Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the Hartford Municipal Opportunities ETF Under NYSE Arca Rule 8.600-E, 42147-42153 [2017-18799]
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Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81505; File No. SR–
NYSEArca–2017–90]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the Hartford Municipal Opportunities
ETF Under NYSE Arca Rule 8.600–E
August 30, 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 August
17, 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 list and
trade shares of the Hartford Municipal
Opportunities ETF under NYSE Arca
Rule 8.600–E (‘‘Managed Fund Shares’’).
The proposed 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.
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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 to list and
trade shares (‘‘Shares’’) of the Hartford
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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Municipal Opportunities ETF (‘‘Fund’’)
under NYSE Arca Rule 8.600–E,4 which
governs the listing and trading of
Managed Fund Shares.5 The Shares will
be offered by the Hartford Funds
Exchange-Traded Trust (the ‘‘Trust’’),
which is registered with the
Commission as an open-end
management investment company.6 The
Fund is a series of the Trust.
Hartford Funds Management
Company, LLC (‘‘HFMC’’ or ‘‘Manager’’)
will be the investment manager to the
Fund. ALPS Distributors, Inc. (‘‘ALPS’’
or the ‘‘Distributor’’) will be the
principal underwriter to the Fund.
HFMC is an indirect subsidiary of The
Hartford Financial Services Group, Inc.
Wellington Management Company LLP
4 The Securities and Exchange Commission
(‘‘Commission’’) has approved for Exchange listing
and trading shares of actively managed funds that
principally hold municipal bonds. See, e.g.,
Securities Exchange Act Release Nos. 60981
(November 10, 2009), 74 FR 59594 (November 18,
2009) (SR–NYSEArca–2009–79) (order approving
listing and trading of shares of the PIMCO ShortTerm Municipal Bond Strategy Fund and PIMCO
Intermediate Municipal Bond Strategy Fund); 79293
(November 10, 2016), 81 FR 81189 (November 17,
2016) (SR–NYSEArca–2016–107) (order approving
listing and trading of shares of Cumberland
Municipal Bond ETF under Rule 8.600); 80865
(June 6, 2017), 82 FR 26970 (June 12, 2017) (order
approving listing and trading of shares of the
Franklin Liberty Intermediate Municipal
Opportunities ETF and Franklin Liberty Municipal
Bond ETF under NYSE Arca Equities Rule 8.600);
80885 (June 8, 2017), 82 FR 27302 (June 14, 2017)
(order approving listing and trading 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. The
Commission also has approved listing and trading
on the Exchange of shares of the SPDR Nuveen S&P
High Yield Municipal Bond Fund under
Commentary .02 of NYSE Arca Equities Rule
5.2(j)(3). See Securities Exchange Act Release
No.63881 (February 9, 2011), 76 FR 9065 (February
16, 2011) (SR–NYSEArca–2010–120).
5 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 Rule 5.2–E(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.
6 The Trust is registered under the 1940 Act. On
June 26, 2017, 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. 333–215165 and 811–23222)
(‘‘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.
32454 (January 27, 2017) (File No. 812–812–13828–
01) (‘‘Exemptive Order’’).
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(‘‘Wellington Management’’ or ‘‘SubAdviser’’) will be the sub-adviser to the
Fund and will perform the daily
investment of the assets for the Fund.
Commentary .06 to Rule 8.600–E
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
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.7 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.
Neither the Manager nor Sub-Adviser is
a registered broker-dealer but each is
affiliated with a broker-dealer. The
Manager and Sub-Adviser each has
implemented a ‘‘fire wall’’ with respect
to such broker-dealer affiliate regarding
access to information concerning the
composition of and/or changes to the
Fund’s portfolio. In addition, personnel
who make decisions on the Fund’s
portfolio composition must be subject to
procedures designed to prevent the use
and dissemination of material, nonpublic information regarding the Fund’s
portfolio. In the event (a) the Manager
or Sub-Adviser becomes registered as a
broker-dealer or newly affiliated with a
broker-dealer, or (b) any new adviser or
sub-adviser to the Fund is a registered
broker-dealer or becomes affiliated with
a broker-dealer, the applicable adviser
or sub-adviser will implement and
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and Sub-Adviser and their
related personnel are subject to the provisions of
Rule 204A–1 under the Advisers Act relating to
codes of ethics. This Rule requires investment
advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as
well as compliance with other applicable securities
laws. Accordingly, procedures designed to prevent
the communication and misuse of non-public
information by an investment adviser must be
consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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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 Fund’s portfolio, and will
be subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
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Hartford Municipal Opportunities ETF
According to the Registration
Statement, the Fund will seek to
provide current income that is generally
exempt from federal income taxes, and
long-term total return. The Fund will
seek to achieve its investment objective
by investing in investment grade and
non-investment grade municipal
securities that the Sub-Adviser
considers to be attractive from a yield
perspective while considering total
return. Under normal market
conditions,8 at least 80% of the Fund’s
net assets must be invested in municipal
securities (‘‘Municipal Securities’’).9
The Fund will generally hold a
diversified portfolio of investments
across states and sectors, although the
Fund is not required to invest in all
states and sectors at all times.
According to the Registration
Statement, the Fund may invest in the
following Municipal Securities:
• General obligation bonds
• Revenue (or limited obligation) bonds
• Private activity (or industrial
development) bonds
• Municipal notes
• Municipal lease obligations
• Zero-coupon Municipal Securities
The Sub-Adviser will combine topdown strategy with bottom-up
fundamental research and
comprehensive risk management within
the portfolio construction process.
Bottom-up, internally generated,
fundamental research attempts to
identify relative value among sectors,
within sectors, and between individual
securities.
Other Investments
While the Fund, under normal market
conditions, will invest at least 80% of
its net assets in Municipal Securities as
described above, the Fund may, under
normal market conditions, invest up to
20% of its net assets in the aggregate in
the securities and financial instruments
described below.
8 The term ‘‘normal market conditions’’ is defined
in NYSE Arca Rule 8.600–E(c)(5).
9 Municipal securities primarily include debt
obligations are issued by or on behalf of the District
of Columbia, states, territories, commonwealths and
possessions of the United States and their political
subdivisions (e.g., cities, towns, counties, school
districts, authorities and commissions) and
agencies, authorities and instrumentalities.
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The Fund may invest in exchangetraded fund (‘‘ETFs’’) 10 and exchangetraded notes. (‘‘ETNs’’).11
The Fund may invest in securities
issued or guaranteed as to principal or
interest by the U.S. Government, its
agencies or instrumentalities.
The Fund may invest some or all of
its assets in cash, high quality money
market instruments,12 U.S. Government
securities and shares of money market
investment companies for temporary
defensive purposes in response to
adverse market, economic or political
conditions when its sub-adviser, subject
to the overall supervision of HFMC,
deems it appropriate.
The Fund may invest in non-agency
asset-backed securities.
The Fund may invest in registered
money market funds that invest in
money market instruments, as permitted
by regulations adopted under the 1940
Act.
The Fund may invest in registered
money market funds that invest in
money market instruments and other
investment company securities as
permitted under the 1940 Act.
