Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Amend IEX Rule 16.135 To Adopt Generic Listing Standards for Managed Fund Shares, 9858-9865 [2017-02544]

Download as PDF 9858 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices the purposes of the Act.’’ 34 To the extent that this proposal implements, interprets or clarifies the Plan and applies specific requirements to Industry Members, the Exchange believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Act. (B) Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that the proposed rule change implements provisions of the CAT NMS Plan, and is designed to assist the Exchange in meeting its regulatory obligations pursuant to the Plan. The Exchange also notes that the Proposed Rules 4.5 through 4.16 implement provisions of the CAT NMS Plan will apply equally to all firms that trade NMS Securities and OTC Equity Securities. In addition, all national securities exchanges and FINRA are proposing similar rules to apply the requirements of the CAT NMS Plan to their members. Therefore, this is not a competitive rule filing, and, therefore, it does not impose a burden on competition. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action asabaliauskas on DSK3SPTVN1PROD with NOTICES Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. 34 Approval Order at 84697. VerDate Sep<11>2014 17:36 Feb 07, 2017 Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BatsBYX–2017–02 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–BatsBYX–2017–02. 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 (http://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– BatsBYX–2017–02 and should be submitted on or before March 1, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.35 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–02549 Filed 2–7–17; 8:45 am] BILLING CODE 8011–01–P 35 17 Jkt 241001 PO 00000 CFR 200.30–3(a)(12). Frm 00150 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79940; File No. SR–IEX– 2017–03] Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Amend IEX Rule 16.135 To Adopt Generic Listing Standards for Managed Fund Shares February 2, 2017. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on January 19, 2017, the Investors Exchange LLC (‘‘IEX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Pursuant to the provisions of Section 19(b)(1) under the Securities Exchange Act of 1934 (‘‘Act’’),4 and Rule 19b–4 thereunder,5 Investors Exchange LLC (‘‘IEX’’ or ‘‘Exchange’’) is filing with the Commission a proposed rule change to amend IEX Rule 16.135 to adopt generic listing standards for Managed Fund Shares. The text of the proposed rule change is available at the Exchange’s Web site at www.iextrading.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 the 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 these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 4 15 U.S.C. 78s(b)(1). 5 17 CFR 240.19b–4. 2 15 E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Overview The Exchange proposes to amend IEX Rule 16.135 to adopt generic listing standards for Managed Fund Shares. The proposed rule change is substantially identical to existing rules of the Nasdaq Stock Market (‘‘Nasdaq’’). The Exchange proposes to amend IEX Rule 16.135 to adopt generic listing standards for Managed Fund Shares, as well as to make additional changes as described below. Under the Exchange’s current rules, a proposed rule change would need to be filed with the Commission for the listing and trading of each new series of Managed Fund Shares. The Exchange believes that it is appropriate to codify certain rules within Rule 16.135 that would generally eliminate the need for such proposed rule changes, which would create greater efficiency and promote uniform standards in the listing process.6 The Exchange does not currently list any Managed Fund Shares. The proposed rule change would be applicable in the event IEX lists Managed Fund Shares. Background asabaliauskas on DSK3SPTVN1PROD with NOTICES Rule 16.135 sets forth certain rules related to the listing and trading of Managed Fund Shares.7 Under Rule 16.135(c)(1), the term ‘‘Managed Fund Share’’ means a security that: (a) Represents an interest in a registered investment company (‘‘Investment Company’’) organized as an open-end management investment company or similar entity, that invests in a portfolio of securities selected by the Investment Company’s investment adviser (hereinafter ‘‘Adviser’’) consistent with the Investment Company’s investment objectives and policies; (b) is issued in a specified aggregate minimum number in return for a deposit of a specified portfolio of securities and/or a cash amount with a value equal to the next determined net asset value; and 6 This proposed rule change is substantially identical to changes approved by the Commission to Nasdaq Rule 5735. See, Securities Exchange Act Release No. 78918 (September 23, 2016), 81 FR 67033 (September 29, 2016) (SR–NASDAQ–2016– 104). 7 IEX Rule 16.135 was approved in connection with IEX’s approval as a national securities exchange. See, Securities Exchange Act Release No. 34–78101 at 47 (June 17, 2016), 81 FR 41141 (June 23, 2016) (File No. 10–222). VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 (c) when aggregated in the same specified minimum number, may be redeemed at a holder’s request, which holder will be paid a specified portfolio of securities and/or cash with a value equal to the next determined net asset value. Effectively, Managed Fund Shares are securities issued by an activelymanaged open-end Investment Company (i.e., an actively-managed exchange-traded fund (‘‘ETF’’)). Because Managed Fund Shares are actively managed, they do not seek to replicate the performance of a specified passive index of securities. Instead, they generally use an active investment strategy to seek to meet their investment objectives. In contrast, an open-end Investment Company that issues Index Fund Shares, listed and traded on the Exchange pursuant to IEX Rule 16.105(b), seeks to provide investment results that generally correspond to the price and yield performance of a specific foreign or domestic stock index, fixed income securities index, or combination thereof. All Managed Fund Shares listed and/ or traded pursuant to Rule 16.135 (including pursuant to unlisted trading privileges) are subject to the full panoply of Exchange rules and procedures that currently govern the trading of equity securities on the Exchange.8 In addition, Rule 16.135(d) currently provides for the criteria that Managed Fund Shares must satisfy for initial and continued listing on the Exchange, including, for example, that a minimum number of Managed Fund Shares are required to be outstanding at the time of commencement of trading on the Exchange. However, the current process for listing and trading new series of Managed Fund Shares on the Exchange would require that the Exchange submit a proposed rule change with the Commission. In this regard, Rule 16.135(b)(1) specifies that the Exchange will file separate proposals under Section 19(b) of the Act (hereinafter, a ‘‘proposed rule change’’) before listing and trading shares of an issue of Managed Fund Shares. 9859 Rule 19b–4(e)’’).9 SEC Rule 19b–4(e)(1) provides that the listing and trading of a new derivative securities product by a self-regulatory organization (‘‘SRO’’) is not deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b–4,10 if the Commission has approved, pursuant to Section 19(b) of the Act, the SRO’s trading rules, procedures and listing standards for the product class that would include the new derivative securities product and the SRO has a surveillance program for the product class. It is the Exchange’s understanding that this is the current method pursuant to which ‘‘passive’’ ETFs are listed on Nasdaq and NYSE Arca, Inc. (‘‘NYSE Arca’’). The Exchange would also specify within Rule 16.135(b)(1) that components of Managed Fund Shares listed pursuant to SEC Rule 19b–4(e) must satisfy, upon initial listing and on a continual basis, certain specific criteria, which the Exchange would include within Rule 16.135(b)(1), as described in greater detail below. As proposed, the Exchange would file separate proposed rule changes before the listing and trading of Managed Fund Shares with components that do not satisfy the additional criteria described below or components other than those specified below. For example, if the components of a Managed Fund Share exceeded one of the applicable thresholds, the Exchange would file a separate proposed rule change before listing and trading such Managed Fund Share. Similarly, if the components of a Managed Fund Share included a security or asset that is not specified below, the Exchange would file a separate proposed rule change. The Exchange would also add to Rule 16.135(c) to provide that the Web site for each series of Managed Fund Shares shall disclose certain information regarding the Disclosed Portfolio, to the extent applicable. The required information includes the following, to the extent applicable: Ticker symbol, CUSIP or other identifier, a description of the holding, identity of the asset upon which the derivative is based, the strike price for any options, the quantity of each security or other asset held as Proposed Changes to Rule 16.135 The Exchange proposes to amend Rule 16.135(b)(1) to specify that the Exchange may approve Managed Fund Shares for listing and/or trading (including pursuant to unlisted trading privileges) pursuant to SEC Rule 19b– 4(e) under the Act, which pertains to derivative securities products (‘‘SEC 8 See PO 00000 Rule 11.120. Frm 00151 Fmt 4703 Sfmt 4703 9 17 CFR 240.19b–4(e). As provided under SEC Rule 19b–4(e), the term ‘‘new derivative securities product’’ means any type of option, warrant, hybrid securities product, or any other security, other than a single equity option or a security futures product, whose value is based, in whole or in part, upon the performance of, or interest in, an underlying instrument. 10 17 CFR 240.19b–4(c)(1). As provided under SEC Rule 19b–4(c)(1), a stated policy, practice, or interpretation of the SRO shall be deemed to be a proposed rule change unless it is reasonably and fairly implied by an existing rule of the SRO. E:\FR\FM\08FEN1.SGM 08FEN1 9860 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices measured by select metrics, maturity date, coupon rate, effective date, market value, and percentage weight of the holding in the portfolio.11 In addition, the Exchange would amend Rule 16.135(d) to specify that all Managed Fund Shares must have a stated investment objective, which must be adhered to under normal market conditions.12 Finally, the Exchange would also amend the continued listing requirements in Rule 16.135(d)(2)(A) by changing the requirement that an Intraday Indicative Value for Managed Fund Shares be widely disseminated by one or more major market data vendors at least every 15 seconds during the time when the Managed Fund Shares trade on the Exchange to a requirement that an Intraday Indicative Value be widely disseminated by one or more major market data vendors at least every 15 seconds during the Regular Market Session (as defined in Rule 1.160(gg)). asabaliauskas on DSK3SPTVN1PROD with NOTICES Proposed Managed Fund Share Portfolio Standards The Exchange is proposing standards that would pertain to Managed Fund Shares to qualify for listing and trading pursuant to SEC Rule 19b–4(e). These standards would be grouped according to security or asset type. The Exchange notes that the standards proposed for a Managed Fund Share portfolio that holds U.S. Component Stocks, Non-U.S. Component Stocks, Exchange Traded Derivative Securities, and Linked Securities are based in large part on the existing equity security standards applicable to Index Fund Shares in Rule 16.105(b)(3). The standards proposed for a Managed Fund Share portfolio that holds fixed income securities are based in large part on the existing fixed income security standards applicable to 11 Proposed rule changes for series of Managed Fund Shares previously listed on Nasdaq have similarly included disclosure requirements with respect to each portfolio holding, as applicable to the type of holding. See, e.g., Securities Exchange Act Release No. 77688 (April 22, 2016), 81 FR 25467 (April 28, 2016) (SR–NASDAQ–2016–030) (the ‘‘Elkhorn Dorsey Wright Commodity Rotation Portfolio of Elkhorn ETF Trust Approval’’), generally. See also Securities Exchange Act Release No. 72666 (July 3, 2014), 79 FR 44224 (July 30, 2014) (SR–NYSEArca–2013–122) (the ‘‘PIMCO Total Return Use of Derivatives Approval’’), generally and at 44227. 