S.C. 851.
NAV of the Fund’s Shares generally will
be calculated once daily Monday through Friday as
of the close of regular trading on the New York
Stock Exchange (‘‘NYSE’’), generally 4:00 p.m.
Eastern Time (‘‘E.T.’’) (the ‘‘NAV Calculation
Time’’). NAV per Share will be calculated by
dividing the Fund’s net assets by the number of
Fund Shares outstanding.
16 The
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Sfmt 4703
available on each business day, prior to
the opening of business on the Exchange
(currently 9:30 a.m. E.T.) containing a
list of the names and the required
amount of each security in the Deposit
Securities to be included in the current
Fund Deposit for the Fund (based on
information about the Fund’s portfolio
at the end of the previous business day).
In addition, on each business day, the
estimated Cash Component, effective
through and including the previous
business day, will be made available
through NSCC.
The Fund Deposit will be applicable
for purchases of Creation Units of the
Fund until such time as the nextannounced Fund Deposit is made
available.
All purchase orders must be placed by
an ‘‘Authorized Participant.’’ An
Authorized Participant must be either a
broker-dealer or other participant in the
Continuous Net Settlement System
(‘‘Clearing Process’’) of the NSCC or a
participant in The Depository Trust
Company (‘‘DTC’’) with access to the
DTC system, and must execute an
agreement with the Distributor that
governs transactions in the Fund’s
Creation Units. In-kind portions of
purchase orders will be processed
though the Clearing Process when it is
available.
Shares of the Fund 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 Distributor and only on a
business day. The Fund, through the
NSCC, will make available immediately
prior to the opening of business on each
business day, the list of the names and
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’’). 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 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’’). 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
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Trust’s discretion, an Authorized
Participant may receive the
corresponding cash value of the
securities in lieu of the in-kind
securities representing one or more
Fund Securities.17
The right of redemption may be
suspended or the date of payment
postponed: (i) For any period during
which the NYSE is closed (other than
customary weekend and holiday
closings); (ii) for any period during
which trading on the NYSE is
suspended or restricted; (iii) for any
period during which an emergency
exists as a result of which disposal of
the Shares or determination of the
Fund’s NAV is not reasonably
practicable; or (iv) in such other
circumstances as permitted by the
Commission.
For an order involving a Creation Unit
to be effectuated at the Fund’s NAV on
a particular day, it must be received by
the Distributor by or before the deadline
for such order (‘‘Order Cut-Off Time’’).
The Order Cut-Off Time for creation and
redemption orders for the Fund will be
4:00 p.m. E.T. Order for creations or
redemptions of Creation Units for cash
generally must be submitted by 4:00
p.m. E.T. A standard creation or
redemption transaction fee (as
applicable) will be imposed to offset
transfer and other transaction costs that
may be incurred by the Fund.
The Fund Securities received on a
redemption will generally correspond
pro rata, to the extent practicable, to the
securities in the Fund’s portfolio. Fund
Securities received on redemption may
not be identical to Deposit Securities
that are applicable to creations of
Creation Units.
Because certain listed derivatives are
not eligible for in-kind transfer, they
will be substituted with an amount of
cash of equal value when the Fund
processes redemptions of Creation Units
in-kind. Specifically, the Fund will
transfer the corresponding cash value of
exchange-traded options in lieu of inkind securities.
Net Asset Value
The Fund will calculate its NAV at
the close of the Exchange’s Core Trading
Session 18 of each business day
(normally 4:00 p.m. E.T.) using the
values of the Fund’s portfolio securities.
The Fund will calculate its NAV by: (i)
Taking the current market value of its
total assets; (ii) subtracting any
17 The Adviser represents that, to the extent the
Trust effects the redemption of Shares in cash, such
transactions will be effected in the same manner for
all Authorized Participants.
18 The Core Trading Session is 9:30 a.m. to 4:00
p.m. E.T.
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liabilities; and (iii) dividing that amount
by the total amount of Shares
outstanding.
In valuing its securities, the Fund will
use market quotes or official closing
prices if they are readily available. In
cases where quotes are not readily
available, the Fund may value securities
based on fair values developed using
methods approved by the Fund’s Board
of Trustees (‘‘Board’’), as discussed
below. When valuing Money Market
Instruments with remaining maturities
of 60 days or less, the Fund may use the
security’s amortized cost, which
approximates the security’s market
value.
ETFs, index options, options on ETFs,
equity index futures contracts, options
on futures contracts, and options on
stocks will be valued at the last reported
sale price or the official closing price on
that exchange where the security or
other instrument is primarily traded on
the day that the valuation is made. With
respect to derivative instruments, if,
however, neither the last sales price nor
the official closing price is available,
each of these derivative instruments
will be valued based on the midpoint of
bid-ask prices.
Money Market Instruments (except for
money market mutual funds) will
generally be valued based on the
midpoint of bid-ask prices received
from independent pricing services as of
the announced closing time for trading
in fixed-income instruments in the
market in which they trade. In
determining the value of such a Money
Market Instrument, pricing services
determine valuations for normal
institutional-size trading units of such
securities using valuation models or
matrix pricing, which incorporates yield
and/or price with respect to bonds that
are considered comparable in
characteristics such as rating, interest
rate and maturity date and quotations
from securities dealers to determine
current value. Money market mutual
funds will be valued at their respective
NAV.
