Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Regarding Investments of the Janus Short Duration Income ETF Under NYSE Arca Equities Rule 8.600, 11089-11098 [2017-03179]
Download as PDF
<![CDATA[
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
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:
mstockstill on DSK3G9T082PROD with NOTICES
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–
C2–2017–008 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–C2–2017–008. 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–C2–
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
2017–008 and should be submitted on
or before March 10, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–03182 Filed 2–16–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80028; File No. SR–
NYSEArca–2017–09]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Regarding Investments of
the Janus Short Duration Income ETF
Under NYSE Arca Equities Rule 8.600
February 13, 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
30, 2017, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I 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
The Exchange proposes to amend [sic]
certain changes regarding investments
of the Janus Short Duration Income ETF,
which is currently listed and traded on
the Exchange under NYSE Arca Equities
Rule 8.600 (‘‘Managed Fund Shares’’).
The proposed rule change is available
on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
11089
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes certain
changes, described below under
‘‘Application of Generic Listing
Requirements’’, regarding investments
of the Janus Short Duration Income ETF
(the ‘‘Fund’’). The shares (‘‘Shares’’) of
the Fund are currently listed and traded
on the Exchange under Commentary .01
to NYSE Arca Equities Rule 8.600,
which provides generic criteria
applicable to the listing and trading of
Managed Fund Shares.4 The Shares are
offered by Janus Detroit Street Trust (the
‘‘Trust’’), which is registered with the
Commission as an open-end
management investment company.5
Janus Capital Management LLC (the
‘‘Adviser’’) is the investment adviser for
the Fund. ALPS Distributors, Inc. (the
‘‘Distributor’’) is the principal
underwriter and distributor of the
Fund’s Shares. State Street Bank and
Trust Company serves as the custodian,
administrator, and transfer agent
(‘‘Transfer Agent’’) for the Fund.6
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
5 Shares of the Fund commenced trading on the
Exchange on November 17, 2016 pursuant to
Commentary .01 to NYSE Arca Equities Rule 8.600.
6 The Trust is registered under the 1940 Act. On
November 16, 2016, the Trust filed with the
Commission its registration statement on Form N–
1A under the Securities Act of 1933 (15 U.S.C. 77a)
(‘‘Securities Act’’), and under the 1940 Act relating
to the Fund (File Nos. 333–207814 and 811–23112)
(‘‘Registration Statement’’). The description of the
operation of the Trust and the Fund herein is based,
in part, on the Registration Statement. In addition,
the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940
Act. See Investment Company Act Release No.
31540 (March 30, 2015) (File No. 812–13819)
(‘‘Exemptive Order’’).
E:\FR\FM\17FEN1.SGM
17FEN1
11090
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
Principal Investments
According to the Registration
Statement, the Fund seeks to provide a
steady income stream with capital
preservation across various market
cycles. The Fund seeks to outperform
the London Interbank Offered Rate
(‘‘LIBOR’’) 3-month rate by 2–3%
through various market cycles with low
volatility. The Fund pursues its
investment objective by investing, under
normal market conditions,7 at least 80%
of its net assets in a portfolio of
financial instruments described below.
The Fund seeks value across sectors
and geographies using a wide range of
instruments to capitalize on investment
opportunities, as well as exploiting
structural inefficiencies in fixed income
markets to maximize current income
with low volatility.
The average portfolio duration of the
Fund generally is 0–2 years under
normal market conditions, although the
Fund’s portfolio manager may choose to
vary the duration of the Fund
significantly from this target under
certain market conditions.
The Fund may invest in ‘‘Fixed
Income Instruments’’, as defined below,
issued by various U.S. and non-U.S.
public- or private-sector entities, which
may be represented by derivatives, as
described below under ‘‘Use of
Derivatives by the Fund’’.
Fixed Income Instruments are the
following:
• U.S. and non-U.S. corporate debt
securities (that is, corporate bonds,
debentures, notes, and other similar
corporate debt instruments);
• preferred stock of foreign issuers,
foreign bank obligations (including bank
deposits denominated in foreign
currencies), and U.S. dollar or foreign
currency-denominated obligations of
foreign governments or supranational
entities or their subdivisions, agencies,
and instrumentalities;
• agency and non-agency assetbacked securities (‘‘ABS’’), namely,
collateralized mortgage obligations
(‘‘CMOs’’); commercial mortgage-backed
securities (‘‘CMBS’’); adjustable-rate
mortgage-backed securities (‘‘ARMBS’’);
CMO residuals; and residential
mortgage backed securities (‘‘RMBS’’);
• principal exchange rate linked
securities;
• zero coupon, step coupon, and payin-kind securities;
• U.S. Government securities,
including inflation-indexed bonds
issued by the U.S. Government;
Treasury bills, notes and bonds; and
Treasury Inflation-Protected Securities
(‘‘TIPS’’); and obligations issued or
guaranteed by U.S. Government
agencies and instrumentalities that are
backed by the full faith and credit of the
U.S. Government;
• inflation-indexed bonds not issued
by the U.S. government, including
municipal inflation-indexed bonds,
inflation-indexed bonds issued by
foreign governments, and corporate
inflation-indexed bonds;
• debt securities issued by states or
local governments and their agencies,
authorities and other governmentsponsored enterprises (‘‘Municipal
Bonds’’);
• custodial receipts; 8
7 The term ‘‘normal market conditions’’ is defined
in NYSE Arca Equities Rule 8.600(c)(5).
8 Custodial receipts represent the right to receive
either the principal amount or the periodic interest
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s portfolio.
Commentary .06 to Rule 8.600 is similar
to Commentary .03(a)(i) and (iii) to
NYSE Arca Equities Rule 5.2(j)(3);
however, Commentary .06 in connection
with the establishment of a ‘‘fire wall’’
between the investment adviser and the
broker-dealer reflects the applicable
open-end fund’s portfolio, not an
underlying benchmark index, as is the
case with index-based funds. The
Adviser is not registered as a brokerdealer but the Adviser is affiliated with
a broker-dealer and has implemented
and will maintain a ‘‘fire wall’’ with
respect to such broker-dealer regarding
access to information concerning the
composition and/or changes to the
Fund’s portfolio. In the event (a) the
Adviser becomes registered as a brokerdealer or newly affiliated with a brokerdealer, or (b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with a broker-dealer,
it will implement and maintain a fire
wall with respect to its relevant
personnel or broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
mstockstill on DSK3G9T082PROD with NOTICES
Janus Short Duration Income ETF
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
• Build America Bonds;
• variable and floating rate
obligations; 9
• Brady Bonds;
• bank obligations, namely,
certificates of deposit, bankers’
acceptances, and fixed time deposits;
• fixed income privately-placed
securities and fixed income unregistered
securities; 10
• exchange-traded or OTC bank
capital securities; 11
• subordinated or junior debt;
• credit-linked trust certificates,
traded custody receipts, and
participation interests;
• structured notes and indexed
securities; 12
• money market instruments.13
The Fund may invest in exchangetraded closed-end funds (‘‘CEFs’’) that
invest substantially all of their assets in
Fixed Income Instruments.
The Fund may invest in futures and
options on futures on interest rates,
foreign currencies and Eurodollars.
payments or both with respect to specific
underlying municipal obligations. In a typical
custodial receipt arrangement, an issuer or third
party owner of municipal obligations deposits the
bonds with a custodian in exchange for two classes
of custodial receipts. The two classes have different
characteristics, but, in each case, payments on the
two classes are based on payments received on the
underlying municipal obligations.
9 These types of securities have variable or
floating rates of interest and, under certain limited
circumstances, may have varying principal
amounts. Variable and floating rate securities pay
interest at rates that are adjusted periodically
according to a specified formula, usually with
reference to some interest rate index or market
interest rate.
10 Unregistered securities include securities of
U.S. and non-U.S. issuers that are issued through
private offerings without registration with the
Commission pursuant to Regulation S under the
1933 Act (‘‘Regulation S Securities’’). Offerings of
Regulation S Securities may be conducted outside
of the United States.
11 Bank capital securities are issued by banks to
help fulfill their regulatory capital requirements.
According to the Registration Statement, there are
two common types of bank capital: Tier I and Tier
II. Bank capital is generally, but not always, of
investment grade quality. Tier I securities often take
the form of trust preferred securities. Tier II
securities are commonly thought of as hybrids of
debt and preferred stock, are often perpetual (with
no maturity date), callable and, under certain
conditions, allow for the issuer bank to withhold
payment of interest until a later date.
12 Structured notes are derivative debt
instruments, the interest rate or principal of which
is determined by an unrelated indicator (for
example, a currency, security, or index thereof).
The terms of the instrument may be ‘‘structured’’
by the purchaser and the borrower issuing the note.
Indexed securities may include structured notes as
well as securities other than debt securities, the
interest rate or principal of which is determined by
an unrelated indicator. Indexed securities may
include a multiplier that multiplies the indexed
element by a specified factor.
13 Money market instruments are short-term
instruments referenced in Commentary .01 (c) to
NYSE Arca Equities Rule 8.600.
E:\FR\FM\17FEN1.SGM
17FEN1
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
mstockstill on DSK3G9T082PROD with NOTICES
The Fund may enter into forward
contracts to purchase and sell Fixed
Income Instruments and foreign
currencies.
The Fund may invest in options on
foreign currencies either on exchanges
or in the OTC market.
The Fund may invest in options on
U.S. and foreign government securities.
Such options may be traded on foreign
exchanges and OTC in foreign countries.
The Fund may write exchange-traded
or OTC covered and uncovered put and
call options and buy exchange-traded or
OTC put and call options on securities
that are traded on U.S. and foreign
securities exchanges.
The Fund may write straddles
(combinations of put and call options on
the same underlying security), which
are generally a non-hedging technique
used for purposes such as seeking to
enhance returns.
The Fund may also purchase and
write exchange-listed and OTC put and
call options on securities indices.
Indices may also be based on a
particular industry, market segment, or
certain currencies such as the U.S.
Dollar Index or DXY Index.
The Fund may purchase or write
covered and uncovered put and call
options on interest rate swaps
(‘‘swaptions’’). Swaption contracts grant
the purchaser the right, but not the
obligation, to enter into a swap
transaction at preset terms detailed in
the underlying agreement within a
specified period of time.
The Fund may enter into swap
agreements or utilize swap-related
products, which are the following: Total
return swaps based on Fixed Income
Instruments or an index thereon;
interest rate swaps; and credit default
swaps (‘‘CDS’’) and index credit default
swaps (‘‘CDXs’’) based on Fixed Income
Instruments. The Fund may invest in
swaps on U.S. and foreign currencies. In
addition, the Fund may enter into
single-name credit default swap
agreements.
Other Investments
While the Fund, under normal market
conditions, invests at least 80% of its
net assets in the securities and financial
instruments described above, the Fund
may invest its remaining assets in the
securities and financial instruments
described below.
The Fund may engage in foreign
currency transactions on a spot (cash)
basis.