12 The Exchange would also add a new defined term under Rule 16.135(c)(5) to specify that the term ‘‘normal market conditions’’ includes, but is not limited to, the absence of trading halts in the applicable financial markets generally; operational issues (e.g., systems failure) causing dissemination of inaccurate market information; or force majeure type events such as a natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 Index Fund Shares in Rule 16.105(b)(4). Many of the standards proposed for other types of holdings in a Managed Fund Share portfolio are based on previous rule changes by Nasdaq and NYSE Arca for specific series of Managed Fund Shares.13 Proposed Rule 16.135(b)(1)(A) would describe the standards for a Managed Fund Share portfolio that holds equity securities, which are defined to be U.S. Component Stocks,14 Non-U.S. Component Stocks,15 Exchange Traded Derivative Securities,16 and Linked 13 See, e.g., Securities Exchange Act Release No. 77688 (April 22, 2016), 81 FR 25467 (April 28, 2016) (SR–NASDAQ–2016–030) (order approving listing and trading of Elkhorn Dorsey Wright Commodity Rotation Portfolio of Elkhorn ETF Trust). See also Securities Exchange Act Release Nos. 72728 (July 31, 2014) 79 FR 45852 (August 6, 2014) (SR–NASDAQ–2014–059) (order approving listing and trading of Global X Commodities Strategy ETF) 72506 (July 1, 2014), 79 FR 38631 (July 8, 2014) (SR–NASDAQ–2014–050) (order approving listing and trading of First Trust Strategic Income ETF); 69464 (April 26, 2013), 78 FR 25774 (May 2, 2013) (SR–NASDAQ–2013–036) (order approving listing and trading of First Trust Senior Loan Fund); and 66489 (February 29, 2012), 77 FR 13379 (March 6, 2012) (SR–NASDAQ–2012–004) (order approving listing and trading of WisdomTree Emerging Markets Corporate Bond Fund). See also Securities Exchange Act Release Nos. 66321 (February 3, 2012), 77 FR 6850 (February 9, 2012) (SR–NYSEArca–2011–95) (the ‘‘PIMCO Total Return Approval’’); 69244 (March 27, 2013), 78 FR 19766 (April 2, 2013) (SR–NYSEArca–2013–08) (the ‘‘SPDR Blackstone/GSO Senior Loan Approval’’); 68870 (February 8, 2013), 78 FR 11245 (February 15, 2013) (SR–NYSEArca–2012–139) (the ‘‘First Trust Preferred Securities and Income Approval’’); 69591 (May 16, 2013), 78 FR 30372 (May 22, 2013) (SR–NYSEArca–2013–33) (the ‘‘International Bear Approval’’); 61697 (March 12, 2010), 75 FR 13616 (March 22, 2010) (SR–NYSEArca–2010–04) (the ‘‘WisdomTree Real Return Approval’’); and 67054 (May 24, 2012), 77 FR 32161 (May 31, 2012) (SR– NYSEArca–2012–25) (the ‘‘WisdomTree Brazil Bond Approval’’). Certain standards proposed herein for Managed Fund Shares are also based on previous proposed Nasdaq rule changes for specific series of Index Fund Shares for which Commission approval for listing was required due to the Index Fund Shares not satisfying certain standards of Rule 5705(b)(3) and 5705(b)(4). On NYSE Arca, similar products under NYSE Commentary .01 and .02 to NYSE Arca Equities Rule 5.2(j)(3) are called Investment Company Units. See, e.g., Securities Exchange Act Release No. 69373 (April 15, 2013), 78 FR 23601 (April 19, 2013) (SR–NYSEArca–2012– 108) (the ‘‘NYSE Arca U.S. Equity Synthetic Reverse Convertible Index Fund Approval’’). 14 For purposes of Rule 16.135(b)(1) and this proposal, the term ‘‘U.S. Component Stocks’’ would have the same meaning as defined in Rule 16.105(b)(1)(D). 15 For purposes of Rule 16.135(b)(1) and this proposal, the term ‘‘Non-U.S. Component Stocks’’ would have the same meaning as defined in Rule 16.105(b)(1)(E). 16 For the purposes of Rule 16.135(b)(1)(A) and this proposal, proposed Rule 16.135(c)(6) would define the term ‘‘Exchange Traded Derivative Securities’’ to mean the securities described in Rules 16.105(a) (Portfolio Depository Receipts); 16.105(b) (Index Fund Shares); 16.120 (Trust Issued Receipts); 16.111(d) (Commodity-Based Trust Shares); 16.111(e) (Currency Trust Shares); 16.111(f), (Commodity Index Trust Shares); PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 Securities 17 listed on a national securities exchange. For Exchange Traded Derivative Securities and Linked Securities, no more than 25% of the equity weight of the portfolio could include leveraged and/or inverse leveraged Exchange Traded Derivative Securities or Linked Securities. In addition, proposed Rule 16.135(b)(1)(A) would provide that, to the extent that a portfolio includes convertible securities, the equity security into which such security is converted would be required to meet the criteria of Rule 16.135(b)(1)(A) after converting. As proposed in Rule 16.135(b)(1)(A)(i), the component stocks of the equity portion of a portfolio that are U.S. Component Stocks shall meet the following criteria initially and on a continuing basis: (1) Component stocks (excluding Exchange Traded Derivative Securities and Linked Securities) that in the aggregate account for at least 90% of the equity weight of the portfolio (excluding such Exchange Traded Derivative Securities and Linked Securities) each must have a minimum market value of at least $75 million; 18 (2) Component stocks (excluding Exchange Traded Derivative Securities and Linked Securities) that in the aggregate account for at least 70% of the equity weight of the portfolio (excluding such Exchange Traded Derivative Securities and Linked Securities) each must have a minimum monthly trading volume of 250,000 shares or minimum notional volume traded per month of $25,000,000, averaged, over the last six months; 19 (3) The most heavily weighted component stock (excluding Exchange 16.111(g) (Commodity Futures Trust Shares); 16.111(h) (Partnership Units); 16.111(i) (Trust Units); 16.135 (Managed Fund Shares); and 16.111(j) (Managed Trust Securities). This proposed definition is more narrow than the term ‘‘Derivative Securities Product,’’ as defined in Rule 16.170(d)(1). 17 Linked Securities are securities that qualify for Exchange listing and trading under Rule 16.110. The securities described in Rules 16.105, 16.110, and 16.135(c)(6), as referenced above, would include securities listed on another national securities exchange pursuant to substantially equivalent listing rules. 18 This proposed text is substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(i)(b), except for the omission of the reference to ‘‘index,’’ which is not applicable, the substitution of a more narrow exclusion for ‘‘Exchange Traded Derivative Securities’’ instead of for ‘‘Derivative Securities Products,’’ and the addition of the reference to Linked Securities. 19 This proposed text is substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(i)(c), except for the omission of the reference to ‘‘index,’’ which is not applicable, the substitution of a more narrow exclusion for ‘‘Exchange Traded Derivative Securities’’ instead of for ‘‘Derivative Securities Products,’’ and the addition of the reference to Linked Securities. E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9861 asabaliauskas on DSK3SPTVN1PROD with NOTICES Traded Derivative Securities and Linked Securities) must not exceed 30% of the equity weight of the portfolio, and, to the extent applicable, the five most heavily weighted component stocks (excluding Exchange Traded Derivative Securities and Linked Securities) must not exceed 65% of the equity weight of the portfolio; 20 (4) Where the equity portion of the portfolio does not include Non-U.S. Component Stocks, the equity portion of the portfolio shall include a minimum of 13 component stocks; provided, however, that there shall be no minimum number of component stocks if (a) one or more series of Exchange Traded Derivative Securities or Linked Securities constitute, at least in part, components underlying a series of Managed Fund Shares, or (b) one or more series of Exchange Traded Derivative Securities or Linked Securities account for 100% of the equity weight of the portfolio of a series of Managed Fund Shares; 21 (5) Except as provided in proposed Rule 16.135(b)(1)(A), equity securities in the portfolio must be U.S. Component Stocks listed on a national securities exchange and must be NMS Stocks as defined in Rule 600 of Regulation NMS; 22 and (6) American Depositary Receipts (‘‘ADRs’’) may be exchange-traded or non-exchange-traded. However, no more than 10% of the equity weight of the portfolio shall consist of non-exchangetraded ADRs.23 As proposed in Rule 16.135(b)(1)(A)(ii), the component stocks of the equity portion of a portfolio that are Non-U.S. Component Stocks shall meet the following criteria initially and on a continuing basis: (1) Non-U.S. Component Stocks each shall have a minimum market value of at least $100 million; 24 (2) Non-U.S. Component Stocks each shall have a minimum global monthly trading volume of 250,000 shares, or minimum global notional volume traded per month of $25,000,000, averaged over the last six months; 25 (3) The most heavily weighted NonU.S. Component Stock shall not exceed 25% of the equity weight of the portfolio, and, to the extent applicable, the five most heavily weighted Non-U.S. Component Stocks shall not exceed 60% of the equity weight of the portfolio; 26 (4) Where the equity portion of the portfolio includes Non-U.S. Component Stocks, the equity portion of the portfolio shall include a minimum of 20 component stocks; provided, however, that there shall be no minimum number of component stocks if (i) one or more series of Exchange Traded Derivative Securities or Linked Securities constitute, at least in part, components underlying a series of Managed Fund Shares, or (ii) one or more series of Exchange Traded Derivative Securities or Linked Securities account for 100% of the equity weight of the portfolio of a series of Managed Fund Shares; 27 and (5) Each Non-U.S. Component Stock shall be listed and traded on an exchange that has last-sale reporting.28 The Exchange notes that it is not proposing to require that any of the equity portion of the equity portfolio composed of Non-U.S. Component Stocks be listed on markets that are either a member of the Intermarket Surveillance Group (‘‘ISG’’) or a market with which the Exchange has a comprehensive surveillance sharing agreement (‘‘CSSA’’).29 However, as further detailed below, the regulatory staff of the Exchange, or the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), on behalf of the Exchange, will communicate as needed regarding trading in Managed Fund Shares with other markets that are members of the ISG, including U.S. securities exchanges on which the components are traded. The Exchange notes that the generic listing standards for Index Fund Shares based on foreign indexes in Rule 16.105 do not include specific ISG or CSSA requirements.30 In addition, the Commission has approved listing and trading on Nasdaq of shares of an issue of Managed Fund Shares under Nasdaq Rule 5735 (which is substantially identical to IEX Rule 16.135) where non-U.S. equity securities in such issue’s portfolio meet specified criteria and where there is no requirement that such non-U.S. equity securities are traded in markets that are members of ISG or with which Nasdaq has in place a CSSA.31 20 This proposed text is substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(i)(d), except for the omission of the reference to ‘‘index,’’ which is not applicable, the substitution of a more narrow exclusion for ‘‘Exchange Traded Derivative Securities’’ instead of for ‘‘Derivative Securities Products,’’ and the addition of the reference to Linked Securities. 21 This proposed text is substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(i)(e), except for the omission of the reference to ‘‘index,’’ which is not applicable, the addition of the reference to Linked Securities, the substitution of a more narrow exclusion for ‘‘Exchange Traded Derivative Securities’’ instead of for ‘‘Derivative Securities Products,’’ and the reference to the 100% limit applying to the ‘‘equity portion’’ of the portfolio. 22 17 CFR 240.600. This proposed text is substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(i)(f), except for the addition of ‘‘equity’’ to make clear that the standard applies to ‘‘equity securities,’’ the exclusion of unsponsored ADRs, and the omission of the reference to ‘‘index,’’ which is not applicable. 23 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included the ability for such Managed Fund Shareholdings to include not more than 10% of net assets in unsponsored ADRs (which are not exchange listed). See, e.g., Securities Exchange Act Release No. 73480 (October 31, 2014), 79 FR 66022 (November 6, 2014) (SR–NASDAQ–2014–090) (order approving the Listing and Trading of Shares of the Validea Market Legends ETFs). See also Securities Exchange Act Release No. 71067 (December 12, 2013), 78 FR 76669 (December 18, 2013) (order approving listing and trading of shares of the SPDR MFS Systematic Core Equity ETF, SPDR MFS Systematic Growth Equity ETF, and SPDR MFS Systematic Value Equity ETF under NYSE Arca Equities Rule 8.600). 24 The proposed text is identical to the corresponding representations from the First Trust Approval Order and the SSgA Global Managed Volatility Release, as noted in footnote 31, below. The proposed text is also substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(ii)(a), except for the omission of the reference to ‘‘index,’’ which is not applicable, and that each Non-U.S. Component Stock must have a minimum market value of at least $100 million instead of the 90% required under Rule 16.105(b)(3)(A)(ii)(a). 25 The proposed text is identical to the corresponding representations from the First Trust Approval Order and the SSgA Global Managed Volatility Release, as noted in footnote 31, below. This proposed text also is substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(ii)(b), except for the omission of the reference to ‘‘index,’’ which is not applicable. 26 This proposed text is substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(ii)(c), except for the omission of the reference to ‘‘index,’’ which is not applicable. 