Availability of Information
The Fund’s Web site
(www.virtus.com), which will be
publicly available prior to the public
offering of Shares, will include 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
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Frm 00072
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72633
Price’’),19 and a calculation of the
premium and discount of the Bid/Ask
Price against the NAV; and (2) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters.
On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Trust will disclose on its
Web site the following information
regarding each portfolio holding, as
applicable to the type of holding: Ticker
symbol, CUSIP number or other
identifier, if any; a description of the
holding (including the type of holding);
the identity of the security, index or
other asset or instrument underlying the
holding, if any; 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; market value of the holding;
and the percentage weighting of the
holding in the Fund’s portfolio. The
Web site information will be publicly
available at no charge.
In addition, a portfolio composition
file, which will include the security
names and quantities of securities and
other assets required to be delivered in
exchange for the Fund’s Shares, together
with estimates and actual cash
components, will be publicly
disseminated prior to the opening of the
Exchange via the NSCC. The portfolio
will represent one Creation Unit of the
Fund. Authorized Participants may refer
to the portfolio composition file for
information regarding options, shortterm U.S. Treasury Securities, Money
Market Instruments, and any other
instrument that may comprise the
Fund’s portfolio on a given day.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and its Form N–CSR and Form
N–SAR, filed twice a year. The Trust’s
SAI and Shareholder Reports will be
available free upon request from the
Trust, and those documents and the
Form N–CSR may be viewed on screen
or downloaded from the Commission’s
Web site at www.sec.gov.
Information regarding market price
and trading volume for the Shares will
be continually available on a real-time
basis throughout the day on brokers’
19 The Bid/Ask Price of the Fund’s Shares 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.
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mstockstill on DSK3G9T082PROD with NOTICES
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume information for the Shares will
be published daily in the financial
section of newspapers. Quotation and
last sale information for the Shares and
U.S. exchange-traded common stocks
will be available via the Consolidated
Tape Association (‘‘CTA’’) high-speed
line. Quotation and last sale information
for U.S. exchange-listed options
contracts cleared by The Options
Clearing Corporation will be available
via the Options Price Reporting
Authority.
In addition, the value of the Index
will be published by one or more major
market data vendors every 15 seconds
during the Core Trading Session. In
addition, the Intraday Indicative Value
(‘‘IIV’’) as defined in NYSE Arca
Equities Rule 5.2(j)(3), Commentary
.01(c) will be widely disseminated at
least every 15 seconds during the Core
Trading Session by one or more major
market vendors.20 All Fund holdings
will be included in calculating the IIV.
The dissemination of the IIV is
intended to allow investors to determine
the value of the underlying portfolio of
the Fund on a daily basis and to
approximate that value throughout the
trading day. The intra-day, closing and
settlement prices of the portfolio
securities and other Fund investments,
including common stocks and options,
will also be readily available from the
exchanges trading such instruments,
automated quotation systems, published
or other public sources. The intra-day,
closing and settlement prices of Money
Market Instruments will be readily
available from published and other
public sources or on-line information
services.
Initial and Continued Listing
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rules 5.2(j)(3) and
5.5(g)(2), except that the Index will not
meet the requirements of NYSE Arca
Equities Rule 5.2(j)(3), Commentary
.01(a)(A)(1–5) in that the Index will
include options. The Exchange
represents that, for initial and/or
continued listing, the Fund must be in
compliance with Rule 10A–3 21 under
the Act. 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
20 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available IIV’s taken from the CTA
or other data feeds.
21 See 17 CFR 240.10A–3.
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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
a Fund. Shares of the Fund will be
halted if the ‘‘circuit breaker’’
parameters in NYSE Arca Equities Rule
7.12 are reached. 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 of the Fund; or (2) whether
other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present.
If the IIV, Index value or the value of
the Index components is not being
disseminated as required, the Exchange
may halt trading during the day in
which the disruption occurs; if the
interruption persists past the day in
which it occurred, the Exchange will
halt trading no later than the beginning
of the trading day following the
interruption. The Exchange will obtain
a representation from the Fund that the
NAV for the Fund will be calculated
daily and will be made available to all
market participants at the same time.
Under NYSE Arca Equities Rule
7.34(a)(5), if the Exchange becomes
aware that the NAV for the Fund is not
being disseminated to all market
participants at the same time, it will halt
trading in the Shares until such time as
the NAV is available to all market
participants.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m.
to 8 p.m. E.T. in accordance with NYSE
Arca Equities Rule 7.34 (Opening, Core,
and Late Trading Sessions). The
Exchange has appropriate rules to
facilitate transactions in the Shares
during all trading sessions. As provided
in NYSE Arca Equities Rule 7.6,
Commentary .03, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
the NYSE Arca Marketplace is $0.01,
with the exception of securities that are
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Fmt 4703
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priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange, as well
as cross-market surveillances
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws.22 The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, ETFs, options and
futures with markets and other entities
that are members of the Intermarket
Surveillance Group (‘‘ISG’’), and the
Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading
information regarding trading in the
Shares, ETFs, options and futures from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, ETFs, options and futures from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.23 The
Exchange is able to access from FINRA,
as needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s Trade
Reporting and Compliance Engine
(‘‘TRACE’’).