Use of Derivatives by the Fund
Investments in derivative instruments
are made in accordance with the 1940
Act and consistent with the Fund’s
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
investment objective and policies. The
Fund will typically use derivative
instruments as a substitute for taking a
position in the underlying asset where
advantageous and/or as part of a strategy
designed to reduce exposure to other
risks, such as interest rate or currency
risk. The Fund may also use derivative
instruments to enhance returns, manage
portfolio duration, or manage the risk of
securities price fluctuations. To limit
the potential risk associated with such
transactions, the Fund segregates or
‘‘earmarks’’ assets determined to be
liquid by the Adviser in accordance
with procedures established by the
Trust’s Board of Trustees (the ‘‘Board’’)
and in accordance with the 1940 Act
(or, as permitted by applicable
regulation, enter into certain offsetting
positions) to cover its obligations under
derivative instruments. These
procedures have been adopted
consistent with Section 18 of the 1940
Act and related Commission guidance.
In addition, the Fund has included
appropriate risk disclosure in its
offering documents, including
leveraging risk. Leveraging risk is the
risk that certain transactions of the
Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.
Because the markets for certain
securities, or the securities themselves,
may be unavailable or cost prohibitive
as compared to derivative instruments,
suitable derivative transactions may be
an efficient alternative for the Fund to
obtain the desired asset exposure.
The Adviser believes that derivative
instruments can be an economically
attractive substitute, for example, for an
underlying physical security that the
Fund would otherwise purchase. The
Adviser further believes that derivatives
can be used as a more liquid means of
adjusting portfolio duration as well as
targeting specific areas of yield curve
exposure, with potentially lower
transaction costs than the underlying
securities (e.g., interest rate swaps may
have lower transaction costs than
physical bonds).
The Fund also can use derivatives to
obtain credit exposure. Index CDX can
be used to gain exposure to a basket of
credit risk by ‘‘selling protection’’
against default or other credit events, or
to hedge broad market credit risk by
‘‘buying protection’’. Single name CDS
can be used to allow the Fund to
increase or decrease exposure to specific
issuers, saving investor capital through
lower trading costs. The Fund can use
total return swap contracts to obtain the
total return of a reference asset or index
in exchange for paying a financing cost.
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
11091
A total return swap may be more
efficient than buying underlying
securities of an index, potentially
lowering transaction costs.
Net Asset Value and Derivatives
Valuation Methodology for Purposes of
Determining Net Asset Value
The net asset value (‘‘NAV’’) of the
Shares of the Fund is determined once
each day the New York Stock Exchange
(the ‘‘NYSE’’) is open, as of the close of
its regular trading session (normally
4:00 p.m., Eastern time) (‘‘NYSE
Close’’). The per Share NAV of the Fund
is computed by dividing the net assets
by the number of the Fund’s Shares
outstanding.
For purposes of calculating NAV,
portfolio securities and other assets for
which market quotes are readily
available are valued at market value.
Market value is generally determined on
the basis of last reported sales prices, or
if no sales are reported, based on quotes
obtained from a quotation reporting
system, established market makers, or
pricing services.
Fixed Income Instruments are
generally valued on the basis of quotes
obtained from brokers and dealers or
independent pricing services which
provide evaluated bid prices. Domestic
and foreign Fixed Income Instruments
are generally valued on the basis of
quotes obtained from brokers and
dealers or independent pricing services
using data reflecting the earlier closing
of the principal markets for those assets.
Prices obtained from independent
pricing services use information
provided by market makers and
estimates of market values obtained
from yield data relating to investments
or securities with similar characteristics.
Short-term debt instruments having a
remaining maturity of 60 days or less
are generally valued at market value or
amortized cost in the case of certain
money market instruments.
Foreign currency-denominated
derivatives are generally valued as of
the respective local region’s market
close. Derivatives are generally valued
on the basis of quotes obtained from
brokers and dealers or independent
pricing services
With respect to specific derivatives:
• Currency spot and forward rates
from major market data vendors are
generally determined as of the NYSE
Close.
• Futures are generally valued at the
settlement price of the relevant
exchange.
• A total return swap on an index is
valued at the publicly available index
price. The index price, in turn, is
determined by the applicable index
E:\FR\FM\17FEN1.SGM
17FEN1
mstockstill on DSK3G9T082PROD with NOTICES
11092
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
calculation agent, which generally
values the securities underlying the
index at the last reported sale price.
• All other swaps, including interest
rate swaps; CDS, including CDXs; swaps
on securities indices; swaptions; and
swaps on U.S. and foreign currencies
are generally valued by independent
pricing services; provided that swaps
traded on exchanges such as the
Chicago Mercantile Exchange (‘‘CME’’)
or the Intercontinental Exchange (‘‘ICE–
US’’) are priced using the applicable
exchange closing price where available
or by an independent pricing service.
• Exchange-traded options on U.S.
Government securities, foreign
currencies, indexes, and futures are
generally valued at the official
settlement price determined by the
relevant exchange, if available.
• OTC options are generally valued
on the basis of quotes obtained from a
quotation reporting system, established
market makers, or pricing services.
• OTC foreign currency options are
generally valued by independent pricing
vendors.
Securities held by the Fund are
valued in accordance with policies and
procedures established by and under the
supervision of the Board (the ‘‘Valuation
Procedures’’). In determining NAV,
securities traded on a domestic
securities exchange are generally valued
at the closing prices on the primary
market or exchange on which they
trade. If such price is lacking for the
trading period immediately preceding
the time of determination, such
securities are valued at their current bid
price.
Securities that are traded OTC are
generally valued at their closing or latest
bid prices as available. Foreign
securities and currencies are converted
to U.S. dollars using the applicable
exchange rate in effect at the NYSE
Close.
The Fund determines the market
value of individual securities held by it
by using prices provided by one or more
approved professional pricing services
or, as needed, by obtaining market
quotations from independent brokerdealers.
Most Fixed Income Instruments are
valued in accordance with the evaluated
bid price supplied by the pricing service
that is intended to reflect market value.
The evaluated bid price supplied by the
pricing service is an evaluation that may
consider factors such as security prices,
yields, maturities, and ratings. Certain
short-term securities maturing within 60
days or less may be valued at market
value or on an amortized cost basis.
Securities for which market
quotations or evaluated prices are not
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
readily available or are deemed
unreliable will be valued at fair value
determined in good faith under the
Valuation Procedures. Circumstances in
which fair value pricing may be utilized
include, but are not limited to: (i) A
significant event that may affect the
securities of a single issuer, such as a
merger, bankruptcy, or significant
issuer-specific development; (ii) an
event that may affect an entire market,
such as a natural disaster or significant
governmental action; (iii) a nonsignificant event such as a market
closing early or not opening, or a
security trading halt; and (iv) pricing of
a non-valued security and a restricted or
nonpublic security.
Derivatives Valuation Methodology for
Purposes of Determining Portfolio
Indicative Value
On each business day, before
commencement of trading in Fund
Shares on NYSE Arca, the Fund
discloses on its Web site the identities
and quantities of the portfolio
instruments and other assets held by the
Fund that form the basis for the Fund’s
calculation of NAV at the end of the
business day.
In order to provide additional
information regarding the intra-day
value of Shares of the Fund, one or more
major market data vendors disseminates
every 15 seconds an updated Portfolio
Indicative Value (‘‘PIV’’) for the Fund as
calculated by an information provider or
market data vendor.
A third party market data provider
calculates the PIV for the Fund. For the
purposes of determining the PIV, the
third party market data provider’s
valuation of derivatives and other assets
are expected to be similar to its
valuation of all securities. The third
party market data provider may use
market quotes if available or may fair
value securities against proxies (such as
swap or yield curves).
With respect to specific derivatives:
• Foreign currency derivatives may
be valued intraday using market quotes,
or another proxy as determined to be
appropriate by the third party market
data provider.
• Futures may be valued intraday
using the relevant futures exchange
data, or another proxy as determined to
be appropriate by the third party market
data provider.
• Swaps may be valued using
intraday data from market vendors, or
based on underlying asset price, or
another proxy as determined to be
appropriate by the third party market
data provider.
• Exchange listed options may be
valued intraday using the relevant
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
exchange data, or another proxy as
determined to be appropriate by the
third party market data provider.
• OTC options and swaptions may be
valued intraday through option
valuation models (e.g., Black-Scholes) or
using exchange-traded options as a
proxy, or another proxy as determined
to be appropriate by the third party
market data provider.
• A third party market data provider’s
valuation of forwards will be similar to
their valuation of the underlying
securities, or another proxy as
determined to be appropriate by the
third party market data provider. The
third party market data provider will
generally use market quotes if available.
Where market quotes are not available,
they may fair value securities against
proxies (such as swap or yield curves).
The Fund’s disclosure of forward
positions will include information that
market participants can use to value
these positions intraday.
Disclosed Portfolio
The Fund’s disclosure of derivative
positions in the applicable Disclosed
Portfolio includes information that
market participants can use to value
these positions intraday. On a daily
basis, the Fund discloses the
information regarding the Disclosed
Portfolio required under NYSE Arca
Equities Rule 8.600 (c)(2) to the extent
applicable.
Impact on Arbitrage Mechanism
The Adviser believes there will be
minimal, if any, impact to the arbitrage
mechanism as a result of the use of
derivatives. Market makers and
participants should be able to value
derivatives as long as the positions are
disclosed with relevant information.
The Adviser believes that the price at
which Shares of the Fund trade will
continue to be disciplined by arbitrage
opportunities created by the ability to
purchase or redeem creation Shares of
the Fund at their NAV, which should
ensure that Shares of the Fund will not
trade at a material discount or premium
in relation to their NAV.
The Adviser does not believe there is
any significant impacts to the settlement
or operational aspects of the Fund’s
arbitrage mechanism due to the use of
derivatives. Because derivatives
generally are not eligible for in-kind
transfer, they will be substituted with a
‘‘cash in lieu’’ amount when the Fund
processes purchases or redemptions of
block-size ‘‘Creation Units’’ (as
described below) in-kind.
E:\FR\FM\17FEN1.SGM
17FEN1
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
mstockstill on DSK3G9T082PROD with NOTICES
Creation and Redemption of Shares
The Trust issues and sells Shares of
the Fund only in Creation Units on a
continuous basis through the
Distributor, without a sales load, at the
NAV next determined after receipt of an
order in proper form as described in the
‘‘Participant Agreement’’ (as defined
below), on any business day. There are
100,000 Shares in a Creation Unit. Such
Creation Unit size is subject to change.
The consideration for purchase of
Creation Units of the Fund generally
consists of the in-kind deposit of a
designated portfolio of securities
(including any portion of such securities
for which cash may be substituted)
(‘‘Deposit Securities’’) and the Cash
Component computed as described
below. Together, the Deposit Securities
and the Cash Component constitute the
‘‘Fund Deposit,’’ which is applicable
(subject to possible amendment or
correction) to creation requests received
in proper form. The Fund Deposit
represents the minimum initial and
subsequent investment amount for a
Creation Unit of the Fund.
The ‘‘Cash Component’’ is an amount
equal to the difference between the NAV
of the Shares (per Creation Unit) and the
‘‘Deposit Amount,’’ which is an amount
equal to the market value of the Deposit
Securities, and serves to compensate for
any differences between the NAV per
Creation Unit and the Deposit Amount.
The Fund generally offers Creation
Units partially for cash.