27 This proposed text is substantively identical to the corresponding text of Rule 16.105(b)(3)(A)(ii)(d), except for the omission of the reference to ‘‘index,’’ which is not applicable, the substitution of a more narrow exclusion for ‘‘Exchange Traded Derivative Securities’’ instead of for ‘‘Derivative Securities Products,’’ the addition of the reference to Linked Securities, the reference to the equity portion of the portfolio including Non-U.S. Component Stocks, and the reference to the 100% limitation applying to the ‘‘equity weight’’ of the portfolio, which is included because the proposed standards in Rule 16.135(b) permit the inclusion of non-equity securities, whereas Rule 16.105 applies only to equity securities. 28 This proposed text is substantively identical to Rule 16.105(b)(3)(A)(ii)(e). as it relates to Non-U.S. Component Stocks. 29 ISG is comprised of an international group of exchanges, market centers, and market regulators that perform front-line market surveillance in their respective jurisdictions. See www.isgportal.org. A list of ISG members is available at www.isgportal.org. 30 Under Rule 16.105(b)(3), Index Fund Shares with components that include Non-U.S. Component Stocks can hold a portfolio that is entirely composed of Non-U.S. Component Stocks that are listed on markets that are neither members of ISG, nor with which the Exchange has in place a CSSA. 31 See, e.g., Securities Exchange Act Release No. 77548 (April 6, 2016), 81 FR 21626 (April 12, 2016) (SR–NASDAQ–2015–161) (order approving listing and trading of the Shares of the First Trust RiverFront Dynamic Europe ETF, First Trust RiverFront Dynamic Asia Pacific ETF, First Trust RiverFront Dynamic Emerging Markets ETF, and First Trust RiverFront Dynamic Developed International ETF of First Trust Exchange-Traded VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 E:\FR\FM\08FEN1.SGM Continued 08FEN1 9862 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES Proposed Rule 16.135(b)(1)(B) would describe the standards for a Managed Fund Share portfolio that holds fixed income securities, which are debt securities 32 that are notes, bonds, debentures, or evidence of indebtedness that include, but are not limited to, U.S. Department of Treasury securities (‘‘Treasury Securities’’), governmentsponsored entity securities (‘‘GSE Securities’’), municipal securities, trust preferred securities, supranational debt and debt of a foreign country or a subdivision thereof, investment grade and high yield corporate debt, bank loans, mortgage and asset backed securities, and commercial paper. In addition, to the extent that a portfolio includes convertible securities, the fixed income security into which such security is converted would be required to meet the criteria of Rule 16.135(b)(1)(B) after converting. The components of the fixed income portion of the portfolio must meet the following criteria initially and on a continuing basis: (1) Components that in the aggregate account for at least 75% of the fixed income weight of the portfolio each shall have a minimum original principal amount outstanding of $100 million or more; 33 (2) No component fixed-income security (excluding Treasury Securities and GSE Securities could represent more than 30% of the fixed income weight of the portfolio; and the five most heavily weighted component fixed income securities in the portfolio (excluding Treasury Securities and GSE Securities) must not in the aggregate account for more than 65% of the fixed income weight of the portfolio; 34 (3) An underlying portfolio (excluding exempted securities) that includes fixed income securities must include a minimum of 13 non-affiliated issuers; provided, however, that there shall be Fund III) (the ‘‘First Trust Approval Order’’). See also Securities Exchange Act Release No. 75023 (May 21, 2015), 80 FR 30519 (May 28, 2015) (SR– NYSEArca–2014–100) (order approving listing and trading on the Exchange of shares of the SPDR SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule 8.600) (‘‘SSgA Global Managed Volatility Release’’). 32 Debt securities include a variety of fixed income obligations, including, but not limited to, corporate debt securities, government securities, municipal securities, convertible securities, and mortgage-backed securities. Debt securities include investment-grade securities, non-investment-grade securities, and unrated securities. Debt securities also include variable and floating rate securities. 33 This text of proposed Rule 16.135(b)(1)(B)(i) is based on the corresponding text of Rule 16.105(b)(4)(A)(ii). 34 This proposed text is substantively identical to the corresponding text of 16.105(b)(4)(A)(iv), except for the omission of the reference to ‘‘index,’’ which is not applicable. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 no minimum number of non-affiliated issuers required for fixed income securities if at least 70% of the weight of the portfolio consists of equity securities as described in proposed Rule 16.135(b)(1)(A); 35 (4) Component securities that in aggregate account for at least 90% of the fixed income weight of the portfolio must be either (a) from issuers that are required to file reports pursuant to Sections 13 and 15(d) of the Act; (b) from issuers that have a worldwide market value of outstanding common equity held by non-affiliates of $700 million or more; (c) from issuers that have outstanding securities that are notes, bonds, debentures, or evidence of indebtedness having a total remaining principal amount of at least $1 billion; 36 (d) exempted securities as defined in Section 3(a)(12) of the Act; or (e) from issuers that are a government of a foreign country or a political subdivision of a foreign country; and (5) Non-agency, non-GSE, and privately-issued mortgage-related and other asset backed securities components of a portfolio shall not account, in the aggregate, for more than 20% of the weight of the fixed income portion of the portfolio.37 Proposed Rule 16.135(b)(1)(C) would describe the standards for a Managed Fund Share portfolio that holds cash and cash equivalents.38 Specifically, the portfolio may hold short-term 35 This proposed text is substantively identical to the corresponding text of Rule 16.105(b)(4)(A)(v), except for the omission of the reference to ‘‘index,’’ which is not applicable, the exclusion of the text ‘‘consisting entirely of exempted securities’’ and the provision that there shall be no minimum number of nonaffiliated issuers required for fixed income securities if at least 70% of the weight of the portfolio consists of equity securities as described in proposed Rule 16.135(b)(1)(A). 36 With respect to subparagraphs (b) and (c) above, the special purpose vehicle (‘‘SPV’’) that issues the fixed income security (e.g., an assetbacked or mortgage backed security) would itself be required to satisfy the $700 million and $1 billion criteria, respectively, and not the entity that controls, owns or is affiliated with the SPV. 37 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included the ability for such Managed Fund Share holdings to include up to 20% of net assets in nonagency, non-GSE and privately-issued mortgage related and other asset-backed securities. See, e.g., Securities Exchange Act Release No. 74742 (April 16, 2015) 80 FR 22584 (April 22, 2015) (SR– NASDAQ–2015–011) (order approving the listing and trading of shares of the First Trust Strategic Floating Rate ETF of First Trust Exchange-Traded Fund IV. See also, Securities Exchange Act Release No. 75566 (July 30, 2015), 80 FR 46612 (August 5, 2015) (SR–NYSEArca–2015–42) (order approving listing and trading of shares of Newfleet MultiSector Unconstrained Bond ETF under Rule 8.600). 38 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included the ability for such Managed Fund Share holdings to include cash and cash equivalents. See, e.g., note 13 supra. PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 instruments with maturities of less than 3 months. There would be no limitation on the percentage of the portfolio invested in such holdings. Short-term instruments would include the following: 39 (1) U.S. Government securities, including bills, notes, and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities; (2) certificates of deposit issued against funds deposited in a bank or savings and loan association; (3) bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions; (4) repurchase agreements and reverse repurchase agreements; (5) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; (6) commercial paper, which are short-term unsecured promissory notes; and (7) money market funds. Proposed Rule 16.135(b)(1)(D) would describe the standards for a Managed Fund Share portfolio that holds listed derivatives, including futures, options, and swaps on commodities, currencies, and financial instruments (e.g., stocks, fixed income, interest rates, and volatility) or a basket or index of any of the foregoing.40 There would be no limitation on the percentage of the portfolio invested in such holdings, subject to the following requirements: (1) In the aggregate, at least 90% of the weight of such holdings invested in futures, exchange-traded options, and listed swaps shall, on both an initial and continuing basis, consist of futures, options, and swaps for which the Exchange may obtain information via the ISG from other members or affiliates of the ISG or for which the principal market is a market with which the Exchange has a comprehensive surveillance sharing agreement (for purposes of calculating this limitation, a portfolio’s investment in listed derivatives will be calculated as the aggregate gross notional value of the listed derivatives); and 39 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly specified short-term instruments with respect to their inclusion in Managed Fund Share holdings. See, e.g., note 13 supra. 40 Proposed rule changes for previously-listed series of Managed Fund Shares have similarly included the ability for such Managed Fund Share holdings to include listed derivatives. See, e.g., note 13 supra. E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES (2) the aggregate gross notional value of listed derivatives based on any five or fewer underlying reference assets shall not exceed 65% of the weight of the portfolio (including gross notional exposures), and the aggregate gross notional value of listed derivatives based on any single underlying reference asset shall not exceed 30% of the weight of the portfolio (including gross notional exposures). Proposed Rule 16.135(b)(1)(E) would describe the standards for a Managed Fund Share portfolio that holds over the counter (‘‘OTC’’) derivatives, including forwards, options and swaps on commodities, currencies and financial instruments (e.g., stocks, fixed income, interest rates, and volatility) or a basket or index of any of the foregoing.41 Proposed Rule 16.135(b)(1)(E) would provide that, on both an initial and continuing basis, no more than 20% of the assets in the portfolio may be invested in OTC derivatives. For purposes of calculating this limitation, a portfolio’s investment in OTC derivatives will be calculated as the aggregate gross notional value of the OTC derivatives. Proposed Rule 16.135(b)(1)(F) would provide that, to the extent that listed or OTC derivatives are used to gain exposure to individual equities and/or fixed income securities, or to indexes of equities and/or fixed income securities, the aggregate gross notional value of such exposure shall meet the criteria set forth in Rules 16.135(b)(1)(A) and (B) (including gross notional exposures), respectively. The following examples illustrate how certain of the proposed generic criteria of Rule 16.135 would be applied: 1. An actively managed ETF holds non-agency MBS that represent 15% of the weight of the fixed income portion of the portfolio. The fixed income portion of the portfolio meets all the requirements of Rule 16.135(b)(1)(B). The ETF also holds an OTC swap on a non-agency MBS Index that represents 10% of the fixed income weight of the portfolio calculated on a notional value basis. Separately, the OTC swap and fixed income portion of the portfolio would meet the requirements of Rule 16.135(b)(1). However, when the 15% 41 A proposed rule change for series of Index Fund Shares previously listed and traded on Nasdaq pursuant to Nasdaq Rule 5705 similarly included the ability for such Index Fund Shares’ holdings to include OTC derivatives, specifically OTC down-and-in put options, which are not NMS Stocks as defined in Rule 600 of Regulation NMS and therefore did not satisfy the requirements of Nasdaq Rule 5705. See, e.g., note 13 supra, regarding NYSE Arca U.S. Equity Synthetic Reverse Convertible Index Fund Approval. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 weight in non-agency MBS and the 10% weight in the non-agency MBS Index OTC swap are combined, as required by proposed 16.135(b)(1)(F), the 25% total weight would exceed the 20% limit for non-agency GSE and privately-issued mortgage-related securities in Rule 16.135(b)(1)(B)(v). The portfolio, therefore, would not meet the proposed generic criteria of Rule 16.135. 