Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List and Trade of Shares of the IQ Municipal Insured ETF, IQ Municipal Short Duration ETF, and IQ Municipal Intermediate ETF Under NYSE Arca Equities Rule 8.600, 27302-27307 [2017-12260]
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Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act9 and Rule
19b–4(f)(6) thereunder.10 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 11 normally does not
become operative prior to 30 days after
the date of the filing.12 However,
pursuant to Rule 19b–4(f)(6)(iii),13 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. Without a waiver of 30-day
operative delay, CBOE’s Pilot Program
will expire before the extension of the
Pilot Program is operative. The
Commission believes that waiving the
30-day operative delay for the instant
filing is consistent with the protection
of investors and the public interest
because doing so will allow the Pilot
Program to continue without
interruption in a manner that is
consistent with the Commission’s prior
approval of the extension and expansion
of the Pilot Program and will allow the
Exchange and the Commission
additional time to analyze the impact of
the Pilot Program. Accordingly, the
Commission designates the proposed
9 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
11 17 CFR 240.19b–4(f)(6).
12 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has satisfied this pre-filing requirement.
13 17 CFR 240.19b–4(f)(6)(iii).
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10 17
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rule change as operative upon filing
with the Commission.14
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
C2–2017–020 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–C2–2017–020. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–C2–
2017–020 and should be submitted on
or before July 5, 2017.
14 For purposes only of waiving the operative
delay for this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–12258 Filed 6–13–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80885; File No. SR–
NYSEArca–2017–44]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
a Proposed Rule Change, as Modified
by Amendment Nos. 1 and 2, To List
and Trade of Shares of the IQ
Municipal Insured ETF, IQ Municipal
Short Duration ETF, and IQ Municipal
Intermediate ETF Under NYSE Arca
Equities Rule 8.600
June 8, 2017.
I. Introduction
On April 20, 2017, NYSE Arca, Inc.
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the IQ
Municipal Insured ETF, IQ Municipal
Short Duration ETF, and IQ Municipal
Intermediate ETF (each a ‘‘Fund,’’ and
collectively, the ‘‘Funds’’) under NYSE
Arca Equities Rule 8.600. The
Commission published notice of the
proposed rule change in the Federal
Register on May 9, 2017.3 On May 9,
2017, the Exchange filed Amendment
No. 1 to the proposed rule change and
on May 31, 2017, the Exchange filed
Amendment No. 2 to the proposed rule
change.4 The Commission received no
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 80584
(May 3, 2017), 82 FR 21573.
4 In Amendment No. 1, which replaced the
original filing in its entirety, the Exchange: (1)
Clarified that each of the Adviser (as defined
herein) and Subadviser (as defined herein) is not a
registered broker-dealer but each is affiliated with
a broker-dealer and each will maintain a ‘‘fire wall’’
with respect to such broker-dealer affiliate
regarding access to information concerning the
composition of and/or changes to each Fund’s
portfolio; (2) clarified that cash creations and
redemptions will be the default mechanism for
creation and redemption of Shares, and provided
additional information relating to creation and
redemption of Shares when a Fund utilizes in-kind
creations and redemptions; (3) represented that
upon the commencement of operations of a Fund,
a copy of the Funds’ prospectus will be available
on the Funds’ Web site in a form that may be
downloaded; (4) provided additional information
1 15
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Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices
comments on the proposed rule change.
The Commission is approving the
proposed rule change, as modified by
Amendment Nos. 1 and 2 thereto.
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II. The Exchange’s Description of the
Proposal
The Exchange proposes to list and
trade the Shares under NYSE Arca
Equities Rule 8.600, which governs the
listing and trading of Managed Fund
Shares on the Exchange. The Shares will
be offered by the IndexIQ Active ETF
Trust (‘‘Trust’’), which is registered with
the Commission as an open-end
management investment company.5
Each Fund is a series of the Trust. The
investment adviser to each Fund will be
IndexIQ Advisors LLC (‘‘Adviser’’), and
MacKay Shields LLC will be each
Fund’s sub-adviser (‘‘Subadviser’’).6
regarding publicly available information relating to
the Shares and each Fund’s underlying
investments; (5) clarified that less than 75% of the
weight of a Fund’s portfolio may consist of
components with $100 million or more minimum
original principal amount outstanding; (6)
represented that trading in the Shares of the Funds
will be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth circumstances
under which Shares of the Funds may be halted;
and (7) made other non-substantive, technical
amendments. Amendment No. 1 is available at:
https://www.sec.gov/comments/sr-nysearca-201744/nysearca201744-1745942-151492.pdf. In
Amendment No. 2, which replaced Amendment No.
1 in its entirety, the Exchange: (1) Clarified that
each of the Adviser and Subadviser has
implemented and will maintain a ‘‘fire wall’’ with
respect to its broker-dealer affiliate regarding access
to information concerning the composition of and/
or changes to each Fund’s portfolio; (2) represented
that the quantitative information on the Funds’ Web
site relating to the Shares and relating to the
underlying portfolio securities and other assets held
by the Funds will be publicly available at no
charge; (3) represented that trade price and other
information relating to Municipal Bonds (as defined
below) is available through the Municipal
Securities Rulemaking Board’s Electronic
Municipal Market Access (‘‘EMMA’’) system; and
(4) made other clarifying and technical
amendments. Amendment No. 2 is available at:
https://www.sec.gov/comments/sr-nysearca-201744/nysearca201744-1780627-152846.pdf. Because
Amendment Nos. 1 and 2 do not materially alter the
substance of the proposed rule change or raise
unique or novel regulatory issues, Amendment Nos.
1 and 2 are not subject to notice and comment.
5 According to the Exchange, on February 24,
2017, the Trust filed with the Commission a
registration statement on Form N–1A under the
Securities Act of 1933 and the Investment Company
Act of 1940 (‘‘1940 Act’’) relating to the Funds (File
Nos. 333–183489 and 811–22739) (‘‘Registration
Statement’’). According to the Exchange, the
Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act.
See Investment Company Act Release No. 30198
(September 10, 2012) (File No. 812–13956).
6 According to the Exchange, neither the Adviser
nor Subadviser is a registered broker-dealer;
however, each is affiliated with a broker-dealer.
Each of the Adviser and Subadviser has
implemented and will maintain a ‘‘fire wall’’ with
respect to such broker-dealer affiliate regarding
access to information concerning the composition
of and/or changes to each Fund’s portfolio. In the
event (a) the Adviser or Subadviser becomes
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ALPS Distributors, Inc. will serve as the
distributor of each Fund’s Shares on an
agency basis and the Bank of New York
Mellon will serve as each Fund’s
administrator, custodian, transfer agent,
and securities lending agent
(‘‘Administrator’’).