The Adviser makes available through
the National Securities Clearing
Corporation (‘‘NSCC’’) on each business
day prior to the opening of business on
the Exchange, the list of names and the
required number or par value of each
Deposit Security and the amount of the
Cash Component to be included in the
current Fund Deposit (based on
information as of the end of the
previous business day for the Fund).
Such Fund Deposit is applicable,
subject to any adjustments as described
below, to purchases of Creation Units of
Shares of the Fund until such time as
the next-announced Fund Deposit is
made available.
The identity and number or par value
of the Deposit Securities change
pursuant to changes in the composition
of the Fund’s portfolio, and as
rebalancing adjustments and corporate
action events occur from time to time.
The composition of the Deposit
Securities may also change in response
to adjustments to the weighting or
composition of the component
securities constituting the Fund’s
portfolio.
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
The Fund reserves the right to permit
or require the substitution of a ‘‘cash in
lieu’’ amount to be added to the Cash
Component to replace any Deposit
Security that may not be available in
sufficient quantity for delivery or that
may not be eligible for transfer through
Depository Trust Company (‘‘DTC’’) or
the Clearing Process (as discussed
below).
To be eligible to place orders with the
Distributor and to create a Creation Unit
of the Fund, an entity must be: (i) A
‘‘Participating Party,’’ i.e., a brokerdealer or other participant in the
clearing process through the Continuous
Net Settlement System of the NSCC (the
‘‘Clearing Process’’) or (ii) a DTC
Participant, and must have executed an
agreement with the Distributor, with
respect to creations and redemptions of
Creation Units (‘‘Authorized Participant
Agreement’’) (discussed below). A
Participating Party or DTC Participant
who has executed an Authorized
Participant Agreement is referred to as
an ‘‘Authorized Participant.’’ An
Authorized Participant must submit an
irrevocable order to purchase Shares of
the Fund generally before 4:00 p.m.,
Eastern time on any business day in
order to receive that day’s NAV.
A standard creation transaction fee is
imposed to offset the transfer and other
transaction costs associated with the
issuance of Creation Units.
Redemption of Creation Units
Shares of the Fund may be redeemed
by Authorized Participants only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the
Distributor or its agent and only on a
business day. The Fund will not redeem
shares in amounts less than Creation
Units. An Authorized Participant must
submit an irrevocable order to redeem
Shares of the Fund generally before 4:00
p.m., Eastern time on any business day
in order to receive that day’s NAV.
The Adviser makes available through
the NSCC, prior to the opening of
business on the Exchange on each
business day, the designated portfolio of
securities (including any portion of such
securities for which cash may be
substituted) that will be applicable
(subject to possible amendment or
correction) to redemption requests
received in proper form on that day
(‘‘Fund Securities’’), and an amount of
cash (the ‘‘Cash Amount,’’ as described
below). Such Fund Securities and the
corresponding Cash Amount (each
subject to possible amendment or
correction) are applicable, in order to
effect redemptions of Creation Units of
the Fund until such time as the next
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
11093
announced composition of the Fund
Securities and Cash Amount is made
available. Fund Securities received on
redemption may not be identical to
Deposit Securities that are applicable to
creations of Creation Units.
If redemptions are not paid in cash,
the redemption proceeds for a Creation
Unit generally will consist of Fund
Securities, plus the Cash Amount,
which is an amount equal to the
difference between the NAV of the
Shares being redeemed, as next
determined after the receipt of a
redemption request in proper form, and
the value of Fund Securities, less a
redemption transaction fee.
The Trust may, in its sole discretion,
substitute a ‘‘cash in lieu’’ amount to
replace any Fund Security. The Trust
also reserves the right to permit or
require a ‘‘cash in lieu’’ amount in
certain circumstances, including
circumstances in which: (i) The delivery
of a Fund Security to the Authorized
Participant would be restricted under
applicable securities or other local laws;
or (ii) the delivery of a Fund Security to
the Authorized Participant would result
in the disposition of the Fund Security
by the Authorized Participant becoming
restricted under applicable securities or
other local laws, or in certain other
situations. The amount of cash paid out
in such cases will be equivalent to the
value of the substituted security listed
as a Fund Security. In the event that the
Fund Securities have a value greater
than the NAV of the Shares, a
compensating cash payment equal to the
difference is required to be made by or
through an Authorized Participant by
the redeeming shareholder. When
partial or full cash redemptions of
Creation Units are available or specified
(Creation Units of the Fund will
generally be redeemed partially for
cash), they will be effected in essentially
the same manner as in-kind
redemptions thereof. In the case of
partial or full cash redemption, the
Authorized Participant receives the cash
equivalent of the Fund Securities it
would otherwise receive through an inkind redemption, plus the same Cash
Amount to be paid to an in-kind
redeemer.14
A standard redemption transaction fee
is imposed to offset transfer and other
transaction costs that may be incurred
by the Fund.
Redemption requests for Creation
Units of the Fund must be submitted to
14 The Adviser represents that, to the extent the
Trust effects the redemption of Shares in cash, such
transactions will be effected in the same manner for
all Authorized Participants.
E:\FR\FM\17FEN1.SGM
17FEN1
11094
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
the Transfer Agent by or through an
Authorized Participant.
The right of redemption may be
suspended or the date of payment
postponed with respect to the Fund: (i)
For any period during which the
Exchange is closed (other than
customary weekend and holiday
closings); (ii) for any period during
which trading on the Exchange is
suspended or restricted; (iii) for any
period during which an emergency
exists as a result of which disposal of
portfolio assets or determination of its
NAV is not reasonably practicable; or
(iv) in such other circumstance as is
permitted by the Commission.
mstockstill on DSK3G9T082PROD with NOTICES
Investment Restrictions
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid assets (calculated at the time of
investment) deemed illiquid by the
Adviser, consistent with Commission
guidance.15 The Fund monitors its
portfolio liquidity on an ongoing basis
to determine whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid assets. Illiquid assets include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.16
15 The Board has authorized the Adviser to make
liquidity determinations with respect to certain
securities purchased by the Fund. Under the
guidelines established by the Board, the Adviser
will consider the following factors: (i) The
frequency of trades and quoted prices for the
security; (ii) the number of dealers willing to
purchase or sell the security and the number of
other potential purchasers; (iii) the willingness of
dealers to undertake to make a market in the
security; and (iv) the nature of the security and the
nature of the marketplace trades, including the time
needed to dispose of the security, the method of
soliciting offers, and the mechanics of the transfer.
16 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
The Fund is diversified within the
meaning of the 1940 Act.17
The Fund intends to qualify annually
and elect to be treated as a regulated
investment company under Subchapter
M of the Internal Revenue Code.18 The
Fund will not concentrate its
investments in a particular industry, as
that term is used in the 1940 Act, and
as interpreted, modified, or otherwise
permitted by a regulatory authority
having jurisdiction from time to time.19
Application of Generic Listing
Requirements
The Exchange proposes that there will
be no limit to the Fund’s investments in
OTC derivatives that are used to hedge
risks associated with investments in the
Fund’s holdings, including forwards,
OTC options and OTC swaps used to
hedge, for example, currency, interest
rate and credit risk.20 The Fund’s
investments in OTC derivatives other
than OTC derivatives used to hedge the
Fund’s portfolio will be limited to 20%
of the assets in the Fund’s portfolio,
calculated as the aggregate gross
notional value of such OTC derivatives.
The Exchange is submitting this
proposed rule change because the
change described in the preceding
paragraph would result in the portfolio
for the Fund not meeting all of the
‘‘generic’’ listing requirements of
Commentary .01 to NYSE Arca Equities
Rule 8.600 applicable to the listing of
Managed Fund Shares. The Fund’s
portfolio would meet all such
requirements except for those set forth
in Commentary .01(e).21 Specifically,
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act).
17 The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act (15 U.S.C. 80e).
18 26 U.S.C. 851.
19 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
20 The Fund will seek, where possible, to use
counterparties, as applicable, whose financial status
is such that the risk of default is reduced; however,
the risk of losses resulting from default is still
possible. The Adviser will monitor the financial
standing of counterparties on an ongoing basis. This
monitoring may include information provided by
credit agencies, as well as the Adviser’s credit
analysts and other team members who evaluate
approved counterparties using various methods of
analysis, including but not limited to earnings
updates, the counterparty’s reputation, the
Adviser’s past experience with the broker-dealer,
market levels for the counterparty’s debt and equity,
the counterparty’s liquidity and its share of market
participation.
21 Commentary .01(e) to NYSE Arca Equities Rule
8.600 provides that a portfolio may hold 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
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
the aggregate gross notional value of the
Fund’s investments in OTC derivatives
may exceed 20% of Fund assets,
calculated as the aggregate gross
notional value of such OTC derivatives.
The Adviser believes that it is
important to provide the Fund with
maximum flexibility to manage risk
associated with its investments and,
therefore, that, no limit should be
imposed on its ability to use OTC
derivatives to hedge against risks
associated with the Fund’s holdings.
Depending on market conditions, it may
be critical that the Fund be able to
utilize available OTC derivatives for this
purpose, without limitation, to attempt
to reduce impact of currency, interest
rate or credit fluctuations on Fund
assets. Therefore, the Exchange believes
it is appropriate to impose no limit to
the Fund’s investments in OTC
derivatives, including forwards, options
and swaps, that are used for hedging
purposes.
OTC derivatives can be tailored to
hedge the specific risk arising from the
Fund’s investments and frequently may
be a more efficient hedging vehicle than
listed derivatives. For example, the
Fund could obtain an OTC foreign
currency derivative in a notional
amount that exactly matches the
notional of the Fund’s investments. If
the Fund were limited to using listed
derivatives, the Fund might have to
‘‘over hedge’’ or ‘‘under hedge’’ if round
lot sizes in listed derivatives were not
available. In addition, for example, an
OTC CDX option can be structured to
provide protection tailored to the
Fund’s credit exposure and can be a
more efficient way to hedge credit risk
with respect to specific exposures than
listed derivatives. Similarly, OTC
interest rate derivatives can be more
effective hedges of interest rate exposure
because they can be customized to
match the basis risk arising from the
term of the investments held by the
Fund.
The Exchange notes that, other than
Commentary.01(e) to Rule 8.600, the
Fund’s portfolio will meet all other
requirements of Rule 8.600.
Availability of Information
The Fund’s Web site
(www.janus.com/etfs) includes a form of
the prospectus for the Fund that may be
downloaded. The Fund’s Web site
includes additional quantitative
the foregoing; however, 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.
E:\FR\FM\17FEN1.SGM
17FEN1
mstockstill on DSK3G9T082PROD with NOTICES
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
information updated on a daily basis.
On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund discloses on its
Web site the Disclosed Portfolio as
defined in NYSE Arca Equities Rule
8.600(c)(2) that forms the basis for the
Fund’s calculation of NAV at the end of
the business day.
On a daily basis, the Fund discloses
the information required under NYSE
Arca Equities Rule 8.600 (c)(2) to the
extent applicable. The Web site
information is publicly available at no
charge.