2. An actively managed ETF holds a portfolio of non-U.S. equity securities, S&P 500 Index and gold futures. S&P 500 Index futures and the gold futures held by the fund are listed on an ISG member exchange. The equity portion of the portfolio consists of developed and emerging markets equity securities with a current aggregate market value of $15 million and all components meet the requirements under Rule 16.135(b)(1)(A)(ii). The gold futures contract trading unit size is 100 troy ounces and an ounce of gold is currently worth $1200. The fund holds 500 gold futures contracts with a notional value of $60 million (500*100*$1200). One S&P 500 contract represents 250 units of the S&P 500 Index and the S&P 500 Index is trading at $2,000. The portfolio holds 50 contracts, so the notional value of the S&P 500 Index futures position is $25 million (50*250*$2000). The S&P 500 Index futures meet the requirement under Rule 16.135(b)(1)(F), that is, the S&P 500 Index meets the criteria in Rule 16.135(b)(1)(A). The weights of the components are as follows; equity securities represent 15% of the portfolio, gold futures represent 60% of the portfolio and S&P 500 Index futures represent 25% of the portfolio. The gold futures represent 60% of the portfolio and exceeds the 30% concentration limitation on any single underlying reference asset as outlined in proposed Rule 16.135(b)(1)(D)(ii). The portfolio, therefore, would not meet the proposed generic criteria of Rule 16.135. 3. An actively managed ETF holds a portfolio of equity securities and call option contracts on company XYZ. The equity portion of the portfolio meets the requirements under Rule 16.135(b)(1)(A). Company XYZ represents 20% of the weight of the equity portion of the portfolio. The equity portion of the fund has a market value of $100 million and the market value of the fund’s holdings in company XYZ has a market value of $20 million. The fund also holds 10,000 call option contracts on company XYZ which has a current market price of $50 a share and, therefore, a notional value of $50 million (50*100*10,000) (that is, the $50 market price per share times the multiplier of 100 times 10,000 contracts). The option contracts are PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 9863 traded on an ISG member exchange. The total exposure to company XYZ is therefore $70 million and represents 46.7% ($70 million/$150 million=46.7%) of the portfolio. This fund would not meet the requirements of Rule 16.135 because the exposure to XYZ at 46.7% exceeds the 30% concentration limitation of proposed Rule 16.135(b)(1)(D)(ii). The Exchange believes that the proposed standards would ensure transparency surrounding the listing process for Managed Fund Shares. Additionally, the Exchange believes that the proposed portfolio standards for listing and trading Managed Fund Shares, many of which track existing Exchange rules relating to Index Fund Shares, are reasonably designed to promote a fair and orderly market for such Managed Fund Shares. These proposed standards would also work in conjunction with the existing initial and continued listing criteria related to surveillance procedures and trading guidelines. In support of this proposal, the Exchange represents that: 1. Any Managed Fund Shares listed and traded on IEX will conform to the initial and continued listing criteria under Rule 16.135; 2. the Exchange’s surveillance procedures are adequate to continue to properly monitor the trading of the Managed Fund Shares in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange intends to utilize its existing surveillance procedures applicable to derivative products, which will include Managed Fund Shares, to monitor trading in the Managed Fund Shares; 3. prior to the commencement of trading of a particular series of Managed Fund Shares, the Exchange will inform its members in an information circular (‘‘Circular’’) of the special characteristics and risks associated with trading the Managed Fund Shares, including procedures for purchases and redemptions of Managed Fund Shares, suitability requirements under Rules 3.150 and 3.170, the risks involved in trading the Managed Fund Shares during the Pre-Market and Post-Market Sessions when an updated Intraday Indicative Value will not be calculated or publicly disseminated, information regarding the Intraday Indicative Value and the Disclosed Portfolio, prospectus delivery requirements, and other trading information. In addition, the Circular will disclose that the Managed Fund Shares are subject to various fees and expenses, as described in the applicable registration statement, and will discuss E:\FR\FM\08FEN1.SGM 08FEN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES 9864 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. Finally, the Circular will disclose that the net asset value for the Managed Fund Shares will be calculated after 4 p.m., ET, each trading day; and 4. the issuer of a series of Managed Fund Shares will be required to comply with Rule 10A–3 under the Act for the initial and continued listing of Managed Fund Shares, as provided under the IEX Rule Series 14.400. The Exchange, on a periodic basis and no less than annually, will review issues of Managed Fund Shares generically listed pursuant to Rule 16.135, and will provide a report to the Regulatory Oversight Committee of the Exchange’s Board of Directors regarding the Exchange’s findings. In addition, the Exchange will provide the Commission staff with a report each calendar quarter that includes the following information for issues of Managed Fund Shares listed during such calendar quarter under Rule 16.135(b)(1): (1) Trading symbol and date of listing on the Exchange; (2) the number of active authorized participants and a description of any failure of an issue of Managed Fund Shares or of an authorized participant to deliver shares, cash, or cash and financial instruments in connection with creation or redemption orders; and (3) a description of any failure of an issue of Managed Fund Shares to comply with Rule 16.135. Prior to listing pursuant to proposed amended Rule 16.135(b)(1), an issuer would be required to represent to the Exchange that it will advise the Exchange of any failure by a series of Managed Fund Shares 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 IEX Rule Series 14.500. The Exchange notes that the proposed change is not otherwise intended to address any other issues and that the Exchange is not aware of any problems that members or issuers would have in complying with the proposed change. 2. Statutory Basis IEX believes that the proposed rule change is consistent with Section 6(b) 42 of the Act in general, and furthers the 42 15 U.S.C. 78f(b). VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 objectives of Section 6(b)(5) of the Act,43 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that the proposed change to adopt generic listing standards for Managed Fund Shares is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest because it would facilitate the potential listing and trading of Managed Fund Shares on the Exchange, which would enhance competition among market participants, to the benefit of investors and the marketplace. The proposed change would codify in Rule 16.135 specified criteria that have been the basis for proposed rule filings by Nasdaq and NYSE Arca with the Commission for the listing and trading of each new series of Managed Fund Shares. The Exchange believes that such codification is appropriate in that it would facilitate the listing and trading of additional types of Managed Fund Shares that have investment portfolios that are similar to investment portfolios for Index Fund Shares, which have been approved for listing and trading, thereby creating greater efficiencies in the listing process for the Exchange and the Commission should the Exchange seek to list Managed Fund Shares. Moreover, the proposed generic standards for Managed Fund Shares are substantially identical to those that the Commission approved for Nasdaq, finding that such standards are consistent with the Section 6(b)(5) of the Act, noting that Nasdaq’s proposal in turn was substantially identical to proposals the Commission had recently approved for NYSE Arca and Bats BZX Exchange (previously BATS Exchange).44 The Exchange further believes that the proposed rule change is designed to protect investors and the public interest because Managed Fund Shares listed and traded pursuant to Rule 16.135, including pursuant to the proposed new portfolio standards, would continue to be subject to the full panoply of Exchange rules and procedures that 43 15 U.S.C. 78f(b)(5). Securities Exchange Act Release No. 78918 (September 23, 2016), 81 FR 67033 (September 29, 2016) (SR–NASDAQ–2016–104). 44 See, PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 currently govern the trading of equity securities on the Exchange. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices because the Managed Fund Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in Rule 16.135. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Managed Fund Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. FINRA, on behalf of the Exchange, or the regulatory staff of the Exchange, will communicate as needed regarding trading in Managed Fund Shares with other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the components are traded. In addition, the Exchange may obtain information regarding trading in Managed Fund Shares from other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the components are traded, or with which the Exchange has in place a CSSA. The Exchange also believes that the proposed rule change would fulfill the intended objective of Rule 19b–4(e) under the Act by allowing Managed Fund Shares that satisfy the proposed listing standards to be listed and traded without separate Commission approval. However, as proposed, the Exchange would continue to file separate proposed rule changes before the listing and trading of Managed Fund Shares that do not satisfy the additional criteria described above. The Exchange, on a periodic basis and no less than annually, will review issues of Managed Fund Shares listed pursuant to Rule 16.135(b)(1), and will provide a report to the Regulatory Oversight Committee of the Exchange’s Board of Directors regarding the Exchange’s findings. In addition, the Exchange will provide the Commission staff with a report each calendar quarter that includes the following information for issues of Managed Fund Shares listed during such calendar quarter under Rule 16.135(b)(1): (1) Trading symbol and date of listing on the Exchange; (2) the number of active authorized participants and a description of any failure of an issue of Managed Fund Shares listed pursuant to Rule 16.135(b)(1) or of an authorized participant to deliver shares, cash, or cash and financial instruments in connection with creation or redemption orders; and (3) a description of any E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices failure of an issue of Managed Fund Shares to comply with Rule 16.135. Prior to listing pursuant to proposed amended Rule 16.136(b)(1), an issuer would be required to represent to the Exchange that it will advise the Exchange of any failure by a series of Managed Fund Shares 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 IEX Rule Series 14.500. Accordingly, based on the foregoing, the Exchange believes that the proposed generic listing standards for Managed Fund Shares are consistent with Section 6(b)(5) of the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition IEX does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed change would facilitate the listing and trading of additional types of Managed Fund Shares and result in a significantly more efficient process for the listing and trading of Managed Fund Shares, thereby enhancing competition among market participants, including issuers and exchanges. Further, the Exchange believes that applying uniform and transparent listing standards would make the process for listing Managed Fund Shares more competitive. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. asabaliauskas on DSK3SPTVN1PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: A. By order approve or disapprove such proposed rule change; or VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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: 9865 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.45 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–02544 Filed 2–7–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79947; File No. SR– PEARL–2017–03] Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– IEX–2017–03 in 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–IEX–2017–03. This file number should be included in 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 (http://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 will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–IEX– 2017–03 and should be submitted on or before March 1, 2017. PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX PEARL Rules 100, 404, 519C and Adopt MIAX PEARL 1018 February 2, 2017. Pursuant to the provisions of 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 January 24, 2017, MIAX PEARL, LLC (‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend MIAX PEARL Rules 100, 404, 519C, and to adopt new MIAX PEARL Rule 1018, in order to bring MIAX PEARL Rules up to date with recent changes that have been made to the rules of the Exchange’s affiliate, Miami International Securities Exchange, LLC (‘‘MIAX Options’’). The text of the proposed rule change is available on the Exchange’s Web site at http://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal office, 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 45 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 1 15 E:\FR\FM\08FEN1.SGM 08FEN1