The Exchange has made the following
representations and statements in
describing the Funds and their
investment strategies, including each
Fund’s portfolio holdings and
investment restrictions.7
A. The Exchange’s Description of the
Principal Investments of the Funds
According to the Exchange, for
purposes of the filing, the term
‘‘Municipal Bonds’’ as applied to each
of the Funds means the following:
• Municipal lease obligations (and
certificates of participation in such
obligations);
• municipal general obligation bonds
(including industrial development
bonds issued pursuant to federal tax
law), which are issued for either project
or enterprise financings in which the
bond issuer pledges to the bondholders
the revenues generated by the operating
projects financed from the proceeds of
the bond issuance;
• limited obligation bonds, which are
payable only from the revenues derived
from a particular facility or class of
facilities or, in some cases from the
proceeds of a special excise or other
specific revenue source;
• municipal revenue bonds (which
are typically secured by revenues
generated by the issuer), including
revenue anticipation notes;
• municipal bond anticipation notes
(which are normally issued to provide
interim financial assistance until longterm financing can be arranged);
• municipal bonds that feature credit
enhancements, such as lines of credit,
letters of credit, municipal bond
insurance, and standby bond purchase
agreements;
registered as a broker-dealer or newly affiliated with
a broker-dealer, or (b) any new adviser or subadviser to a Fund is a registered broker-dealer or
becomes affiliated with a broker-dealer, the
applicable adviser or sub-adviser 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 a Fund’s portfolio, and will be subject
to procedures designed to prevent the use and
dissemination of material non-public information
regarding such portfolio.
7 The Commission notes that additional
information regarding the Trust, the Funds, and the
Shares, including investment strategies, risks,
creation and redemption procedures, calculation of
net asset value (‘‘NAV’’), fees, distributions, and
taxes, among other things, is included in the
proposed rule change, as modified by Amendment
Nos. 1 and 2, and the Registration Statement, as
applicable. See Amendment No. 2 and Registration
Statement, supra notes 4 and 5, respectively.
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27303
• discount municipal bonds (which
may be originally issued at a discount
to par value or sold at market price
below par value);
• premium municipal bonds, which
are sold at a premium to par value;
• zero coupon municipal bonds,
which are issued at an original issue
discount, with the full value, including
accrued interest, paid at maturity;
• taxable municipal bonds, including
Build America Bonds;
• municipal notes;
• municipal cash equivalents;
• private activity bonds (including
without limitation industrial
development bonds);
• pre-refunded and escrowed to
maturity municipal bonds; and
• securities issued by entities whose
underlying assets are Municipal Bonds
(i.e., tender option bond trusts and
custodial receipts trusts and variable
rate demand notes that pay interest
monthly or quarterly based on a floating
rate that is reset daily or weekly based
on an index of short-term municipal
rates).
For each Fund, the Subadviser’s
investment process will begin with an
assessment of macro factors that may
impact the municipal bond market, as
well as other regulatory, tax,
governmental, and technical factors that
may impact the municipal bond market.
Following the assessment of these
factors, the Subadviser will develop an
investment strategy to position a Fund
among various sectors of the municipal
bond market and different states. The
Subadviser then will employ a
fundamental, ‘‘bottom-up’’ credit
research analysis to select individual
Municipal Bonds.
(i) Principal Investments of the IQ
Municipal Insured ETF
According to the Exchange, the Fund
will seek current income exempt from
federal income tax. The Fund, under
normal market conditions,8 will invest
8 The term ‘‘under normal market conditions’’ as
used herein includes, but is not limited to, the
absence of adverse market, economic, political or
other conditions, including extreme volatility or
trading halts in the fixed income markets or the
financial markets generally; operational issues (e.g.,
systems failure) causing dissemination of inaccurate
market information; or force majeure type events
such as natural or man-made disaster, act of God,
armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
On a temporary basis, including for defensive
purposes, during the initial invest-up period (i.e.,
the six-week period following the commencement
of trading of Shares on the Exchange) and during
periods of high cash inflows or outflows (i.e.,
rolling periods of seven calendar days during which
inflows or outflows of cash, in the aggregate, exceed
10% of a Fund’s net assets as of the opening of
business on the first day of such periods), a Fund
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Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices
at least 80% of its assets in Municipal
Bonds that are covered by insurance
policies that guarantee the timely
payment of principal and interest. The
Fund generally will maintain a dollarweighted average duration within plus
or minus two years of the dollarweighted average duration of the S&P
Municipal Bond Insured Index.9
(ii) Principal Investments of the IQ
Municipal Short Duration ETF
According to the Exchange, the Fund
will seek current income exempt from
federal income tax. The Fund, under
normal market conditions, will invest at
least 80% of its assets in Municipal
Bonds. The Fund generally will
maintain a dollar-weighted average
portfolio duration of three years or less.
(iii) Principal Investments of the IQ
Municipal Intermediate ETF
According to the Exchange, the Fund
will seek current income exempt from
federal income tax. The Fund, under
normal market conditions, will invest at
least 80% of its assets in Municipal
Bonds. The Fund generally will
maintain a dollar-weighted average
duration within plus or minus two years
of the dollar-weighted average duration
of the S&P Municipal Bond Intermediate
Index.
mstockstill on DSK30JT082PROD with NOTICES
B. The Exchange’s Description of the
Other Investments of the Funds
With respect to each of the Funds,
while a Fund, under normal market
conditions, will invest at least 80% of
its assets in Municipal Bonds, as
described above, a Fund may invest its
remaining assets in other assets and
financial instruments, as described
below.
Each Fund may invest in shares of
exchange-traded funds (‘‘ETFs’’) and
money market funds.10 In addition, each
may depart from its principal investment strategies;
for example, it may hold a higher than normal
proportion of its assets in cash. During such
periods, a Fund may not be able to achieve its
investment objectives. A Fund may adopt a
defensive strategy when the Adviser believes
securities in which a Fund normally invests have
elevated risks due to political or economic factors
and in other extraordinary circumstances.
9 Municipal bonds are issued by or on behalf of
the District of Columbia, states, territories,
commonwealths, and possessions of the United
States and their political subdivisions and agencies,
authorities, and instrumentalities. Municipal
securities, which may be issued in various forms,
including bonds and notes, are issued to obtain
funds for various public purposes.
10 For purposes of the filing, ETFs include
Investment Company Units (as described in NYSE
Arca Equities Rule 5.2(j)(3)); Portfolio Depositary
Receipts (as described in NYSE Arca Equities Rule
8.100); and Managed Fund Shares (as described in
NYSE Arca Equities Rule 8.600). The ETFs all will
be listed and traded in the U.S. on registered
exchanges.
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Fund may invest, directly and
indirectly, in fixed rate and floating rate
U.S. government securities, including
bills, notes and bonds differing as to
maturity and rates of interest, which are
either issued or guaranteed by the U.S.
Treasury or by U.S. government
agencies or instrumentalities;
repurchase agreements; and commercial
paper; and may purchase securities on
a when-issued basis or for settlement at
a future date (forward commitment), if
a Fund holds sufficient liquid assets to
meet the purchase price (collectively,
‘‘Other Investments’’).
C. The Exchange’s Description of the
Funds’ Investment Restrictions
Each 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. Each Fund will
monitor 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 a
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.
Each Fund’s investments will be
consistent with its investment objective
and will not be used to provide multiple
returns of a benchmark or to produce
leveraged returns.