22 FINRA conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
23 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund
may trade on markets that are members of ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
All statements and representations
made in this filing regarding (a) the
description of the portfolio, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules and surveillance
procedures shall constitute continued
listing requirements for listing the
Shares on the Exchange.
The issuer has represented to the
Exchange that it will advise the
Exchange of any failure by the Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Equities Rule 5.5(m).
mstockstill on DSK3G9T082PROD with NOTICES
Information Bulletin
Prior to the commencement of trading
of Shares in the Fund, the Exchange will
inform its ETP Holders in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its ETP Holders to learn the essential
facts relating to every customer prior to
trading the Shares; (3) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated IIV or Index value will
not be calculated or publicly
disseminated; (4) how information
regarding the IIV and Index value will
be disseminated; (5) the requirement
that ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Act. The Bulletin will also disclose that
the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each
trading day.
VerDate Sep<11>2014
16:40 Oct 19, 2016
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2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 24 in general and Section
6(b)(5) of the Act 25 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,
and to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 5.2(j)(3), except that the Index will
partially consist of options on the S&P
500 Index. 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.
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 every day the
NYSE is open, and that the NAV will be
made available to all market
participants at the same time. In
addition, a large amount of publicly
available information will be publicly
available regarding the Fund and the
Shares, thereby promoting market
transparency. The Index consists
entirely of US Component Stocks and
SPX options, which are traded on the
Chicago Board Options Exchange.
Moreover, the IIV will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Exchange’s Core
Trading Session. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotations and
last sale information will be available
via the CTA high-speed line. Quotation
and last sale information for the Shares,
ETFs, and U.S. exchange traded
common stocks will be available via the
CTA high-speed line. Quotation and last
24 15
25 15
PO 00000
U.S.C. 78f.
U.S.C. 78f(b)(5).
Frm 00074
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72635
sale information for U.S. exchangelisted options contracts cleared by The
Options Clearing Corporation will be
available via the Options Price
Reporting Authority. The intra-day,
closing and settlement prices of
exchange-traded portfolio assets,
including common stocks and options
will be readily available from the
securities exchanges trading such
securities, automated quotation systems,
published or other public sources, or
online information services such as
Bloomberg or Reuters. 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. On
each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Trust will disclose on its
Web site the following information
regarding each portfolio holding, as
applicable to the type of holding: Ticker
symbol, CUSIP number or other
identifier, if any; a description of the
holding (including the type of holding);
the identity of the security, index or
other asset or instrument underlying the
holding, if any; 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; market value of the holding;
and the percentage weighting of the
holding in the Fund’s portfolio. In
addition, a portfolio composition file,
which will include the security names
and quantities of securities and other
assets required to be delivered in
exchange for the Fund’s Shares, together
with estimates and actual cash
components, will be publicly
disseminated prior to the opening of the
Exchange via the NSCC. Authorized
Participants may refer to the portfolio
composition file for information
regarding options, short-term U.S.
Treasury Securities, Money Market
Instruments, and any other instrument
that may comprise the Fund’s portfolio
on a given day. Moreover, prior to
commencement of trading, the Exchange
will inform its ETP Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Trading in Shares of
the Fund will be halted if the circuit
breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading the Shares
inadvisable. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
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holdings, the IIV, the Fund’s portfolio,
and quotation and last sale information
for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of exchange-traded
product that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
As noted above, the Shares will be
subject to the existing trading
surveillances administered by the
Exchange and FINRA on behalf of the
Exchange. The Exchange or FINRA, on
behalf of the Exchange, or both, will
communicate as needed regarding
trading in the Shares, US Component
Stocks and options with other markets
and other entities that are members of
ISG, and the Exchange and FINRA, on
behalf of the Exchange, or both, may
obtain trading information in the
Shares, US Component Stocks and
options from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares, US Component Stocks and
options from markets and other entities
that are members of ISG or with which
the Exchange has in place a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the IIV, and quotation and last
sale information for the Shares.
mstockstill on DSK3G9T082PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change will facilitate the listing and
trading of an additional type of
exchange-traded fund that will enhance
competition among market participants,
to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
VerDate Sep<11>2014
16:40 Oct 19, 2016
Jkt 241001
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2016–131 and should be
submitted on or before November 10,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Robert W. Errett,
Deputy Secretary.
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:
[FR Doc. 2016–25345 Filed 10–19–16; 8:45 am]
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2016–131 on the subject
line.
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Amend the Schedule of
Fees
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2016–131. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
PO 00000
Frm 00075
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79100; File No. SR–ISE–
2016–25]
October 14, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
3, 2016, the International Securities
Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change, as described
in Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Schedule of Fees as described in more
detail below.