In addition, a basket composition file,
which includes the security names and
share quantities, if applicable, required
to be delivered in exchange for the
Fund’s Shares, together with estimates
and actual cash components, is publicly
disseminated daily prior to the opening
of the Exchange via the NSCC. The
basket represents one Creation Unit of
the Fund. Authorized Participants may
refer to the basket composition file for
information regarding Fixed Income
Instruments, and any other instrument
that may comprise the Fund’s basket on
a given day.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and the Fund’s Forms N–CSR
and Forms N–SAR, filed twice a year.
The Fund’s SAI and Shareholder
Reports will be available free upon
request from the Trust, and those
documents and the Form N–CSR, Form
N–PX and Form N–SAR may be viewed
on-screen or downloaded from the
Commission’s Web site at www.sec.gov.
Intra-day and closing price information
regarding closed-end funds will be
available from the exchange on which
such securities are traded. Intra-day and
closing price information regarding
exchange-traded options (including
options on futures) and futures will be
available from the exchange on which
such instruments are traded. Intra-day
and closing price information regarding
Fixed Income Instruments also will be
available from major market data
vendors. Price information relating to
forwards, currencies, OTC options and
swaps will be available from major
market data vendors. Intra-day price
information for exchange-traded
derivative instruments will be available
from the applicable exchange and from
major market data vendors. Information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services.
Information regarding the previous
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
day’s closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers. Quotation and last sale
information for the Shares will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line.
Exchange-traded options quotation and
last sale information for options cleared
via the Options Clearing Corporation
(‘‘OCC’’) is available via the Options
Price Reporting Authority (‘‘OPRA’’). In
addition, the PIV, as defined in NYSE
Arca Equities Rule 8.600 (c)(3), will be
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Core Trading
Session. The dissemination of the PIV,
together with the Disclosed Portfolio,
may allow investors to determine an
approximate value of the underlying
portfolio of the Fund on a daily basis
and to provide an estimate of that value
throughout the trading day.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund. Trading in Shares of the Fund
will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule
7.12 have been reached. Trading also
may be halted because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund; or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets
forth circumstances under which Shares
of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00
a.m. to 8:00 p.m. Eastern time in
accordance with NYSE Arca Equities
Rule 7.34 (Early, Core, and Late Trading
Sessions). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Equities Rule 7.6, the minimum
price variation (‘‘MPV’’) for quoting and
entry of orders in equity securities
traded on the NYSE Arca Marketplace is
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
11095
$0.01, with the exception of securities
that are priced less than $1.00 for which
the MPV for order entry is $0.0001.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3
under the Act, as provided by NYSE
Arca Equities Rule 5.3. A minimum of
100,000 Shares for the Fund will be
outstanding at the commencement of
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
will be made available to all market
participants at the same time.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange, as well
as cross-market surveillances
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws. The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, certain exchangetraded options and certain futures with
other markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading in the Shares, certain
exchange-traded options and certain
futures from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares, certain exchange-traded
options and certain futures from
markets and other entities that are
members of ISG or with which the
E:\FR\FM\17FEN1.SGM
17FEN1
11096
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
Exchange has in place a comprehensive
surveillance sharing agreement
(‘‘CSSA’’). The Exchange is able to
access from FINRA, as needed, trade
information for certain fixed income
securities held by the Fund reported to
FINRA’s Trade Reporting and
Compliance Engine (‘‘TRACE’’). FINRA
also can access data obtained from the
Municipal Securities Rulemaking Board
(‘‘MSRB’’) relating to certain municipal
bond trading activity for surveillance
purposes in connection with trading in
the Shares.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
All statements and representations
made in this filing regarding (a) the
description of the portfolio, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules and surveillance
procedures shall constitute continued
listing requirements for listing the
Shares on the Exchange.
The issuer has represented to the
Exchange that it will advise the
Exchange of any failure by the Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Equities Rule 5.5(m).
mstockstill on DSK3G9T082PROD with NOTICES
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its Equity Trading Permit Holders to
learn the essential facts relating to every
customer prior to trading the Shares; (3)
the risks involved in trading the Shares
during the Early and Late Trading
Sessions when an updated PIV will not
be calculated or publicly disseminated;
(4) how information regarding the PIV
and the Disclosed Portfolio is
disseminated; (5) the requirement that
Equity Trading Permit Holders deliver a
prospectus to investors purchasing
newly issued Shares prior to or
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
concurrently with the confirmation of a
transaction; and (6) trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Act. The Bulletin will also disclose that
the NAV for the Shares will be
calculated after 4:00 p.m. Eastern time
each trading day.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) that an exchange
have rules that are designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and federal securities laws
applicable to trading on the Exchange.
The Adviser is not registered as a
broker-dealer but the Adviser is
affiliated with a broker-dealer and has
implemented a ‘‘fire wall’’ with respect
to such broker-dealer regarding access to
information concerning the composition
and/or changes to the Fund’s portfolio.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, certain exchangetraded options and certain futures with
other markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading in the Shares, certain
exchange-traded options and certain
futures from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares, certain exchange-traded
options and certain futures from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. The
Exchange is able to access from FINRA,
as needed, trade information for certain
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
fixed income securities held by the
Fund reported to FINRA’s TRACE.
FINRA also can access data obtained
from the MSRB relating to certain
Municipal Bond trading activity for
surveillance purposes in connection
with trading in the Shares.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. The Web site for
the Fund includes a form of the
prospectus for the Fund and additional
data relating to NAV and other
applicable quantitative information.
Trading in Shares of the Fund will be
halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have
been reached or because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable, and trading in
the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets
forth circumstances under which
trading in the Shares of the Fund may
be halted. In addition, as noted above,
investors have ready access to
information regarding the Fund’s
holdings, the PIV, the Disclosed
Portfolio, and quotation and last sale
information for the Shares. Not more
than 10% of the weight of the net assets
of the Fund in the aggregate invested in
futures contracts or exchange-traded
options shall consist of futures contracts
or options whose principal trading
market is not a member of ISG or is a
market with which the Exchange does
not have a CSSA.
As noted above, the Adviser believes
that it is it is [sic] in the best interests
of the Fund’s shareholders for the Fund
to be allowed to reduce (that is,
‘‘hedge’’) the various risks (such as
currency, interest rate or credit risk)
arising from the Fund’s investments
using the most efficient financial
instrument. While certain risks can be
hedged via listed derivatives, OTC
derivatives (such as forwards, options
and swaps) can be customized to hedge
against precise risks. Accordingly, the
Adviser believes that OTC derivatives
may frequently be a more efficient
hedging vehicle than listed derivatives.
Depending on market conditions, it may
be critical that the Fund be able to
utilize available OTC derivatives for this
E:\FR\FM\17FEN1.SGM
17FEN1
mstockstill on DSK3G9T082PROD with NOTICES
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
purpose, without limitation, to attempt
to reduce impact of currency, interest
rate or credit fluctuations on Fund
assets. Therefore, the Exchange believes
that imposing no limit to the Fund’s
investments in OTC derivatives,
including forwards, options and swaps,
that are used specifically for hedging
purposes would help protect investors
and the public interest.
The Exchange believes that it is
appropriate and in the public interest to
allow the Fund, for hedging purposes
only, to exceed the 20% limit in
Commentary .01(e) to Rule 8.600 of
portfolio assets that may be invested in
OTC derivatives. Under Commentary
.01(e), a series of Managed Fund Shares
listed under the ‘‘generic’’ standards
may invest up to 20% of its assets
(calculated as the aggregate gross
notional value) in OTC derivatives.
Because the Fund, in furtherance of its
investment objective, may invest a
substantial percentage of its investments
in foreign currency denominated Fixed
Income Instruments, the 20% limit in
Commentary .01(e) to Rule 8.600 could
result in the Fund being unable to fully
pursue its investment objective while
attempting to sufficiently mitigate
investment risks. The inability of the
Fund to adequately hedge its holdings
would effectively limit the Fund’s
ability to invest in certain instruments,
or could expose the Fund to additional
investment risk. For example, if the
Fund’s assets (on a gross notional value
basis) were $100 million and no listed
derivative were suitable to hedge the
Fund’s risk, under the generic standards
the Fund would be limited to holding
up to $20 million gross notional value
in OTC derivatives ($100 million *
20%). Accordingly, the maximum
amount the Fund would be able to
invest in foreign currency denominated
Fixed Income Instruments while
remaining adequately hedged would be
$20 million. The Fund then would hold
$60 million in assets that could not be
hedged, other than with listed
derivatives, which, as noted above,
might not be sufficiently tailored to the
specific instruments to be hedged.22
In addition, by applying the 20%
limitation in Commentary .01(e) to Rule
8.600, the Fund would be less able to
protect its holdings from more than one
risk simultaneously. For example, if the
Fund’s assets (on a gross notional basis)
were $100 million and the Fund held
$20 million in foreign currency
denominated Fixed Income Instruments
22 Implicit in expanding the ability of the Fund
to enter into OTC derivatives solely for hedging
purposes is that OTC derivatives will never be
100% of the Fund’s portfolio because there will
always be an underlying asset that is being hedged.
VerDate Sep<11>2014
17:38 Feb 16, 2017
Jkt 241001
with two types of risks (e.g., currency
and credit risk) which could not be
hedged using listed derivatives, the
Fund would be faced with the choice of
either holding $20 million aggregate
gross notional value in OTC derivatives
to mitigate one of the risks while
passing the other risk to its
shareholders, or, for example, holding
$10 million aggregate gross notional
value in OTC derivatives on each of the
risks while passing the remaining
portion of each risk to the Fund’s
shareholders.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an actively-managed exchange-traded
product that, through permitted use of
an increased level of OTC derivatives
above that currently permitted by the
generic listing requirements of
Commentary .01 to NYSE Arca Equities
Rule 8.600, will enhance competition
among market participants, to the
benefit of investors and the marketplace.
As noted above, the Exchange has in
place surveillance procedures relating to
trading in the Shares and may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a CSSA. In addition, as noted
above, investors have ready access to
information regarding the Fund’s
holdings, the PIV, the Disclosed
Portfolio, and quotation and last sale
information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
issue of Managed Fund Shares that,
through permitted use of an increased
level of OTC derivatives above that
currently permitted by the generic
listing requirements of Commentary .01
to NYSE Arca Equities Rule 8.600 will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
11097
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–
NYSEArca–2017–09 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2017–09. 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 will also be available for
E:\FR\FM\17FEN1.SGM
17FEN1
11098
Federal Register / Vol. 82, No. 32 / Friday, February 17, 2017 / Notices
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2017–09 and should be
submitted on or before March 10, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–03179 Filed 2–16–17; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15045 and #15046]
Louisiana Disaster #LA–00073
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a Notice of the
Presidential declaration of a major
disaster for the State of Louisiana
(FEMA–4300–DR), dated 02/11/2017.
Incident: Severe Storms, Tornadoes
and Straight-line Winds.
Incident Period: 02/07/2017.
Effective Date: 02/11/2017.
Physical Loan Application Deadline
Date: 04/12/2017.