Each Fund may invest more than 25%
of its total assets in Municipal Bonds
that are related in such a way that an
economic, business or political
development or change affecting one
such security could also affect the other
securities. However, a Fund’s
investments will be diversified among a
minimum of ten different sectors of the
municipal bond market.11
A Fund’s investments will be
diversified among at least 15 different
states, with no more than 30% of a
Fund’s securities invested in municipal
securities from a single state.
11 According
to the Exchange, the IQ Municipal
Insured ETF’s investments in Municipal Bonds will
include investments in state and local (e.g., county,
city, town) and authority-issued Municipal Bonds
relating to such sectors as the following: State
general obligation, local general obligation,
education, hospital, housing, industrial
development revenue/pollution control revenue,
power, resource recovery, transportation, water/
sewer, leasing, special tax, and pre-refunded bonds.
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Under normal market conditions, no
security (excluding Treasury securities)
will represent more than 25% of the
weight of the portfolio, and the five
highest weighted securities will not, in
the aggregate, account for more than
50% of the weight of a Fund. No
Municipal Bond held by a Fund will
exceed 5% of the weight of a Fund’s
portfolio and no single Municipal Bond
issuer will account for more than 8% of
the weight of a Fund’s portfolio. A Fund
will hold Municipal Bonds of a
minimum of 25 non-affiliated issuers.12
D. The Exchange’s Description of the
Application of the Generic Listing
Requirements to the Funds
The Exchange states that it is
submitting the proposed rule change
because the portfolios for the Funds will
not meet 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 Exchange states that
each Fund’s portfolio will meet all the
requirements set forth in Commentary
.01 to NYSE Arca Equities Rule 8.600
except for those set forth in
Commentary .01(b)(1), which requires
that components that in the aggregate
account for at least 75% of the fixed
income weight of the portfolio each
shall have a minimum original principal
amount outstanding of $100 million or
more.
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the Exchange’s proposal to list
and trade the Shares is consistent with
the Act and the rules and regulations
thereunder applicable to a national
securities exchange.13 In particular, the
Commission finds that the proposed
rule change, as modified by Amendment
Nos. 1 and 2, is consistent with Section
6(b)(5) of the Act,14 which requires,
among other things, that the Exchange’s
rules be 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 a national market
12 For purposes of this restriction, each state and
each separate political subdivision, agency,
authority, or instrumentality of such state, each
multi-state agency or authority, and each guarantor,
if any, will be treated as separate issuers of
Municipal Bonds.
13 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
14 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices
system, and, in general, to protect
investors and the public interest.
The Commission also finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Act,15 which sets
forth the finding of Congress that it is in
the public interest and appropriate for
the protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for and
transactions in securities. Quotation and
last-sale information for the Shares and
the underlying ETFs will be available
via the Consolidated Tape Association
(‘‘CTA’’) high-speed line, and from the
national securities exchange on which
they are listed.
The approximate value of each Fund’s
investments on a per-Share basis, the
Indicative Intra-Day Value (‘‘IIV’’)
(which is the Portfolio Indicative Value,
as defined in NYSE Arca Equities Rule
8.600(c)(3)), will be disseminated every
15 seconds during the Exchange’s Core
Trading Session (ordinarily 9:30 a.m. to
4:00 p.m., Eastern Time) by one or more
major market data vendors.16 On each
business day, before commencement of
trading in Shares on the Exchange, each
Fund will disclose on its Web site the
identities and quantities of the portfolio
securities and other assets held by each
Fund (each Fund’s ‘‘Disclosed
Portfolio,’’ as defined in NYSE Arca
Equities Rule 8.600(c)(2)) that will form
the basis for the calculation of NAV at
the end of the business day.17 In
addition, with respect to each Fund, the
Administrator, through the National
Securities Clearing Corporation, will
make available on each business day
immediately prior to the opening of
business on the Exchange (currently
9:30 a.m., Eastern Time), the designated
portfolio of securities and estimated
cash component, if applicable, per each
creation unit that will be applicable to
15 15
U.S.C. 78k–1(a)(1)(C)(iii).
Exchange represents that several major
market data vendors display and/or make widely
available IIVs taken from CTA or other data feeds.
According to the Exchange, the IIV for a Fund will
be calculated by an independent third party
calculator by dividing the ‘‘Estimated Fund Value’’
as of the time of the calculation by the total number
of outstanding Shares of that Fund. ‘‘Estimated
Fund Value’’ is the sum of the estimated amount
of cash held in a Fund’s portfolio, the estimated
amount of accrued interest owed to a Fund, and the
estimated value of the securities held in a Fund’s
portfolio, minus the estimated amount of a Fund’s
liabilities. The IIV will be calculated based on the
same portfolio holdings disclosed on the Funds’
Web site.
17 On a daily basis, the Funds will disclose the
information required under NYSE Arca Equities
Rule 8.600 (c)(2) to the extent applicable. The Web
site information will be publicly available at no
charge.
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16 The
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creation and redemption requests on
that day. The NAV of Shares of each
Fund will normally be determined as of
the close of the Core Trading Session on
the Exchange (ordinarily 4:00 p.m.,
Eastern Time) on each business day.
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 publicly available and published
daily in the financial section of
newspapers. Quotation information
from brokers and dealers or pricing
services will be available for Municipal
Bonds and Other Investments. Price
information for money market funds
will be available from the applicable
investment company’s Web site and
from market data vendors. Pricing
information regarding Municipal Bonds
and Other Investments (other than
money market funds) will generally be
available through nationally recognized
data service providers through
subscription agreements. Trade price
and other information relating to
Municipal Bonds is available through
the Municipal Securities Rulemaking
Board’s EMMA system. Upon the
commencement of operations of a Fund,
a copy of the Funds’ prospectus will be
available on the Funds’ Web site
(www.IQetfs.com) in a form that may be
downloaded. In addition, the Funds’
Web site will include additional data
relating to NAV and other applicable
quantitative information relating to the
Shares.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Exchange will obtain a representation
from the issuer of the Shares that the
NAV per Share for each Fund will be
calculated daily and that the NAV and
the Disclosed Portfolio for each Fund
will be made available to all market
participants at the same time.18 Trading
in Shares of the Funds 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.19 Trading in the Shares will
18 See
NYSE Arca Equities Rule 8.600(d)(1)(B).
respect to trading halts, the Exchange may
consider all relevant factors in exercising its
19 With
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27305
be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth
additional circumstances under which
Shares of the Funds may be halted.
The Exchange represents that it has a
general policy prohibiting the
distribution of material, non-public
information by its employees. In
addition, Commentary .06 to NYSE Arca
Equities Rule 8.600 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, non-public information
regarding the open-end fund’s portfolio.