The text of the proposed rule change
is available on the Exchange’s Web site
at www.ise.com, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\20OCN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 203 (Thursday, October 20, 2016)]
[Notices]
[Pages 72630-72636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25345]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79101; File No. SR-NYSEArca-2016-131]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of Shares of
the Virtus Enhanced U.S. Equity ETF Under Commentary .01 to NYSE Arca
Equities Rule 5.2(j)(3)
October 14, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on October 3, 2016, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the shares of the Virtus
Enhanced U.S. Equity ETF (the ``Fund''), a series of Virtus ETF Trust
II (the ``Trust''), under Commentary .01 to NYSE Arca Equities Rule
5.2(j)(3) (``Investment Company Units''). The proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
Virtus Enhanced U.S. Equity ETF (``Fund'') under Commentary .01 to NYSE
Arca Equities Rule 5.2(j)(3), which governs the listing and trading of
Investment Company Units on the Exchange.\4\ The Fund will be an index-
based exchange traded fund (``ETF''). The Shares will be offered by the
Virtus ETF Trust II (the ``Trust''), which is registered with the
Commission as an investment company and has filed a registration
statement on Form N-1A (the ``Registration Statement'') with the
Commission on behalf of the Fund.\5\
---------------------------------------------------------------------------
\4\ NYSE Arca Equities Rule 5.2(j)(3)(A) provides that an
Investment Company Unit is a security that represents an interest in
a registered investment company that holds securities comprising, or
otherwise based on or representing an interest in, an index or
portfolio of securities (or holds securities in another registered
investment company that holds securities comprising, or otherwise
based on or representing an interest in, an index or portfolio of
securities).
\5\ See the Trust's registration statement on Form N-1A, dated
September 1, 2016 (File Nos. 333-206600 and 811-23078). The
descriptions of the Fund and the Shares contained herein are based,
in part, on information in the Registration Statement.
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The investment adviser to the Fund will be Virtus ETF Advisers LLC
(the ``Adviser''). ETF Distributors LLC will serve as the distributor
(the ``Distributor'') of Fund shares on an agency basis. The Bank of
New York Mellon (the ``Administrator'') will be the administrator,
custodian and transfer agent for the Fund.\6\
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\6\ 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''). See Investment Company Act
Release No. 30825 (December 11, 2013) (File No. 812-14212)
(``Exemptive Order''). Investments made by the Fund will comply with
the conditions in the Exemptive Order.
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Description of the Shares and the Fund
As discussed in more detail below, the Fund's investment objective
is to seek investment results that, before fees and expenses, closely
correspond to the price and yield performance of the Rampart Enhanced
U.S. Equity Index (the ``Index''). The Index was developed by Rampart
Investment Management Company, LLC (the ``Index Provider''), and the
Index is calculated and
[[Page 72631]]
maintained by NYSE Global Index Group (the ``Index Calculation
Agent''). The Index Provider is affiliated with the Adviser and the
Distributor. The Index Calculation Agent is not affiliated with the
Adviser, Distributor, Administrator, or the Trust.
Commentary .01(b)(1) to Rule 5.2(j)(3) provides that, if the
applicable index is maintained by a fund advisor or a broker-dealer,
such fund advisor or broker-dealer shall erect a ``fire wall'' around
the personnel who have access to information concerning changes and
adjustments to the index, and the index shall be calculated by a third
party who is not a broker-dealer or fund advisor.\7\ The Index Provider
is registered as an investment adviser, but does not serve as adviser
or sub-adviser to the Fund, and is affiliated with one or more broker-
dealers. The Adviser is not registered as a broker-dealer. The Adviser
and Index Provider are affiliated with one or more broker-dealers, and
the Adviser and Index Provider each have implemented and will maintain
a fire wall with respect to each such broker-dealer affiliate regarding
access to information concerning the composition and/or changes to the
portfolio and Index.\8\ In addition, Adviser personnel who make
decisions regarding the Fund's portfolio are subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the Fund's portfolio.\9\
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser 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.
\8\ The Adviser and the Index Provider have represented that a
fire wall exists around the respective personnel who have access to
information concerning changes and adjustments to the Index.
\9\ The Exchange represents that the Adviser, and its related
personnel, are subject to Advisers Act Rule 204A-1. This rule
specifically requires the adoption of a code of ethics by an
investment adviser to include, at a minimum: (i) Standards of
business conduct that reflect the firm's/personnel fiduciary
obligations; (ii) provisions requiring supervised persons to comply
with applicable federal securities laws; (iii) provisions that
require all access persons to report, and the firm to review, their
personal securities transactions and holdings periodically as
specifically set forth in Rule 204A-1; (iv) provisions requiring
supervised persons to report any violations of the code of ethics
promptly to the chief compliance officer (``CCO'') or, provided the
CCO also receives reports of all violations, to other persons
designated in the code of ethics; and (v) provisions requiring the
investment adviser to provide each of the supervised persons with a
copy of the code of ethics with an acknowledgement by said
supervised persons. 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.
