Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the JPMorgan Managed Futures ETF Under NYSE Arca Rule 8.600-E, 46566-46574 [2017-21403]

Download as PDF 46566 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices of the purposes of the Act. The proposed rule change is designed to correct the Exchange’s rules to more accurately reflect the handling of auctions in the Block Order Mechanism. No changes are proposed to the operation of the Exchange’s trading system, and no members will be impacted by the proposed rule, which merely reflects current functionality offered to members that trade in the Block Order Mechanism. The proposed rule change is therefore not designed to impose any significant burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 18 and subparagraph (f)(6) of Rule 19b–4 thereunder.19 A proposed rule change filed under Rule 19b–4(f)(6) 20 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),21 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange requests that the Commission waive the 30-day operative delay. The Exchange notes that a waiver is consistent with the protection of investors and the public interest because it will allow the Exchange to correct its Block Order Mechanism rules to reflect the current functionality of the system without undue delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the ethrower on DSK3G9T082PROD with NOTICES 18 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 20 17 CFR 240.19b–4(f)(6). 21 17 CFR 240.19b–4(f)(6)(iii). 19 17 VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 Commission hereby waives the 30-day operative delay and designates the proposed rule change operative upon filing.22 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– GEMX–2017–43 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–GEMX–2017–43. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., 22 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 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–GEMX– 2017–43 and should be submitted on or before October 26, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–21406 Filed 10–4–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81766; File No. SR– NYSEArca–2017–86] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the JPMorgan Managed Futures ETF Under NYSE Arca Rule 8.600–E September 29, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on September 14, 2017, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 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 following under NYSE Arca Rule 8.600–E (‘‘Managed Fund Shares’’): JPMorgan Managed Futures ETF. 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. 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\05OCN1.SGM 05OCN1 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 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 ethrower on DSK3G9T082PROD with NOTICES 1. Purpose The Exchange proposes to list and trade shares (‘‘Shares’’) of the following under NYSE Arca Rule 8.600–E, which governs the listing and trading of Managed Fund Shares 3 on the Exchange: 4 JPMorgan Managed Futures ETF (the ‘‘Fund’’).5 The Fund is a series of J.P. Morgan Exchange-Traded Fund Trust (‘‘Trust’’), a Delaware statutory trust. J.P. Morgan 3 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. 4 The Commission has previously approved listing and trading on the Exchange of other series of the Trust that are actively managed funds under Rule 8.600–E. See, e.g., Securities Exchange Act Release Nos. 79683 (December 23, 2016) (SR– NYSEArca–2016–82) (order approving a proposed rule change to list and trade shares of the JPMorgan Diversified Event Driven ETF under NYSE Arca Equities Rule 8.600); 77904 (May 25, 2016) (SR– NYSEArca–2016–17) (order approving a proposed rule change to list and trade of shares of the JPMorgan Diversified Alternative ETF under NYSE Arca Equities Rule 8.600). 5 The Trust is registered under the 1940 Act. On July 18, 2017, the Trust filed with the Commission an amendment to its registration statement on Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’) and the 1940 Act relating to the Fund (File Nos. 333–191837 and 811–22903) (the ‘‘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. 31990 (February 9, 2016) (‘‘Exemptive Order’’). Investments made by the Fund will comply with the conditions set forth in the Exemptive Order. VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 Investment Management Inc. (‘‘Adviser’’ or ‘‘Administrator’’) will be the investment adviser to the Fund and also provide administrative services for and oversee the other service providers for the Fund. The Adviser is a whollyowned subsidiary of JPMorgan Asset Management Holdings Inc., which is an indirect, wholly-owned subsidiary of JPMorgan Chase & Co. (‘‘JPMorgan Chase’’), a bank holding company. JPMorgan Distribution Services, Inc. (‘‘Distributor’’) will be the distributor of the Fund’s Shares. 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.6 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. The Adviser is not registered as a broker-dealer but is affiliated with a broker-dealer and has implemented and will maintain a fire wall with respect to such broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio. In the event (a) the Adviser becomes registered as a broker-dealer or newly affiliated with one or more broker-dealers, or (b) any new adviser or sub-adviser is a registered broker-dealer 6 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 its 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. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 46567 or becomes affiliated with a brokerdealer, it will implement and maintain a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. JPMorgan Managed Futures ETF According to the Registration Statement, the Fund will seek to provide long-term total return. Through the Adviser’s systematic investment process, the Fund seeks to achieve its investment objective by investing globally to exploit opportunities across a broad range of asset classes including, but not limited to, equities, fixed income, currency and commodities based on the adviser’s assessment of their relative attractiveness. Within these strategies, the Adviser believes it has identified (and will continue to identify) a set of investment return sources that have a low correlation to each other and to traditional markets and have distinct risk and return profiles (each a ‘‘return factor’’). Under normal market conditions,7 the Fund will implement its ‘‘Managed Futures’’ strategy to access certain return factors. Each return factor represents a potential source of investment return that results from, among other things, assuming a particular risk or taking advantage of a behavioral bias. The Adviser believes that, in general, the Fund’s investment returns are attributable to the individual contributions of the various return factors. By employing this return factor based approach, the Fund seeks to provide positive total returns over time while maintaining a relatively low correlation with traditional markets. The exposure to individual return factors may vary based on the market opportunity of the individual return factors. Additional return factors may be identified over time. For example, the return factors that the Adviser may utilize include, but are not limited to, the following: • Carry—In the carry strategies, the Fund seeks to take a short position in a low yielding instrument while also taking a long position in another instrument that is higher yielding. The strategies seek to capture the tendency for higher yielding assets to provide higher returns than lower-yielding assets. The Fund implements these 7 The term ‘‘normal market conditions’’ is defined in NYSE Arca Rule 8.600–E(c)(5). E:\FR\FM\05OCN1.SGM 05OCN1 46568 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES strategies through derivatives instead of holding long and shorting securities physically; 8 • Momentum—These strategies seek to capture the tendency that an asset’s recent performance based on its price will continue in the near future. The Fund will seek to choose investments that have performed relatively well over those that have underperformed over the medium-term.9 The Fund will invest its assets globally to gain exposure, either directly or through the use of derivatives, to equity securities (across market capitalizations) in developed markets, debt securities (including below investment grade or high yield debt securities), commodities (through its subsidiary as described below) and currencies (including in emerging markets). The Fund may use both long and short positions (achieved primarily through the use of financial derivative instruments). The Fund may maintain a total net long market exposure, meaning that the Fund’s long exposure will be greater than its short exposure, neutral aggregate exposure, where the long and short exposure will be equal, or total net short exposure, meaning that the Fund’s short exposure will be greater than its long exposure. In addition, the Fund may have net long or net short exposure to one or more industry sectors, individual markets and/or currencies based on the Adviser’s view of whether a particular sector, market or currency is expected to outperform or underperform. The Adviser will make use of derivatives including swaps, futures, 8 According to the Registration Statement, the Fund will use the following asset classes in implementing this strategy: Fixed Income—the Fund will seek to benefit from differences in the yield of interest rates, caused by uncertainty in interest rates. The Fund will invest in instruments with higher interest rate yields and short those with lower yields; Currency—the Fund will seek to benefit from differences in the relative yields of various currencies. The Fund will invest in higher yielding currencies and short those with lower yields. Commodities—the Fund will seek to benefit from differences in the price of commodities futures contracts trading below the expected market price at contract maturity and those trading above the expected market price at contract maturity. 9 According to the Registration Statement, the Fund will implement the momentum return factor in the following ways: Looking at the relative value of prices of commodities and developed market currencies over time. The Fund intends to invest in futures or forward contracts to hold the best opportunities long while also shorting the worst opportunities within these asset classes. Looking across developed market fixed income, developed market equity indices and international (including emerging market) commodities, the Fund will seek to utilize futures contracts to exploit price momentum trends across the asset classes. At any particular time, the Fund may hold only long or only short futures in a particular asset class as part of this strategy. VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 options and forward contracts, in implementing its strategies. Under normal market conditions, the Adviser currently expects that a significant portion of the Fund’s exposure will be attained through the use of derivatives in addition to its exposure through direct investments. Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, will primarily be used as an efficient means of implementing a particular strategy in order to gain exposure to a desired return factor. Derivatives may also be used to increase gain, to effectively gain targeted exposure from its cash positions, to hedge various investments and/or for risk management. As a result of the Fund’s use of derivatives and to serve as collateral, the Fund may hold significant amounts of U.S. Treasury obligations, including Treasury bills, bonds and notes and other obligations issued or guaranteed by the U.S. Treasury, obligations of other sovereign governments or supranational entities, other short-term investments, including money market funds and foreign currencies in which certain derivatives are denominated. The amount that may be invested in any one instrument will vary and generally depend on the return factors employed by the Adviser at that time. However, there are no stated percentage limitations on the amount that can be invested in any one type of instrument, and the Adviser may, at times, focus on a smaller number of instruments.10 Moreover, the Fund is generally unconstrained by any particular capitalization, style or sector and may invest in any region or country. The Fund may have both long and short exposure to these instruments. Given the complexity of the investments and strategies of the Fund, the Adviser will make use of quantitative models and information and data supplied by third parties to, among other things, help determine the portfolio’s weightings among various investments and construct sets of transactions and investments. The Fund will purchase a particular instrument when the Adviser believes that such instrument will allow the Fund to gain the desired exposure to a return factor. Conversely, the Fund will consider selling a particular instrument when it no longer provides the desired exposure to a return factor. In addition, investment decisions will take into account a return factor’s contribution to 10 The Fund’s investments would be subject to any applicable percentage limitations in Commentary .01 to NYSE Arca Rule 8.600–E. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 the Fund’s overall volatility. In allocating assets, the Adviser seeks to approximately balance risk to the individual return factors over the long term, although the exposure to individual return factors will vary based on, among other things, the opportunity the Adviser sees in each individual return factor. Principal Investments According to the Registration Statement, under normal market conditions, the Fund will invest principally (i.e., at least 50% of the Fund’s assets) in the securities and financial instruments described below, which may be represented by derivatives relating to such securities and financial instruments, as discussed below. The Fund may purchase and sell U.S. and foreign exchange-traded commodity futures, equity futures, options on equity futures, bond futures, index futures, currency futures, and options on currency futures. The Fund may invest in over-thecounter (‘‘OTC’’) total return swaps on equities, fixed income, commodities, and foreign currencies; currency swaps; interest rate swaps; credit default swaps (‘‘CDS’’); CDS index swaps (‘‘CDX’’) and loan credit default index swaps (‘‘LCDX’’). The Fund may invest in forward and spot currency transactions. Such investments consist of non-deliverable forwards (‘‘NDFs’’), foreign forward currency contracts,11 spot currency transactions, caps and floors. The Fund may invest in cash and cash equivalents which are investments in money market funds (including funds for which the Adviser and/or its affiliates may serve as investment adviser or administrator), bank obligations,12 and commercial paper.13 The Fund may invest in U.S. Government obligations, which may include direct obligations of the U.S. 11 A foreign currency forward contract is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. 12 Bank obligations include the following: Bankers’ acceptances, certificates of deposit and time deposits. Bankers’ acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Maturities are generally six months or less. Certificates of deposit are negotiable certificates issued by a bank for a specified period of time and earning a specified return. Time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of funds. 13 Commercial paper consists of secured and unsecured short-term promissory notes issued by corporations and other entities. Maturities generally vary from a few days to nine months. E:\FR\FM\05OCN1.SGM 05OCN1 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES Treasury, including Treasury bills, notes and bonds, all of which are backed as to principal and interest payments by the full faith and credit of the United States, and separately traded principal and interest component parts of such obligations that are transferable through the Federal book-entry system known as Separate Trading of Registered Interest and Principal of Securities (‘‘STRIPS’’) and Coupons Under Book Entry Safekeeping (‘‘CUBES’’). The Fund may invest in U.S. and foreign corporate debt. Other Investments While the Fund, under normal market conditions, will invest at least fifty percent (50%) of its assets in the securities and financial instruments described above, the Fund may invest its remaining assets in other assets and financial instruments, as described below. The Fund may invest in U.S. and foreign exchange-traded call and put options on equities, equity indexes and equity futures. The Fund will gain exposure to commodity markets by investing directly in commodity related instruments or indirectly by investing up to 20% of its total assets in the Managed Futures Fund CS Ltd., a wholly owned subsidiary of the Fund organized under the laws of the Cayman Islands (the Subsidiary). The Subsidiary is also advised by the Adviser. The Subsidiary will only invest in commodity or cash management related investments described above in the Principal Investments section. However, the Subsidiary (unlike the Fund) may invest without limitation in commodity related investments, including derivative instruments linked to the value of a particular commodity, commodity index or commodity futures contract described above. The Subsidiary will otherwise be subject to the same fundamental, non-fundamental and certain other investment restrictions as the Fund. The Fund may invest in U.S. exchange-listed preferred stock. The Fund may invest in exchangelisted-and-traded real estate investment trusts (‘‘REITs’’). Exchange-listed REITs will be traded on U.S. national securities exchanges. The Fund may invest in repurchase agreements and reverse repurchase agreements. The Fund may invest in sovereign obligations, which are investments in debt obligations issued or guaranteed by a foreign sovereign government or its agencies, authorities or political subdivisions. The Fund may also invest VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 in obligations of supranational entities including securities designated or supported by governmental entities to promote economic reconstruction or development of international banking institutions and related government agencies. In addition to money market funds referenced above, the Fund may invest in shares of non-exchange-traded investment company securities including investment company securities for which the Adviser and/or its affiliates may serve as investment adviser or administrator, to the extent permitted by Section 12(d)(1) 14 of the 1940 Act and the rules thereunder and/ or any applicable exemption or exemptive order under the 1940 Act with respect to such investments. Other Restrictions The Fund’s investments, including derivatives, will be consistent with the Fund’s investment objective and will not be used to enhance leverage (although certain derivatives and other investments may result in leverage). That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s (and the Subsidiary’s) investments will not be used to seek performance that is the multiple or inverse multiple (e.g., 2Xs and 3Xs) of the Fund’s primary broadbased securities benchmark index (as defined in Form N–1A).15 The Fund’s and the Subsidiary’s Use of Derivatives The Fund proposes to seek certain exposures through transactions in the specific derivative instruments described above. The derivatives usage may occur in the Fund or the Subsidiary (provided that the Subsidiary will invest only in commodity or cash management related investments, as described above). The derivatives to be used are futures, swaps, forwards, and call and put options. Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may also be used as substitutes for securities in which the Fund can invest. The Fund may use these derivative instruments to increase gain, to effectively gain targeted exposure from its cash positions, to hedge various investments and/or for risk management. Investments in derivative instruments will be made in accordance with the 1940 Act and consistent with the Fund’s U.S.C. 80a–12(d)(1). Fund’s broad-based securities benchmark index will be identified in a future amendment to the Registration Statement following the Fund’s first full calendar year of performance. 46569 investment objective and policies. To limit the potential risk associated with such transactions, the Fund will segregate or ‘‘earmark’’ assets determined to be liquid by the Adviser in accordance with procedures established by the Trust’s Board of Trustees (the ‘‘Board’’) and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under derivative instruments. These procedures have been adopted consistent with Section 18 of the 1940 Act and related Commission guidance. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of the Fund, including the Fund’s use of derivatives, may give rise to leverage, causing the Fund to be more volatile than if it had not been leveraged.16 Because the markets for certain assets, or the assets themselves, may be unavailable or cost prohibitive as compared to derivative instruments, suitable derivative transactions may be an efficient alternative for the Fund to obtain the desired asset exposure. Creation and Redemption of Shares The consideration for a purchase of Creation Units will generally be cash, but may consist of an in-kind deposit of a designated portfolio of equity securities and other investments (the ‘‘Deposit Instruments’’) and an amount of cash computed as described below (the ‘‘Cash Amount’’) under some circumstances. The Cash Amount together with the Deposit Instruments, as applicable, are referred to as the ‘‘Portfolio Deposit,’’ which represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund. The size of a Creation Units is 50,000 Shares and is subject to change. In the event the Fund requires Deposit Instruments and a Cash Amount in consideration for purchasing a Creation Unit, the function of the Cash Amount is to compensate for any differences between the net asset value (‘‘NAV’’) per Creation Unit and the Deposit Amount (as defined below). The Cash Amount would be an amount equal to the difference between the NAV of the Shares (per Creation Unit) and the ‘‘Deposit Amount,’’ which is an amount equal to the aggregate market value of the Deposit Instruments. If the Cash 14 15 15 The PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 16 To mitigate leveraging risk, the Adviser will segregate or ‘‘earmark’’ liquid assets or otherwise cover the transactions that may give rise to such risk. E:\FR\FM\05OCN1.SGM 05OCN1 46570 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES Amount is a positive number (the NAV per Creation Unit exceeds the Deposit Amount), the Authorized Participant will deliver the Cash Amount. If the Cash Amount is a negative number (the NAV per Creation Unit is less than the Deposit Amount), the Authorized Participant will receive the Cash Amount. The Administrator, through the National Securities Clearing Corporation (‘‘NSCC’’), will make available on each business day, immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time (‘‘E.T.’’)), the list of the names and the required number of shares of each Deposit Instrument to be included in the current Portfolio Deposit (based on information at the end of the previous business day), as well as information regarding the Cash Amount for the Fund. Such Portfolio Deposit is applicable, subject to any adjustments as described below, in order to effect creations of Creation Units of the Fund until such time as the next-announced Portfolio Deposit composition is made available. The identity and number of the Deposit Instruments and Cash Amount required for the Portfolio Deposit for the Fund changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. In addition, the Trust reserves the right to accept a basket of securities or cash that differs from Deposit Instruments or to permit the substitution of an amount of cash (i.e., a ‘‘cash in lieu’’ amount) to be added to the Cash Amount to replace any Deposit Instrument which may, among other reasons, not be available in sufficient quantity for delivery, not be permitted to be re-registered in the name of the Trust as a result of an inkind creation order pursuant to local law or market convention or for other reasons as described in the Registration Statement, or which may not be eligible for trading by a Participating Party (defined below). In light of the foregoing, in order to seek to replicate the in-kind creation order process, the Trust expects to purchase the Deposit Instruments represented by the cash in lieu amount in the secondary market. Procedures for Creation of Creation Units To be eligible to place orders with the Distributor to create Creation Units of the Fund, an entity or person either must be (1) a ‘‘Participating Party,’’ i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC; or (2) a Depositary Trust VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 Company (‘‘DTC’’) Participant, which, in either case, must have executed an agreement with the Distributor (as it may be amended from time to time in accordance with its terms) (‘‘Participant Agreement’’). A Participating Party and DTC Participant are collectively referred to as an ‘‘Authorized Participant.’’ All orders to create Creation Units must be received by the Distributor no later than the closing time of the regular trading session on the Exchange (‘‘Closing Time’’) (ordinarily 4:00 p.m. E.T.), in each case on the date such order is placed in order for creation of Creation Units to be effected based on the NAV of the Fund as determined on such date. Redemption of Creation Units Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor, only on a business day and only through a Participating Party or DTC Participant who has executed a Participant Agreement. The Trust will not redeem Shares in amounts less than Creation Units. All orders to redeem Creation Units must be received by the Distributor no later than the Exchange Closing Time (ordinarily 4:00 p.m. E.T.). Although the Fund will generally pay redemption proceeds in cash, there may be instances when it will make redemptions in-kind. In these instances, the Administrator, through NSCC, makes available immediately prior to the opening of business on the Exchange (currently 9:30 a.m. E.T.) on each day that the Exchange is open for business, the identity of the Fund’s assets and/or an amount of cash that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form on that day. With respect to redemptions in-kind, the redemption proceeds for a Creation Unit generally consist of Redemption Instruments (which are securities received on redemption) as announced by the Administrator on the business day of the request for redemption, 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 Redemption Instruments, less the redemption transaction fee and variable fees described below. Should the Redemption Instruments have a value greater than the NAV of the Shares being redeemed, a compensating cash payment to the Trust equal to the differential plus the applicable redemption transaction fee will be required to be arranged for by or on PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 behalf of the redeeming shareholder. The Fund reserves the right to honor a redemption request by delivering a basket of securities or cash that differs from the Redemption Instruments if, among other reasons, not permitted to be re-registered in the name of the customer as a result of an in-kind redemption order pursuant to local law or market convention or which may not be eligible for trading by a Participating Party.17 Derivatives Valuation Methodology for Purposes of Determining Intra-Day Indicative Value On each business day, before commencement of trading in Fund Shares on NYSE Arca, the Fund will disclose on its Web site the identities and quantities of the portfolio instruments and other assets held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the business day. In order to provide additional information regarding the intra-day value of Shares of the Fund, one or more major market data vendors will disseminate every 15 seconds during the Exchange’s Core Trading Session, through the facilities of the Consolidated Tape Association (‘‘CTA’’) or other widely disseminated means, an updated Portfolio Indicative Value (‘‘PIV’’) for the Fund as calculated by a third party market data provider. A third party market data provider will calculate the PIV for the Fund. The third party market data provider may use market quotes if available or may fair value securities against proxies (such as swap or yield curves). With respect to specific derivatives: • NDFs and foreign forward currency contracts may be valued intraday using market quotes, or another proxy as determined to be appropriate by the third party market data provider. • Futures may be valued intraday using the relevant futures exchange data, or another proxy as determined to be appropriate by the third party market data provider. • Interest rate swaps and currency swaps may be mapped to a swap curve and valued intraday based on changes of the swap curve, or another proxy as determined to be appropriate by the third party market data provider. • CDS, CDX and LCDX may be valued using intraday data from market vendors, or based on underlying asset price, or another proxy as determined to 17 The Adviser represents that, to the extent the Trust effects the creation or redemption of Shares in cash, such transactions will be effected in the same manner for all Authorized Participants. E:\FR\FM\05OCN1.SGM 05OCN1 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices be appropriate by the third party market data provider. • Total return swaps may be valued intraday using the underlying asset price, or another proxy as determined to be appropriate by the third party market data provider. • Exchange listed options may be valued intraday using the relevant exchange data, or another proxy as determined to be appropriate by the third party market data provider. Disclosed Portfolio The Fund’s disclosure of derivative positions in the applicable Disclosed Portfolio includes information that market participants can use to value these positions intraday. On a daily basis, the Fund will disclose the information regarding the Disclosed Portfolio required under NYSE Arca Rule 8.600–E (c)(2) to the extent applicable. The Fund’s Web site information will be publicly available at no charge. Impact on Arbitrage Mechanism The Adviser believes there will be minimal impact to the arbitrage mechanism as a result of the use of derivatives. Market makers and participants should be able to value derivatives as long as the positions are disclosed with relevant information. The Adviser believes that the price at which Shares trade will continue to be disciplined by arbitrage opportunities created by the ability to purchase or redeem creation Shares at their NAV, which should ensure that Shares will not trade at a material discount or premium in relation to their NAV. The Adviser does not believe there will be any significant impacts to the settlement or operational aspects of the Fund’s arbitrage mechanism due to the use of derivatives. Because derivatives generally are not eligible for in-kind transfer, they will typically be substituted with a ‘‘cash in lieu’’ amount when the Fund processes purchases or redemptions of creation units in-kind. ethrower on DSK3G9T082PROD with NOTICES Application of Generic Listing Requirements The Exchange is submitting this proposed rule change because the portfolio 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 would meet all such requirements except for those set forth VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 in Commentary .01(e) of Rule 8.600–E.18 Specifically, the aggregate gross notional value of the Fund’s investments in OTC derivatives may exceed 20% of Fund assets, calculated based on the aggregate gross notional value of such OTC derivatives. The Adviser represents that it intends to engage in strategies that utilize foreign currency forward transactions and swaps (which may be traded OTC), as described above, based on its investment strategies. Depending on market conditions, the exposure due to these strategies may exceed 20% of the Fund’s assets. The Adviser represents further that the foreign exchange forward market is OTC and swaps may be traded OTC, and, as such, it is not possible to implement these strategies efficiently using listed derivatives. If the Fund were limited to investing up to 20% of assets in OTC derivatives, the Fund would have to exclude or underweight these strategies and would be less diversified, concentrating risk in the other strategies it will utilize. The Adviser represents that the Fund will follow an investment strategy utilized within the JP Morgan Diversified Alternative ETF, shares of which have previously been approved by the Commission for Exchange listing and trading.19 As noted above, the Fund may use the derivative instruments described above to increase gain, to effectively gain targeted exposure from its cash positions, to hedge various investments and/or for risk management. The Exchange notes that, other than Commentary.01(e) to Rule 8.600–E, the Fund will meet all other requirements of Rule 8.600–E. Availability of Information The Fund’s Web site (www.jpmorganfunds.com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The Fund’s Web site 18 Commentary .01(e) to NYSE Arca Rule 8.600– E provides that a portfolio may hold OTC derivatives, including forwards, options and swaps on commodities, currencies and financial instruments (e.g., stocks, fixed income, interest rates, and volatility) or a basket or index of any of the foregoing; however, on both an initial and continuing basis, no more than 20% of the assets in the portfolio may be invested in OTC derivatives. For purposes of calculating this limitation, a portfolio’s investment in OTC derivatives will be calculated as the aggregate gross notional value of the OTC derivatives. 19 See Securities Exchange Act Release No. 77904 (May 25, 2016), 81 FR 35101 (June 1, 2016) (SR– NYSEArca–2016–17) (order approving listing and trading of shares of the JPMorgan Diversified Alternative ETF under NYSE Arca Equities Rule 8.600). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 46571 will include additional quantitative information updated on a daily basis, including, for the Fund, (1) daily trading volume, the prior business day’s reported closing price, NAV and midpoint of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/ Ask Price’’),20 and a calculation of the premium and discount of the Bid/Ask Price against the NAV, and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Adviser will disclose on the Fund’s Web site the Disclosed Portfolio for the Fund as defined in NYSE Arca Rule 8.600–E(c)(2) that will form the basis for the Fund’s calculation of NAV at the end of the business day.21 Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and its Form N–CSR and Form N–SAR, filed twice a year. The Trust’s SAI and Shareholder Reports are 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. Quotation and last sale information for the Shares and for portfolio holdings of the Fund that are U.S. exchangelisted, including U.S. and foreign exchange-traded options, preferred stocks, and REITs will be available via the CTA high speed line. Quotation and last sale information for such U.S. exchange-listed securities, as well as U.S. and foreign exchange-traded futures will be available from the exchange on which they are listed. Quotation and last sale information for exchange-listed options cleared via the Options Clearing Corporation will be available via the Options Price Reporting Authority. Price information for preferred stocks will also be available from one or more major market data vendors or from broker-dealers. 20 The Bid/Ask Price of the Fund’s Shares will be determined using the mid-point of the highest bid and the lowest offer on the Exchange as of the time of calculation of the Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Fund and its service providers. 