The Exchange represents that the
Adviser and Sub-Adviser are not
registered as broker-dealers; however,
each of the Adviser and the Sub-Adviser
is affiliated with a broker-dealer, and
each of the Adviser and Sub-Adviser
has implemented and will maintain a
fire wall with respect to their relevant
personnel and each such broker-dealer
affiliate regarding access to information
concerning the composition of, and/or
changes to, a portfolio.20
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. The
Exchange represents that trading in the
Shares will be subject to the existing
trading surveillances, administered by
the Financial Industry Regulatory
Authority (‘‘FINRA’’) on behalf of the
Exchange, or by regulatory staff of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws.21 The
Commission believes that the
Exchange’s initial and continued listing
requirements, combined with the
Funds’ investment criteria and
restrictions that would apply to
Municipal Bonds in the portfolio, are
designed to mitigate the potential for
price manipulation of the Shares.
The Exchange represents that it 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.
discretion to halt or suspend trading in the Shares
of a Fund.
20 See supra note 6. The Exchange represents that
an investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940.
21 The Exchange states that FINRA conducts
cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services
agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
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Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices
In support of this proposal, the
Exchange has made the following
additional representations:
(1) The Shares of each Fund will
conform to the initial and continued
listing criteria under NYSE Arca
Equities Rule 8.600.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) Trading in the Shares will be
subject to the existing trading
surveillances, administered by FINRA
on behalf of the Exchange, or by
regulatory staff 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.
(4) The Exchange or FINRA, on behalf
of the Exchange, or both, will
communicate as needed regarding
trading in the Shares and ETFs with
other markets and other entities that are
members of the Intermarket
Surveillance Group (‘‘ISG’’), and the
Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading
information regarding trading in the
Shares and ETFs from such markets and
other entities. In addition, the Exchange
may obtain information regarding
trading in the Shares and ETFs from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. FINRA,
on behalf of the Exchange, is able to
access, as needed, trade information for
certain fixed income securities held by
a Fund reported to FINRA’s Trade
Reporting and Compliance Engine.
FINRA also can access data obtained
from the Municipal Securities
Rulemaking Board relating to municipal
bond trading activity for surveillance
purposes in connection with trading in
the Shares.
(5) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in a
Bulletin of the special characteristics
and risks associated with trading the
Shares. Specifically, the Bulletin will
discuss: (a) The procedures for
purchases and redemptions of Shares in
creation unit aggregations (and that
Shares are not individually redeemable);
(b) 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; (c)
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the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated IIV will not
be calculated or publicly disseminated;
(d) how information regarding the IIV
and the Disclosed Portfolio is
disseminated; (e) 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 (f) trading information.
In addition, the Bulletin will discuss
any exemptive, no-action, and
interpretive relief granted by the
Commission from any rules under the
Act.
(6) For initial and continued listing, a
Fund will be in compliance with Rule
10A–3 under the Act,22 as provided by
NYSE Arca Equities Rule 5.3.
(7) A minimum of 100,000 Shares for
each Fund will be outstanding at the
commencement of trading on the
Exchange.
(8) Each Fund’s investments will be
consistent with its investment objective
and will not be used to provide multiple
returns of a benchmark or to produce
leveraged returns.
(9) Under normal market conditions,
each Fund will invest at least 80% of its
assets in Municipal Bonds.
(10) Each Fund’s investments will be
diversified among a minimum of ten
different sectors of the Municipal Bond
market.
(11) Each Fund’s investments will be
diversified among at least 15 different
states, with no more than 30% of a
Fund’s securities invested in municipal
securities from a single state.
(12) Under normal market conditions,
no security (excluding Treasury
securities) will represent more than
25% of the weight of the portfolio of a
Fund, and the five highest weighted
securities will not, in the aggregate,
account for more than 50% of the
weight of a Fund.
(13) No Municipal Bond held by a
Fund will exceed 5% of the weight of
that Fund’s portfolio, and no single
Municipal Bond issuer will account for
more than 8% of the weight of a Fund’s
portfolio.
(14) Each Fund will hold Municipal
Bonds of a minimum of 25 nonaffiliated issuers.
(15) Each 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. Each Fund will
monitor its portfolio liquidity on an
ongoing basis to determine whether, in
22 17
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CFR 240.10A–3.
Frm 00083
Fmt 4703
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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 a
Fund’s net assets are held in illiquid
assets.
(16) The ETFs in which a Fund may
invest will be listed and traded in the
U.S. on registered exchanges.
The Exchange has represented that all
statements and representations made in
the filing regarding (a) the description of
the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) the
applicability of Exchange listing rules
specified in the filing shall constitute
continued listing requirements for
listing the Shares of a Fund on the
Exchange. The issuer has represented to
the Exchange that it will advise the
Exchange of any failure by a 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.23 If a Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Equities Rule 5.5(m).
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
Amendment Nos. 1 and 2, and the
Exchange’s description of the Funds.
The Commission notes that the Funds
and the Shares must comply with the
requirements of NYSE Arca Equities
Rule 8.600 to be initially and
continuously listed and traded on the
Exchange.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 24 and the rules and
regulations thereunder applicable to a
national securities exchange.
23 The Commission notes that certain other
proposals for the listing and trading of managed
fund shares include a representation that the
exchange will ‘‘surveil’’ for compliance with the
continued listing requirements. See, e.g., Securities
Exchange Act Release No. 78005 (Jun. 7, 2016), 81
FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In
the context of this representation, it is the
Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of the Funds’
compliance with the continued listing
requirements. Therefore, the Commission does not
view ‘‘monitor’’ as a more or less stringent
obligation than ‘‘surveil’’ with respect to the
continued listing requirements.
24 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,25 that the
proposed rule change (SR–NYSEArca–
2017–44), as modified by Amendment
Nos. 1 and 2 thereto, be, and it hereby
is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–12260 Filed 6–13–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80890; File No. SR–MSRB–
2017–03]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed
Rule Change To Amend MSRB Rule G–
26, on Customer Account Transfers,
To Modernize the Rule and Promote a
Uniform Customer Account Transfer
Standard
June 7, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule
19b–4 thereunder,2 notice is hereby
given that on May 26, 2017 the
Municipal Securities Rulemaking Board
(the ‘‘MSRB’’ or ‘‘Board’’) filed with the
Securities and Exchange Commission
(the ‘‘SEC’’ or ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the MSRB. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
mstockstill on DSK30JT082PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The MSRB filed with the Commission
a proposed rule change to amend MSRB
Rule G–26, on customer account
transfers, to modernize the rule and
promote a uniform customer account
transfer standard for all brokers, dealers,
municipal securities brokers and
municipal securities dealers
(collectively, ‘‘dealers’’) (‘‘proposed rule
change’’).3 The MSRB requests that the
25 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 For clarity and ease of reference, current
provisions of Rule G–26 will be cited herein as
‘‘Rule G–26,’’ and proposed amendments to Rule G–
26 will be cited herein as ‘‘proposed Rule G–26’’.
26 17
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Jkt 241001
proposed rule change be effective three
months from the date of Commission
approval.