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In the event (a) the Adviser or Index Provider becomes registered
as a broker-dealer or newly affiliated with a broker-dealer, or (b) any
new adviser or index provider 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 is submitting this proposed rule change because the
Index for the Fund does not meet all of the ``generic'' listing
requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule
5.2(j)(3), applicable to the listing of Investment Company Units based
upon an index of ``US Component Stocks.'' \10\ Specifically, Commentary
.01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) sets forth the
requirements to be met by components of an index or portfolio of US
Component Stocks. Because, as discussed in more detail herein, the
Index may consist partially of options on the S&P 500 Index, rather
than entirely US Component Stocks, the Index does not satisfy the
requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule
5.2(j)(3).\11\
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\10\ NYSE Arca Equities Rule 5.2(j)(3) provides that the term
``US Component Stock'' shall mean an equity security that is
registered under Sections 12(b) or 12(g) of the Act and an American
Depositary Receipt, the underlying equity securities of which is
registered under Sections 12(b) or 12(g) of the Act.
\11\ The Exchange notes that the S&P 500 Index has been
previously approved by the Commission under Section 19(b)(2) of the
Act in connection with the listing and trading of index options and
Portfolio Depositary Receipts, as well as other securities. See,
e.g., Securities Exchange Act Release Nos. 19907 (June 24, 1983), 48
FR 30814 (July 5, 1983) (SR-CBOE-83-8) (approving the listing and
trading of options on the S&P 500 Index); 31591 (December 18, 1992),
57 FR 60253 (December 18, 1992) (SR-Amex-92-18) (approving the
listing and trading of Portfolio Depositary Receipts based on the
S&P 500 Index). NYSE Arca Equities Rule 5.2(j)(3), Commentary
.01(a)(A)(5) provides that all securities in the applicable index or
portfolio shall be US Component Stocks listed on a national
securities exchange and shall be NMS Stocks as defined in Rule 600
under Regulation NMS of the Act. Each component stock of the S&P 500
Index is a US Component Stock that is listed on a national
securities exchange and is an NMS Stock. Options are excluded from
the definition of NMS Stock. The Fund and the Index meet all of the
requirements of the listing standards for Investment Company Units
in Rule 5.2(j)(3) and the requirements of Commentary .01, except the
requirements in Commentary .01(a)(A)(1)-(5), as the Index consists
of options on the S&P 500 Index. The S&P 500 Index consists of US
Component Stocks and satisfies the requirements of Commentary
.01(a)(A)(1)-(5).
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Except for the requirements of Commentary .01(a)(A) to NYSE Arca
Equities Rule 5.2(j)(3), the Index meets all other requirements of
Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3).
Virtus Enhanced U.S. Equity ETF
Index Methodology
The Index is comprised of an equity portfolio enhanced by an
``Options Strategy Overlay''. The equity portfolio is comprised of the
largest 400 U.S. exchange-listed stocks as measured by market
capitalization. The portfolio is market capitalization-weighted and is
reconstituted and rebalanced on a quarterly basis. The Options Strategy
Overlay uses an objective, rules-based methodology to transact in
options linked to the S&P 500 Index (SPX). SPX options are traded on
the Chicago Board Options Exchange. Each week, out of the money SPX put
options and out of the money SPX call options are sold. The proceeds
are used to buy an SPX call option. The strike prices of the options
are systematically selected according to the prevailing volatility
environment. In general, in higher volatility environments the short
options will be struck farther out of the money.
Principal Investments of the Fund
Under normal market conditions,\12\ the Fund will invest not less
than 80% of its total assets in component securities of the Index.
Additionally, under normal market conditions, the Fund will invest not
less than 80% of its total assets in U.S. exchange-traded common
stocks. The Fund will also seek
[[Page 72632]]
to generate additional income by writing SPX call options and will seek
additional capital appreciation by purchasing SPX call options.
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\12\ The term ``normal market conditions'' is defined in NYSE
Arca Equities Rule 8.600 (c)(5). On a temporary basis, including for
defensive purposes, during the initial invest-up period and during
periods of high cash inflows or outflows, the Fund may depart from
its principal investment strategies; for example, it may hold a
higher than normal proportion of its assets in cash. During such
periods, the Fund may not be able to achieve its investment
objectives. The Fund may adopt a defensive strategy when the Adviser
believes securities in which the Fund normally invests have elevated
risks due to political or economic factors and in other
extraordinary circumstances.
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Other Investments
While the Fund, under normal market conditions will invest at least
80% of its net assets in the securities and financial instruments
described above, the Fund may invest its remaining assets in the
securities and financial instruments described below.
The Fund may invest in short-term, high quality securities issued
or guaranteed by the U.S. government (in addition to U.S. Treasury
securities) and non-U.S. governments, and each of their agencies and
instrumentalities; debt securities issued by U.S. government sponsored
enterprises; repurchase agreements backed by U.S. government and non-
U.S. government securities; money market mutual funds; and deposit and
other obligations of U.S. and non-U.S. banks and financial institutions
(``Money Market Instruments'').
The Fund may invest in exchange-traded funds (``ETFs'').\13\
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\13\ The ETFs in which the Fund may invest are Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)),
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100), and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). The Fund will not invest in leveraged ETFs
(e.g., 2X or 3X) or inverse or inverse leveraged ETFs (e.g., -1X or
-2X).