Economic Injury (EIDL) Loan
Application Deadline Date: 11/13/2017.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
President’s major disaster declaration on
02/11/2017, applications for disaster
loans may be filed at the address listed
above or other locally announced
locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Parishes (Physical Damage and
Economic Injury Loans): Livingston,
Orleans
Contiguous Parishes (Economic Injury
Loans Only):
mstockstill on DSK3G9T082PROD with NOTICES
SUMMARY:
23 17
Louisiana: Ascension, East Baton
Rouge, Jefferson, Plaquemines,
Saint Bernard, Saint Helena, Saint
Tammany, St John the Baptist,
Tangipahoa
The Interest Rates are:
Percent
17:38 Feb 16, 2017
Jkt 241001
[Disaster Declaration #15043 and #15044]
Georgia Disaster Number GA–00092
U.S. Small Business
Administration.
ACTION: Amendment 1.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for Public Assistance Only for
3.750 the State of Georgia (FEMA–4297–DR),
dated 02/07/2017.
1.875
Incident: Severe Storms, Tornadoes,
Straight-line Winds, and Flooding.
6.300
Incident Period: 01/21/2017 through
01/22/2017.
3.150
Effective Date: 02/10/2017.
Physical Loan Application Deadline
2.500 Date: 04/10/2017.
Economic Injury (EIDL) Loan
Application Deadline Date: 11/07/2017.
2.500
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
3.150 Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
2.500 Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW., Suite 6050,
The number assigned to this disaster
Washington, DC 20416.
for physical damage is 15045B and for
SUPPLEMENTARY INFORMATION: The notice
economic injury is 150460.
of the President’s major disaster
(Catalog of Federal Domestic Assistance
declaration for Private Non-Profit
Number 59008)
organizations in the State of Georgia,
dated 02/07/2017, is hereby amended to
James E. Rivera,
include the following areas as adversely
Associate Administrator for Disaster
affected by the disaster.
Assistance.
Primary Counties: Appling, Berrien,
[FR Doc. 2017–03242 Filed 2–16–17; 8:45 am]
Brantley, Bulloch, Echols, Lowndes,
BILLING CODE 8025–01–P
Randolph, Tattnall, Upson, Ware.
All other information in the original
declaration remains unchanged.
SMALL BUSINESS ADMINISTRATION
SUMMARY:
For Physical Damage:
Homeowners With Credit Available Elsewhere ......................
Homeowners Without Credit
Available Elsewhere ..............
Businesses With Credit Available Elsewhere ......................
Businesses
Without
Credit
Available Elsewhere ..............
Non-Profit Organizations With
Credit Available Elsewhere ...
Non-Profit Organizations Without Credit Available Elsewhere .....................................
For Economic Injury:
Businesses & Small Agricultural
Cooperatives Without Credit
Available Elsewhere ..............
Non-Profit Organizations Without Credit Available Elsewhere .....................................
Military Reservist Economic Injury
Disaster Loans Interest Rate for
Second Quarter FY 2017
In accordance with the Code of
Federal Regulations 13—Business Credit
and Assistance § 123.512, the following
interest rate is effective for Military
Reservist Economic Injury Disaster
Loans approved on or after January 27,
2017.
Military Reservist Loan Program:
3.150%.
Dated: February 13, 2017.
James E. Rivera,
Associate Administrator for Disaster
Assistance.
[FR Doc. 2017–03244 Filed 2–16–17; 8:45 am]
BILLING CODE P
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
SMALL BUSINESS ADMINISTRATION
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
(Catalog of Federal Domestic Assistance
Number 59008)
James E. Rivera,
Associate Administrator for Disaster
Assistance.
[FR Doc. 2017–03243 Filed 2–16–17; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15047 and #15048]
Oklahoma Disaster #OK–00109
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a Notice of the
Presidential declaration of a major
disaster for Public Assistance Only for
the State of Oklahoma (FEMA–4299–
DR), dated 02/10/2017.
SUMMARY:
E:\FR\FM\17FEN1.SGM
17FEN1
]]>Agencies
[Federal Register Volume 82, Number 32 (Friday, February 17, 2017)]
[Notices]
[Pages 11089-11098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03179]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80028; File No. SR-NYSEArca-2017-09]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Regarding Investments of the Janus Short
Duration Income ETF Under NYSE Arca Equities Rule 8.600
February 13, 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 30, 2017, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I 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
The Exchange proposes to amend [sic] certain changes regarding
investments of the Janus Short Duration Income ETF, which is currently
listed and traded on the Exchange under NYSE Arca Equities Rule 8.600
(``Managed Fund Shares''). The proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes certain changes, described below under
``Application of Generic Listing Requirements'', regarding investments
of the Janus Short Duration Income ETF (the ``Fund''). The shares
(``Shares'') of the Fund are currently listed and traded on the
Exchange under Commentary .01 to NYSE Arca Equities Rule 8.600, which
provides generic criteria applicable to the listing and trading of
Managed Fund Shares.\4\ The Shares are offered by Janus Detroit Street
Trust (the ``Trust''), which is registered with the Commission as an
open-end management investment company.\5\ Janus Capital Management LLC
(the ``Adviser'') is the investment adviser for the Fund. ALPS
Distributors, Inc. (the ``Distributor'') is the principal underwriter
and distributor of the Fund's Shares. State Street Bank and Trust
Company serves as the custodian, administrator, and transfer agent
(``Transfer Agent'') for the Fund.\6\
---------------------------------------------------------------------------
\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
\5\ Shares of the Fund commenced trading on the Exchange on
November 17, 2016 pursuant to Commentary .01 to NYSE Arca Equities
Rule 8.600.
\6\ The Trust is registered under the 1940 Act. On November 16,
2016, the Trust filed with the Commission its registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a)
(``Securities Act''), and under the 1940 Act relating to the Fund
(File Nos. 333-207814 and 811-23112) (``Registration Statement'').
The description of the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement. In addition, the
Commission has issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment Company Act Release No.
31540 (March 30, 2015) (File No. 812-13819) (``Exemptive Order'').
---------------------------------------------------------------------------
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with
[[Page 11090]]
a broker-dealer, such investment adviser shall erect a ``fire wall''
between the investment adviser and the broker-dealer with respect to
access to information concerning the composition and/or changes to such
investment company portfolio. In addition, Commentary .06 further
requires that personnel who make decisions on the open-end fund's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the open-end fund's portfolio. Commentary .06 to Rule 8.600 is similar
to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 5.2(j)(3);
however, Commentary .06 in connection with the establishment of a
``fire wall'' between the investment adviser and the broker-dealer
reflects the applicable open-end fund's portfolio, not an underlying
benchmark index, as is the case with index-based funds. The Adviser is
not registered as a broker-dealer but the Adviser is affiliated with a
broker-dealer and has implemented and will maintain a ``fire wall''
with respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the Fund's portfolio. In
the event (a) the Adviser becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser is a registered broker-dealer or becomes affiliated with a
broker-dealer, it will implement and maintain a fire wall with respect
to its relevant personnel or broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio.
Janus Short Duration Income ETF
Principal Investments
According to the Registration Statement, the Fund seeks to provide
a steady income stream with capital preservation across various market
cycles. The Fund seeks to outperform the London Interbank Offered Rate
(``LIBOR'') 3-month rate by 2-3% through various market cycles with low
volatility. The Fund pursues its investment objective by investing,
under normal market conditions,\7\ at least 80% of its net assets in a
portfolio of financial instruments described below.
---------------------------------------------------------------------------
\7\ The term ``normal market conditions'' is defined in NYSE
Arca Equities Rule 8.600(c)(5).
---------------------------------------------------------------------------
The Fund seeks value across sectors and geographies using a wide
range of instruments to capitalize on investment opportunities, as well
as exploiting structural inefficiencies in fixed income markets to
maximize current income with low volatility.
The average portfolio duration of the Fund generally is 0-2 years
under normal market conditions, although the Fund's portfolio manager
may choose to vary the duration of the Fund significantly from this
target under certain market conditions.
The Fund may invest in ``Fixed Income Instruments'', as defined
below, issued by various U.S. and non-U.S. public- or private-sector
entities, which may be represented by derivatives, as described below
under ``Use of Derivatives by the Fund''.
Fixed Income Instruments are the following:
U.S. and non-U.S. corporate debt securities (that is,
corporate bonds, debentures, notes, and other similar corporate debt
instruments);
preferred stock of foreign issuers, foreign bank
obligations (including bank deposits denominated in foreign
currencies), and U.S. dollar or foreign currency-denominated
obligations of foreign governments or supranational entities or their
subdivisions, agencies, and instrumentalities;
agency and non-agency asset-backed securities (``ABS''),
namely, collateralized mortgage obligations (``CMOs''); commercial
mortgage-backed securities (``CMBS''); adjustable-rate mortgage-backed
securities (``ARMBS''); CMO residuals; and residential mortgage backed
securities (``RMBS'');
principal exchange rate linked securities;
zero coupon, step coupon, and pay-in-kind securities;
U.S. Government securities, including inflation-indexed
bonds issued by the U.S. Government; Treasury bills, notes and bonds;
and Treasury Inflation-Protected Securities (``TIPS''); and obligations
issued or guaranteed by U.S. Government agencies and instrumentalities
that are backed by the full faith and credit of the U.S. Government;
inflation-indexed bonds not issued by the U.S. government,
including municipal inflation-indexed bonds, inflation-indexed bonds
issued by foreign governments, and corporate inflation-indexed bonds;
debt securities issued by states or local governments and
their agencies, authorities and other government-sponsored enterprises
(``Municipal Bonds'');
custodial receipts; \8\
---------------------------------------------------------------------------
\8\ Custodial receipts represent the right to receive either the
principal amount or the periodic interest payments or both with
respect to specific underlying municipal obligations. In a typical
custodial receipt arrangement, an issuer or third party owner of
municipal obligations deposits the bonds with a custodian in
exchange for two classes of custodial receipts. The two classes have
different characteristics, but, in each case, payments on the two
classes are based on payments received on the underlying municipal
obligations.
---------------------------------------------------------------------------
Build America Bonds;
variable and floating rate obligations; \9\
---------------------------------------------------------------------------
\9\ These types of securities have variable or floating rates of
interest and, under certain limited circumstances, may have varying
principal amounts. Variable and floating rate securities pay
interest at rates that are adjusted periodically according to a
specified formula, usually with reference to some interest rate
index or market interest rate.
---------------------------------------------------------------------------
Brady Bonds;
bank obligations, namely, certificates of deposit,
bankers' acceptances, and fixed time deposits;
fixed income privately-placed securities and fixed income
unregistered securities; \10\
---------------------------------------------------------------------------
\10\ Unregistered securities include securities of U.S. and non-
U.S. issuers that are issued through private offerings without
registration with the Commission pursuant to Regulation S under the
1933 Act (``Regulation S Securities''). Offerings of Regulation S
Securities may be conducted outside of the United States.
---------------------------------------------------------------------------
exchange-traded or OTC bank capital securities; \11\
---------------------------------------------------------------------------
\11\ Bank capital securities are issued by banks to help fulfill
their regulatory capital requirements. According to the Registration
Statement, there are two common types of bank capital: Tier I and
Tier II. Bank capital is generally, but not always, of investment
grade quality. Tier I securities often take the form of trust
preferred securities. Tier II securities are commonly thought of as
hybrids of debt and preferred stock, are often perpetual (with no
maturity date), callable and, under certain conditions, allow for
the issuer bank to withhold payment of interest until a later date.