Agencies

[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9858-9865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02544]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79940; File No. SR-IEX-2017-03]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Amend IEX Rule 16.135 To Adopt 
Generic Listing Standards for Managed Fund Shares

February 2, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on January 19, 2017, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Commission a proposed rule change to amend IEX Rule 16.135 to adopt 
generic listing standards for Managed Fund Shares.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.iextrading.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 the 
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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

[[Page 9859]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Overview
    The Exchange proposes to amend IEX Rule 16.135 to adopt generic 
listing standards for Managed Fund Shares. The proposed rule change is 
substantially identical to existing rules of the Nasdaq Stock Market 
(``Nasdaq'').
    The Exchange proposes to amend IEX Rule 16.135 to adopt generic 
listing standards for Managed Fund Shares, as well as to make 
additional changes as described below. Under the Exchange's current 
rules, a proposed rule change would need to be filed with the 
Commission for the listing and trading of each new series of Managed 
Fund Shares. The Exchange believes that it is appropriate to codify 
certain rules within Rule 16.135 that would generally eliminate the 
need for such proposed rule changes, which would create greater 
efficiency and promote uniform standards in the listing process.\6\
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    \6\ This proposed rule change is substantially identical to 
changes approved by the Commission to Nasdaq Rule 5735. See, 
Securities Exchange Act Release No. 78918 (September 23, 2016), 81 
FR 67033 (September 29, 2016) (SR-NASDAQ-2016-104).
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    The Exchange does not currently list any Managed Fund Shares. The 
proposed rule change would be applicable in the event IEX lists Managed 
Fund Shares.
Background
    Rule 16.135 sets forth certain rules related to the listing and 
trading of Managed Fund Shares.\7\ Under Rule 16.135(c)(1), the term 
``Managed Fund Share'' means a security that:
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    \7\ IEX Rule 16.135 was approved in connection with IEX's 
approval as a national securities exchange. See, Securities Exchange 
Act Release No. 34-78101 at 47 (June 17, 2016), 81 FR 41141 (June 
23, 2016) (File No. 10-222).
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    (a) Represents an interest in a registered investment company 
(``Investment Company'') organized as an open-end management investment 
company or similar entity, that invests in a portfolio of securities 
selected by the Investment Company's investment adviser (hereinafter 
``Adviser'') consistent with the Investment Company's investment 
objectives and policies;
    (b) is issued in a specified aggregate minimum number in return for 
a deposit of a specified portfolio of securities and/or a cash amount 
with a value equal to the next determined net asset value; and
    (c) when aggregated in the same specified minimum number, may be 
redeemed at a holder's request, which holder will be paid a specified 
portfolio of securities and/or cash with a value equal to the next 
determined net asset value.
    Effectively, Managed Fund Shares are securities issued by an 
actively-managed open-end Investment Company (i.e., an actively-managed 
exchange-traded fund (``ETF'')). Because Managed Fund Shares are 
actively managed, they do not seek to replicate the performance of a 
specified passive index of securities. Instead, they generally use an 
active investment strategy to seek to meet their investment objectives. 
In contrast, an open-end Investment Company that issues Index Fund 
Shares, listed and traded on the Exchange pursuant to IEX Rule 
16.105(b), seeks to provide investment results that generally 
correspond to the price and yield performance of a specific foreign or 
domestic stock index, fixed income securities index, or combination 
thereof.
    All Managed Fund Shares listed and/or traded pursuant to Rule 
16.135 (including pursuant to unlisted trading privileges) are subject 
to the full panoply of Exchange rules and procedures that currently 
govern the trading of equity securities on the Exchange.\8\
---------------------------------------------------------------------------

    \8\ See Rule 11.120.
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    In addition, Rule 16.135(d) currently provides for the criteria 
that Managed Fund Shares must satisfy for initial and continued listing 
on the Exchange, including, for example, that a minimum number of 
Managed Fund Shares are required to be outstanding at the time of 
commencement of trading on the Exchange. However, the current process 
for listing and trading new series of Managed Fund Shares on the 
Exchange would require that the Exchange submit a proposed rule change 
with the Commission. In this regard, Rule 16.135(b)(1) specifies that 
the Exchange will file separate proposals under Section 19(b) of the 
Act (hereinafter, a ``proposed rule change'') before listing and 
trading shares of an issue of Managed Fund Shares.
Proposed Changes to Rule 16.135
    The Exchange proposes to amend Rule 16.135(b)(1) to specify that 
the Exchange may approve Managed Fund Shares for listing and/or trading 
(including pursuant to unlisted trading privileges) pursuant to SEC 
Rule 19b-4(e) under the Act, which pertains to derivative securities 
products (``SEC Rule 19b-4(e)'').\9\ SEC Rule 19b-4(e)(1) provides that 
the listing and trading of a new derivative securities product by a 
self-regulatory organization (``SRO'') is not deemed a proposed rule 
change, pursuant to paragraph (c)(1) of Rule 19b-4,\10\ if the 
Commission has approved, pursuant to Section 19(b) of the Act, the 
SRO's trading rules, procedures and listing standards for the product 
class that would include the new derivative securities product and the 
SRO has a surveillance program for the product class. It is the 
Exchange's understanding that this is the current method pursuant to 
which ``passive'' ETFs are listed on Nasdaq and NYSE Arca, Inc. (``NYSE 
Arca'').
---------------------------------------------------------------------------

    \9\ 17 CFR 240.19b-4(e). As provided under SEC Rule 19b-4(e), 
the term ``new derivative securities product'' means any type of 
option, warrant, hybrid securities product, or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest in, an underlying instrument.
    \10\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO 
shall be deemed to be a proposed rule change unless it is reasonably 
and fairly implied by an existing rule of the SRO.
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    The Exchange would also specify within Rule 16.135(b)(1) that 
components of Managed Fund Shares listed pursuant to SEC Rule 19b-4(e) 
must satisfy, upon initial listing and on a continual basis, certain 
specific criteria, which the Exchange would include within Rule 
16.135(b)(1), as described in greater detail below. As proposed, the 
Exchange would file separate proposed rule changes before the listing 
and trading of Managed Fund Shares with components that do not satisfy 
the additional criteria described below or components other than those 
specified below. For example, if the components of a Managed Fund Share 
exceeded one of the applicable thresholds, the Exchange would file a 
separate proposed rule change before listing and trading such Managed 
Fund Share. Similarly, if the components of a Managed Fund Share 
included a security or asset that is not specified below, the Exchange 
would file a separate proposed rule change.
    The Exchange would also add to Rule 16.135(c) to provide that the 
Web site for each series of Managed Fund Shares shall disclose certain 
information regarding the Disclosed Portfolio, to the extent 
applicable. The required information includes the following, to the 
extent applicable: Ticker symbol, CUSIP or other identifier, a 
description of the holding, identity of the asset upon which the 
derivative is based, the strike price for any options, the quantity of 
each security or other asset held as

[[Page 9860]]

measured by select metrics, maturity date, coupon rate, effective date, 
market value, and percentage weight of the holding in the 
portfolio.\11\
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    \11\ Proposed rule changes for series of Managed Fund Shares 
previously listed on Nasdaq have similarly included disclosure 
requirements with respect to each portfolio holding, as applicable 
to the type of holding. See, e.g., Securities Exchange Act Release 
No. 77688 (April 22, 2016), 81 FR 25467 (April 28, 2016) (SR-NASDAQ-
2016-030) (the ``Elkhorn Dorsey Wright Commodity Rotation Portfolio 
of Elkhorn ETF Trust Approval''), generally. See also Securities 
Exchange Act Release No. 72666 (July 3, 2014), 79 FR 44224 (July 30, 
2014) (SR-NYSEArca-2013-122) (the ``PIMCO Total Return Use of 
Derivatives Approval''), generally and at 44227.
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    In addition, the Exchange would amend Rule 16.135(d) to specify 
that all Managed Fund Shares must have a stated investment objective, 
which must be adhered to under normal market conditions.\12\
---------------------------------------------------------------------------

    \12\ The Exchange would also add a new defined term under Rule 
16.135(c)(5) to specify that the term ``normal market conditions'' 
includes, but is not limited to, the absence of trading halts in the 
applicable financial markets generally; operational issues (e.g., 
systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as a natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    Finally, the Exchange would also amend the continued listing 
requirements in Rule 16.135(d)(2)(A) by changing the requirement that 
an Intraday Indicative Value for Managed Fund Shares be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the time when the Managed Fund Shares trade on the 
Exchange to a requirement that an Intraday Indicative Value be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Regular Market Session (as defined in Rule 
1.160(gg)).
Proposed Managed Fund Share Portfolio Standards
    The Exchange is proposing standards that would pertain to Managed 
Fund Shares to qualify for listing and trading pursuant to SEC Rule 
19b-4(e). These standards would be grouped according to security or 
asset type. The Exchange notes that the standards proposed for a 
Managed Fund Share portfolio that holds U.S. Component Stocks, Non-U.S. 
Component Stocks, Exchange Traded Derivative Securities, and Linked 
Securities are based in large part on the existing equity security 
standards applicable to Index Fund Shares in Rule 16.105(b)(3).
    The standards proposed for a Managed Fund Share portfolio that 
holds fixed income securities are based in large part on the existing 
fixed income security standards applicable to Index Fund Shares in Rule 
16.105(b)(4). Many of the standards proposed for other types of 
holdings in a Managed Fund Share portfolio are based on previous rule 
changes by Nasdaq and NYSE Arca for specific series of Managed Fund 
Shares.\13\
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    \13\ See, e.g., Securities Exchange Act Release No. 77688 (April 
22, 2016), 81 FR 25467 (April 28, 2016) (SR-NASDAQ-2016-030) (order 
approving listing and trading of Elkhorn Dorsey Wright Commodity 
Rotation Portfolio of Elkhorn ETF Trust). See also Securities 
Exchange Act Release Nos. 72728 (July 31, 2014) 79 FR 45852 (August 
6, 2014) (SR-NASDAQ-2014-059) (order approving listing and trading 
of Global X Commodities Strategy ETF) 72506 (July 1, 2014), 79 FR 
38631 (July 8, 2014) (SR-NASDAQ-2014-050) (order approving listing 
and trading of First Trust Strategic Income ETF); 69464 (April 26, 
2013), 78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036) (order 
approving listing and trading of First Trust Senior Loan Fund); and 
66489 (February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-
2012-004) (order approving listing and trading of WisdomTree 
Emerging Markets Corporate Bond Fund). See also Securities Exchange 
Act Release Nos. 66321 (February 3, 2012), 77 FR 6850 (February 9, 
2012) (SR-NYSEArca-2011-95) (the ``PIMCO Total Return Approval''); 
69244 (March 27, 2013), 78 FR 19766 (April 2, 2013) (SR-NYSEArca-
2013-08) (the ``SPDR Blackstone/GSO Senior Loan Approval''); 68870 
(February 8, 2013), 78 FR 11245 (February 15, 2013) (SR-NYSEArca-
2012-139) (the ``First Trust Preferred Securities and Income 
Approval''); 69591 (May 16, 2013), 78 FR 30372 (May 22, 2013) (SR-
NYSEArca-2013-33) (the ``International Bear Approval''); 61697 
(March 12, 2010), 75 FR 13616 (March 22, 2010) (SR-NYSEArca-2010-04) 
(the ``WisdomTree Real Return Approval''); and 67054 (May 24, 2012), 
77 FR 32161 (May 31, 2012) (SR-NYSEArca-2012-25) (the ``WisdomTree 
Brazil Bond Approval''). Certain standards proposed herein for 
Managed Fund Shares are also based on previous proposed Nasdaq rule 
changes for specific series of Index Fund Shares for which 
Commission approval for listing was required due to the Index Fund 
Shares not satisfying certain standards of Rule 5705(b)(3) and 
5705(b)(4). On NYSE Arca, similar products under NYSE Commentary .01 
and .02 to NYSE Arca Equities Rule 5.2(j)(3) are called Investment 
Company Units. See, e.g., Securities Exchange Act Release No. 69373 
(April 15, 2013), 78 FR 23601 (April 19, 2013) (SR-NYSEArca-2012-
108) (the ``NYSE Arca U.S. Equity Synthetic Reverse Convertible 
Index Fund Approval'').
---------------------------------------------------------------------------