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The Fund may invest in U.S. exchange-traded equity index futures
contracts.
The Fund may invest in U.S. exchange-traded index options (other
than SPX) and U.S. exchange-traded options on ETFs.
The Fund may invest in U.S. exchange-traded options on futures
contacts and U.S. exchange-traded options on stocks.
Investment Restrictions
The Fund will not invest in any non-U.S. equity securities. The
Fund's investments will be consistent with the Fund's investment
objective and will not be used to enhance leverage.\14\
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\14\ The Fund will include appropriate risk disclosure in its
offering documents, including leveraging risk. Leveraging risk is
the risk that certain transactions of a fund, including a fund's use
of derivatives, may give rise to leverage, causing a fund to be more
volatile than if it had not been leveraged. To mitigate leveraging
risk, the Adviser will segregate or earmark liquid assets or
otherwise cover the transactions that give rise to such risk. See 15
U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18,
1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing,
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset
Management, L.P., Commission No-Action Letter (July 2, 1996).
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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.\15\
---------------------------------------------------------------------------
\15\ 26 U.S.C. 851.
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Creation and Redemption of Shares
The Fund will issue and redeem Shares on a continuous basis at net
asset value (``NAV''),\16\ only in large blocks of Shares (``Creation
Units''), in transactions with ``Authorized Participants'' (as
described below). Creation Units generally will consist of 50,000
Shares, though the size of a Creation Unit may change from time to
time.
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\16\ 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 New York Stock Exchange (``NYSE''), generally 4:00 p.m.
Eastern Time (``E.T.'') (the ``NAV Calculation Time''). NAV per
Share will be calculated by dividing the Fund's net assets by the
number of Fund Shares outstanding.
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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
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. Because certain listed derivatives are not currently eligible
for in-kind transfer, they will be substituted with an amount of cash
of equal value (i.e., Deposit Cash) when the Fund processes purchases
of Creation Units in-kind. Specifically, the Fund will not accept
exchange-traded options as Deposit Securities.
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 purchase.
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.
The Cash Component serves the function of compensating for any
difference between the NAV per Creation Unit and the market value of
the Deposit Securities or Deposit Cash, as applicable.
A portfolio composition file, to be sent via the National
Securities Clearing Corporation (``NSCC''), will be made available on
each business day, prior to the opening of business on the Exchange
(currently 9:30 a.m. E.T.) containing a list of the names and the
required amount of each security in the Deposit Securities to be
included in the current Fund Deposit for the Fund (based on information
about the Fund's portfolio at the end of the previous business day). In
addition, on each business day, the estimated Cash Component, effective
through and including the previous business day, will be made available
through NSCC.
The Fund Deposit will be applicable for purchases of Creation Units
of the Fund until such time as the next-announced Fund Deposit is made
available.
All purchase orders must be placed by an ``Authorized
Participant.'' An Authorized Participant must be either a broker-dealer
or other participant in the Continuous Net Settlement System
(``Clearing Process'') of the NSCC or a participant in The Depository
Trust Company (``DTC'') with access to the DTC system, and must execute
an agreement with the Distributor that governs transactions in the
Fund's Creation Units. In-kind portions of purchase orders will be
processed though the Clearing Process when it is available.
Shares of the Fund 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 Distributor and only on a business day.
The Fund, through the NSCC, will make available immediately prior to
the opening of business on each business day, the list of the names and
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''). 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 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''). 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
[[Page 72633]]
Trust's discretion, an Authorized Participant may receive the
corresponding cash value of the securities in lieu of the in-kind
securities representing one or more Fund Securities.\17\
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\17\ The Adviser represents that, to the extent the Trust
effects the redemption of Shares in cash, such transactions will be
effected in the same manner for all Authorized Participants.
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The right of redemption may be suspended or the date of payment
postponed: (i) For any period during which the NYSE is closed (other
than customary weekend and holiday closings); (ii) for any period
during which trading on the NYSE is suspended or restricted; (iii) for
any period during which an emergency exists as a result of which
disposal of the Shares or determination of the Fund's NAV is not
reasonably practicable; or (iv) in such other circumstances as
permitted by the Commission.
For an order involving a Creation Unit to be effectuated at the
Fund's NAV on a particular day, it must be received by the Distributor
by or before the deadline for such order (``Order Cut-Off Time''). The
Order Cut-Off Time for creation and redemption orders for the Fund will
be 4:00 p.m. E.T. Order for creations or redemptions of Creation Units
for cash generally must be submitted by 4:00 p.m. E.T. A standard
creation or redemption transaction fee (as applicable) will be imposed
to offset transfer and other transaction costs that may be incurred by
the Fund.
The Fund Securities received on a redemption will generally
correspond pro rata, to the extent practicable, to the securities in
the Fund's portfolio. Fund Securities received on redemption may not be
identical to Deposit Securities that are applicable to creations of
Creation Units.
Because certain listed derivatives are not eligible for in-kind
transfer, they will be substituted with an amount of cash of equal
value when the Fund processes redemptions of Creation Units in-kind.
