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]
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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.
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17:36 Feb 07, 2017
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
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]
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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.
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
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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
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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).
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(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
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Rule 11.120.
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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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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)).
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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.
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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);
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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.
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9861
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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
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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.
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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.
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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.
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(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.
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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
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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
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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).
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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,
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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 (https://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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing 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 https://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]
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
(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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
(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
---------------------------------------------------------------------------
\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.
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(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\
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\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\
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\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\
---------------------------------------------------------------------------
\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.
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\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\
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\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
(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.
---------------------------------------------------------------------------
(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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\44\ See, Securities Exchange Act Release No. 78918 (September
23, 2016), 81 FR 67033 (September 29, 2016) (SR-NASDAQ-2016-104).
---------------------------------------------------------------------------
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 (https://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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing 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