The Fund may enter into repurchase
and reverse repurchase agreements.
The Fund may invest in securities
that are not registered under the 1933
Act (‘‘restricted securities’’).
The Fund may invest in zero-coupon
securities (in addition to zero-coupon
Municipal Securities).
The Fund may invest in variable rate
bonds known as ‘‘inverse floaters’’
which pay interest at rates that bear an
inverse relationship to changes in shortterm market interest rates.
The Fund may invest in municipal
inverse floaters, which are a type of
inverse floater in which a municipal
bond is deposited with a special
purpose vehicle (SPV), which issues, in
return, the municipal inverse floater
(which is comprised of a residual
interest in the cash flows and assets of
the SPV) plus proceeds from the
issuance by the SPV of floating rate
certificates to third parties.
10 For purposes of this filing, the term ‘‘ETFs’’
includes Investment Company Units (as described
in NYSE Arca Rule 5.2–E(j)(3)); Portfolio Depositary
Receipts (as described in NYSE Arca Rule 8.100–
E); and Managed Fund Shares (as described in
NYSE Arca Rule 8.600–E). All ETFs will be listed
and traded in the U.S. on a national securities
exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g.,
2X, ¥2X, 3X or ¥3X) ETFs.
11 ETNs are securities such as those listed on the
Exchange under NYSE Arca Rule 5.2–E(j)(6).
12 Money market instruments include the
following: (1) Banker’s acceptances; (2) short-term
corporate obligations, including commercial paper,
notes, and bonds; (3) other short-term debt
obligations; and (4) obligations of U.S. banks.
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The Fund may invest in derivative
instruments, as described below. The
Fund may use derivative instruments to
manage portfolio risk, to replicate
securities the Fund could buy that are
not currently available in the market or
for other investment purposes.
The Fund may invest in interest rate
futures contracts.
The Fund may invest in interest rate
swaps, caps, floors and collars.
Disclosure of Portfolio Holdings
On each day the NYSE Arca is open
(a ‘‘Business Day’’), before
commencement of trading in Shares on
the Exchange in the Exchange’s Core
Trading Session, HFMC will disclose
the Fund’s iNAV Basket.13 Additionally,
on each Business Day, before
commencement of trading in Shares on
the Exchange, the Fund will disclose on
its Web site the identities and quantities
of the Fund’s portfolio holdings that
will form the basis for the Fund’s
calculation of NAV at the end of the
Business Day.
The NAV per Share will be
determined for the Fund’s Shares as of
the close of regular trading on the New
York Stock Exchange (the ‘‘NYSE’’)
(normally 4:00 p.m. Eastern Time) (the
‘‘NYSE Close’’) on each day that the
Exchange is open (‘‘Valuation Date’’).
The net asset value for the Shares will
be determined by dividing the value of
the Fund’s net assets attributable to the
Shares by the number of Shares
outstanding.
For purposes of calculating the NAV,
portfolio securities and other assets held
in the Fund’s portfolio for which market
prices are readily available are valued at
market value. Market value is generally
determined on the basis of last reported
trade prices or official close price. If no
trades were reported, market value is
based on prices obtained from a
quotation reporting system, established
market makers, or independent pricing
services. If market prices are not readily
available or are deemed unreliable, the
Fund will use the fair value of the
security or other instrument as
determined in good faith under policies
and procedures established by and
under the supervision of the Board of
Trustees of the Trust. Market prices are
considered not readily available where
there is an absence of current or reliable
market-based data (e.g., trade
information or broker quotes), including
where events occur after the close of the
13 An iNAV will be based on the current market
value of the Fund’s portfolio holdings that will form
the basis for the Fund’s calculation of NAV at the
end of the Business Day, as disclosed on the Fund’s
Web site prior to that Business Day’s
commencement of trading (the ‘‘iNAV Basket’’).
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relevant market, but prior to the NYSE
Close that materially affect the values of
the Fund’s portfolio holdings or assets.
Prices of foreign equities that are
principally traded on certain foreign
markets are adjusted daily pursuant to
a fair value pricing service approved by
the Trust’s Board of Trustees in order to
reflect an adjustment for the factors
occurring after the close of certain
foreign markets but before the NYSE
Close.
Fixed income investments and nonexchange traded derivatives held by the
Fund will normally be valued on the
basis of quotes obtained from brokers
and dealers or independent pricing
services in accordance with procedures
established by the Trust’s Board of
Trustees. Prices obtained from
independent pricing services use
information provided by market makers
or estimates of market values obtained
from yield data relating to investments
or securities with similar characteristics.
Senior floating rate interests generally
trade in over-the-counter (‘‘OTC’’)
markets and are priced through an
independent pricing service utilizing
independent market quotations from
loan dealers or financial institutions.
Generally, the Fund may use fair
valuation in regard to fixed income
positions when the Fund holds
defaulted or distressed investments or
investments in a company in which a
reorganization is pending. Short term
investments maturing in 60 days or less
are generally valued at amortized cost if
their original term to maturity was 60
days or less, or by amortizing their value
on the 61st day prior to maturity, if the
original term exceeded 60 days.
Investments valued in currencies
other than U.S. dollars will be converted
to U.S. dollars using exchange rates
obtained from independent pricing
services for calculation of the NAV.
Investments in open-end mutual
funds are valued at the respective NAV
of each open-end mutual fund on the
Valuation Date.
Financial instruments for which
prices are not available from an
independent pricing service may be
valued using market quotations
obtained from one or more dealers that
make markets in the respective financial
instrument in accordance with
procedures established by the Trust’s
Board of Trustees.
Creation and Redemption of Shares
According to the Registration
Statement, the Trust will issue and sell
Shares of the Fund only in Creation
Units at the NAV next determined after
receipt of an order in proper form on
any Business Day. The number of
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Shares of the Fund that will constitute
a Creation Unit is 50,000. The size of a
Creation Unit is subject to change.
Creation of Shares
The consideration for purchase of
Creation Units will generally consist of
‘‘Deposit Securities’’ and the ‘‘Cash
Component’’, which will generally
correspond pro rata, to the extent
practicable, to the Fund’s securities, or,
as permitted or required by the Fund, of
cash. Together, the Deposit Securities
and Cash Component constitute the
‘‘Fund Deposit,’’ which represents the
minimum initial and subsequent
investment amount for a Creation Unit
of the Fund. Creation Units of Shares of
the Fund may be issued partially for
cash.
The Transfer Agent, through the
NSCC, will make available on each
Business Day, prior to the Core Trading
Session (subject to amendments) on the
Exchange (currently 9:30 a.m., Eastern
time), the identity and the required
number of each Deposit Security and
the amount of the Cash Component to
be included in the current Fund Deposit
(based on information at the end of the
previous Business Day).
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 participant
of DTC (‘‘DTC Participant’’) and must
have executed an agreement with the
Distributor (and accepted by the
Transfer Agent), with respect to
creations and redemptions of Creation
Units (‘‘Participant Agreement’’)
(discussed below). A Participating Party
or DTC Participant who has executed a
Participant Agreement is referred to as
an ‘‘Authorized Participant.’’