Specifically, the Fund will transfer the corresponding cash value of
exchange-traded options in lieu of in-kind securities.
Net Asset Value
The Fund will calculate its NAV at the close of the Exchange's Core
Trading Session \18\ of each business day (normally 4:00 p.m. E.T.)
using the values of the Fund's portfolio securities. The Fund will
calculate its NAV by: (i) Taking the current market value of its total
assets; (ii) subtracting any liabilities; and (iii) dividing that
amount by the total amount of Shares outstanding.
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\18\ The Core Trading Session is 9:30 a.m. to 4:00 p.m. E.T.
---------------------------------------------------------------------------
In valuing its securities, the Fund will use market quotes or
official closing prices if they are readily available. In cases where
quotes are not readily available, the Fund may value securities based
on fair values developed using methods approved by the Fund's Board of
Trustees (``Board''), as discussed below. When valuing Money Market
Instruments with remaining maturities of 60 days or less, the Fund may
use the security's amortized cost, which approximates the security's
market value.
ETFs, index options, options on ETFs, equity index futures
contracts, options on futures contracts, and options on stocks will be
valued at the last reported sale price or the official closing price on
that exchange where the security or other instrument is primarily
traded on the day that the valuation is made. With respect to
derivative instruments, if, however, neither the last sales price nor
the official closing price is available, each of these derivative
instruments will be valued based on the midpoint of bid-ask prices.
Money Market Instruments (except for money market mutual funds)
will generally be valued based on the midpoint of bid-ask prices
received from independent pricing services as of the announced closing
time for trading in fixed-income instruments in the market in which
they trade. In determining the value of such a Money Market Instrument,
pricing services determine valuations for normal institutional-size
trading units of such securities using valuation models or matrix
pricing, which incorporates yield and/or price with respect to bonds
that are considered comparable in characteristics such as rating,
interest rate and maturity date and quotations from securities dealers
to determine current value. Money market mutual funds will be valued at
their respective NAV.
Availability of Information
The Fund's Web site (www.virtus.com), which will be publicly
available prior to the public offering of Shares, will include 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''),\19\ 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.
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\19\ The Bid/Ask Price of the Fund's Shares 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.
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On each business day, before commencement of trading in Shares in
the Core Trading Session on the Exchange, the Trust will disclose on
its Web site the following information regarding each portfolio
holding, as applicable to the type of holding: Ticker symbol, CUSIP
number or other identifier, if any; a description of the holding
(including the type of holding); the identity of the security, index or
other asset or instrument underlying the holding, if any; 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; market value of the
holding; and the percentage weighting of the holding in the Fund's
portfolio. The Web site information will be publicly available at no
charge.
In addition, a portfolio composition file, which will include the
security names and quantities of securities and other assets required
to be delivered in exchange for the Fund's Shares, together with
estimates and actual cash components, will be publicly disseminated
prior to the opening of the Exchange via the NSCC. The portfolio will
represent one Creation Unit of the Fund. Authorized Participants may
refer to the portfolio composition file for information regarding
options, short-term U.S. Treasury Securities, Money Market Instruments,
and any other instrument that may comprise the Fund's portfolio on a
given day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports will be available free upon request from the Trust, and those
documents and the Form N-CSR may be viewed on screen or downloaded from
the Commission's Web site at www.sec.gov.
Information regarding market price and trading volume for the
Shares will be continually available on a real-time basis throughout
the day on brokers'
[[Page 72634]]
computer screens and other electronic services. Information regarding
the previous day's closing price and trading volume information for the
Shares will be published daily in the financial section of newspapers.
Quotation and last sale information for the Shares and U.S. exchange-
traded common stocks will be available via the Consolidated Tape
Association (``CTA'') high-speed line. Quotation and last sale
information for U.S. exchange-listed options contracts cleared by The
Options Clearing Corporation will be available via the Options Price
Reporting Authority.
In addition, the value of the Index will be published by one or
more major market data vendors every 15 seconds during the Core Trading
Session. In addition, the Intraday Indicative Value (``IIV'') as
defined in NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(c) will be
widely disseminated at least every 15 seconds during the Core Trading
Session by one or more major market vendors.\20\ All Fund holdings will
be included in calculating the IIV.
---------------------------------------------------------------------------
\20\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IIV's
taken from the CTA or other data feeds.
---------------------------------------------------------------------------
The dissemination of the IIV is intended to allow investors to
determine the value of the underlying portfolio of the Fund on a daily
basis and to approximate that value throughout the trading day. The
intra-day, closing and settlement prices of the portfolio securities
and other Fund investments, including common stocks and options, will
also be readily available from the exchanges trading such instruments,
automated quotation systems, published or other public sources. The
intra-day, closing and settlement prices of Money Market Instruments
will be readily available from published and other public sources or
on-line information services.
Initial and Continued Listing
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2), except
that the Index will not meet the requirements of NYSE Arca Equities
Rule 5.2(j)(3), Commentary .01(a)(A)(1-5) in that the Index will
include options. The Exchange represents that, for initial and/or
continued listing, the Fund must be in compliance with Rule 10A-3 \21\
under the Act. 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.