---------------------------------------------------------------------------
subordinated or junior debt;
credit-linked trust certificates, traded custody receipts,
and participation interests;
structured notes and indexed securities; \12\
---------------------------------------------------------------------------
\12\ Structured notes are derivative debt instruments, the
interest rate or principal of which is determined by an unrelated
indicator (for example, a currency, security, or index thereof). The
terms of the instrument may be ``structured'' by the purchaser and
the borrower issuing the note. Indexed securities may include
structured notes as well as securities other than debt securities,
the interest rate or principal of which is determined by an
unrelated indicator. Indexed securities may include a multiplier
that multiplies the indexed element by a specified factor.
---------------------------------------------------------------------------
money market instruments.\13\
---------------------------------------------------------------------------
\13\ Money market instruments are short-term instruments
referenced in Commentary .01 (c) to NYSE Arca Equities Rule 8.600.
---------------------------------------------------------------------------
The Fund may invest in exchange-traded closed-end funds (``CEFs'')
that invest substantially all of their assets in Fixed Income
Instruments.
The Fund may invest in futures and options on futures on interest
rates, foreign currencies and Eurodollars.
[[Page 11091]]
The Fund may enter into forward contracts to purchase and sell
Fixed Income Instruments and foreign currencies.
The Fund may invest in options on foreign currencies either on
exchanges or in the OTC market.
The Fund may invest in options on U.S. and foreign government
securities. Such options may be traded on foreign exchanges and OTC in
foreign countries.
The Fund may write exchange-traded or OTC covered and uncovered put
and call options and buy exchange-traded or OTC put and call options on
securities that are traded on U.S. and foreign securities exchanges.
The Fund may write straddles (combinations of put and call options
on the same underlying security), which are generally a non-hedging
technique used for purposes such as seeking to enhance returns.
The Fund may also purchase and write exchange-listed and OTC put
and call options on securities indices. Indices may also be based on a
particular industry, market segment, or certain currencies such as the
U.S. Dollar Index or DXY Index.
The Fund may purchase or write covered and uncovered put and call
options on interest rate swaps (``swaptions''). Swaption contracts
grant the purchaser the right, but not the obligation, to enter into a
swap transaction at preset terms detailed in the underlying agreement
within a specified period of time.
The Fund may enter into swap agreements or utilize swap-related
products, which are the following: Total return swaps based on Fixed
Income Instruments or an index thereon; interest rate swaps; and credit
default swaps (``CDS'') and index credit default swaps (``CDXs'') based
on Fixed Income Instruments. The Fund may invest in swaps on U.S. and
foreign currencies. In addition, the Fund may enter into single-name
credit default swap agreements.
Other Investments
While the Fund, under normal market conditions, invests at least
80% of its net assets in the securities and financial instruments
described above, the Fund may invest its remaining assets in the
securities and financial instruments described below.
The Fund may engage in foreign currency transactions on a spot
(cash) basis.
Use of Derivatives by the Fund
Investments in derivative instruments are made in accordance with
the 1940 Act and consistent with the Fund's investment objective and
policies. The Fund will typically use derivative instruments as a
substitute for taking a position in the underlying asset where
advantageous and/or as part of a strategy designed to reduce exposure
to other risks, such as interest rate or currency risk. The Fund may
also use derivative instruments to enhance returns, manage portfolio
duration, or manage the risk of securities price fluctuations. To limit
the potential risk associated with such transactions, the Fund
segregates or ``earmarks'' assets determined to be liquid by the
Adviser in accordance with procedures established by the Trust's Board
of Trustees (the ``Board'') and in accordance with the 1940 Act (or, as
permitted by applicable regulation, enter into certain offsetting
positions) to cover its obligations under derivative instruments. These
procedures have been adopted consistent with Section 18 of the 1940 Act
and related Commission guidance. In addition, the Fund has included
appropriate risk disclosure in its offering documents, including
leveraging risk. Leveraging risk is the risk that certain transactions
of the Fund, including the Fund's use of derivatives, may give rise to
leverage, causing the Fund to be more volatile than if it had not been
leveraged. Because the markets for certain securities, or the
securities themselves, may be unavailable or cost prohibitive as
compared to derivative instruments, suitable derivative transactions
may be an efficient alternative for the Fund to obtain the desired
asset exposure.
The Adviser believes that derivative instruments can be an
economically attractive substitute, for example, for an underlying
physical security that the Fund would otherwise purchase. The Adviser
further believes that derivatives can be used as a more liquid means of
adjusting portfolio duration as well as targeting specific areas of
yield curve exposure, with potentially lower transaction costs than the
underlying securities (e.g., interest rate swaps may have lower
transaction costs than physical bonds).
The Fund also can use derivatives to obtain credit exposure. Index
CDX can be used to gain exposure to a basket of credit risk by
``selling protection'' against default or other credit events, or to
hedge broad market credit risk by ``buying protection''. Single name
CDS can be used to allow the Fund to increase or decrease exposure to
specific issuers, saving investor capital through lower trading costs.
The Fund can use total return swap contracts to obtain the total return
of a reference asset or index in exchange for paying a financing cost.
A total return swap may be more efficient than buying underlying
securities of an index, potentially lowering transaction costs.
Net Asset Value and Derivatives Valuation Methodology for Purposes of
Determining Net Asset Value
The net asset value (``NAV'') of the Shares of the Fund is
determined once each day the New York Stock Exchange (the ``NYSE'') is
open, as of the close of its regular trading session (normally 4:00
p.m., Eastern time) (``NYSE Close''). The per Share NAV of the Fund is
computed by dividing the net assets by the number of the Fund's Shares
outstanding.
For purposes of calculating NAV, portfolio securities and other
assets for which market quotes are readily available are valued at
market value. Market value is generally determined on the basis of last
reported sales prices, or if no sales are reported, based on quotes
obtained from a quotation reporting system, established market makers,
or pricing services.
Fixed Income Instruments are generally valued on the basis of
quotes obtained from brokers and dealers or independent pricing
services which provide evaluated bid prices. Domestic and foreign Fixed
Income Instruments are generally valued on the basis of quotes obtained
from brokers and dealers or independent pricing services using data
reflecting the earlier closing of the principal markets for those
assets. Prices obtained from independent pricing services use
information provided by market makers and estimates of market values
obtained from yield data relating to investments or securities with
similar characteristics. Short-term debt instruments having a remaining
maturity of 60 days or less are generally valued at market value or
amortized cost in the case of certain money market instruments.
Foreign currency-denominated derivatives are generally valued as of
the respective local region's market close. Derivatives are generally
valued on the basis of quotes obtained from brokers and dealers or
independent pricing services
With respect to specific derivatives:
Currency spot and forward rates from major market data
vendors are generally determined as of the NYSE Close.
Futures are generally valued at the settlement price of
the relevant exchange.
A total return swap on an index is valued at the publicly
available index price. The index price, in turn, is determined by the
applicable index
[[Page 11092]]
calculation agent, which generally values the securities underlying the
index at the last reported sale price.
All other swaps, including interest rate swaps; CDS,
including CDXs; swaps on securities indices; swaptions; and swaps on
U.S. and foreign currencies are generally valued by independent pricing
services; provided that swaps traded on exchanges such as the Chicago
Mercantile Exchange (``CME'') or the Intercontinental Exchange (``ICE-
US'') are priced using the applicable exchange closing price where
available or by an independent pricing service.
Exchange-traded options on U.S. Government securities,
foreign currencies, indexes, and futures are generally valued at the
official settlement price determined by the relevant exchange, if
available.
OTC options are generally valued on the basis of quotes
obtained from a quotation reporting system, established market makers,
or pricing services.
OTC foreign currency options are generally valued by
independent pricing vendors.
Securities held by the Fund are valued in accordance with policies
and procedures established by and under the supervision of the Board
(the ``Valuation Procedures''). In determining NAV, securities traded
on a domestic securities exchange are generally valued at the closing
prices on the primary market or exchange on which they trade. If such
price is lacking for the trading period immediately preceding the time
of determination, such securities are valued at their current bid
price.
Securities that are traded OTC are generally valued at their
closing or latest bid prices as available. Foreign securities and
currencies are converted to U.S. dollars using the applicable exchange
rate in effect at the NYSE Close.
The Fund determines the market value of individual securities held
by it by using prices provided by one or more approved professional
pricing services or, as needed, by obtaining market quotations from
independent broker-dealers.
Most Fixed Income Instruments are valued in accordance with the
evaluated bid price supplied by the pricing service that is intended to
reflect market value. The evaluated bid price supplied by the pricing
service is an evaluation that may consider factors such as security
prices, yields, maturities, and ratings. Certain short-term securities
maturing within 60 days or less may be valued at market value or on an
amortized cost basis.
Securities for which market quotations or evaluated prices are not
readily available or are deemed unreliable will be valued at fair value
determined in good faith under the Valuation Procedures. Circumstances
in which fair value pricing may be utilized include, but are not
limited to: (i) A significant event that may affect the securities of a
single issuer, such as a merger, bankruptcy, or significant issuer-
specific development; (ii) an event that may affect an entire market,
such as a natural disaster or significant governmental action; (iii) a
non-significant event such as a market closing early or not opening, or
a security trading halt; and (iv) pricing of a non-valued security and
a restricted or nonpublic security.
Derivatives Valuation Methodology for Purposes of Determining Portfolio
Indicative Value
On each business day, before commencement of trading in Fund Shares
on NYSE Arca, the Fund discloses on its Web site the identities and
quantities of the portfolio instruments and other assets held by the
Fund that form the basis for the Fund's calculation of NAV at the end
of the business day.
In order to provide additional information regarding the intra-day
value of Shares of the Fund, one or more major market data vendors
disseminates every 15 seconds an updated Portfolio Indicative Value
(``PIV'') for the Fund as calculated by an information provider or
market data vendor.
A third party market data provider calculates the PIV for the Fund.
For the purposes of determining the PIV, the third party market data
provider's valuation of derivatives and other assets are expected to be
similar to its valuation of all securities. The third party market data
provider may use market quotes if available or may fair value
securities against proxies (such as swap or yield curves).
With respect to specific derivatives:
Foreign currency derivatives may be valued intraday using
market quotes, or another proxy as determined to be appropriate by the
third party market data provider.
Futures may be valued intraday using the relevant futures
exchange data, or another proxy as determined to be appropriate by the
third party market data provider.
Swaps may be valued using intraday data from market
vendors, or based on underlying asset price, or another proxy as
determined to be appropriate by the third party market data provider.
Exchange listed options may be valued intraday using the
relevant exchange data, or another proxy as determined to be
appropriate by the third party market data provider.
OTC options and swaptions may be valued intraday through
option valuation models (e.g., Black-Scholes) or using exchange-traded
options as a proxy, or another proxy as determined to be appropriate by
the third party market data provider.
A third party market data provider's valuation of forwards
will be similar to their valuation of the underlying securities, or
another proxy as determined to be appropriate by the third party market
data provider. The third party market data provider will generally use
market quotes if available. Where market quotes are not available, they
may fair value securities against proxies (such as swap or yield
curves). The Fund's disclosure of forward positions will include
information that market participants can use to value these positions
intraday.