21 Under accounting procedures to be followed by the Fund, trades made on the prior business day (‘‘T’’) will be booked and reflected in NAV on the current business day (‘‘T+1’’). Accordingly, the Fund will be able to disclose at the beginning of the business day the portfolio that will form the basis for the NAV calculation at the end of the business day. E:\FR\FM\05OCN1.SGM 05OCN1 46572 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices Quotation information for cash equivalents, swaps, obligations of supranational agencies, money market funds, non-exchange-listed investment company securities (other than money market funds), U.S. Government obligations, U.S. Government agency obligations, sovereign obligations, repurchase agreements, reverse repurchase agreements, and U.S. and foreign corporate debt may be obtained from brokers and dealers who make markets in such securities or through nationally recognized pricing services through subscription agreements. The U.S. dollar value of foreign securities, instruments and currencies can be derived by using foreign currency exchange rate quotations obtained from nationally recognized pricing services. Forwards and spot currency price information will be available from major market data vendors. In addition, the PIV, as defined in NYSE Arca Rule 8.600–E(c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session.22 The dissemination of the PIV, together with the Disclosed Portfolio, will allow investors to determine the approximate value of the underlying portfolio of the Fund on a daily basis and will provide a close estimate of that value throughout the trading day. ethrower on DSK3G9T082PROD with NOTICES 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.23 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 of the Fund 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. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Shares will trade on the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in accordance with NYSE Arca Rule 7.34–E (Opening, 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 the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is $0.0001. The Shares of the Fund will conform to the initial and continued listing criteria under NYSE Arca Rule 8.600–E. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 24 under the Act, as provided by NYSE Arca Rule 5.3–E. A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances administered by the Exchange, as well as cross-market surveillances administered by the Financial Industry Regulatory Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.25 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 applicable federal securities laws. The surveillances referred to above generally focus on detecting securities trading outside their normal patterns, which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares, exchange-listed equity securities, certain futures, and certain exchange-traded options with 24 17 22 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available PIVs taken from the CTA or other data feeds. 23 See NYSE Arca Rule 7.12–E. VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 CFR 240 10A–3. 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. 25 FINRA PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 other markets and other entities that are members of the Intermarket Surveillance Group (‘‘ISG’’), and the Exchange or FINRA, on behalf of the Exchange, or both, may obtain trading information regarding trading such securities and financial instruments from such markets and other entities. In addition, the Exchange may obtain information regarding trading in such securities and financial instruments from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.26 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’’). In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. All statements and representations made in this filing regarding (a) the description of the portfolio, (b) limitations on portfolio holdings or reference assets, or (c) the applicability of Exchange listing rules specified in this rule filing shall constitute continued listing requirements for listing the Shares on the Exchange. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Rule 5.5–E(m). Information Bulletin Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares of the Fund. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) NYSE Arca Rule 9.2– E(a), which imposes a duty of due diligence on its ETP Holders to learn the 26 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. E:\FR\FM\05OCN1.SGM 05OCN1 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES essential facts relating to every customer prior to trading the Shares; (3) the risks involved in trading the Shares during the Early and Late Trading Sessions when an updated PIV will not be calculated or publicly disseminated; (4) how information regarding the PIV and the Disclosed Portfolio is disseminated; (5) the requirement that ETP 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 of the Fund will be calculated after 4:00 p.m. E.T. each trading day. 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5) 27 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 Adviser is not registered as a broker-dealer but is affiliated with a broker-dealer and has implemented and will maintain a fire wall with respect to such broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio. The Exchange represents that trading in the Shares will be subject to the existing trading surveillances administered by the Exchange, as well as cross-market surveillances administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws. The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and 27 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 applicable federal securities laws. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares, exchange-listed equity securities, certain futures, and certain exchangetraded options 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 such securities and financial instruments from such markets and other entities. In addition, the Exchange may obtain information regarding trading in such securities and financial instruments from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA’s TRACE. The PIV, as defined in NYSE Arca Rule 8.600–E(c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session. The 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 Shares of the Fund will conform to the initial and continued listing criteria under NYSE Arca Rule 8.600–E. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 under the Act, as provided by NYSE Arca Rule 5.3–E. A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. In addition, a large amount of information is publicly available regarding the Fund and the Shares, thereby promoting market transparency. The Fund’s portfolio holdings (including those of the Subsidiary) will be disclosed on its 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 regarding the Disclosed Portfolio required under NYSE Arca Rule 8.600– E (c)(2) to the extent applicable. The Fund’s Web site information will be publicly available at no charge. PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 46573 The Fund’s portfolio would meet all requirements of Rule 8.600–E except for those set forth in Commentary .01(e) of Rule 8.600.28 Specifically, the aggregate gross notional value of the Fund’s investments in OTC derivatives may exceed 20% of Fund assets, calculated based on the aggregate gross notional value of such OTC derivatives. The Exchange believes that it is appropriate and in the public interest to allow the Fund to exceed the 20% limit in Commentary .01(e) to Rule 8.600 of portfolio assets that may be invested in OTC derivatives. Because the Fund, in furtherance of its investment objective, may seek to gain market exposure using OTC traded foreign currency forwards and swaps, the 20% limit in Commentary .01(e) to Rule 8.600 could result in the Fund being unable to fully pursue its investment objective while attempting to sufficiently mitigate investment risks. As noted above, the Fund’s investments in derivative instruments will be made in accordance with the 1940 Act and consistent with the Fund’s investment objective and policies. To limit the potential risk associated with such transactions, the Fund will segregate or ‘‘earmark’’ assets determined to be liquid by the Adviser in accordance with procedures established by the Trust’s Board and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under derivative instruments. These procedures have been adopted consistent with Section 18 of the 1940 Act and related Commission guidance. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. To mitigate leveraging risk, the Adviser will segregate or ‘‘earmark’’ liquid assets or otherwise cover the transactions that may give rise to such risk. Because the markets for certain assets, or the assets themselves, may be unavailable or cost prohibitive as compared to derivative instruments, suitable derivative transactions may be an efficient alternative for the Fund to obtain the desired asset exposure. In addition, OTC derivatives may be tailored more specifically to the assets held by the Fund than available listed derivatives. The Adviser also represents that the Fund will follow an investment strategy utilized within the JP Morgan Diversified Alternatives ETF, shares of which have previously been approved by the Commission for Exchange listing and trading pursuant to Section 19(b)(2) 28 See E:\FR\FM\05OCN1.SGM note 18, supra. 05OCN1 ethrower on DSK3G9T082PROD with NOTICES 46574 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices of the Act.29 The Exchange further believes that the Fund would be placed at a competitive disadvantage to the JP Morgan Diversified Alternatives ETF, if the Fund’s portfolio could not exceed the 20% limit in Commentary .01(e) to Rule 8.600 of portfolio assets that may be invested in OTC derivatives, as described above. The Exchange notes that, other than Commentary .01(e) to Rule 8.600–E, the Fund’s portfolio will meet all other requirements of Rule 8.600–E. The Web site for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares of the Fund. 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, and 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 PIV, the Disclosed Portfolio, and quotation and last sale information for the Shares. The Fund’s investments, including derivatives, will be consistent with the Fund’s investment objective and will not be used to enhance leverage (although certain derivatives and other investments may result in leverage). That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (e.g., 2Xs and 3Xs) of the Fund’s primary broad-based securities benchmark index (as defined in Form N–1A). The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an additional type of activelymanaged exchange-traded product that will enhance competition among market participants, to the benefit of investors 29 See Securities Exchange Act Release No. 77904 (May 25, 2016), 81 FR 35101 (June 1, 2016) (SR– NYSEArca–2016–17) (order approving listing and trading of shares of the JPMorgan Diversified Alternative ETF under NYSE Arca Equities Rule 8.600). VerDate Sep<11>2014 19:52 Oct 04, 2017 Jkt 244001 and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares of the Fund 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, the PIV, the Disclosed Portfolio for the Fund, and quotation and last sale information for the Shares of the Fund. Electronic Comments B. Self-Regulatory Organization’s Statement on Burden on Competition All submissions should refer to File Number SR–NYSEArca–2017–86. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2017–86, and should be submitted on or before October 26, 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 holds fixed income securities, equity securities, commodities, currencies and derivatives 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: PO 00000 Frm 00099 Fmt 4703 Sfmt 9990 • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2017–86 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. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–21403 Filed 10–4–17; 8:45 am] BILLING CODE 8011–01–P 30 17 E:\FR\FM\05OCN1.SGM CFR 200.30–3(a)(12). 05OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 192 (Thursday, October 5, 2017)]
[Notices]
[Pages 46566-46574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-21403]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81766; File No. SR-NYSEArca-2017-86]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the JPMorgan 
Managed Futures ETF Under NYSE Arca Rule 8.600-E