Except as described below, and in all
cases subject to the terms of the
applicable Participant Agreement, all
orders to create Creation Units of the
Fund must be received by the Transfer
Agent no later than the closing time of
the Exchange’s Core Trading Session
(‘‘Order Cutoff Time’’) (ordinarily 4:00
p.m., Eastern time) in each case on the
date such order is placed for creation of
Creation Units to be effected based on
the NAV of shares of the Fund as next
determined after receipt of an order in
proper form. Orders requesting
substitution of a ‘‘cash-in-lieu’’ amount
or a cash creation, must be received by
the Transfer Agent no later than 3:00
p.m., Eastern time. The date on which
an order to create Creation Units (or an
order to redeem Creation Units, as
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discussed below) is placed is referred to
as the ‘‘Transmittal Date’’.
Fund Deposits created through the
Clearing Process, if available, must be
delivered through a Participating Party
that has executed a Participant
Agreement.
Fund Deposits created outside the
Clearing Process must be delivered
through a DTC Participant that has
executed a Participant Agreement.
Redemption of Shares
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form on a Business
Day and only through a Participating
Party or DTC Participant who has
executed a Participant Agreement.
With respect to the Fund, the Transfer
Agent, through the NSCC, makes
available immediately prior to the
opening of business on the Exchange
(currently 9:30 a.m., Eastern time) on
each Business Day, the identity of the
Fund’s securities and/or an amount of
cash that will be applicable (subject to
possible amendment or correction) to
redemption requests received in proper
form (as described below) on that day.
All orders are subject to acceptance by
the Distributor. The Fund’s securities
received on redemption will generally
correspond pro rata, to the extent
practicable, to the Fund’s securities. The
Fund’s securities received on
redemption (‘‘Fund Securities’’) may not
be identical to Deposit Securities that
are applicable to creations of Creation
Units.
Unless cash only redemptions are
available or specified for the Fund, the
redemption proceeds for a Creation Unit
will generally consist of Fund
Securities—as announced on the
Business Day of the request for a
redemption order received in proper
form—plus cash in an amount equal to
the difference between the NAV of the
Shares being redeemed, as next
determined after a receipt of a request
in proper form, and the value of the
Fund Securities, less the redemption
transaction fee and variable fees
described below. Notwithstanding the
foregoing, the Trust will substitute a
‘‘cash-in-lieu’’ amount to replace any
Fund Security that is a non-deliverable
instrument.
Orders to redeem Creation Units of
the Fund through the Clearing Process,
if available, must be delivered through
a Participating Party that has executed
the Participant Agreement.
Orders to redeem Creation Units of
the Fund outside the Clearing Process
must be delivered through a DTC
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Participant that has executed the
Participant Agreement.
Availability of Information
The Fund will disclose on the Fund’s
Web site (www.hartfordfunds.com) at
the start of each business day the
identities and quantities of the
securities and other assets held by the
Fund that will form the basis of the
Fund’s calculation of its net asset value
(‘‘NAV’’) on that business day. The
portfolio holdings so disclosed will be
based on information as of the close of
business on the prior business day and/
or trades that have been completed prior
to the opening of business on that
business day and that are expected to
settle on the business day.
The Web site for the Fund will
contain the following information, on a
per-Share basis, for the Fund: (1) The
prior business day’s NAV; (2) the
reported midpoint of the bid-ask spread
at the time of NAV calculation (the
‘‘Bid-Ask Price’’); (3) a calculation of the
premium or discount of the Bid-Ask
Price against such NAV; and (4) data in
chart format displaying the frequency
distribution of discounts and premiums
of the Bid-Ask Price against the NAV,
within appropriate ranges, for each of
the four previous calendar quarters (or
for the life of the Fund if, shorter). In
addition, on each business day, before
the commencement of trading in Shares
on the NYSE Arca, the Fund will
disclose on its Web site the identities
and quantities of the portfolio securities
and other assets held by the Fund that
will form the basis for the calculation of
NAV at the end of the business day.
The Fund’s portfolio holdings will be
disclosed on the Fund’s Web site daily
after the close of trading on the
Exchange and prior to the opening of
trading on the Exchange the following
day. On a daily basis, the Fund will
disclose the information required under
NYSE Arca Rule 8.600–E(c)(2) to the
extent applicable. The Web site
information will be publicly available at
no charge.
The approximate value of the Fund’s
investments on a per-Share basis, the
iNAV, will be disseminated every 15
seconds during the Exchange Core
Trading Session (ordinarily 9:30 a.m. to
4:00 p.m., Eastern Time).
Investors can also obtain the Fund’s
Statement of Additional Information
(‘‘SAI’’), shareholder reports, Form
N–CSR and Form 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 and
Form N–SAR may be viewed on-screen
or downloaded from the Commission’s
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Web site at www.sec.gov. 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, ETFs and ETNs will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line,
and from the national securities
exchange on which they are listed.
Quotation information from brokers
and dealers or pricing services will be
available for Municipal Bonds. 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 each asset class in
which the Fund will invest will
generally be available through
nationally recognized data service
providers through subscription
agreements. In addition, the iNAV
(which is the Portfolio Indicative Value,
as defined in NYSE Arca Rule 8.600–
E(c)(3)), will be widely disseminated at
least every 15 seconds during the Core
Trading Session by one or more major
market data vendors or other
information providers.14
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. The 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 the Fund’s net assets are held in
illiquid assets. Illiquid assets may
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.15
14 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Portfolio Indicative
Values taken from CTA or other data feeds.
15 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
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
The Fund intends to qualify for and
to elect treatment as a separate regulated
investment company under Subchapter
M of the Internal Revenue Code of
1986.16
The Fund’s investments will be
consistent with its investment goal and
will not be used to provide multiple
returns of a benchmark or to produce
leveraged returns.
Under normal market conditions,
except for periods of high cash inflows
or outflows,17 the Fund will satisfy the
following criteria:
i. The Fund will have a minimum of
20 non-affiliated issuers;
ii. No single municipal securities
issuer will account for more than 10%
of the weight of the Fund’s portfolio;
iii. No individual bond will account
for more than 5% of the weight of the
Fund’s portfolio;
iv. The Fund will limit its
investments in Municipal Securities of
any one state to 20% of the Fund’s total
assets and will be diversified among
issuers in at least 10 states;
v. The Fund will be diversified among
a minimum of five different sectors of
the municipal bond market.18
Pre-refunded bonds will be excluded
from the above limits given that they
have a high level of credit quality and
liquidity.19
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).
16 26 U.S.C. 851.
17 ‘‘Periods of high cash inflows or outflows’’ as
used herein, mean rolling periods of seven calendar
days during which inflows or outflows of cash, in
the aggregate, exceed 10% of the Fund’s net assets
as of the opening of business on the first day of
such periods.
18 The Fund’s investments in Municipal
Securities will include investments in state and
local (e.g., county, city, town) Municipal Securities
relating to such sectors as the following: Airports;
bridges and highways; hospitals; housing; jails;
mass transportation; nursing homes; parks; public
buildings; recreational facilities; school facilities;
streets; and water and sewer works.