Disclosed Portfolio
The Fund's disclosure of derivative positions in the applicable
Disclosed Portfolio includes information that market participants can
use to value these positions intraday. On a daily basis, the Fund
discloses the information regarding the Disclosed Portfolio required
under NYSE Arca Equities Rule 8.600 (c)(2) to the extent applicable.
Impact on Arbitrage Mechanism
The Adviser believes there will be minimal, if any, impact to the
arbitrage mechanism as a result of the use of derivatives. Market
makers and participants should be able to value derivatives as long as
the positions are disclosed with relevant information. The Adviser
believes that the price at which Shares of the Fund trade will continue
to be disciplined by arbitrage opportunities created by the ability to
purchase or redeem creation Shares of the Fund at their NAV, which
should ensure that Shares of the Fund will not trade at a material
discount or premium in relation to their NAV.
The Adviser does not believe there is any significant impacts to
the settlement or operational aspects of the Fund's arbitrage mechanism
due to the use of derivatives. Because derivatives generally are not
eligible for in-kind transfer, they will be substituted with a ``cash
in lieu'' amount when the Fund processes purchases or redemptions of
block-size ``Creation Units'' (as described below) in-kind.
[[Page 11093]]
Creation and Redemption of Shares
The Trust issues and sells Shares of the Fund only in Creation
Units on a continuous basis through the Distributor, without a sales
load, at the NAV next determined after receipt of an order in proper
form as described in the ``Participant Agreement'' (as defined below),
on any business day. There are 100,000 Shares in a Creation Unit. Such
Creation Unit size is subject to change.
The consideration for purchase of Creation Units of the Fund
generally consists of the in-kind deposit of a designated portfolio of
securities (including any portion of such securities for which cash may
be substituted) (``Deposit Securities'') and the Cash Component
computed as described below. Together, the Deposit Securities and the
Cash Component constitute the ``Fund Deposit,'' which is applicable
(subject to possible amendment or correction) to creation requests
received in proper form. The Fund Deposit represents the minimum
initial and subsequent investment amount for a Creation Unit of the
Fund.
The ``Cash Component'' is an amount equal to the difference between
the NAV of the Shares (per Creation Unit) and the ``Deposit Amount,''
which is an amount equal to the market value of the Deposit Securities,
and serves to compensate for any differences between the NAV per
Creation Unit and the Deposit Amount. The Fund generally offers
Creation Units partially for cash.
The Adviser makes available through the National Securities
Clearing Corporation (``NSCC'') on each business day prior to the
opening of business on the Exchange, the list of names and the required
number or par value of each Deposit Security and the amount of the Cash
Component to be included in the current Fund Deposit (based on
information as of the end of the previous business day for the Fund).
Such Fund Deposit is applicable, subject to any adjustments as
described below, to purchases of Creation Units of Shares of the Fund
until such time as the next-announced Fund Deposit is made available.
The identity and number or par value of the Deposit Securities
change pursuant to changes in the composition of the Fund's portfolio,
and as rebalancing adjustments and corporate action events occur from
time to time. The composition of the Deposit Securities may also change
in response to adjustments to the weighting or composition of the
component securities constituting the Fund's portfolio.
The Fund reserves the right to permit or require the substitution
of a ``cash in lieu'' amount to be added to the Cash Component to
replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer through
Depository Trust Company (``DTC'') or the Clearing Process (as
discussed below).
To be eligible to place orders with the Distributor and to create a
Creation Unit of the Fund, an entity must be: (i) A ``Participating
Party,'' i.e., a broker-dealer or other participant in the clearing
process through the Continuous Net Settlement System of the NSCC (the
``Clearing Process'') or (ii) a DTC Participant, and must have executed
an agreement with the Distributor, with respect to creations and
redemptions of Creation Units (``Authorized Participant Agreement'')
(discussed below). A Participating Party or DTC Participant who has
executed an Authorized Participant Agreement is referred to as an
``Authorized Participant.'' An Authorized Participant must submit an
irrevocable order to purchase Shares of the Fund generally before 4:00
p.m., Eastern time on any business day in order to receive that day's
NAV.
A standard creation transaction fee is imposed to offset the
transfer and other transaction costs associated with the issuance of
Creation Units.
Redemption of Creation Units
Shares of the Fund may be redeemed by Authorized Participants only
in Creation Units at their NAV next determined after receipt of a
redemption request in proper form by the Distributor or its agent and
only on a business day. The Fund will not redeem shares in amounts less
than Creation Units. An Authorized Participant must submit an
irrevocable order to redeem Shares of the Fund generally before 4:00
p.m., Eastern time on any business day in order to receive that day's
NAV.
The Adviser makes available through the NSCC, prior to the opening
of business on the Exchange on each business day, the designated
portfolio of securities (including any portion of such securities for
which cash may be substituted) that will be applicable (subject to
possible amendment or correction) to redemption requests received in
proper form on that day (``Fund Securities''), and an amount of cash
(the ``Cash Amount,'' as described below). Such Fund Securities and the
corresponding Cash Amount (each subject to possible amendment or
correction) are applicable, in order to effect redemptions of Creation
Units of the Fund until such time as the next announced composition of
the Fund Securities and Cash Amount is made available. Fund Securities
received on redemption may not be identical to Deposit Securities that
are applicable to creations of Creation Units.
If redemptions are not paid in cash, the redemption proceeds for a
Creation Unit generally will consist of Fund Securities, plus the Cash
Amount, which is an amount equal to the difference between the NAV of
the Shares being redeemed, as next determined after the receipt of a
redemption request in proper form, and the value of Fund Securities,
less a redemption transaction fee.
The Trust may, in its sole discretion, substitute a ``cash in
lieu'' amount to replace any Fund Security. The Trust also reserves the
right to permit or require a ``cash in lieu'' amount in certain
circumstances, including circumstances in which: (i) The delivery of a
Fund Security to the Authorized Participant would be restricted under
applicable securities or other local laws; or (ii) the delivery of a
Fund Security to the Authorized Participant would result in the
disposition of the Fund Security by the Authorized Participant becoming
restricted under applicable securities or other local laws, or in
certain other situations. The amount of cash paid out in such cases
will be equivalent to the value of the substituted security listed as a
Fund Security. In the event that the Fund Securities have a value
greater than the NAV of the Shares, a compensating cash payment equal
to the difference is required to be made by or through an Authorized
Participant by the redeeming shareholder. When partial or full cash
redemptions of Creation Units are available or specified (Creation
Units of the Fund will generally be redeemed partially for cash), they
will be effected in essentially the same manner as in-kind redemptions
thereof. In the case of partial or full cash redemption, the Authorized
Participant receives the cash equivalent of the Fund Securities it
would otherwise receive through an in-kind redemption, plus the same
Cash Amount to be paid to an in-kind redeemer.\14\
---------------------------------------------------------------------------
\14\ The Adviser represents that, to the extent the Trust
effects the redemption of Shares in cash, such transactions will be
effected in the same manner for all Authorized Participants.
---------------------------------------------------------------------------
A standard redemption transaction fee is imposed to offset transfer
and other transaction costs that may be incurred by the Fund.
Redemption requests for Creation Units of the Fund must be
submitted to
[[Page 11094]]
the Transfer Agent by or through an Authorized Participant.
The right of redemption may be suspended or the date of payment
postponed with respect to the Fund: (i) For any period during which the
Exchange is closed (other than customary weekend and holiday closings);
(ii) for any period during which trading on the Exchange is suspended
or restricted; (iii) for any period during which an emergency exists as
a result of which disposal of portfolio assets or determination of its
NAV is not reasonably practicable; or (iv) in such other circumstance
as is permitted by the Commission.
Investment Restrictions
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment) deemed
illiquid by the Adviser, consistent with Commission guidance.\15\ The
Fund monitors its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\16\
---------------------------------------------------------------------------
\15\ The Board has authorized the Adviser to make liquidity
determinations with respect to certain securities purchased by the
Fund. Under the guidelines established by the Board, the Adviser
will consider the following factors: (i) The frequency of trades and
quoted prices for the security; (ii) the number of dealers willing
to purchase or sell the security and the number of other potential
purchasers; (iii) the willingness of dealers to undertake to make a
market in the security; and (iv) the nature of the security and the
nature of the marketplace trades, including the time needed to
dispose of the security, the method of soliciting offers, and the
mechanics of the transfer.
\16\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act).
---------------------------------------------------------------------------
The Fund is diversified within the meaning of the 1940 Act.\17\
---------------------------------------------------------------------------
\17\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
---------------------------------------------------------------------------
The Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code.\18\ The Fund will not concentrate its investments in a particular
industry, as that term is used in the 1940 Act, and as interpreted,
modified, or otherwise permitted by a regulatory authority having
jurisdiction from time to time.\19\
---------------------------------------------------------------------------
\18\ 26 U.S.C. 851.
\19\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
---------------------------------------------------------------------------
Application of Generic Listing Requirements
The Exchange proposes that there will be no limit to the Fund's
investments in OTC derivatives that are used to hedge risks associated
with investments in the Fund's holdings, including forwards, OTC
options and OTC swaps used to hedge, for example, currency, interest
rate and credit risk.\20\ The Fund's investments in OTC derivatives
other than OTC derivatives used to hedge the Fund's portfolio will be
limited to 20% of the assets in the Fund's portfolio, calculated as the
aggregate gross notional value of such OTC derivatives.
---------------------------------------------------------------------------
\20\ The Fund will seek, where possible, to use counterparties,
as applicable, whose financial status is such that the risk of
default is reduced; however, the risk of losses resulting from
default is still possible. The Adviser will monitor the financial
standing of counterparties on an ongoing basis. This monitoring may
include information provided by credit agencies, as well as the
Adviser's credit analysts and other team members who evaluate
approved counterparties using various methods of analysis, including
but not limited to earnings updates, the counterparty's reputation,
the Adviser's past experience with the broker-dealer, market levels
for the counterparty's debt and equity, the counterparty's liquidity
and its share of market participation.
---------------------------------------------------------------------------
The Exchange is submitting this proposed rule change because the
change described in the preceding paragraph would result in the
portfolio for the Fund not meeting all of the ``generic'' listing
requirements of Commentary .01 to NYSE Arca Equities Rule 8.600
applicable to the listing of Managed Fund Shares. The Fund's portfolio
would meet all such requirements except for those set forth in
Commentary .01(e).\21\ Specifically, the aggregate gross notional value
of the Fund's investments in OTC derivatives may exceed 20% of Fund
assets, calculated as the aggregate gross notional value of such OTC
derivatives.
---------------------------------------------------------------------------
\21\ Commentary .01(e) to NYSE Arca Equities Rule 8.600 provides
that a portfolio may hold 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; however,
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.
---------------------------------------------------------------------------
The Adviser believes that it is important to provide the Fund with
maximum flexibility to manage risk associated with its investments and,
therefore, that, no limit should be imposed on its ability to use OTC
derivatives to hedge against risks associated with the Fund's holdings.
Depending on market conditions, it may be critical that the Fund be
able to utilize available OTC derivatives for this purpose, without
limitation, to attempt to reduce impact of currency, interest rate or
credit fluctuations on Fund assets. Therefore, the Exchange believes it
is appropriate to impose no limit to the Fund's investments in OTC
derivatives, including forwards, options and swaps, that are used for
hedging purposes.