The text of the proposed rule change
is available on the MSRB’s Web site at
www.msrb.org/Rules-andInterpretations/SEC-Filings/2017Filings.aspx, at the MSRB’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
MSRB included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The MSRB has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to modernize Rule G–26 and
promote a uniform customer account
transfer standard for all dealers. The
MSRB believes that, by including
certain provisions parallel to the
customer account transfer rules of other
SROs, particularly FINRA Rule 11870,
in current Rule G–26, as outlined below,
the transfer of customer securities
account assets will be more flexible, less
burdensome, and more efficient, while
reducing confusion and risk to investors
and allowing them to better move their
municipal securities to their dealer of
choice.
Current Rule G–26
Rule G–26 requires dealers to
cooperate in the transfer of customer
accounts and specifies procedures for
carrying out the transfer process. Such
transfers occur when a customer decides
to transfer an account from one dealer,
the carrying party (i.e., the dealer from
which the customer is requesting the
account be transferred) to another, the
receiving party (i.e., the dealer to which
the customer is requesting the account
be transferred). The rule establishes
specific time frames within which the
carrying party is required to transfer a
customer account; limits the reasons for
which a receiving party may take
exception to an account transfer
instruction; provides for the
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27307
establishment of fail-to-receive and failto-deliver contracts; 4 and requires that
fail contracts be resolved in accordance
with MSRB close-out procedures,
established by MSRB Rule G–12(h). In
addition, the current rule requires the
use of the automated customer account
transfer service in place at a registered
clearing agency registered with the
Commission when both dealers are
direct participants in the same clearing
agency.5 Finally, the rule contains a
provision for enhancing compliance by
requiring submission of transfer
instructions to the enforcement
authority with jurisdiction over the
dealer carrying the account, if the
enforcement authority requests such
submission.6
The MSRB adopted Rule G–26 in
1986 as part of an industry-wide
initiative to create a uniform customer
account transfer standard by applying a
customer account transfer procedure to
all dealers that are engaged in municipal
securities activities.7 The uniform
standard for all customer account
transfers (i.e., automated and manual
processes) is largely driven by the
National Securities Clearing
Corporation’s (‘‘NSCC’’) Automated
Customer Account Transfer Service
(‘‘ACATS’’). The MSRB adopted Rule
G–26 in conjunction with the adoption
of similar rules by other self-regulatory
organizations (‘‘SROs’’)—New York
Stock Exchange (‘‘NYSE’’) Rule 412 and
Financial Industry Regulatory Authority
(‘‘FINRA’’) Rule 11870.8 Those rules are
not applicable to certain accounts at
dealers, particularly municipal securityonly accounts and accounts at bank
dealers.9 Current Rule G–26 governs the
municipal security-only customer
account transfers performed by those
4 Fail-to-receive and fail-to-deliver contracts are
records maintained by the receiving party and the
carrying party, respectively, when a customer
account transfer fails.
5 See Rule G–26(h).
6 See Rule G–26(i).
7 See Exchange Act Release No. 22810 (Jan. 17,
1986), 51 FR 3287 (Jan. 24, 1986) (SR–MSRB–86–
2) (proposing Rule G–26). See also Exchange Act
Release Nos. 22663 (Nov. 27 1985) (SR–NYSE–85–
17) (approving NYSE Rule 412); 22941 (Feb. 24,
1986) (SR–NASD–29) (approving NASD/FINRA
Rule 11870).
8 In 2007, FINRA was created through the
consolidation of the National Association of
Securities Dealers (‘‘NASD’’) and the member
regulation, enforcement and arbitration operations
of the NYSE. Current NYSE Rule 412 crossreferences NASD/FINRA Rule 11870 for the
purpose of incorporating it into the NYSE rulebook.
9 See Exchange Act Release No. 22810 (Jan. 17,
1986), 51 FR 3287 (Jan. 24, 1986) (SR–MSRB–86–
2) (‘‘Currently certain municipal securities brokers
or municipal securities dealers, particularly those
with municipal security-only accounts and bank
dealers, will not be covered by the standards
governing the rest of the securities industry.’’).
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]]>Agencies
[Federal Register Volume 82, Number 113 (Wednesday, June 14, 2017)]
[Notices]
[Pages 27302-27307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12260]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80885; File No. SR-NYSEArca-2017-44]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and
2, To List and Trade of Shares of the IQ Municipal Insured ETF, IQ
Municipal Short Duration ETF, and IQ Municipal Intermediate ETF Under
NYSE Arca Equities Rule 8.600
June 8, 2017.
I. Introduction
On April 20, 2017, NYSE Arca, Inc. (``Exchange'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade
shares (``Shares'') of the IQ Municipal Insured ETF, IQ Municipal Short
Duration ETF, and IQ Municipal Intermediate ETF (each a ``Fund,'' and
collectively, the ``Funds'') under NYSE Arca Equities Rule 8.600. The
Commission published notice of the proposed rule change in the Federal
Register on May 9, 2017.\3\ On May 9, 2017, the Exchange filed
Amendment No. 1 to the proposed rule change and on May 31, 2017, the
Exchange filed Amendment No. 2 to the proposed rule change.\4\ The
Commission received no
[[Page 27303]]
comments on the proposed rule change. The Commission is approving the
proposed rule change, as modified by Amendment Nos. 1 and 2 thereto.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 80584 (May 3, 2017),
82 FR 21573.
\4\ In Amendment No. 1, which replaced the original filing in
its entirety, the Exchange: (1) Clarified that each of the Adviser
(as defined herein) and Subadviser (as defined herein) is not a
registered broker-dealer but each is affiliated with a broker-dealer
and each will maintain a ``fire wall'' with respect to such broker-
dealer affiliate regarding access to information concerning the
composition of and/or changes to each Fund's portfolio; (2)
clarified that cash creations and redemptions will be the default
mechanism for creation and redemption of Shares, and provided
additional information relating to creation and redemption of Shares
when a Fund utilizes in-kind creations and redemptions; (3)
represented that upon the commencement of operations of a Fund, a
copy of the Funds' prospectus will be available on the Funds' Web
site in a form that may be downloaded; (4) provided additional
information regarding publicly available information relating to the
Shares and each Fund's underlying investments; (5) clarified that
less than 75% of the weight of a Fund's portfolio may consist of
components with $100 million or more minimum original principal
amount outstanding; (6) represented that trading in the Shares of
the Funds will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Funds may
be halted; and (7) made other non-substantive, technical amendments.
Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nysearca-2017-44/nysearca201744-1745942-151492.pdf. In Amendment No.
2, which replaced Amendment No. 1 in its entirety, the Exchange: (1)
Clarified that each of the Adviser and Subadviser has implemented
and will maintain a ``fire wall'' with respect to its broker-dealer
affiliate regarding access to information concerning the composition
of and/or changes to each Fund's portfolio; (2) represented that the
quantitative information on the Funds' Web site relating to the
Shares and relating to the underlying portfolio securities and other
assets held by the Funds will be publicly available at no charge;
(3) represented that trade price and other information relating to
Municipal Bonds (as defined below) is available through the
Municipal Securities Rulemaking Board's Electronic Municipal Market
Access (``EMMA'') system; and (4) made other clarifying and
technical amendments. Amendment No. 2 is available at: https://www.sec.gov/comments/sr-nysearca-2017-44/nysearca201744-1780627-152846.pdf. Because Amendment Nos. 1 and 2 do not materially alter
the substance of the proposed rule change or raise unique or novel
regulatory issues, Amendment Nos. 1 and 2 are not subject to notice
and comment.