19 The Manager represents that pre-refunded
bonds (also known as refunded or escrow-secured
bonds) have a high level of credit quality and
liquidity because the issuer ‘‘prerefunds’’ the bond
by setting aside in advance all or a portion of the
amount to be paid to the bondholders when the
bond is called. Generally, an issuer uses the
proceeds from a new bond issue to buy high grade,
interest bearing debt securities, including direct
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asabaliauskas on DSKBBXCHB2PROD with NOTICES
Application of Generic Listing
Requirements
The Exchange is submitting this
proposed rule change because the
portfolios for the Fund will not meet all
of the ‘‘generic’’ listing requirements of
Commentary .01 to NYSE Arca Rule
8.600–E applicable to the listing of
Managed Fund Shares. The Fund’s
portfolio will meet all such
requirements except for those set forth
in Commentary .01(b)(1).20
The Exchange believes that it is
appropriate and in the public interest to
approve listing and trading of Shares of
the Fund on the Exchange
notwithstanding that the Fund would
not meet the requirements of
Commentary .01(b)(1) to Rule 8.600–E
in that the Fund’s investments in
municipal securities will be welldiversified.
The Exchange believes that permitting
Fund Shares to be listed and traded on
the Exchange notwithstanding that less
than 75% of the weight of the Fund’s
portfolio may consist of components
with less than $100 million minimum
original principal amount outstanding
would provide the Fund with greater
ability to select from a broad range of
Municipal Securities, as described
above, that would support the Fund’s
investment goal.
The Exchange believes that,
notwithstanding that the Fund’s
portfolio may not satisfy Commentary
.01(b)(1) to Rule 8.600–E, the Fund’s
portfolios will not be susceptible to
manipulation. As noted above, the
Fund’s investments will be diversified
among a minimum of 20 non-affiliated
issuers; no single municipal securities
issuer will account for more than 10%
of the weight of the Fund’s portfolio; no
individual bond will account for more
than 5% of the weight of the Fund’s
portfolio; the Fund will limit its
investments in Municipal Securities of
any one state to 20% of the Fund’s total
assets and will be diversified among
issuers in at least 10 states; and the
Fund will be diversified among a
minimum of five different sectors of the
municipal bond market.
The Exchange notes that, other than
Commentary .01(b)(1) to Rule 8.600–E,
the Fund’s portfolio will meet all other
requirements of Rule 8.600–E.
obligations of the U.S. government, which are then
deposited in an irrevocable escrow account held by
a trustee bank to secure all future payments of
principal and interest on the pre-refunded bonds.
20 Commentary .01(b)(1) to NYSE Arca Rule
8.600–E provides 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.
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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.21 Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12–E
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.
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
NYSE Arca from 4 a.m. to 8 p.m.,
Eastern Time in accordance with NYSE
Arca Rule 7.34–E (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 Rule 7.6–E, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
NYSE Arca 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 of the Fund will conform
to the initial and continued listing
criteria under NYSE Arca Rule 8.600–E.
Consistent with NYSE Arca Rule 8.600–
E(d)(2)(B)(ii), the Adviser will
implement and maintain, or be subject
to, procedures designed to prevent the
use and dissemination of material nonpublic information regarding the actual
components of the Fund’s portfolio. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3 22
under the Act, as provided by NYSE
Arca Rule 5.3–E. A minimum of 100,000
Shares 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. The Fund’s investments
will be consistent with the Fund’s
investment goal and will not be used to
enhance leverage.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
21 See
22 17
PO 00000
NYSE Arca Rule 7.12–E, Commentary .04.
CFR 240.10A–3.
Frm 00096
Fmt 4703
Sfmt 4703
42151
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. 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.23
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.24
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, ETFs and ETNs
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, ETFs and ETNs from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares, ETFs
and ETNs from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. In addition, FINRA, on
behalf of the Exchange, is able to access,
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
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.
23 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.
24 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
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asabaliauskas on DSKBBXCHB2PROD with NOTICES
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) or (c) the
applicability of Exchange listing rules
specified in this rule filing shall
constitute continued listing
requirements for listing the Shares of
the Fund 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 Rule 5.5–E(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 Rule 9.2–E(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 Opening and Late Trading
Sessions when an updated iNAV will
not be calculated or publicly
disseminated; (4) how information
regarding the iNAV 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
VerDate Sep<11>2014
17:37 Sep 05, 2017
Jkt 241001
under Section 6(b)(5) 25 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 Rule
8.600–E. 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 applicable federal securities
laws. The Exchange or FINRA, on behalf
of the Exchange, or both, will
communicate as needed regarding
trading in the Shares, ETFs and ETNs
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, ETFs and ETNs from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares, ETFs
and ETNs from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. In addition, FINRA, on
behalf of the Exchange, is able to access,
as needed, trade information for certain
fixed income securities held by the
Fund reported to TRACE. FINRA also
can access data obtained from the MSRB
relating to municipal bond trading
activity for surveillance purposes in
connection with trading in the Shares.
The Fund may not purchase illiquid
assets if, in the aggregate, more than
15% of its net assets would be invested
in illiquid assets. Neither the Manager
nor Sub-Adviser is a registered brokerdealer but each is affiliated with a
broker-dealer. The Manager and SubAdviser each has implemented a ‘‘fire
wall’’ with respect to such broker-dealer
affiliate regarding access to information
concerning the composition of and/or
changes to the Fund’s portfolio.
The Exchange believes that it is
appropriate and in the public interest to
approve listing and trading of Shares of
the Fund on the Exchange
notwithstanding that the Fund would
not meet the requirements of
Commentary .01(b)(1) to Rule 8.600–E
25 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00097
Fmt 4703
Sfmt 4703
in that the Fund’s investments in
municipal securities will be welldiversified. As noted above, the Fund’s
investments will be well-diversified in
that the Fund will have a minimum of
20 non-affiliated issuers; no single
municipal securities issuer will account
for more than 10% of the weight of the
Fund’s portfolio; no individual bond
will account for more than 5% of the
weight of the Fund’s portfolio; the Fund
will limit its investments in Municipal
Securities of any one state to 20% of the
Fund’s total assets and will be
diversified among issuers in at least 10
states; and the Fund will be diversified
among a minimum of five different
sectors of the municipal bond market.
The Exchange believes that permitting
Fund Shares to be listed and traded on
the Exchange notwithstanding that less
than 75% of the weight of the Fund’s
portfolio may consist of components
with less than $100 million minimum
original principal amount outstanding
would provide the Fund with greater
ability to select from a broad range of
municipal securities, as described
above, that would support the Fund’s
investment objective.
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. Quotation and last
sale information for the Shares, ETFs
and ETNs will be available via the CTA
high-speed line, and from the national
securities exchange on which they are
listed. Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Trading in Shares of
the Fund will be halted if the circuit
breaker parameters in NYSE Arca Rule
7.12–E have been reached or because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. Trading in the
Shares will be subject to NYSE Arca
Rule 8.600–E(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the iNAV, the
Disclosed Portfolio, and quotation and
last sale information for the Shares.