    Proposed Rule 16.135(b)(1)(A) would describe the standards for a 
Managed Fund Share portfolio that holds equity securities, which are 
defined to be U.S. Component Stocks,\14\ Non-U.S. Component Stocks,\15\ 
Exchange Traded Derivative Securities,\16\ and Linked Securities \17\ 
listed on a national securities exchange. For Exchange Traded 
Derivative Securities and Linked Securities, no more than 25% of the 
equity weight of the portfolio could include leveraged and/or inverse 
leveraged Exchange Traded Derivative Securities or Linked Securities. 
In addition, proposed Rule 16.135(b)(1)(A) would provide that, to the 
extent that a portfolio includes convertible securities, the equity 
security into which such security is converted would be required to 
meet the criteria of Rule 16.135(b)(1)(A) after converting.
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    \14\ For purposes of Rule 16.135(b)(1) and this proposal, the 
term ``U.S. Component Stocks'' would have the same meaning as 
defined in Rule 16.105(b)(1)(D).
    \15\ For purposes of Rule 16.135(b)(1) and this proposal, the 
term ``Non-U.S. Component Stocks'' would have the same meaning as 
defined in Rule 16.105(b)(1)(E).
    \16\ For the purposes of Rule 16.135(b)(1)(A) and this proposal, 
proposed Rule 16.135(c)(6) would define the term ``Exchange Traded 
Derivative Securities'' to mean the securities described in Rules 
16.105(a) (Portfolio Depository Receipts); 16.105(b) (Index Fund 
Shares); 16.120 (Trust Issued Receipts); 16.111(d) (Commodity-Based 
Trust Shares); 16.111(e) (Currency Trust Shares); 16.111(f), 
(Commodity Index Trust Shares); 16.111(g) (Commodity Futures Trust 
Shares); 16.111(h) (Partnership Units); 16.111(i) (Trust Units); 
16.135 (Managed Fund Shares); and 16.111(j) (Managed Trust 
Securities). This proposed definition is more narrow than the term 
``Derivative Securities Product,'' as defined in Rule 16.170(d)(1).
    \17\ Linked Securities are securities that qualify for Exchange 
listing and trading under Rule 16.110. The securities described in 
Rules 16.105, 16.110, and 16.135(c)(6), as referenced above, would 
include securities listed on another national securities exchange 
pursuant to substantially equivalent listing rules.
---------------------------------------------------------------------------

    As proposed in Rule 16.135(b)(1)(A)(i), the component stocks of the 
equity portion of a portfolio that are U.S. Component Stocks shall meet 
the following criteria initially and on a continuing basis:
    (1) Component stocks (excluding Exchange Traded Derivative 
Securities and Linked Securities) that in the aggregate account for at 
least 90% of the equity weight of the portfolio (excluding such 
Exchange Traded Derivative Securities and Linked Securities) each must 
have a minimum market value of at least $75 million; \18\
---------------------------------------------------------------------------

    \18\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(i)(b), except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
---------------------------------------------------------------------------

    (2) Component stocks (excluding Exchange Traded Derivative 
Securities and Linked Securities) that in the aggregate account for at 
least 70% of the equity weight of the portfolio (excluding such 
Exchange Traded Derivative Securities and Linked Securities) each must 
have a minimum monthly trading volume of 250,000 shares or minimum 
notional volume traded per month of $25,000,000, averaged, over the 
last six months; \19\
---------------------------------------------------------------------------

    \19\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(i)(c), except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
---------------------------------------------------------------------------

    (3) The most heavily weighted component stock (excluding Exchange

[[Page 9861]]

Traded Derivative Securities and Linked Securities) must not exceed 30% 
of the equity weight of the portfolio, and, to the extent applicable, 
the five most heavily weighted component stocks (excluding Exchange 
Traded Derivative Securities and Linked Securities) must not exceed 65% 
of the equity weight of the portfolio; \20\
---------------------------------------------------------------------------

    \20\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(i)(d), except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
---------------------------------------------------------------------------

    (4) Where the equity portion of the portfolio does not include Non-
U.S. Component Stocks, the equity portion of the portfolio shall 
include a minimum of 13 component stocks; provided, however, that there 
shall be no minimum number of component stocks if (a) one or more 
series of Exchange Traded Derivative Securities or Linked Securities 
constitute, at least in part, components underlying a series of Managed 
Fund Shares, or (b) one or more series of Exchange Traded Derivative 
Securities or Linked Securities account for 100% of the equity weight 
of the portfolio of a series of Managed Fund Shares; \21\
---------------------------------------------------------------------------

    \21\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(i)(e), except for the 
omission of the reference to ``index,'' which is not applicable, the 
addition of the reference to Linked Securities, the substitution of 
a more narrow exclusion for ``Exchange Traded Derivative 
Securities'' instead of for ``Derivative Securities Products,'' and 
the reference to the 100% limit applying to the ``equity portion'' 
of the portfolio.
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    (5) Except as provided in proposed Rule 16.135(b)(1)(A), equity 
securities in the portfolio must be U.S. Component Stocks listed on a 
national securities exchange and must be NMS Stocks as defined in Rule 
600 of Regulation NMS; \22\ and
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    \22\ 17 CFR 240.600. This proposed text is substantively 
identical to the corresponding text of Rule 16.105(b)(3)(A)(i)(f), 
except for the addition of ``equity'' to make clear that the 
standard applies to ``equity securities,'' the exclusion of 
unsponsored ADRs, and the omission of the reference to ``index,'' 
which is not applicable.
---------------------------------------------------------------------------

    (6) American Depositary Receipts (``ADRs'') may be exchange-traded 
or non-exchange-traded. However, no more than 10% of the equity weight 
of the portfolio shall consist of non-exchange-traded ADRs.\23\
---------------------------------------------------------------------------

    \23\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Shareholdings to include not more than 10% of net 
assets in unsponsored ADRs (which are not exchange listed). See, 
e.g., Securities Exchange Act Release No. 73480 (October 31, 2014), 
79 FR 66022 (November 6, 2014) (SR-NASDAQ-2014-090) (order approving 
the Listing and Trading of Shares of the Validea Market Legends 
ETFs). See also Securities Exchange Act Release No. 71067 (December 
12, 2013), 78 FR 76669 (December 18, 2013) (order approving listing 
and trading of shares of the SPDR MFS Systematic Core Equity ETF, 
SPDR MFS Systematic Growth Equity ETF, and SPDR MFS Systematic Value 
Equity ETF under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    As proposed in Rule 16.135(b)(1)(A)(ii), the component stocks of 
the equity portion of a portfolio that are Non-U.S. Component Stocks 
shall meet the following criteria initially and on a continuing basis:
    (1) Non-U.S. Component Stocks each shall have a minimum market 
value of at least $100 million; \24\
---------------------------------------------------------------------------

    \24\ The proposed text is identical to the corresponding 
representations from the First Trust Approval Order and the SSgA 
Global Managed Volatility Release, as noted in footnote 31, below. 
The proposed text is also substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(ii)(a), except for the 
omission of the reference to ``index,'' which is not applicable, and 
that each Non-U.S. Component Stock must have a minimum market value 
of at least $100 million instead of the 90% required under Rule 
16.105(b)(3)(A)(ii)(a).
---------------------------------------------------------------------------

    (2) Non-U.S. Component Stocks each shall have a minimum global 
monthly trading volume of 250,000 shares, or minimum global notional 
volume traded per month of $25,000,000, averaged over the last six 
months; \25\
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    \25\ The proposed text is identical to the corresponding 
representations from the First Trust Approval Order and the SSgA 
Global Managed Volatility Release, as noted in footnote 31, below. 
This proposed text also is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(ii)(b), except for the 
omission of the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------

    (3) The most heavily weighted Non-U.S. Component Stock shall not 
exceed 25% of the equity weight of the portfolio, and, to the extent 
applicable, the five most heavily weighted Non-U.S. Component Stocks 
shall not exceed 60% of the equity weight of the portfolio; \26\
---------------------------------------------------------------------------

    \26\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(ii)(c), except for the 
omission of the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------

    (4) Where the equity portion of the portfolio includes Non-U.S. 
Component Stocks, the equity portion of the portfolio shall include a 
minimum of 20 component stocks; provided, however, that there shall be 
no minimum number of component stocks if (i) one or more series of 
Exchange Traded Derivative Securities or Linked Securities constitute, 
at least in part, components underlying a series of Managed Fund 
Shares, or (ii) one or more series of Exchange Traded Derivative 
Securities or Linked Securities account for 100% of the equity weight 
of the portfolio of a series of Managed Fund Shares; \27\ and
---------------------------------------------------------------------------

    \27\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(ii)(d), except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' the addition of the reference to Linked Securities, the 
reference to the equity portion of the portfolio including Non-U.S. 
Component Stocks, and the reference to the 100% limitation applying 
to the ``equity weight'' of the portfolio, which is included because 
the proposed standards in Rule 16.135(b) permit the inclusion of 
non-equity securities, whereas Rule 16.105 applies only to equity 
securities.
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    (5) Each Non-U.S. Component Stock shall be listed and traded on an 
exchange that has last-sale reporting.\28\
---------------------------------------------------------------------------

    \28\ This proposed text is substantively identical to Rule 
16.105(b)(3)(A)(ii)(e). as it relates to Non-U.S. Component Stocks.
---------------------------------------------------------------------------

    The Exchange notes that it is not proposing to require that any of 
the equity portion of the equity portfolio composed of Non-U.S. 
Component Stocks be listed on markets that are either a member of the 
Intermarket Surveillance Group (``ISG'') or a market with which the 
Exchange has a comprehensive surveillance sharing agreement 
(``CSSA'').\29\ However, as further detailed below, the regulatory 
staff of the Exchange, or the Financial Industry Regulatory Authority, 
Inc. (``FINRA''), on behalf of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including U.S. securities exchanges on which the 
components are traded.
---------------------------------------------------------------------------