---------------------------------------------------------------------------
II. The Exchange's Description of the Proposal
The Exchange proposes to list and trade the Shares under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares on the Exchange. The Shares will be offered by the IndexIQ
Active ETF Trust (``Trust''), which is registered with the Commission
as an open-end management investment company.\5\ Each Fund is a series
of the Trust. The investment adviser to each Fund will be IndexIQ
Advisors LLC (``Adviser''), and MacKay Shields LLC will be each Fund's
sub-adviser (``Subadviser'').\6\ ALPS Distributors, Inc. will serve as
the distributor of each Fund's Shares on an agency basis and the Bank
of New York Mellon will serve as each Fund's administrator, custodian,
transfer agent, and securities lending agent (``Administrator'').
---------------------------------------------------------------------------
\5\ According to the Exchange, on February 24, 2017, the Trust
filed with the Commission a registration statement on Form N-1A
under the Securities Act of 1933 and the Investment Company Act of
1940 (``1940 Act'') relating to the Funds (File Nos. 333-183489 and
811-22739) (``Registration Statement''). According to the Exchange,
the Commission has issued an order granting certain exemptive relief
to the Trust under the 1940 Act. See Investment Company Act Release
No. 30198 (September 10, 2012) (File No. 812-13956).
\6\ According to the Exchange, neither the Adviser nor
Subadviser is a registered broker-dealer; however, each is
affiliated with a broker-dealer. Each of the Adviser and Subadviser
has implemented and will maintain a ``fire wall'' with respect to
such broker-dealer affiliate regarding access to information
concerning the composition of and/or changes to each Fund's
portfolio. In the event (a) the Adviser or Subadviser becomes
registered as a broker-dealer or newly affiliated with a broker-
dealer, or (b) any new adviser or sub-adviser to a Fund is a
registered broker-dealer or becomes affiliated with a broker-dealer,
the applicable adviser or sub-adviser 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 a Fund's portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material
non-public information regarding such portfolio.
---------------------------------------------------------------------------
The Exchange has made the following representations and statements
in describing the Funds and their investment strategies, including each
Fund's portfolio holdings and investment restrictions.\7\
---------------------------------------------------------------------------
\7\ The Commission notes that additional information regarding
the Trust, the Funds, and the Shares, including investment
strategies, risks, creation and redemption procedures, calculation
of net asset value (``NAV''), fees, distributions, and taxes, among
other things, is included in the proposed rule change, as modified
by Amendment Nos. 1 and 2, and the Registration Statement, as
applicable. See Amendment No. 2 and Registration Statement, supra
notes 4 and 5, respectively.
---------------------------------------------------------------------------
A. The Exchange's Description of the Principal Investments of the Funds
According to the Exchange, for purposes of the filing, the term
``Municipal Bonds'' as applied to each of the Funds means the
following:
Municipal lease obligations (and certificates of
participation in such obligations);
municipal general obligation bonds (including industrial
development bonds issued pursuant to federal tax law), which are issued
for either project or enterprise financings in which the bond issuer
pledges to the bondholders the revenues generated by the operating
projects financed from the proceeds of the bond issuance;
limited obligation bonds, which are payable only from the
revenues derived from a particular facility or class of facilities or,
in some cases from the proceeds of a special excise or other specific
revenue source;
municipal revenue bonds (which are typically secured by
revenues generated by the issuer), including revenue anticipation
notes;
municipal bond anticipation notes (which are normally
issued to provide interim financial assistance until long-term
financing can be arranged);
municipal bonds that feature credit enhancements, such as
lines of credit, letters of credit, municipal bond insurance, and
standby bond purchase agreements;
discount municipal bonds (which may be originally issued
at a discount to par value or sold at market price below par value);
premium municipal bonds, which are sold at a premium to
par value;
zero coupon municipal bonds, which are issued at an
original issue discount, with the full value, including accrued
interest, paid at maturity;
taxable municipal bonds, including Build America Bonds;
municipal notes;
municipal cash equivalents;
private activity bonds (including without limitation
industrial development bonds);
pre-refunded and escrowed to maturity municipal bonds; and
securities issued by entities whose underlying assets are
Municipal Bonds (i.e., tender option bond trusts and custodial receipts
trusts and variable rate demand notes that pay interest monthly or
quarterly based on a floating rate that is reset daily or weekly based
on an index of short-term municipal rates).
For each Fund, the Subadviser's investment process will begin with
an assessment of macro factors that may impact the municipal bond
market, as well as other regulatory, tax, governmental, and technical
factors that may impact the municipal bond market. Following the
assessment of these factors, the Subadviser will develop an investment
strategy to position a Fund among various sectors of the municipal bond
market and different states. The Subadviser then will employ a
fundamental, ``bottom-up'' credit research analysis to select
individual Municipal Bonds.
(i) Principal Investments of the IQ Municipal Insured ETF
According to the Exchange, the Fund will seek current income exempt
from federal income tax. The Fund, under normal market conditions,\8\
will invest
[[Page 27304]]
at least 80% of its assets in Municipal Bonds that are covered by
insurance policies that guarantee the timely payment of principal and
interest. The Fund generally will maintain a dollar-weighted average
duration within plus or minus two years of the dollar-weighted average
duration of the S&P Municipal Bond Insured Index.\9\
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\8\ The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the fixed income markets or the
financial markets generally; operational issues (e.g., systems
failure) causing dissemination of inaccurate market information; or
force majeure type events such as natural or man-made disaster, act
of God, armed conflict, act of terrorism, riot or labor disruption
or any similar intervening circumstance. On a temporary basis,
including for defensive purposes, during the initial invest-up
period (i.e., the six-week period following the commencement of
trading of Shares on the Exchange) and during periods of high cash
inflows or outflows (i.e., rolling periods of seven calendar days
during which inflows or outflows of cash, in the aggregate, exceed
10% of a Fund's net assets as of the opening of business on the
first day of such periods), a Fund may depart from its principal
investment strategies; for example, it may hold a higher than normal
proportion of its assets in cash. During such periods, a Fund may
not be able to achieve its investment objectives. A Fund may adopt a
defensive strategy when the Adviser believes securities in which a
Fund normally invests have elevated risks due to political or
economic factors and in other extraordinary circumstances.
\9\ Municipal bonds are issued by or on behalf of the District
of Columbia, states, territories, commonwealths, and possessions of
the United States and their political subdivisions and agencies,
authorities, and instrumentalities. Municipal securities, which may
be issued in various forms, including bonds and notes, are issued to
obtain funds for various public purposes.
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(ii) Principal Investments of the IQ Municipal Short Duration ETF
According to the Exchange, the Fund will seek current income exempt
from federal income tax. The Fund, under normal market conditions, will
invest at least 80% of its assets in Municipal Bonds. The Fund
generally will maintain a dollar-weighted average portfolio duration of
three years or less.