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Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices
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 additional types of actively-managed
exchange-traded products that
principally hold municipal bonds and
that 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 comprehensive surveillance
sharing agreement. In addition, as noted
above, investors will have ready access
to information regarding the Fund’s
holdings, iNAV, Disclosed Portfolio,
and quotation and last sale information
for the Shares.
IV. Solicitation of Comments
B. Self-Regulatory Organization’s
Statement on Burden on Competition
All submissions should refer to File
Number SR–NYSEArca–2017–90. 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–
NYSEArca–2017–90, and should be
submitted on or before September 27,
2017.
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
additional type of actively-managed
exchange-traded product that
principally hold municipal bonds and
that 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.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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17:37 Sep 05, 2017
Jkt 241001
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–18799 Filed 9–5–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–2017–90 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.
PO 00000
[Release No. 34–81503; File No. SR–
BatsEDGX–2017–35]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
of a Proposed Rule Change, as
Modified by Amendment No. 1, To
Harmonize the Corporate Governance
Framework With That of Chicago
Board Options Exchange, Incorporated
and C2 Options Exchange
Incorporated
August 30, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
23, 2017, Bats EDGX Exchange, Inc.
(‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. On August 25, 2017,
the Exchange filed Amendment No. 1 to
the proposed rule change. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
1, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend and restate its certificate of
incorporation and bylaws, as well as
amend its Rules.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.bats.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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
Frm 00098
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42153
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Agencies
[Federal Register Volume 82, Number 171 (Wednesday, September 6, 2017)]
[Notices]
[Pages 42147-42153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18799]
[[Page 42147]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81505; File No. SR-NYSEArca-2017-90]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the Hartford
Municipal Opportunities ETF Under NYSE Arca Rule 8.600-E
August 30, 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 August 17, 2017, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the Hartford
Municipal Opportunities ETF under NYSE Arca Rule 8.600-E (``Managed
Fund Shares''). The proposed 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 to list and trade shares (``Shares'') of the
Hartford Municipal Opportunities ETF (``Fund'') under NYSE Arca Rule
8.600-E,\4\ which governs the listing and trading of Managed Fund
Shares.\5\ The Shares will be offered by the Hartford Funds Exchange-
Traded Trust (the ``Trust''), which is registered with the Commission
as an open-end management investment company.\6\ The Fund is a series
of the Trust.
---------------------------------------------------------------------------
\4\ The Securities and Exchange Commission (``Commission'') has
approved for Exchange listing and trading shares of actively managed
funds that principally hold municipal bonds. See, e.g., Securities
Exchange Act Release Nos. 60981 (November 10, 2009), 74 FR 59594
(November 18, 2009) (SR-NYSEArca-2009-79) (order approving listing
and trading of shares of the PIMCO Short-Term Municipal Bond
Strategy Fund and PIMCO Intermediate Municipal Bond Strategy Fund);
79293 (November 10, 2016), 81 FR 81189 (November 17, 2016) (SR-
NYSEArca-2016-107) (order approving listing and trading of shares of
Cumberland Municipal Bond ETF under Rule 8.600); 80865 (June 6,
2017), 82 FR 26970 (June 12, 2017) (order approving listing and
trading of shares of the Franklin Liberty Intermediate Municipal
Opportunities ETF and Franklin Liberty Municipal Bond ETF under NYSE
Arca Equities Rule 8.600); 80885 (June 8, 2017), 82 FR 27302 (June
14, 2017) (order approving listing and trading 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. The
Commission also has approved listing and trading on the Exchange of
shares of the SPDR Nuveen S&P High Yield Municipal Bond Fund under
Commentary .02 of NYSE Arca Equities Rule 5.2(j)(3). See Securities
Exchange Act Release No.63881 (February 9, 2011), 76 FR 9065
(February 16, 2011) (SR-NYSEArca-2010-120).
\5\ 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 Rule 5.2-E(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.
\6\ The Trust is registered under the 1940 Act. On June 26,
2017, 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. 333-215165 and 811-23222) (``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.
32454 (January 27, 2017) (File No. 812-812-13828-01) (``Exemptive
Order'').
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Hartford Funds Management Company, LLC (``HFMC'' or ``Manager'')
will be the investment manager to the Fund. ALPS Distributors, Inc.
(``ALPS'' or the ``Distributor'') will be the principal underwriter to
the Fund. HFMC is an indirect subsidiary of The Hartford Financial
Services Group, Inc. Wellington Management Company LLP (``Wellington
Management'' or ``Sub-Adviser'') will be the sub-adviser to the Fund
and will perform the daily investment of the assets for the Fund.
Commentary .06 to Rule 8.600-E provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with 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.\7\ 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. Neither the
Manager nor Sub-Adviser is a registered broker-dealer but each is
affiliated with a broker-dealer. The Manager and Sub-Adviser each has
implemented a ``fire wall'' with respect to such broker-dealer
affiliate regarding access to information concerning the composition of
and/or changes to the Fund's portfolio. In addition, personnel who make
decisions on the Fund's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material,
non-public information regarding the Fund's portfolio. In the event (a)
the Manager or Sub-Adviser becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser to the Fund is a registered broker-dealer or becomes affiliated
with a broker-dealer, the applicable adviser or sub-adviser will
implement and
[[Page 42148]]
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 Fund's portfolio, and will be subject
to procedures designed to prevent the use and dissemination of material
non-public information regarding such portfolio.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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Hartford Municipal Opportunities ETF
According to the Registration Statement, the Fund will seek to
provide current income that is generally exempt from federal income
taxes, and long-term total return. The Fund will seek to achieve its
investment objective by investing in investment grade and non-
investment grade municipal securities that the Sub-Adviser considers to
be attractive from a yield perspective while considering total return.
Under normal market conditions,\8\ at least 80% of the Fund's net
assets must be invested in municipal securities (``Municipal
Securities'').\9\ The Fund will generally hold a diversified portfolio
of investments across states and sectors, although the Fund is not
required to invest in all states and sectors at all times.
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\8\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5).
\9\ Municipal securities primarily include debt obligations are
issued by or on behalf of the District of Columbia, states,
territories, commonwealths and possessions of the United States and
their political subdivisions (e.g., cities, towns, counties, school
districts, authorities and commissions) and agencies, authorities
and instrumentalities.
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According to the Registration Statement, the Fund may invest in the
following Municipal Securities:
General obligation bonds
Revenue (or limited obligation) bonds
Private activity (or industrial development) bonds
Municipal notes
Municipal lease obligations
Zero-coupon Municipal Securities
The Sub-Adviser will combine top-down strategy with bottom-up
fundamental research and comprehensive risk management within the
portfolio construction process. Bottom-up, internally generated,
fundamental research attempts to identify relative value among sectors,
within sectors, and between individual securities.
Other Investments
While the Fund, under normal market conditions, will invest at
least 80% of its net assets in Municipal Securities as described above,
the Fund may, under normal market conditions, invest up to 20% of its
net assets in the aggregate in the securities and financial instruments
described below.