September 29, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on September 14, 2017, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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 self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following 
under NYSE Arca Rule 8.600-E (``Managed Fund Shares''): JPMorgan 
Managed Futures ETF. 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.

[[Page 46567]]

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 
following under NYSE Arca Rule 8.600-E, which governs the listing and 
trading of Managed Fund Shares \3\ on the Exchange: \4\ JPMorgan 
Managed Futures ETF (the ``Fund'').\5\
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    \3\ 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.
    \4\ The Commission has previously approved listing and trading 
on the Exchange of other series of the Trust that are actively 
managed funds under Rule 8.600-E. See, e.g., Securities Exchange Act 
Release Nos. 79683 (December 23, 2016) (SR-NYSEArca-2016-82) (order 
approving a proposed rule change to list and trade shares of the 
JPMorgan Diversified Event Driven ETF under NYSE Arca Equities Rule 
8.600); 77904 (May 25, 2016) (SR-NYSEArca-2016-17) (order approving 
a proposed rule change to list and trade of shares of the JPMorgan 
Diversified Alternative ETF under NYSE Arca Equities Rule 8.600).
    \5\ The Trust is registered under the 1940 Act. On July 18, 
2017, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to 
the Fund (File Nos. 333-191837 and 811-22903) (the ``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. 31990 (February 9, 2016) (``Exemptive 
Order''). Investments made by the Fund will comply with the 
conditions set forth in the Exemptive Order.
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    The Fund is a series of J.P. Morgan Exchange-Traded Fund Trust 
(``Trust''), a Delaware statutory trust. J.P. Morgan Investment 
Management Inc. (``Adviser'' or ``Administrator'') will be the 
investment adviser to the Fund and also provide administrative services 
for and oversee the other service providers for the Fund. The Adviser 
is a wholly-owned subsidiary of JPMorgan Asset Management Holdings 
Inc., which is an indirect, wholly-owned subsidiary of JPMorgan Chase & 
Co. (``JPMorgan Chase''), a bank holding company. JPMorgan Distribution 
Services, Inc. (``Distributor'') will be the distributor of the Fund's 
Shares.
    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.\6\ 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. The Adviser is not 
registered as a broker-dealer but is affiliated with a broker-dealer 
and has implemented and will maintain a fire wall with respect to such 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio. In the event (a) the 
Adviser becomes registered as a broker-dealer or newly affiliated with 
one or more broker-dealers, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, it 
will implement and maintain a fire wall with respect to its relevant 
personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \6\ 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 its 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.
---------------------------------------------------------------------------