    \29\ ISG is comprised of an international group of exchanges, 
market centers, and market regulators that perform front-line market 
surveillance in their respective jurisdictions. See 
www.isgportal.org. A list of ISG members is available at 
www.isgportal.org.
---------------------------------------------------------------------------

    The Exchange notes that the generic listing standards for Index 
Fund Shares based on foreign indexes in Rule 16.105 do not include 
specific ISG or CSSA requirements.\30\ In addition, the Commission has 
approved listing and trading on Nasdaq of shares of an issue of Managed 
Fund Shares under Nasdaq Rule 5735 (which is substantially identical to 
IEX Rule 16.135) where non-U.S. equity securities in such issue's 
portfolio meet specified criteria and where there is no requirement 
that such non-U.S. equity securities are traded in markets that are 
members of ISG or with which Nasdaq has in place a CSSA.\31\
---------------------------------------------------------------------------

    \30\ Under Rule 16.105(b)(3), Index Fund Shares with components 
that include Non-U.S. Component Stocks can hold a portfolio that is 
entirely composed of Non-U.S. Component Stocks that are listed on 
markets that are neither members of ISG, nor with which the Exchange 
has in place a CSSA.
    \31\ See, e.g., Securities Exchange Act Release No. 77548 (April 
6, 2016), 81 FR 21626 (April 12, 2016) (SR-NASDAQ-2015-161) (order 
approving listing and trading of the Shares of the First Trust 
RiverFront Dynamic Europe ETF, First Trust RiverFront Dynamic Asia 
Pacific ETF, First Trust RiverFront Dynamic Emerging Markets ETF, 
and First Trust RiverFront Dynamic Developed International ETF of 
First Trust Exchange-Traded Fund III) (the ``First Trust Approval 
Order''). See also Securities Exchange Act Release No. 75023 (May 
21, 2015), 80 FR 30519 (May 28, 2015) (SR-NYSEArca-2014-100) (order 
approving listing and trading on the Exchange of shares of the SPDR 
SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule 
8.600) (``SSgA Global Managed Volatility Release'').

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[[Page 9862]]

    Proposed Rule 16.135(b)(1)(B) would describe the standards for a 
Managed Fund Share portfolio that holds fixed income securities, which 
are debt securities \32\ that are notes, bonds, debentures, or evidence 
of indebtedness that include, but are not limited to, U.S. Department 
of Treasury securities (``Treasury Securities''), government-sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof, investment grade and high yield corporate 
debt, bank loans, mortgage and asset backed securities, and commercial 
paper.
---------------------------------------------------------------------------

    \32\ Debt securities include a variety of fixed income 
obligations, including, but not limited to, corporate debt 
securities, government securities, municipal securities, convertible 
securities, and mortgage-backed securities. Debt securities include 
investment-grade securities, non-investment-grade securities, and 
unrated securities. Debt securities also include variable and 
floating rate securities.
---------------------------------------------------------------------------

    In addition, to the extent that a portfolio includes convertible 
securities, the fixed income security into which such security is 
converted would be required to meet the criteria of Rule 
16.135(b)(1)(B) after converting.
    The components of the fixed income portion of the portfolio must 
meet the following criteria initially and on a continuing basis:
    (1) Components that in the aggregate account for at least 75% of 
the fixed income weight of the portfolio each shall have a minimum 
original principal amount outstanding of $100 million or more; \33\
---------------------------------------------------------------------------

    \33\ This text of proposed Rule 16.135(b)(1)(B)(i) is based on 
the corresponding text of Rule 16.105(b)(4)(A)(ii).
---------------------------------------------------------------------------

    (2) No component fixed-income security (excluding Treasury 
Securities and GSE Securities could represent more than 30% of the 
fixed income weight of the portfolio; and the five most heavily 
weighted component fixed income securities in the portfolio (excluding 
Treasury Securities and GSE Securities) must not in the aggregate 
account for more than 65% of the fixed income weight of the portfolio; 
\34\
---------------------------------------------------------------------------

    \34\ This proposed text is substantively identical to the 
corresponding text of 16.105(b)(4)(A)(iv), except for the omission 
of the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------

    (3) An underlying portfolio (excluding exempted securities) that 
includes fixed income securities must include a minimum of 13 non-
affiliated issuers; provided, however, that there shall be no minimum 
number of non-affiliated issuers required for fixed income securities 
if at least 70% of the weight of the portfolio consists of equity 
securities as described in proposed Rule 16.135(b)(1)(A); \35\
---------------------------------------------------------------------------

    \35\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(4)(A)(v), except for the 
omission of the reference to ``index,'' which is not applicable, the 
exclusion of the text ``consisting entirely of exempted securities'' 
and the provision that there shall be no minimum number of 
nonaffiliated issuers required for fixed income securities if at 
least 70% of the weight of the portfolio consists of equity 
securities as described in proposed Rule 16.135(b)(1)(A).
---------------------------------------------------------------------------

    (4) Component securities that in aggregate account for at least 90% 
of the fixed income weight of the portfolio must be either (a) from 
issuers that are required to file reports pursuant to Sections 13 and 
15(d) of the Act; (b) from issuers that have a worldwide market value 
of outstanding common equity held by non-affiliates of $700 million or 
more; (c) from issuers that have outstanding securities that are notes, 
bonds, debentures, or evidence of indebtedness having a total remaining 
principal amount of at least $1 billion; \36\ (d) exempted securities 
as defined in Section 3(a)(12) of the Act; or (e) from issuers that are 
a government of a foreign country or a political subdivision of a 
foreign country; and
---------------------------------------------------------------------------

    \36\ With respect to subparagraphs (b) and (c) above, the 
special purpose vehicle (``SPV'') that issues the fixed income 
security (e.g., an asset-backed or mortgage backed security) would 
itself be required to satisfy the $700 million and $1 billion 
criteria, respectively, and not the entity that controls, owns or is 
affiliated with the SPV.
---------------------------------------------------------------------------

    (5) Non-agency, non-GSE, and privately-issued mortgage-related and 
other asset backed securities components of a portfolio shall not 
account, in the aggregate, for more than 20% of the weight of the fixed 
income portion of the portfolio.\37\
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    \37\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include up to 20% of net assets in 
non-agency, non-GSE and privately-issued mortgage related and other 
asset-backed securities. See, e.g., Securities Exchange Act Release 
No. 74742 (April 16, 2015) 80 FR 22584 (April 22, 2015) (SR-NASDAQ-
2015-011) (order approving the listing and trading of shares of the 
First Trust Strategic Floating Rate ETF of First Trust Exchange-
Traded Fund IV. See also, Securities Exchange Act Release No. 75566 
(July 30, 2015), 80 FR 46612 (August 5, 2015) (SR-NYSEArca-2015-42) 
(order approving listing and trading of shares of Newfleet Multi-
Sector Unconstrained Bond ETF under Rule 8.600).
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    Proposed Rule 16.135(b)(1)(C) would describe the standards for a 
Managed Fund Share portfolio that holds cash and cash equivalents.\38\ 
Specifically, the portfolio may hold short-term instruments with 
maturities of less than 3 months. There would be no limitation on the 
percentage of the portfolio invested in such holdings. Short-term 
instruments would include the following: \39\
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    \38\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include cash and cash equivalents. 
See, e.g., note 13 supra.
    \39\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly specified short-term instruments 
with respect to their inclusion in Managed Fund Share holdings. See, 
e.g., note 13 supra.
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    (1) U.S. Government securities, including bills, notes, and bonds 
differing as to maturity and rates of interest, which are either issued 
or guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities;
    (2) certificates of deposit issued against funds deposited in a 
bank or savings and loan association;
    (3) bankers' acceptances, which are short-term credit instruments 
used to finance commercial transactions;
    (4) repurchase agreements and reverse repurchase agreements;
    (5) bank time deposits, which are monies kept on deposit with banks 
or savings and loan associations for a stated period of time at a fixed 
rate of interest;
    (6) commercial paper, which are short-term unsecured promissory 
notes; and
    (7) money market funds.
    Proposed Rule 16.135(b)(1)(D) would describe the standards for a 
Managed Fund Share portfolio that holds listed derivatives, including 
futures, options, and swaps on commodities, currencies, and financial 
instruments (e.g., stocks, fixed income, interest rates, and 
volatility) or a basket or index of any of the foregoing.\40\ There 
would be no limitation on the percentage of the portfolio invested in 
such holdings, subject to the following requirements:
---------------------------------------------------------------------------

    \40\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include listed derivatives. See, 
e.g., note 13 supra.
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    (1) In the aggregate, at least 90% of the weight of such holdings 
invested in futures, exchange-traded options, and listed swaps shall, 
on both an initial and continuing basis, consist of futures, options, 
and swaps for which the Exchange may obtain information via the ISG 
from other members or affiliates of the ISG or for which the principal 
market is a market with which the Exchange has a comprehensive 
surveillance sharing agreement (for purposes of calculating this 
limitation, a portfolio's investment in listed derivatives will be 
calculated as the aggregate gross notional value of the listed 
derivatives); and

[[Page 9863]]