(iii) Principal Investments of the IQ Municipal Intermediate ETF
According to the Exchange, the Fund will seek current income exempt
from federal income tax. The Fund, under normal market conditions, will
invest at least 80% of its assets in Municipal Bonds. The Fund
generally will maintain a dollar-weighted average duration within plus
or minus two years of the dollar-weighted average duration of the S&P
Municipal Bond Intermediate Index.
B. The Exchange's Description of the Other Investments of the Funds
With respect to each of the Funds, while a Fund, under normal
market conditions, will invest at least 80% of its assets in Municipal
Bonds, as described above, a Fund may invest its remaining assets in
other assets and financial instruments, as described below.
Each Fund may invest in shares of exchange-traded funds (``ETFs'')
and money market funds.\10\ In addition, each Fund may invest, directly
and indirectly, in fixed rate and floating rate U.S. government
securities, including bills, notes and bonds differing as to maturity
and rates of interest, which are either issued or guaranteed by the
U.S. Treasury or by U.S. government agencies or instrumentalities;
repurchase agreements; and commercial paper; and may purchase
securities on a when-issued basis or for settlement at a future date
(forward commitment), if a Fund holds sufficient liquid assets to meet
the purchase price (collectively, ``Other Investments'').
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\10\ For purposes of the filing, ETFs include Investment Company
Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
and Managed Fund Shares (as described in NYSE Arca Equities Rule
8.600). The ETFs all will be listed and traded in the U.S. on
registered exchanges.
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C. The Exchange's Description of the Funds' Investment Restrictions
Each 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. Each Fund
will monitor 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 a 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.
Each Fund's investments will be consistent with its investment
objective and will not be used to provide multiple returns of a
benchmark or to produce leveraged returns.
Each Fund may invest more than 25% of its total assets in Municipal
Bonds that are related in such a way that an economic, business or
political development or change affecting one such security could also
affect the other securities. However, a Fund's investments will be
diversified among a minimum of ten different sectors of the municipal
bond market.\11\
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\11\ According to the Exchange, the IQ Municipal Insured ETF's
investments in Municipal Bonds will include investments in state and
local (e.g., county, city, town) and authority-issued Municipal
Bonds relating to such sectors as the following: State general
obligation, local general obligation, education, hospital, housing,
industrial development revenue/pollution control revenue, power,
resource recovery, transportation, water/sewer, leasing, special
tax, and pre-refunded bonds.
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A Fund's investments will be diversified among at least 15
different states, with no more than 30% of a Fund's securities invested
in municipal securities from a single state.
Under normal market conditions, no security (excluding Treasury
securities) will represent more than 25% of the weight of the
portfolio, and the five highest weighted securities will not, in the
aggregate, account for more than 50% of the weight of a Fund. No
Municipal Bond held by a Fund will exceed 5% of the weight of a Fund's
portfolio and no single Municipal Bond issuer will account for more
than 8% of the weight of a Fund's portfolio. A Fund will hold Municipal
Bonds of a minimum of 25 non-affiliated issuers.\12\
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\12\ For purposes of this restriction, each state and each
separate political subdivision, agency, authority, or
instrumentality of such state, each multi-state agency or authority,
and each guarantor, if any, will be treated as separate issuers of
Municipal Bonds.
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D. The Exchange's Description of the Application of the Generic Listing
Requirements to the Funds
The Exchange states that it is submitting the proposed rule change
because the portfolios for the Funds will not meet 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 Exchange states that each Fund's portfolio will meet all the
requirements set forth in Commentary .01 to NYSE Arca Equities Rule
8.600 except for those set forth in Commentary .01(b)(1), which
requires that components that in the aggregate account for at least 75%
of the fixed income weight of the portfolio each shall have a minimum
original principal amount outstanding of $100 million or more.
III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal to list and trade the Shares is consistent with the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\13\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment Nos. 1 and 2, is
consistent with Section 6(b)(5) of the Act,\14\ which requires, among
other things, that the Exchange's rules be 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 a national market
[[Page 27305]]
system, and, in general, to protect investors and the public interest.
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\13\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78f(b)(5).
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The Commission also finds that the proposal to list and trade the
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of
the Act,\15\ which sets forth the finding of Congress that it is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities. Quotation and last-sale
information for the Shares and the underlying ETFs will be available
via the Consolidated Tape Association (``CTA'') high-speed line, and
from the national securities exchange on which they are listed.
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\15\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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The approximate value of each Fund's investments on a per-Share
basis, the Indicative Intra-Day Value (``IIV'') (which is the Portfolio
Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3)),
will be disseminated every 15 seconds during the Exchange's Core
Trading Session (ordinarily 9:30 a.m. to 4:00 p.m., Eastern Time) by
one or more major market data vendors.\16\ On each business day, before
commencement of trading in Shares on the Exchange, each Fund will
disclose on its Web site the identities and quantities of the portfolio
securities and other assets held by each Fund (each Fund's ``Disclosed
Portfolio,'' as defined in NYSE Arca Equities Rule 8.600(c)(2)) that
will form the basis for the calculation of NAV at the end of the
business day.\17\ In addition, with respect to each Fund, the
Administrator, through the National Securities Clearing Corporation,
will make available on each business day immediately prior to the
opening of business on the Exchange (currently 9:30 a.m., Eastern
Time), the designated portfolio of securities and estimated cash
component, if applicable, per each creation unit that will be
applicable to creation and redemption requests on that day. The NAV of
Shares of each Fund will normally be determined as of the close of the
Core Trading Session on the Exchange (ordinarily 4:00 p.m., Eastern
Time) on each business day.
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\16\ The Exchange represents that several major market data
vendors display and/or make widely available IIVs taken from CTA or
other data feeds. According to the Exchange, the IIV for a Fund will
be calculated by an independent third party calculator by dividing
the ``Estimated Fund Value'' as of the time of the calculation by
the total number of outstanding Shares of that Fund. ``Estimated
Fund Value'' is the sum of the estimated amount of cash held in a
Fund's portfolio, the estimated amount of accrued interest owed to a
Fund, and the estimated value of the securities held in a Fund's
portfolio, minus the estimated amount of a Fund's liabilities. The
IIV will be calculated based on the same portfolio holdings
disclosed on the Funds' Web site.
\17\ On a daily basis, the Funds will disclose the information
required under NYSE Arca Equities Rule 8.600 (c)(2) to the extent
applicable. The Web site information will be publicly available at
no charge.
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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 publicly available and published
daily in the financial section of newspapers. Quotation information
from brokers and dealers or pricing services will be available for
Municipal Bonds and Other Investments. Price information for money
market funds will be available from the applicable investment company's
Web site and from market data vendors. Pricing information regarding
Municipal Bonds and Other Investments (other than money market funds)
will generally be available through nationally recognized data service
providers through subscription agreements. Trade price and other
information relating to Municipal Bonds is available through the
Municipal Securities Rulemaking Board's EMMA system. Upon the
commencement of operations of a Fund, a copy of the Funds' prospectus
will be available on the Funds' Web site (www.IQetfs.com) in a form
that may be downloaded. In addition, the Funds' Web site will include
additional data relating to NAV and other applicable quantitative
information relating to the Shares.