JPMorgan Managed Futures ETF
    According to the Registration Statement, the Fund will seek to 
provide long-term total return. Through the Adviser's systematic 
investment process, the Fund seeks to achieve its investment objective 
by investing globally to exploit opportunities across a broad range of 
asset classes including, but not limited to, equities, fixed income, 
currency and commodities based on the adviser's assessment of their 
relative attractiveness. Within these strategies, the Adviser believes 
it has identified (and will continue to identify) a set of investment 
return sources that have a low correlation to each other and to 
traditional markets and have distinct risk and return profiles (each a 
``return factor'').
    Under normal market conditions,\7\ the Fund will implement its 
``Managed Futures'' strategy to access certain return factors. Each 
return factor represents a potential source of investment return that 
results from, among other things, assuming a particular risk or taking 
advantage of a behavioral bias. The Adviser believes that, in general, 
the Fund's investment returns are attributable to the individual 
contributions of the various return factors. By employing this return 
factor based approach, the Fund seeks to provide positive total returns 
over time while maintaining a relatively low correlation with 
traditional markets.
---------------------------------------------------------------------------

    \7\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
---------------------------------------------------------------------------

    The exposure to individual return factors may vary based on the 
market opportunity of the individual return factors. Additional return 
factors may be identified over time. For example, the return factors 
that the Adviser may utilize include, but are not limited to, the 
following:
     Carry--In the carry strategies, the Fund seeks to take a 
short position in a low yielding instrument while also taking a long 
position in another instrument that is higher yielding. The strategies 
seek to capture the tendency for higher yielding assets to provide 
higher returns than lower-yielding assets. The Fund implements these

[[Page 46568]]

strategies through derivatives instead of holding long and shorting 
securities physically; \8\
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    \8\ According to the Registration Statement, the Fund will use 
the following asset classes in implementing this strategy: Fixed 
Income--the Fund will seek to benefit from differences in the yield 
of interest rates, caused by uncertainty in interest rates. The Fund 
will invest in instruments with higher interest rate yields and 
short those with lower yields; Currency--the Fund will seek to 
benefit from differences in the relative yields of various 
currencies. The Fund will invest in higher yielding currencies and 
short those with lower yields. Commodities--the Fund will seek to 
benefit from differences in the price of commodities futures 
contracts trading below the expected market price at contract 
maturity and those trading above the expected market price at 
contract maturity.
---------------------------------------------------------------------------

     Momentum--These strategies seek to capture the tendency 
that an asset's recent performance based on its price will continue in 
the near future. The Fund will seek to choose investments that have 
performed relatively well over those that have underperformed over the 
medium-term.\9\
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    \9\ According to the Registration Statement, the Fund will 
implement the momentum return factor in the following ways: Looking 
at the relative value of prices of commodities and developed market 
currencies over time. The Fund intends to invest in futures or 
forward contracts to hold the best opportunities long while also 
shorting the worst opportunities within these asset classes. Looking 
across developed market fixed income, developed market equity 
indices and international (including emerging market) commodities, 
the Fund will seek to utilize futures contracts to exploit price 
momentum trends across the asset classes. At any particular time, 
the Fund may hold only long or only short futures in a particular 
asset class as part of this strategy.
---------------------------------------------------------------------------

    The Fund will invest its assets globally to gain exposure, either 
directly or through the use of derivatives, to equity securities 
(across market capitalizations) in developed markets, debt securities 
(including below investment grade or high yield debt securities), 
commodities (through its subsidiary as described below) and currencies 
(including in emerging markets). The Fund may use both long and short 
positions (achieved primarily through the use of financial derivative 
instruments). The Fund may maintain a total net long market exposure, 
meaning that the Fund's long exposure will be greater than its short 
exposure, neutral aggregate exposure, where the long and short exposure 
will be equal, or total net short exposure, meaning that the Fund's 
short exposure will be greater than its long exposure. In addition, the 
Fund may have net long or net short exposure to one or more industry 
sectors, individual markets and/or currencies based on the Adviser's 
view of whether a particular sector, market or currency is expected to 
outperform or underperform.
    The Adviser will make use of derivatives including swaps, futures, 
options and forward contracts, in implementing its strategies. Under 
normal market conditions, the Adviser currently expects that a 
significant portion of the Fund's exposure will be attained through the 
use of derivatives in addition to its exposure through direct 
investments. Derivatives, which are instruments that have a value based 
on another instrument, exchange rate or index, will primarily be used 
as an efficient means of implementing a particular strategy in order to 
gain exposure to a desired return factor.
    Derivatives may also be used to increase gain, to effectively gain 
targeted exposure from its cash positions, to hedge various investments 
and/or for risk management. As a result of the Fund's use of 
derivatives and to serve as collateral, the Fund may hold significant 
amounts of U.S. Treasury obligations, including Treasury bills, bonds 
and notes and other obligations issued or guaranteed by the U.S. 
Treasury, obligations of other sovereign governments or supranational 
entities, other short-term investments, including money market funds 
and foreign currencies in which certain derivatives are denominated.
    The amount that may be invested in any one instrument will vary and 
generally depend on the return factors employed by the Adviser at that 
time. However, there are no stated percentage limitations on the amount 
that can be invested in any one type of instrument, and the Adviser 
may, at times, focus on a smaller number of instruments.\10\ Moreover, 
the Fund is generally unconstrained by any particular capitalization, 
style or sector and may invest in any region or country. The Fund may 
have both long and short exposure to these instruments. Given the 
complexity of the investments and strategies of the Fund, the Adviser 
will make use of quantitative models and information and data supplied 
by third parties to, among other things, help determine the portfolio's 
weightings among various investments and construct sets of transactions 
and investments.
---------------------------------------------------------------------------

    \10\ The Fund's investments would be subject to any applicable 
percentage limitations in Commentary .01 to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------

    The Fund will purchase a particular instrument when the Adviser 
believes that such instrument will allow the Fund to gain the desired 
exposure to a return factor. Conversely, the Fund will consider selling 
a particular instrument when it no longer provides the desired exposure 
to a return factor. In addition, investment decisions will take into 
account a return factor's contribution to the Fund's overall 
volatility. In allocating assets, the Adviser seeks to approximately 
balance risk to the individual return factors over the long term, 
although the exposure to individual return factors will vary based on, 
among other things, the opportunity the Adviser sees in each individual 
return factor.
Principal Investments
    According to the Registration Statement, under normal market 
conditions, the Fund will invest principally (i.e., at least 50% of the 
Fund's assets) in the securities and financial instruments described 
below, which may be represented by derivatives relating to such 
securities and financial instruments, as discussed below.
    The Fund may purchase and sell U.S. and foreign exchange-traded 
commodity futures, equity futures, options on equity futures, bond 
futures, index futures, currency futures, and options on currency 
futures.
    The Fund may invest in over-the-counter (``OTC'') total return 
swaps on equities, fixed income, commodities, and foreign currencies; 
currency swaps; interest rate swaps; credit default swaps (``CDS''); 
CDS index swaps (``CDX'') and loan credit default index swaps 
(``LCDX'').
    The Fund may invest in forward and spot currency transactions. Such 
investments consist of non-deliverable forwards (``NDFs''), foreign 
forward currency contracts,\11\ spot currency transactions, caps and 
floors.
---------------------------------------------------------------------------

    \11\ A foreign currency forward contract is a negotiated 
agreement between the contracting parties to exchange a specified 
amount of currency at a specified future time at a specified rate. 
The rate can be higher or lower than the spot rate between the 
currencies that are the subject of the contract.
---------------------------------------------------------------------------

    The Fund may invest in cash and cash equivalents which are 
investments in money market funds (including funds for which the 
Adviser and/or its affiliates may serve as investment adviser or 
administrator), bank obligations,\12\ and commercial paper.\13\
---------------------------------------------------------------------------

    \12\ Bank obligations include the following: Bankers' 
acceptances, certificates of deposit and time deposits. Bankers' 
acceptances are bills of exchange or time drafts drawn on and 
accepted by a commercial bank. Maturities are generally six months 
or less. Certificates of deposit are negotiable certificates issued 
by a bank for a specified period of time and earning a specified 
return. Time deposits are non-negotiable receipts issued by a bank 
in exchange for the deposit of funds.
    \13\ Commercial paper consists of secured and unsecured short-
term promissory notes issued by corporations and other entities. 
Maturities generally vary from a few days to nine months.
---------------------------------------------------------------------------

    The Fund may invest in U.S. Government obligations, which may 
include direct obligations of the U.S.