---------------------------------------------------------------------------
\21\ See 17 CFR 240.10A-3.
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Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of a Fund. Shares of the Fund will be halted if
the ``circuit breaker'' parameters in NYSE Arca Equities Rule 7.12 are
reached. 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 of the
Fund; or (2) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present.
If the IIV, Index value or the value of the Index components is not
being disseminated as required, the Exchange may halt trading during
the day in which the disruption occurs; if the interruption persists
past the day in which it occurred, the Exchange will halt trading no
later than the beginning of the trading day following the interruption.
The Exchange will obtain a representation from the Fund that the NAV
for the Fund will be calculated daily and will be made available to all
market participants at the same time. Under NYSE Arca Equities Rule
7.34(a)(5), if the Exchange becomes aware that the NAV for the Fund is
not being disseminated to all market participants at the same time, it
will halt trading in the Shares until such time as the NAV is available
to all market participants.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\22\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
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\22\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, ETFs, options
and futures with markets and other entities that are members of the
Intermarket Surveillance Group (``ISG''), and the Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading in the Shares, ETFs, options and futures from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, ETFs, options and futures
from markets and other entities that are members of ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement.\23\ The Exchange is able to access from FINRA, as needed,
trade information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
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\23\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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[[Page 72635]]
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) the applicability of Exchange
rules and surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Fund to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Fund is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of trading of Shares in the Fund, the
Exchange will inform its ETP Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated IIV or Index value will not be calculated or
publicly disseminated; (4) how information regarding the IIV and Index
value will be disseminated; (5) the requirement that ETP Holders
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; and (6)
trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \24\ in general and Section 6(b)(5) of the Act \25\ 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, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
5.2(j)(3), except that the Index will partially consist of options on
the S&P 500 Index. 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.
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 every day the
NYSE is open, and that the NAV will be made available to all market
participants at the same time. In addition, a large amount of publicly
available information will be publicly available regarding the Fund and
the Shares, thereby promoting market transparency. The Index consists
entirely of US Component Stocks and SPX options, which are traded on
the Chicago Board Options Exchange.
Moreover, the IIV will be widely disseminated by one or more major
market data vendors at least every 15 seconds during the Exchange's
Core Trading Session. Information regarding market price and trading
volume of the Shares will be continually available on a real-time basis
throughout the day on brokers' computer screens and other electronic
services, and quotations and last sale information will be available
via the CTA high-speed line. Quotation and last sale information for
the Shares, ETFs, and U.S. exchange traded common stocks will be
available via the CTA high-speed line. Quotation and last sale
information for U.S. exchange-listed options contracts cleared by The
Options Clearing Corporation will be available via the Options Price
Reporting Authority. The intra-day, closing and settlement prices of
exchange-traded portfolio assets, including common stocks and options
will be readily available from the securities exchanges trading such
securities, automated quotation systems, published or other public
sources, or online information services such as Bloomberg or Reuters.
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. On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Trust will disclose on its Web site the following
information regarding each portfolio holding, as applicable to the type
of holding: Ticker symbol, CUSIP number or other identifier, if any; a
description of the holding (including the type of holding); the
identity of the security, index or other asset or instrument underlying
the holding, if any; 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; market value of the holding; and the percentage weighting of the
holding in the Fund's portfolio. In addition, a portfolio composition
file, which will include the security names and quantities of
securities and other assets required to be delivered in exchange for
the Fund's Shares, together with estimates and actual cash components,
will be publicly disseminated prior to the opening of the Exchange via
the NSCC. Authorized Participants may refer to the portfolio
composition file for information regarding options, short-term U.S.
Treasury Securities, Money Market Instruments, and any other instrument
that may comprise the Fund's portfolio on a given day. Moreover, prior
to commencement of trading, the Exchange will inform its ETP Holders in
an Information Bulletin of the special characteristics and risks
associated with trading the Shares. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached or because of market conditions or for reasons
that, in the view of the Exchange, make trading the Shares inadvisable.
In addition, as noted above, investors will have ready access to
information regarding the Fund's
[[Page 72636]]
holdings, the IIV, the Fund's portfolio, and quotation and last sale
information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Shares will be subject to the
existing trading surveillances administered by the Exchange and FINRA
on behalf of the Exchange. The Exchange or FINRA, on behalf of the
Exchange, or both, will communicate as needed regarding trading in the
Shares, US Component Stocks and options with other markets and other
entities that are members of ISG, and the Exchange and FINRA, on behalf
of the Exchange, or both, may obtain trading information in the Shares,
US Component Stocks and options from such markets and other entities.
In addition, the Exchange may obtain information regarding trading in
the Shares, US Component Stocks and options from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. In addition, as
noted above, investors will have ready access to information regarding
the Fund's holdings, the IIV, and quotation and last sale information
for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of exchange-traded fund that will enhance competition
among market participants, to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2016-131 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2016-131. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2016-131 and should
be submitted on or before November 10, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-25345 Filed 10-19-16; 8:45 am]
BILLING CODE 8011-01-P