The Fund may invest in exchange-traded fund (``ETFs'') \10\ and
exchange-traded notes. (``ETNs'').\11\
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\10\ For purposes of this filing, the term ``ETFs'' includes
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a
national securities exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
\11\ ETNs are securities such as those listed on the Exchange
under NYSE Arca Rule 5.2-E(j)(6).
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The Fund may invest in securities issued or guaranteed as to
principal or interest by the U.S. Government, its agencies or
instrumentalities.
The Fund may invest some or all of its assets in cash, high quality
money market instruments,\12\ U.S. Government securities and shares of
money market investment companies for temporary defensive purposes in
response to adverse market, economic or political conditions when its
sub-adviser, subject to the overall supervision of HFMC, deems it
appropriate.
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\12\ Money market instruments include the following: (1)
Banker's acceptances; (2) short-term corporate obligations,
including commercial paper, notes, and bonds; (3) other short-term
debt obligations; and (4) obligations of U.S. banks.
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The Fund may invest in non-agency asset-backed securities.
The Fund may invest in registered money market funds that invest in
money market instruments, as permitted by regulations adopted under the
1940 Act.
The Fund may invest in registered money market funds that invest in
money market instruments and other investment company securities as
permitted under the 1940 Act.
The Fund may enter into repurchase and reverse repurchase
agreements.
The Fund may invest in securities that are not registered under the
1933 Act (``restricted securities'').
The Fund may invest in zero-coupon securities (in addition to zero-
coupon Municipal Securities).
The Fund may invest in variable rate bonds known as ``inverse
floaters'' which pay interest at rates that bear an inverse
relationship to changes in short-term market interest rates.
The Fund may invest in municipal inverse floaters, which are a type
of inverse floater in which a municipal bond is deposited with a
special purpose vehicle (SPV), which issues, in return, the municipal
inverse floater (which is comprised of a residual interest in the cash
flows and assets of the SPV) plus proceeds from the issuance by the SPV
of floating rate certificates to third parties.
The Fund may invest in derivative instruments, as described below.
The Fund may use derivative instruments to manage portfolio risk, to
replicate securities the Fund could buy that are not currently
available in the market or for other investment purposes.
The Fund may invest in interest rate futures contracts.
The Fund may invest in interest rate swaps, caps, floors and
collars.
Disclosure of Portfolio Holdings
On each day the NYSE Arca is open (a ``Business Day''), before
commencement of trading in Shares on the Exchange in the Exchange's
Core Trading Session, HFMC will disclose the Fund's iNAV Basket.\13\
Additionally, on each Business Day, before commencement of trading in
Shares on the Exchange, the Fund will disclose on its Web site the
identities and quantities of the Fund's portfolio holdings that will
form the basis for the Fund's calculation of NAV at the end of the
Business Day.
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\13\ An iNAV will be based on the current market value of the
Fund's portfolio holdings that will form the basis for the Fund's
calculation of NAV at the end of the Business Day, as disclosed on
the Fund's Web site prior to that Business Day's commencement of
trading (the ``iNAV Basket'').
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The NAV per Share will be determined for the Fund's Shares as of
the close of regular trading on the New York Stock Exchange (the
``NYSE'') (normally 4:00 p.m. Eastern Time) (the ``NYSE Close'') on
each day that the Exchange is open (``Valuation Date''). The net asset
value for the Shares will be determined by dividing the value of the
Fund's net assets attributable to the Shares by the number of Shares
outstanding.
For purposes of calculating the NAV, portfolio securities and other
assets held in the Fund's portfolio for which market prices are readily
available are valued at market value. Market value is generally
determined on the basis of last reported trade prices or official close
price. If no trades were reported, market value is based on prices
obtained from a quotation reporting system, established market makers,
or independent pricing services. If market prices are not readily
available or are deemed unreliable, the Fund will use the fair value of
the security or other instrument as determined in good faith under
policies and procedures established by and under the supervision of the
Board of Trustees of the Trust. Market prices are considered not
readily available where there is an absence of current or reliable
market-based data (e.g., trade information or broker quotes), including
where events occur after the close of the
[[Page 42149]]
relevant market, but prior to the NYSE Close that materially affect the
values of the Fund's portfolio holdings or assets. Prices of foreign
equities that are principally traded on certain foreign markets are
adjusted daily pursuant to a fair value pricing service approved by the
Trust's Board of Trustees in order to reflect an adjustment for the
factors occurring after the close of certain foreign markets but before
the NYSE Close.
Fixed income investments and non-exchange traded derivatives held
by the Fund will normally be valued on the basis of quotes obtained
from brokers and dealers or independent pricing services in accordance
with procedures established by the Trust's Board of Trustees. Prices
obtained from independent pricing services use information provided by
market makers or estimates of market values obtained from yield data
relating to investments or securities with similar characteristics.
Senior floating rate interests generally trade in over-the-counter
(``OTC'') markets and are priced through an independent pricing service
utilizing independent market quotations from loan dealers or financial
institutions. Generally, the Fund may use fair valuation in regard to
fixed income positions when the Fund holds defaulted or distressed
investments or investments in a company in which a reorganization is
pending. Short term investments maturing in 60 days or less are
generally valued at amortized cost if their original term to maturity
was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if the original term exceeded 60 days.
Investments valued in currencies other than U.S. dollars will be
converted to U.S. dollars using exchange rates obtained from
independent pricing services for calculation of the NAV.
Investments in open-end mutual funds are valued at the respective
NAV of each open-end mutual fund on the Valuation Date.
Financial instruments for which prices are not available from an
independent pricing service may be valued using market quotations
obtained from one or more dealers that make markets in the respective
financial instrument in accordance with procedures established by the
Trust's Board of Trustees.
Creation and Redemption of Shares
According to the Registration Statement, the Trust will issue and
sell Shares of the Fund only in Creation Units at the NAV next
determined after receipt of an order in proper form on any Business
Day. The number of Shares of the Fund that will constitute a Creation
Unit is 50,000. The size of a Creation Unit is subject to change.
Creation of Shares
The consideration for purchase of Creation Units will generally
consist of ``Deposit Securities'' and the ``Cash Component'', which
will generally correspond pro rata, to the extent practicable, to the
Fund's securities, or, as permitted or required by the Fund, of cash.
Together, the Deposit Securities and Cash Component constitute the
``Fund Deposit,'' which represents the minimum initial and subsequent
investment amount for a Creation Unit of the Fund. Creation Units of
Shares of the Fund may be issued partially for cash.
The Transfer Agent, through the NSCC, will make available on each
Business Day, prior to the Core Trading Session (subject to amendments)
on the Exchange (currently 9:30 a.m., Eastern time), the identity and
the required number of each Deposit Security and the amount of the Cash
Component to be included in the current Fund Deposit (based on
information at the end of the previous Business Day).