[[Page 46569]]

Treasury, including Treasury bills, notes and bonds, all of which are 
backed as to principal and interest payments by the full faith and 
credit of the United States, and separately traded principal and 
interest component parts of such obligations that are transferable 
through the Federal book-entry system known as Separate Trading of 
Registered Interest and Principal of Securities (``STRIPS'') and 
Coupons Under Book Entry Safekeeping (``CUBES'').
    The Fund may invest in U.S. and foreign corporate debt.
Other Investments
    While the Fund, under normal market conditions, will invest at 
least fifty percent (50%) of its assets in the securities and financial 
instruments described above, the Fund may invest its remaining assets 
in other assets and financial instruments, as described below.
    The Fund may invest in U.S. and foreign exchange-traded call and 
put options on equities, equity indexes and equity futures.
    The Fund will gain exposure to commodity markets by investing 
directly in commodity related instruments or indirectly by investing up 
to 20% of its total assets in the Managed Futures Fund CS Ltd., a 
wholly owned subsidiary of the Fund organized under the laws of the 
Cayman Islands (the Subsidiary). The Subsidiary is also advised by the 
Adviser. The Subsidiary will only invest in commodity or cash 
management related investments described above in the Principal 
Investments section. However, the Subsidiary (unlike the Fund) may 
invest without limitation in commodity related investments, including 
derivative instruments linked to the value of a particular commodity, 
commodity index or commodity futures contract described above. The 
Subsidiary will otherwise be subject to the same fundamental, non-
fundamental and certain other investment restrictions as the Fund.
    The Fund may invest in U.S. exchange-listed preferred stock.
    The Fund may invest in exchange-listed-and-traded real estate 
investment trusts (``REITs''). Exchange-listed REITs will be traded on 
U.S. national securities exchanges.
    The Fund may invest in repurchase agreements and reverse repurchase 
agreements.
    The Fund may invest in sovereign obligations, which are investments 
in debt obligations issued or guaranteed by a foreign sovereign 
government or its agencies, authorities or political subdivisions. The 
Fund may also invest in obligations of supranational entities including 
securities designated or supported by governmental entities to promote 
economic reconstruction or development of international banking 
institutions and related government agencies.
    In addition to money market funds referenced above, the Fund may 
invest in shares of non-exchange-traded investment company securities 
including investment company securities for which the Adviser and/or 
its affiliates may serve as investment adviser or administrator, to the 
extent permitted by Section 12(d)(1) \14\ of the 1940 Act and the rules 
thereunder and/or any applicable exemption or exemptive order under the 
1940 Act with respect to such investments.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 80a-12(d)(1).
---------------------------------------------------------------------------

Other Restrictions
    The Fund's investments, including derivatives, will be consistent 
with the Fund's investment objective and will not be used to enhance 
leverage (although certain derivatives and other investments may result 
in leverage). That is, while the Fund will be permitted to borrow as 
permitted under the 1940 Act, the Fund's (and the Subsidiary's) 
investments will not be used to seek performance that is the multiple 
or inverse multiple (e.g., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A).\15\
---------------------------------------------------------------------------

    \15\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------

The Fund's and the Subsidiary's Use of Derivatives
    The Fund proposes to seek certain exposures through transactions in 
the specific derivative instruments described above. The derivatives 
usage may occur in the Fund or the Subsidiary (provided that the 
Subsidiary will invest only in commodity or cash management related 
investments, as described above). The derivatives to be used are 
futures, swaps, forwards, and call and put options. Derivatives, which 
are instruments that have a value based on another instrument, exchange 
rate or index, may also be used as substitutes for securities in which 
the Fund can invest. The Fund may use these derivative instruments to 
increase gain, to effectively gain targeted exposure from its cash 
positions, to hedge various investments and/or for risk management.
    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies. To limit the potential risk associated with such 
transactions, the Fund will segregate or ``earmark'' assets determined 
to be liquid by the Adviser in accordance with procedures established 
by the Trust's Board of Trustees (the ``Board'') and in accordance with 
the 1940 Act (or, as permitted by applicable regulation, enter into 
certain offsetting positions) to cover its obligations under derivative 
instruments. These procedures have been adopted consistent with Section 
18 of the 1940 Act and related Commission guidance. In addition, the 
Fund will include appropriate risk disclosure in its offering 
documents, including leveraging risk. Leveraging risk is the risk that 
certain transactions of the Fund, including the Fund's use of 
derivatives, may give rise to leverage, causing the Fund to be more 
volatile than if it had not been leveraged.\16\ Because the markets for 
certain assets, or the assets themselves, may be unavailable or cost 
prohibitive as compared to derivative instruments, suitable derivative 
transactions may be an efficient alternative for the Fund to obtain the 
desired asset exposure.
---------------------------------------------------------------------------

    \16\ To mitigate leveraging risk, the Adviser will segregate or 
``earmark'' liquid assets or otherwise cover the transactions that 
may give rise to such risk.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    The consideration for a purchase of Creation Units will generally 
be cash, but may consist of an in-kind deposit of a designated 
portfolio of equity securities and other investments (the ``Deposit 
Instruments'') and an amount of cash computed as described below (the 
``Cash Amount'') under some circumstances. The Cash Amount together 
with the Deposit Instruments, as applicable, are referred to as the 
``Portfolio Deposit,'' which represents the minimum initial and 
subsequent investment amount for a Creation Unit of the Fund. The size 
of a Creation Units is 50,000 Shares and is subject to change.
    In the event the Fund requires Deposit Instruments and a Cash 
Amount in consideration for purchasing a Creation Unit, the function of 
the Cash Amount is to compensate for any differences between the net 
asset value (``NAV'') per Creation Unit and the Deposit Amount (as 
defined below). The Cash Amount would be an amount equal to the 
difference between the NAV of the Shares (per Creation Unit) and the 
``Deposit Amount,'' which is an amount equal to the aggregate market 
value of the Deposit Instruments. If the Cash

[[Page 46570]]

