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 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 (http://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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–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 (http://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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be available for 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]


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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.
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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\
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    \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\
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    \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 (http://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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for

[[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\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03179 Filed 2-16-17; 8:45 am]
 BILLING CODE 8011-01-P