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 participant of DTC (``DTC
Participant'') and must have executed an agreement with the Distributor
(and accepted by the Transfer Agent), with respect to creations and
redemptions of Creation Units (``Participant Agreement'') (discussed
below). A Participating Party or DTC Participant who has executed a
Participant Agreement is referred to as an ``Authorized Participant.''
Except as described below, and in all cases subject to the terms of
the applicable Participant Agreement, all orders to create Creation
Units of the Fund must be received by the Transfer Agent no later than
the closing time of the Exchange's Core Trading Session (``Order Cutoff
Time'') (ordinarily 4:00 p.m., Eastern time) in each case on the date
such order is placed for creation of Creation Units to be effected
based on the NAV of shares of the Fund as next determined after receipt
of an order in proper form. Orders requesting substitution of a ``cash-
in-lieu'' amount or a cash creation, must be received by the Transfer
Agent no later than 3:00 p.m., Eastern time. The date on which an order
to create Creation Units (or an order to redeem Creation Units, as
discussed below) is placed is referred to as the ``Transmittal Date''.
Fund Deposits created through the Clearing Process, if available,
must be delivered through a Participating Party that has executed a
Participant Agreement.
Fund Deposits created outside the Clearing Process must be
delivered through a DTC Participant that has executed a Participant
Agreement.
Redemption of Shares
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form on a
Business Day and only through a Participating Party or DTC Participant
who has executed a Participant Agreement.
With respect to the Fund, the Transfer Agent, through the NSCC,
makes available immediately prior to the opening of business on the
Exchange (currently 9:30 a.m., Eastern time) on each Business Day, the
identity of the Fund's securities and/or an amount of cash that will be
applicable (subject to possible amendment or correction) to redemption
requests received in proper form (as described below) on that day. All
orders are subject to acceptance by the Distributor. The Fund's
securities received on redemption will generally correspond pro rata,
to the extent practicable, to the Fund's securities. The Fund's
securities received on redemption (``Fund Securities'') may not be
identical to Deposit Securities that are applicable to creations of
Creation Units.
Unless cash only redemptions are available or specified for the
Fund, the redemption proceeds for a Creation Unit will generally
consist of Fund Securities--as announced on the Business Day of the
request for a redemption order received in proper form--plus cash in an
amount equal to the difference between the NAV of the Shares being
redeemed, as next determined after a receipt of a request in proper
form, and the value of the Fund Securities, less the redemption
transaction fee and variable fees described below. Notwithstanding the
foregoing, the Trust will substitute a ``cash-in-lieu'' amount to
replace any Fund Security that is a non-deliverable instrument.
Orders to redeem Creation Units of the Fund through the Clearing
Process, if available, must be delivered through a Participating Party
that has executed the Participant Agreement.
Orders to redeem Creation Units of the Fund outside the Clearing
Process must be delivered through a DTC
[[Page 42150]]
Participant that has executed the Participant Agreement.
Availability of Information
The Fund will disclose on the Fund's Web site
(www.hartfordfunds.com) at the start of each business day the
identities and quantities of the securities and other assets held by
the Fund that will form the basis of the Fund's calculation of its net
asset value (``NAV'') on that business day. The portfolio holdings so
disclosed will be based on information as of the close of business on
the prior business day and/or trades that have been completed prior to
the opening of business on that business day and that are expected to
settle on the business day.
The Web site for the Fund will contain the following information,
on a per-Share basis, for the Fund: (1) The prior business day's NAV;
(2) the reported midpoint of the bid-ask spread at the time of NAV
calculation (the ``Bid-Ask Price''); (3) a calculation of the premium
or discount of the Bid-Ask Price against such NAV; and (4) data in
chart format displaying the frequency distribution of discounts and
premiums of the Bid-Ask Price against the NAV, within appropriate
ranges, for each of the four previous calendar quarters (or for the
life of the Fund if, shorter). In addition, on each business day,
before the commencement of trading in Shares on the NYSE Arca, the Fund
will disclose on its Web site the identities and quantities of the
portfolio securities and other assets held by the Fund that will form
the basis for the calculation of NAV at the end of the business day.
The Fund's portfolio holdings will be disclosed on the Fund's Web
site daily after the close of trading on the Exchange and prior to the
opening of trading on the Exchange the following day. On a daily basis,
the Fund will disclose the information required under NYSE Arca Rule
8.600-E(c)(2) to the extent applicable. The Web site information will
be publicly available at no charge.
The approximate value of the Fund's investments on a per-Share
basis, the iNAV, will be disseminated every 15 seconds during the
Exchange Core Trading Session (ordinarily 9:30 a.m. to 4:00 p.m.,
Eastern Time).
Investors can also obtain the Fund's Statement of Additional
Information (``SAI''), shareholder reports, Form N-CSR and Form 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 and Form N-SAR may be viewed on-screen or downloaded from
the Commission's Web site at www.sec.gov. 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, ETFs and ETNs
will be available via the Consolidated Tape Association (``CTA'') high-
speed line, and from the national securities exchange on which they are
listed.
Quotation information from brokers and dealers or pricing services
will be available for Municipal Bonds. 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
each asset class in which the Fund will invest will generally be
available through nationally recognized data service providers through
subscription agreements. In addition, the iNAV (which is the Portfolio
Indicative Value, as defined in NYSE Arca Rule 8.600-E(c)(3)), will be
widely disseminated at least every 15 seconds during the Core Trading
Session by one or more major market data vendors or other information
providers.\14\
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\14\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------
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. The 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 the Fund's
net assets are held in illiquid assets. Illiquid assets may 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.\15\
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\15\ 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).
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The Fund intends to qualify for and to elect treatment as a
separate regulated investment company under Subchapter M of the
Internal Revenue Code of 1986.\16\
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\16\ 26 U.S.C. 851.
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The Fund's investments will be consistent with its investment goal
and will not be used to provide multiple returns of a benchmark or to
produce leveraged returns.
Under normal market conditions, except for periods of high cash
inflows or outflows,\17\ the Fund will satisfy the following criteria:
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\17\ ``Periods of high cash inflows or outflows'' as used
herein, mean rolling periods of seven calendar days during which
inflows or outflows of cash, in the aggregate, exceed 10% of the
Fund's net assets as of the opening of business on the first day of
such periods.
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i. The Fund will have a minimum of 20 non-affiliated issuers;
ii. No single municipal securities issuer will account for more
than 10% of the weight of the Fund's portfolio;
iii. No individual bond will account for more than 5% of the weight
of the Fund's portfolio;
iv. The Fund will limit its investments in Municipal Securities of
any one state to 20% of the Fund's total assets and will be diversified
among issuers in at least 10 states;
v. The Fund will be diversified among a minimum of five different
sectors of the municipal bond market.\18\
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\18\ The Fund's investments in Municipal Securities will include
investments in state and local (e.g., county, city, town) Municipal
Securities relating to such sectors as the following: Airports;
bridges and highways; hospitals; housing; jails; mass
transportation; nursing homes; parks; public buildings; recreational
facilities; school facilities; streets; and water and sewer works.