The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange will obtain a representation from the issuer of
the Shares that the NAV per Share for each Fund will be calculated
daily and that the NAV and the Disclosed Portfolio for each Fund will
be made available to all market participants at the same time.\18\
Trading in Shares of the Funds 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.\19\ Trading in the Shares will
be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
additional circumstances under which Shares of the Funds may be halted.
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\18\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\19\ With respect to trading halts, the Exchange may consider
all relevant factors in exercising its discretion to halt or suspend
trading in the Shares of a Fund.
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The Exchange represents that it has a general policy prohibiting
the distribution of material, non-public information by its employees.
In addition, Commentary .06 to NYSE Arca Equities Rule 8.600 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, non-public information regarding
the open-end fund's portfolio. The Exchange represents that the Adviser
and Sub-Adviser are not registered as broker-dealers; however, each of
the Adviser and the Sub-Adviser is affiliated with a broker-dealer, and
each of the Adviser and Sub-Adviser has implemented and will maintain a
fire wall with respect to their relevant personnel and each such
broker-dealer affiliate regarding access to information concerning the
composition of, and/or changes to, a portfolio.\20\
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\20\ See supra note 6. The Exchange represents that an
investment adviser to an open-end fund is required to be registered
under the Investment Advisers Act of 1940.
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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. The Exchange represents that trading in the Shares will be
subject to the existing trading surveillances, administered by the
Financial Industry Regulatory Authority (``FINRA'') on behalf of the
Exchange, or by regulatory staff of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities
laws.\21\ The Commission believes that the Exchange's initial and
continued listing requirements, combined with the Funds' investment
criteria and restrictions that would apply to Municipal Bonds in the
portfolio, are designed to mitigate the potential for price
manipulation of the Shares.
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\21\ The Exchange states that FINRA conducts cross-market
surveillances on behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for FINRA's
performance under this regulatory services agreement.
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The Exchange represents that it 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.
[[Page 27306]]
In support of this proposal, the Exchange has made the following
additional representations:
(1) The Shares of each Fund will conform to the initial and
continued listing criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) Trading in the Shares will be subject to the existing trading
surveillances, administered by FINRA on behalf of the Exchange, or by
regulatory staff 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.
(4) The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and ETFs with
other markets and other entities that are members of the Intermarket
Surveillance Group (``ISG''), and the Exchange or FINRA, on behalf of
the Exchange, or both, may obtain trading information regarding trading
in the Shares and ETFs from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and ETFs from markets and other entities that are members of ISG
or with which the Exchange has in place a comprehensive surveillance
sharing agreement. FINRA, on behalf of the Exchange, is able to access,
as needed, trade information for certain fixed income securities held
by a Fund reported to FINRA's Trade Reporting and Compliance Engine.
FINRA also can access data obtained from the Municipal Securities
Rulemaking Board relating to municipal bond trading activity for
surveillance purposes in connection with trading in the Shares.
(5) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in a Bulletin of the special
characteristics and risks associated with trading the Shares.
Specifically, the Bulletin will discuss: (a) The procedures for
purchases and redemptions of Shares in creation unit aggregations (and
that Shares are not individually redeemable); (b) 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; (c) the risks involved in trading
the Shares during the Opening and Late Trading Sessions when an updated
IIV will not be calculated or publicly disseminated; (d) how
information regarding the IIV and the Disclosed Portfolio is
disseminated; (e) 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 (f)
trading information. In addition, the Bulletin will discuss any
exemptive, no-action, and interpretive relief granted by the Commission
from any rules under the Act.
(6) For initial and continued listing, a Fund will be in compliance
with Rule 10A-3 under the Act,\22\ as provided by NYSE Arca Equities
Rule 5.3.
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\22\ 17 CFR 240.10A-3.
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(7) A minimum of 100,000 Shares for each Fund will be outstanding
at the commencement of trading on the Exchange.
(8) Each Fund's investments will be consistent with its investment
objective and will not be used to provide multiple returns of a
benchmark or to produce leveraged returns.
(9) Under normal market conditions, each Fund will invest at least
80% of its assets in Municipal Bonds.
(10) Each Fund's investments will be diversified among a minimum of
ten different sectors of the Municipal Bond market.
(11) Each Fund's investments will be diversified among at least 15
different states, with no more than 30% of a Fund's securities invested
in municipal securities from a single state.
(12) Under normal market conditions, no security (excluding
Treasury securities) will represent more than 25% of the weight of the
portfolio of a Fund, and the five highest weighted securities will not,
in the aggregate, account for more than 50% of the weight of a Fund.
(13) No Municipal Bond held by a Fund will exceed 5% of the weight
of that Fund's portfolio, and no single Municipal Bond issuer will
account for more than 8% of the weight of a Fund's portfolio.
(14) Each Fund will hold Municipal Bonds of a minimum of 25 non-
affiliated issuers.
(15) Each 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. Each Fund
will monitor 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 a Fund's
net assets are held in illiquid assets.
(16) The ETFs in which a Fund may invest will be listed and traded
in the U.S. on registered exchanges.
The Exchange has represented that all statements and
representations made in the filing regarding (a) the description of the
portfolio, (b) limitations on portfolio holdings or reference assets,
or (c) the applicability of Exchange listing rules specified in the
filing shall constitute continued listing requirements for listing the
Shares of a Fund on the Exchange. The issuer has represented to the
Exchange that it will advise the Exchange of any failure by a 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.\23\ If
a Fund is not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under NYSE Arca
Equities Rule 5.5(m).
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\23\ The Commission notes that certain other proposals for the
listing and trading of managed fund shares include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
78005 (Jun. 7, 2016), 81 FR 38247 (Jun. 13, 2016) (SR-BATS-2015-
100). In the context of this representation, it is the Commission's
view that ``monitor'' and ``surveil'' both mean ongoing oversight of
the Funds' compliance with the continued listing requirements.
Therefore, the Commission does not view ``monitor'' as a more or
less stringent obligation than ``surveil'' with respect to the
continued listing requirements.
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This approval order is based on all of the Exchange's
representations, including those set forth above and in Amendment Nos.
1 and 2, and the Exchange's description of the Funds. The Commission
notes that the Funds and the Shares must comply with the requirements
of NYSE Arca Equities Rule 8.600 to be initially and continuously
listed and traded on the Exchange.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \24\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\24\ 15 U.S.C. 78f(b)(5).
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[[Page 27307]]
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\25\ that the proposed rule change (SR-NYSEArca-2017-44), as
modified by Amendment Nos. 1 and 2 thereto, be, and it hereby is,
approved.
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\25\ 15 U.S.C. 78s(b)(2).
\26\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12260 Filed 6-13-17; 8:45 am]
BILLING CODE 8011-01-P