    (2) the aggregate gross notional value of listed derivatives based 
on any five or fewer underlying reference assets shall not exceed 65% 
of the weight of the portfolio (including gross notional exposures), 
and the aggregate gross notional value of listed derivatives based on 
any single underlying reference asset shall not exceed 30% of the 
weight of the portfolio (including gross notional exposures).
    Proposed Rule 16.135(b)(1)(E) would describe the standards for a 
Managed Fund Share portfolio that holds over the counter (``OTC'') 
derivatives, including forwards, options and swaps on commodities, 
currencies and financial instruments (e.g., stocks, fixed income, 
interest rates, and volatility) or a basket or index of any of the 
foregoing.\41\ Proposed Rule 16.135(b)(1)(E) would provide that, on 
both an initial and continuing basis, no more than 20% of the assets in 
the portfolio may be invested in OTC derivatives. For purposes of 
calculating this limitation, a portfolio's investment in OTC 
derivatives will be calculated as the aggregate gross notional value of 
the OTC derivatives.
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    \41\ A proposed rule change for series of Index Fund Shares 
previously listed and traded on Nasdaq pursuant to Nasdaq Rule 5705 
similarly included the ability for such Index Fund Shares' holdings 
to include OTC derivatives, specifically OTC down-and-in put 
options, which are not NMS Stocks as defined in Rule 600 of 
Regulation NMS and therefore did not satisfy the requirements of 
Nasdaq Rule 5705. See, e.g., note 13 supra, regarding NYSE Arca U.S. 
Equity Synthetic Reverse Convertible Index Fund Approval.
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    Proposed Rule 16.135(b)(1)(F) would provide that, to the extent 
that listed or OTC derivatives are used to gain exposure to individual 
equities and/or fixed income securities, or to indexes of equities and/
or fixed income securities, the aggregate gross notional value of such 
exposure shall meet the criteria set forth in Rules 16.135(b)(1)(A) and 
(B) (including gross notional exposures), respectively.
    The following examples illustrate how certain of the proposed 
generic criteria of Rule 16.135 would be applied:
    1. An actively managed ETF holds non-agency MBS that represent 15% 
of the weight of the fixed income portion of the portfolio. The fixed 
income portion of the portfolio meets all the requirements of Rule 
16.135(b)(1)(B). The ETF also holds an OTC swap on a non-agency MBS 
Index that represents 10% of the fixed income weight of the portfolio 
calculated on a notional value basis. Separately, the OTC swap and 
fixed income portion of the portfolio would meet the requirements of 
Rule 16.135(b)(1). However, when the 15% weight in non-agency MBS and 
the 10% weight in the non-agency MBS Index OTC swap are combined, as 
required by proposed 16.135(b)(1)(F), the 25% total weight would exceed 
the 20% limit for non-agency GSE and privately-issued mortgage-related 
securities in Rule 16.135(b)(1)(B)(v). The portfolio, therefore, would 
not meet the proposed generic criteria of Rule 16.135.
    2. An actively managed ETF holds a portfolio of non-U.S. equity 
securities, S&P 500 Index and gold futures. S&P 500 Index futures and 
the gold futures held by the fund are listed on an ISG member exchange. 
The equity portion of the portfolio consists of developed and emerging 
markets equity securities with a current aggregate market value of $15 
million and all components meet the requirements under Rule 
16.135(b)(1)(A)(ii). The gold futures contract trading unit size is 100 
troy ounces and an ounce of gold is currently worth $1200. The fund 
holds 500 gold futures contracts with a notional value of $60 million 
(500*100*$1200). One S&P 500 contract represents 250 units of the S&P 
500 Index and the S&P 500 Index is trading at $2,000. The portfolio 
holds 50 contracts, so the notional value of the S&P 500 Index futures 
position is $25 million (50*250*$2000). The S&P 500 Index futures meet 
the requirement under Rule 16.135(b)(1)(F), that is, the S&P 500 Index 
meets the criteria in Rule 16.135(b)(1)(A). The weights of the 
components are as follows; equity securities represent 15% of the 
portfolio, gold futures represent 60% of the portfolio and S&P 500 
Index futures represent 25% of the portfolio. The gold futures 
represent 60% of the portfolio and exceeds the 30% concentration 
limitation on any single underlying reference asset as outlined in 
proposed Rule 16.135(b)(1)(D)(ii). The portfolio, therefore, would not 
meet the proposed generic criteria of Rule 16.135.
    3. An actively managed ETF holds a portfolio of equity securities 
and call option contracts on company XYZ. The equity portion of the 
portfolio meets the requirements under Rule 16.135(b)(1)(A). Company 
XYZ represents 20% of the weight of the equity portion of the 
portfolio. The equity portion of the fund has a market value of $100 
million and the market value of the fund's holdings in company XYZ has 
a market value of $20 million. The fund also holds 10,000 call option 
contracts on company XYZ which has a current market price of $50 a 
share and, therefore, a notional value of $50 million (50*100*10,000) 
(that is, the $50 market price per share times the multiplier of 100 
times 10,000 contracts). The option contracts are traded on an ISG 
member exchange. The total exposure to company XYZ is therefore $70 
million and represents 46.7% ($70 million/$150 million=46.7%) of the 
portfolio. This fund would not meet the requirements of Rule 16.135 
because the exposure to XYZ at 46.7% exceeds the 30% concentration 
limitation of proposed Rule 16.135(b)(1)(D)(ii).
    The Exchange believes that the proposed standards would ensure 
transparency surrounding the listing process for Managed Fund Shares. 
Additionally, the Exchange believes that the proposed portfolio 
standards for listing and trading Managed Fund Shares, many of which 
track existing Exchange rules relating to Index Fund Shares, are 
reasonably designed to promote a fair and orderly market for such 
Managed Fund Shares. These proposed standards would also work in 
conjunction with the existing initial and continued listing criteria 
related to surveillance procedures and trading guidelines.
    In support of this proposal, the Exchange represents that:
    1. Any Managed Fund Shares listed and traded on IEX will conform to 
the initial and continued listing criteria under Rule 16.135;
    2. the Exchange's surveillance procedures are adequate to continue 
to properly monitor the trading of the Managed Fund Shares in all 
trading sessions and to deter and detect violations of Exchange rules. 
Specifically, the Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products, which will include 
Managed Fund Shares, to monitor trading in the Managed Fund Shares;
    3. prior to the commencement of trading of a particular series of 
Managed Fund Shares, the Exchange will inform its members in an 
information circular (``Circular'') of the special characteristics and 
risks associated with trading the Managed Fund Shares, including 
procedures for purchases and redemptions of Managed Fund Shares, 
suitability requirements under Rules 3.150 and 3.170, the risks 
involved in trading the Managed Fund Shares during the Pre-Market and 
Post-Market Sessions when an updated Intraday Indicative Value will not 
be calculated or publicly disseminated, information regarding the 
Intraday Indicative Value and the Disclosed Portfolio, prospectus 
delivery requirements, and other trading information. In addition, the 
Circular will disclose that the Managed Fund Shares are subject to 
various fees and expenses, as described in the applicable registration 
statement, and will discuss

[[Page 9864]]

any exemptive, no-action, and interpretive relief granted by the 
Commission from any rules under the Act. Finally, the Circular will 
disclose that the net asset value for the Managed Fund Shares will be 
calculated after 4 p.m., ET, each trading day; and
    4. the issuer of a series of Managed Fund Shares will be required 
to comply with Rule 10A-3 under the Act for the initial and continued 
listing of Managed Fund Shares, as provided under the IEX Rule Series 
14.400.
    The Exchange, on a periodic basis and no less than annually, will 
review issues of Managed Fund Shares generically listed pursuant to 
Rule 16.135, and will provide a report to the Regulatory Oversight 
Committee of the Exchange's Board of Directors regarding the Exchange's 
findings. In addition, the Exchange will provide the Commission staff 
with a report each calendar quarter that includes the following 
information for issues of Managed Fund Shares listed during such 
calendar quarter under Rule 16.135(b)(1): (1) Trading symbol and date 
of listing on the Exchange; (2) the number of active authorized 
participants and a description of any failure of an issue of Managed 
Fund Shares or of an authorized participant to deliver shares, cash, or 
cash and financial instruments in connection with creation or 
redemption orders; and (3) a description of any failure of an issue of 
Managed Fund Shares to comply with Rule 16.135.
    Prior to listing pursuant to proposed amended Rule 16.135(b)(1), an 
issuer would be required to represent to the Exchange that it will 
advise the Exchange of any failure by a series of Managed Fund Shares 
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 IEX Rule Series 
14.500.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and that the Exchange is not aware 
of any problems that members or issuers would have in complying with 
the proposed change.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with 
Section 6(b) \42\ of the Act in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\43\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78f(b).
    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed change to adopt generic 
listing standards for Managed Fund Shares is designed to perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest because it would facilitate the 
potential listing and trading of Managed Fund Shares on the Exchange, 
which would enhance competition among market participants, to the 
benefit of investors and the marketplace. The proposed change would 
codify in Rule 16.135 specified criteria that have been the basis for 
proposed rule filings by Nasdaq and NYSE Arca with the Commission for 
the listing and trading of each new series of Managed Fund Shares. The 
Exchange believes that such codification is appropriate in that it 
would facilitate the listing and trading of additional types of Managed 
Fund Shares that have investment portfolios that are similar to 
investment portfolios for Index Fund Shares, which have been approved 
for listing and trading, thereby creating greater efficiencies in the 
listing process for the Exchange and the Commission should the Exchange 
seek to list Managed Fund Shares. Moreover, the proposed generic 
standards for Managed Fund Shares are substantially identical to those 
that the Commission approved for Nasdaq, finding that such standards 
are consistent with the Section 6(b)(5) of the Act, noting that 
Nasdaq's proposal in turn was substantially identical to proposals the 
Commission had recently approved for NYSE Arca and Bats BZX Exchange 
(previously BATS Exchange).\44\
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    \44\ See, Securities Exchange Act Release No. 78918 (September 
23, 2016), 81 FR 67033 (September 29, 2016) (SR-NASDAQ-2016-104).
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    The Exchange further believes that the proposed rule change is 
designed to protect investors and the public interest because Managed 
Fund Shares listed and traded pursuant to Rule 16.135, including 
pursuant to the proposed new portfolio standards, would continue to be 
subject to the full panoply of Exchange rules and procedures that 
currently govern the trading of equity securities on the Exchange.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices because the 
Managed Fund Shares will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in Rule 16.135. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Managed Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. FINRA, on behalf of the Exchange, 
or the regulatory staff of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including all U.S. securities exchanges and futures 
exchanges on which the components are traded.
    In addition, the Exchange may obtain information regarding trading 
in Managed Fund Shares from other markets that are members of the ISG, 
including all U.S. securities exchanges and futures exchanges on which 
the components are traded, or with which the Exchange has in place a 
CSSA.
    The Exchange also believes that the proposed rule change would 
fulfill the intended objective of Rule 19b-4(e) under the Act by 
allowing Managed Fund Shares that satisfy the proposed listing 
standards to be listed and traded without separate Commission approval. 
However, as proposed, the Exchange would continue to file separate 
proposed rule changes before the listing and trading of Managed Fund 
Shares that do not satisfy the additional criteria described above.
    The Exchange, on a periodic basis and no less than annually, will 
review issues of Managed Fund Shares listed pursuant to Rule 
16.135(b)(1), and will provide a report to the Regulatory Oversight 
Committee of the Exchange's Board of Directors regarding the Exchange's 
findings. In addition, the Exchange will provide the Commission staff 
with a report each calendar quarter that includes the following 
information for issues of Managed Fund Shares listed during such 
calendar quarter under Rule 16.135(b)(1): (1) Trading symbol and date 
of listing on the Exchange; (2) the number of active authorized 
participants and a description of any failure of an issue of Managed 
Fund Shares listed pursuant to Rule 16.135(b)(1) or of an authorized 
participant to deliver shares, cash, or cash and financial instruments 
in connection with creation or redemption orders; and (3) a description 
of any

[[Page 9865]]

failure of an issue of Managed Fund Shares to comply with Rule 16.135.
    Prior to listing pursuant to proposed amended Rule 16.136(b)(1), an 
issuer would be required to represent to the Exchange that it will 
advise the Exchange of any failure by a series of Managed Fund Shares 
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 IEX Rule Series 
14.500.
    Accordingly, based on the foregoing, the Exchange believes that the 
proposed generic listing standards for Managed Fund Shares are 
consistent with Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    The Exchange believes that the proposed change would facilitate the 
listing and trading of additional types of Managed Fund Shares and 
result in a significantly more efficient process for the listing and 
trading of Managed Fund Shares, thereby enhancing competition among 
market participants, including issuers and exchanges. Further, the 
Exchange believes that applying uniform and transparent listing 
standards would make the process for listing Managed Fund Shares more 
competitive.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove such proposed rule change; or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-IEX-2017-03 in 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-IEX-2017-03. This file 
number should be included in 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 (http://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 will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-IEX-2017-03 and should be 
submitted on or before March 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02544 Filed 2-7-17; 8:45 am]
 BILLING CODE 8011-01-P