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Pre-refunded bonds will be excluded from the above limits given
that they have a high level of credit quality and liquidity.\19\
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\19\ The Manager represents that pre-refunded bonds (also known
as refunded or escrow-secured bonds) have a high level of credit
quality and liquidity because the issuer ``prerefunds'' the bond by
setting aside in advance all or a portion of the amount to be paid
to the bondholders when the bond is called. Generally, an issuer
uses the proceeds from a new bond issue to buy high grade, interest
bearing debt securities, including direct obligations of the U.S.
government, which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments of
principal and interest on the pre-refunded bonds.
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[[Page 42151]]
Application of Generic Listing Requirements
The Exchange is submitting this proposed rule change because the
portfolios for the Fund will not meet all of the ``generic'' listing
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to
the listing of Managed Fund Shares. The Fund's portfolio will meet all
such requirements except for those set forth in Commentary
.01(b)(1).\20\
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\20\ Commentary .01(b)(1) to NYSE Arca Rule 8.600-E provides
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.
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The Exchange believes that it is appropriate and in the public
interest to approve listing and trading of Shares of the Fund on the
Exchange notwithstanding that the Fund would not meet the requirements
of Commentary .01(b)(1) to Rule 8.600-E in that the Fund's investments
in municipal securities will be well-diversified.
The Exchange believes that permitting Fund Shares to be listed and
traded on the Exchange notwithstanding that less than 75% of the weight
of the Fund's portfolio may consist of components with less than $100
million minimum original principal amount outstanding would provide the
Fund with greater ability to select from a broad range of Municipal
Securities, as described above, that would support the Fund's
investment goal.
The Exchange believes that, notwithstanding that the Fund's
portfolio may not satisfy Commentary .01(b)(1) to Rule 8.600-E, the
Fund's portfolios will not be susceptible to manipulation. As noted
above, the Fund's investments will be diversified among a minimum of 20
non-affiliated issuers; no single municipal securities issuer will
account for more than 10% of the weight of the Fund's portfolio; no
individual bond will account for more than 5% of the weight of the
Fund's portfolio; the Fund will limit its investments in Municipal
Securities of any one state to 20% of the Fund's total assets and will
be diversified among issuers in at least 10 states; and the Fund will
be diversified among a minimum of five different sectors of the
municipal bond market.
The Exchange notes that, other than Commentary .01(b)(1) to Rule
8.600-E, the Fund's portfolio will meet all other requirements of Rule
8.600-E.
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.\21\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E 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.
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\21\ See NYSE Arca Rule 7.12-E, Commentary .04.
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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
NYSE Arca from 4 a.m. to 8 p.m., Eastern Time in accordance with NYSE
Arca Rule 7.34-E (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 Rule 7.6-E, the minimum
price variation (``MPV'') for quoting and entry of orders in equity
securities traded on NYSE Arca 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 of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Rule 8.600-E. Consistent with NYSE
Arca Rule 8.600-E(d)(2)(B)(ii), the Adviser will implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the actual
components of the Fund's portfolio. The Exchange represents that, for
initial and/or continued listing, the Fund will be in compliance with
Rule 10A-3 \22\ under the Act, as provided by NYSE Arca Rule 5.3-E. A
minimum of 100,000 Shares 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. The Fund's
investments will be consistent with the Fund's investment goal and will
not be used to enhance leverage.
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\22\ 17 CFR 240.10A-3.
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Surveillance
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.
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.\23\
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\23\ 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 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.\24\
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\24\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, ETFs and ETNs
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, ETFs and ETNs from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, ETFs and ETNs from markets
and other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. In
addition, FINRA, on behalf of the Exchange, is able to access, 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 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.
[[Page 42152]]
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) or (c) the applicability of
Exchange listing rules specified in this rule filing shall constitute
continued listing requirements for listing the Shares of the Fund 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 Rule 5.5-E(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 Rule 9.2-E(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 Opening and Late Trading Sessions when an
updated iNAV will not be calculated or publicly disseminated; (4) how
information regarding the iNAV 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) \25\ 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.
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\25\ 15 U.S.C. 78f(b)(5).
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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 Rule 8.600-E. 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 applicable federal
securities laws. The Exchange or FINRA, on behalf of the Exchange, or
both, will communicate as needed regarding trading in the Shares, ETFs
and ETNs 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, ETFs and
ETNs from such markets and other entities. In addition, the Exchange
may obtain information regarding trading in the Shares, ETFs and ETNs
from markets and other entities that are members of ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement. In addition, FINRA, on behalf of the Exchange, is able to
access, as needed, trade information for certain fixed income
securities held by the Fund reported to TRACE. FINRA also can access
data obtained from the MSRB relating to municipal bond trading activity
for surveillance purposes in connection with trading in the Shares. The
Fund may not purchase illiquid assets if, in the aggregate, more than
15% of its net assets would be invested in illiquid assets. Neither the
Manager nor Sub-Adviser is a registered broker-dealer but each is
affiliated with a broker-dealer. The Manager and Sub-Adviser each has
implemented a ``fire wall'' with respect to such broker-dealer
affiliate regarding access to information concerning the composition of
and/or changes to the Fund's portfolio.
The Exchange believes that it is appropriate and in the public
interest to approve listing and trading of Shares of the Fund on the
Exchange notwithstanding that the Fund would not meet the requirements
of Commentary .01(b)(1) to Rule 8.600-E in that the Fund's investments
in municipal securities will be well-diversified. As noted above, the
Fund's investments will be well-diversified in that the Fund will have
a minimum of 20 non-affiliated issuers; no single municipal securities
issuer will account for more than 10% of the weight of the Fund's
portfolio; no individual bond will account for more than 5% of the
weight of the Fund's portfolio; the Fund will limit its investments in
Municipal Securities of any one state to 20% of the Fund's total assets
and will be diversified among issuers in at least 10 states; and the
Fund will be diversified among a minimum of five different sectors of
the municipal bond market.
The Exchange believes that permitting Fund Shares to be listed and
traded on the Exchange notwithstanding that less than 75% of the weight
of the Fund's portfolio may consist of components with less than $100
million minimum original principal amount outstanding would provide the
Fund with greater ability to select from a broad range of municipal
securities, as described above, that would support the Fund's
investment objective.
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. Quotation and last sale
information for the Shares, ETFs and ETNs will be available via the CTA
high-speed line, and from the national securities exchange on which
they are listed. Prior to the commencement of trading, the Exchange
will inform its Equity Trading Permit Holders in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares. Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Rule 7.12-E have been reached
or because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. Trading in the Shares
will be subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets forth
circumstances under which Shares of the Fund may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the iNAV, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
[[Page 42153]]
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
additional types of actively-managed exchange-traded products that
principally hold municipal bonds and that 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 comprehensive surveillance sharing
agreement. In addition, as noted above, investors will have ready
access to information regarding the Fund's holdings, iNAV, 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
additional type of actively-managed exchange-traded product that
principally hold municipal bonds and that 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 the 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-2017-90 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-2017-90. 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-NYSEArca-2017-90, and should
be submitted on or before September 27, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18799 Filed 9-5-17; 8:45 am]
BILLING CODE 8011-01-P