OTC derivatives can be tailored to hedge the specific risk arising
from the Fund's investments and frequently may be a more efficient
hedging vehicle than listed derivatives. For example, the Fund could
obtain an OTC foreign currency derivative in a notional amount that
exactly matches the notional of the Fund's investments. If the Fund
were limited to using listed derivatives, the Fund might have to ``over
hedge'' or ``under hedge'' if round lot sizes in listed derivatives
were not available. In addition, for example, an OTC CDX option can be
structured to provide protection tailored to the Fund's credit exposure
and can be a more efficient way to hedge credit risk with respect to
specific exposures than listed derivatives. Similarly, OTC interest
rate derivatives can be more effective hedges of interest rate exposure
because they can be customized to match the basis risk arising from the
term of the investments held by the Fund.
The Exchange notes that, other than Commentary.01(e) to Rule 8.600,
the Fund's portfolio will meet all other requirements of Rule 8.600.
Availability of Information
The Fund's Web site (www.janus.com/etfs) includes a form of the
prospectus for the Fund that may be downloaded. The Fund's Web site
includes additional quantitative
[[Page 11095]]
information updated on a daily basis. On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Fund discloses on its Web site the Disclosed Portfolio as
defined in NYSE Arca Equities Rule 8.600(c)(2) that forms the basis for
the Fund's calculation of NAV at the end of the business day.
On a daily basis, the Fund discloses the information required under
NYSE Arca Equities Rule 8.600 (c)(2) to the extent applicable. The Web
site information is publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, is publicly disseminated daily prior to the opening of the
Exchange via the NSCC. The basket represents one Creation Unit of the
Fund. Authorized Participants may refer to the basket composition file
for information regarding Fixed Income Instruments, and any other
instrument that may comprise the Fund's basket on a given day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's
Forms N-CSR and Forms N-SAR, filed twice a year. The Fund's SAI and
Shareholder Reports will be available free upon request from the Trust,
and those documents and the Form N-CSR, Form N-PX and Form N-SAR may be
viewed on-screen or downloaded from the Commission's Web site at
www.sec.gov. Intra-day and closing price information regarding closed-
end funds will be available from the exchange on which such securities
are traded. Intra-day and closing price information regarding exchange-
traded options (including options on futures) and futures will be
available from the exchange on which such instruments are traded.
Intra-day and closing price information regarding Fixed Income
Instruments also will be available from major market data vendors.
Price information relating to forwards, currencies, OTC options and
swaps will be available from major market data vendors. Intra-day price
information for exchange-traded derivative instruments will be
available from the applicable exchange and from major market data
vendors. Information regarding market price and trading volume of the
Shares will be continually available on a real-time basis throughout
the day on brokers' computer screens and other electronic services.
Information regarding the previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last sale information
for the Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line. Exchange-traded options quotation and last
sale information for options cleared via the Options Clearing
Corporation (``OCC'') is available via the Options Price Reporting
Authority (``OPRA''). In addition, the PIV, as defined in NYSE Arca
Equities Rule 8.600 (c)(3), will be widely disseminated by one or more
major market data vendors at least every 15 seconds during the Core
Trading Session. The dissemination of the PIV, together with the
Disclosed Portfolio, may allow investors to determine an approximate
value of the underlying portfolio of the Fund on a daily basis and to
provide an estimate of that value throughout the trading day.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) The extent to
which trading is not occurring in the securities and/or the financial
instruments comprising the Disclosed Portfolio of the Fund; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Trading in the
Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which
sets forth circumstances under which Shares of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. Eastern time in
accordance with NYSE Arca Equities Rule 7.34 (Early, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, the minimum price variation (``MPV'') for
quoting and entry of orders in equity securities traded on the NYSE
Arca Marketplace is $0.01, with the exception of securities that are
priced less than $1.00 for which the MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents
that, for initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares for the Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio will be made available to all market
participants at the same time.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws. The Exchange represents that these
procedures are adequate to properly monitor Exchange trading of the
Shares in all trading sessions and to deter and detect violations of
Exchange rules and federal securities laws applicable to trading on the
Exchange.
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, certain
exchange-traded options and certain futures with other markets and
other entities that are members of the ISG, and the Exchange or FINRA,
on behalf of the Exchange, or both, may obtain trading information
regarding trading in the Shares, certain exchange-traded options and
certain futures from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares,
certain exchange-traded options and certain futures from markets and
other entities that are members of ISG or with which the
[[Page 11096]]
Exchange has in place a comprehensive surveillance sharing agreement
(``CSSA''). The Exchange is able to access from FINRA, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
FINRA also can access data obtained from the Municipal Securities
Rulemaking Board (``MSRB'') relating to certain municipal bond trading
activity for surveillance purposes in connection with trading in the
Shares.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) the applicability of Exchange
rules and surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Fund to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Fund is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'')
of the special characteristics and risks associated with trading the
Shares. Specifically, the Bulletin will discuss the following: (1) The
procedures for purchases and redemptions of Shares in Creation Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its Equity Trading Permit Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Early and Late Trading
Sessions when an updated PIV will not be calculated or publicly
disseminated; (4) how information regarding the PIV and the Disclosed
Portfolio is disseminated; (5) the requirement that Equity Trading
Permit Holders deliver a prospectus to investors purchasing newly
issued Shares prior to or concurrently with the confirmation of a
transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. Eastern time each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) that an exchange have rules that are
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to, and perfect the mechanism of a free and open market and, in
general, to protect investors and the public interest.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
federal securities laws applicable to trading on the Exchange. The
Adviser is not registered as a broker-dealer but the Adviser is
affiliated with a broker-dealer and has implemented a ``fire wall''
with respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the Fund's portfolio. The
Exchange or FINRA, on behalf of the Exchange, or both, will communicate
as needed regarding trading in the Shares, certain exchange-traded
options and certain futures with other markets and other entities that
are members of the ISG, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading in
the Shares, certain exchange-traded options and certain futures from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, certain exchange-traded
options and certain futures from markets and other entities that are
members of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. The Exchange is able to access from
FINRA, as needed, trade information for certain fixed income securities
held by the Fund reported to FINRA's TRACE. FINRA also can access data
obtained from the MSRB relating to certain Municipal Bond trading
activity for surveillance purposes in connection with trading in the
Shares.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. The Web site for the Fund
includes a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information. Trading
in Shares of the Fund will be halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable, and trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which trading in the Shares of the Fund may be
halted. In addition, as noted above, investors have ready access to
information regarding the Fund's holdings, the PIV, the Disclosed
Portfolio, and quotation and last sale information for the Shares. Not
more than 10% of the weight of the net assets of the Fund in the
aggregate invested in futures contracts or exchange-traded options
shall consist of futures contracts or options whose principal trading
market is not a member of ISG or is a market with which the Exchange
does not have a CSSA.
As noted above, the Adviser believes that it is it is [sic] in the
best interests of the Fund's shareholders for the Fund to be allowed to
reduce (that is, ``hedge'') the various risks (such as currency,
interest rate or credit risk) arising from the Fund's investments using
the most efficient financial instrument. While certain risks can be
hedged via listed derivatives, OTC derivatives (such as forwards,
options and swaps) can be customized to hedge against precise risks.
Accordingly, the Adviser believes that OTC derivatives may frequently
be a more efficient hedging vehicle than listed derivatives. Depending
on market conditions, it may be critical that the Fund be able to
utilize available OTC derivatives for this
[[Page 11097]]
purpose, without limitation, to attempt to reduce impact of currency,
interest rate or credit fluctuations on Fund assets. Therefore, the
Exchange believes that imposing no limit to the Fund's investments in
OTC derivatives, including forwards, options and swaps, that are used
specifically for hedging purposes would help protect investors and the
public interest.
The Exchange believes that it is appropriate and in the public
interest to allow the Fund, for hedging purposes only, to exceed the
20% limit in Commentary .01(e) to Rule 8.600 of portfolio assets that
may be invested in OTC derivatives. Under Commentary .01(e), a series
of Managed Fund Shares listed under the ``generic'' standards may
invest up to 20% of its assets (calculated as the aggregate gross
notional value) in OTC derivatives. Because the Fund, in furtherance of
its investment objective, may invest a substantial percentage of its
investments in foreign currency denominated Fixed Income Instruments,
the 20% limit in Commentary .01(e) to Rule 8.600 could result in the
Fund being unable to fully pursue its investment objective while
attempting to sufficiently mitigate investment risks. The inability of
the Fund to adequately hedge its holdings would effectively limit the
Fund's ability to invest in certain instruments, or could expose the
Fund to additional investment risk. For example, if the Fund's assets
(on a gross notional value basis) were $100 million and no listed
derivative were suitable to hedge the Fund's risk, under the generic
standards the Fund would be limited to holding up to $20 million gross
notional value in OTC derivatives ($100 million * 20%). Accordingly,
the maximum amount the Fund would be able to invest in foreign currency
denominated Fixed Income Instruments while remaining adequately hedged
would be $20 million. The Fund then would hold $60 million in assets
that could not be hedged, other than with listed derivatives, which, as
noted above, might not be sufficiently tailored to the specific
instruments to be hedged.\22\
---------------------------------------------------------------------------
\22\ Implicit in expanding the ability of the Fund to enter into
OTC derivatives solely for hedging purposes is that OTC derivatives
will never be 100% of the Fund's portfolio because there will always
be an underlying asset that is being hedged.
---------------------------------------------------------------------------
In addition, by applying the 20% limitation in Commentary .01(e) to
Rule 8.600, the Fund would be less able to protect its holdings from
more than one risk simultaneously. For example, if the Fund's assets
(on a gross notional basis) were $100 million and the Fund held $20
million in foreign currency denominated Fixed Income Instruments with
two types of risks (e.g., currency and credit risk) which could not be
hedged using listed derivatives, the Fund would be faced with the
choice of either holding $20 million aggregate gross notional value in
OTC derivatives to mitigate one of the risks while passing the other
risk to its shareholders, or, for example, holding $10 million
aggregate gross notional value in OTC derivatives on each of the risks
while passing the remaining portion of each risk to the Fund's
shareholders.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an actively-managed exchange-traded product that, through permitted use
of an increased level of OTC derivatives above that currently permitted
by the generic listing requirements of Commentary .01 to NYSE Arca
Equities Rule 8.600, will enhance competition among market
participants, to the benefit of investors and the marketplace. As noted
above, the Exchange has in place surveillance procedures relating to
trading in the Shares and may obtain information via ISG from other
exchanges that are members of ISG or with which the Exchange has
entered into a CSSA. In addition, as noted above, investors have ready
access to information regarding the Fund's holdings, the PIV, the
Disclosed Portfolio, and quotation and last sale information for the
Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
issue of Managed Fund Shares that, through permitted use of an
increased level of OTC derivatives above that currently permitted by
the generic listing requirements of Commentary .01 to NYSE Arca
Equities Rule 8.600 will enhance competition among market participants,
to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or 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-NYSEArca-2017-09 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2017-09. 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 will also be available
for
[[Page 11098]]
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2017-09 and should
be submitted on or before March 10, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03179 Filed 2-16-17; 8:45 am]
BILLING CODE 8011-01-P