Amount is a positive number (the NAV per Creation Unit exceeds the 
Deposit Amount), the Authorized Participant will deliver the Cash 
Amount. If the Cash Amount is a negative number (the NAV per Creation 
Unit is less than the Deposit Amount), the Authorized Participant will 
receive the Cash Amount. The Administrator, through the National 
Securities Clearing Corporation (``NSCC''), will make available on each 
business day, immediately prior to the opening of business on the 
Exchange (currently 9:30 a.m. Eastern time (``E.T.'')), the list of the 
names and the required number of shares of each Deposit Instrument to 
be included in the current Portfolio Deposit (based on information at 
the end of the previous business day), as well as information regarding 
the Cash Amount for the Fund. Such Portfolio Deposit is applicable, 
subject to any adjustments as described below, in order to effect 
creations of Creation Units of the Fund until such time as the next-
announced Portfolio Deposit composition is made available.
    The identity and number of the Deposit Instruments and Cash Amount 
required for the Portfolio Deposit for the Fund changes as rebalancing 
adjustments and corporate action events are reflected from time to time 
by the Adviser with a view to the investment objective of the Fund. In 
addition, the Trust reserves the right to accept a basket of securities 
or cash that differs from Deposit Instruments or to permit the 
substitution of an amount of cash (i.e., a ``cash in lieu'' amount) to 
be added to the Cash Amount to replace any Deposit Instrument which 
may, among other reasons, not be available in sufficient quantity for 
delivery, not be permitted to be re-registered in the name of the Trust 
as a result of an in-kind creation order pursuant to local law or 
market convention or for other reasons as described in the Registration 
Statement, or which may not be eligible for trading by a Participating 
Party (defined below). In light of the foregoing, in order to seek to 
replicate the in-kind creation order process, the Trust expects to 
purchase the Deposit Instruments represented by the cash in lieu amount 
in the secondary market.
Procedures for Creation of Creation Units
    To be eligible to place orders with the Distributor to create 
Creation Units of the Fund, an entity or person either must be (1) a 
``Participating Party,'' i.e., a broker-dealer or other participant in 
the clearing process through the Continuous Net Settlement System of 
the NSCC; or (2) a Depositary Trust Company (``DTC'') Participant, 
which, in either case, must have executed an agreement with the 
Distributor (as it may be amended from time to time in accordance with 
its terms) (``Participant Agreement''). A Participating Party and DTC 
Participant are collectively referred to as an ``Authorized 
Participant.'' All orders to create Creation Units must be received by 
the Distributor no later than the closing time of the regular trading 
session on the Exchange (``Closing Time'') (ordinarily 4:00 p.m. E.T.), 
in each case on the date such order is placed in order for creation of 
Creation Units to be effected based on the NAV of the Fund as 
determined on such date.
Redemption of Creation Units
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Distributor, only on a business day and only through a Participating 
Party or DTC Participant who has executed a Participant Agreement. The 
Trust will not redeem Shares in amounts less than Creation Units. All 
orders to redeem Creation Units must be received by the Distributor no 
later than the Exchange Closing Time (ordinarily 4:00 p.m. E.T.).
    Although the Fund will generally pay redemption proceeds in cash, 
there may be instances when it will make redemptions in-kind. In these 
instances, the Administrator, through NSCC, makes available immediately 
prior to the opening of business on the Exchange (currently 9:30 a.m. 
E.T.) on each day that the Exchange is open for business, the identity 
of the Fund's assets and/or an amount of cash that will be applicable 
(subject to possible amendment or correction) to redemption requests 
received in proper form on that day. With respect to redemptions in-
kind, the redemption proceeds for a Creation Unit generally consist of 
Redemption Instruments (which are securities received on redemption) as 
announced by the Administrator on the business day of the request for 
redemption, 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 Redemption Instruments, 
less the redemption transaction fee and variable fees described below.
    Should the Redemption Instruments have a value greater than the NAV 
of the Shares being redeemed, a compensating cash payment to the Trust 
equal to the differential plus the applicable redemption transaction 
fee will be required to be arranged for by or on behalf of the 
redeeming shareholder. The Fund reserves the right to honor a 
redemption request by delivering a basket of securities or cash that 
differs from the Redemption Instruments if, among other reasons, not 
permitted to be re-registered in the name of the customer as a result 
of an in-kind redemption order pursuant to local law or market 
convention or which may not be eligible for trading by a Participating 
Party.\17\
---------------------------------------------------------------------------

    \17\ The Adviser represents that, to the extent the Trust 
effects the creation or redemption of Shares in cash, such 
transactions will be effected in the same manner for all Authorized 
Participants.
---------------------------------------------------------------------------

Derivatives Valuation Methodology for Purposes of Determining Intra-Day 
Indicative Value
    On each business day, before commencement of trading in Fund Shares 
on NYSE Arca, the Fund will disclose on its Web site the identities and 
quantities of the portfolio instruments and other assets held by the 
Fund that will form the basis for the Fund's calculation of NAV at the 
end of the business day.
    In order to provide additional information regarding the intra-day 
value of Shares of the Fund, one or more major market data vendors will 
disseminate every 15 seconds during the Exchange's Core Trading 
Session, through the facilities of the Consolidated Tape Association 
(``CTA'') or other widely disseminated means, an updated Portfolio 
Indicative Value (``PIV'') for the Fund as calculated by a third party 
market data provider.
    A third party market data provider will calculate the PIV for the 
Fund. The third party market data provider may use market quotes if 
available or may fair value securities against proxies (such as swap or 
yield curves).
    With respect to specific derivatives:
     NDFs and foreign forward currency contracts may be valued 
intraday using market quotes, or another proxy as determined to be 
appropriate by the third party market data provider.
     Futures may be valued intraday using the relevant futures 
exchange data, or another proxy as determined to be appropriate by the 
third party market data provider.
     Interest rate swaps and currency swaps may be mapped to a 
swap curve and valued intraday based on changes of the swap curve, or 
another proxy as determined to be appropriate by the third party market 
data provider.
     CDS, CDX and LCDX may be valued using intraday data from 
market vendors, or based on underlying asset price, or another proxy as 
determined to

[[Page 46571]]

be appropriate by the third party market data provider.
     Total return swaps may be valued intraday using the 
underlying asset price, or another proxy as determined to be 
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the 
relevant exchange data, or another proxy as determined to be 
appropriate by the third party market data provider.
Disclosed Portfolio
    The Fund's disclosure of derivative positions in the applicable 
Disclosed Portfolio includes information that market participants can 
use to value these positions intraday. On a daily basis, the Fund will 
disclose the information regarding the Disclosed Portfolio required 
under NYSE Arca Rule 8.600-E (c)(2) to the extent applicable. The 
Fund's Web site information will be publicly available at no charge.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal impact to the arbitrage 
mechanism as a result of the use of derivatives. Market makers and 
participants should be able to value derivatives as long as the 
positions are disclosed with relevant information. The Adviser believes 
that the price at which Shares trade will continue to be disciplined by 
arbitrage opportunities created by the ability to purchase or redeem 
creation Shares at their NAV, which should ensure that Shares will not 
trade at a material discount or premium in relation to their NAV.
    The Adviser does not believe there will be any significant impacts 
to the settlement or operational aspects of the Fund's arbitrage 
mechanism due to the use of derivatives. Because derivatives generally 
are not eligible for in-kind transfer, they will typically be 
substituted with a ``cash in lieu'' amount when the Fund processes 
purchases or redemptions of creation units in-kind.
Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the 
portfolio 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 would meet all 
such requirements except for those set forth in Commentary .01(e) of 
Rule 8.600-E.\18\ Specifically, the aggregate gross notional value of 
the Fund's investments in OTC derivatives may exceed 20% of Fund 
assets, calculated based on the aggregate gross notional value of such 
OTC derivatives.
---------------------------------------------------------------------------

    \18\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that a 
portfolio may hold OTC derivatives, including forwards, options and 
swaps on commodities, currencies and financial instruments (e.g., 
stocks, fixed income, interest rates, and volatility) or a basket or 
index of any of the foregoing; however, on both an initial and 
continuing basis, no more than 20% of the assets in the portfolio 
may be invested in OTC derivatives. For purposes of calculating this 
limitation, a portfolio's investment in OTC derivatives will be 
calculated as the aggregate gross notional value of the OTC 
derivatives.
---------------------------------------------------------------------------

    The Adviser represents that it intends to engage in strategies that 
utilize foreign currency forward transactions and swaps (which may be 
traded OTC), as described above, based on its investment strategies. 
Depending on market conditions, the exposure due to these strategies 
may exceed 20% of the Fund's assets. The Adviser represents further 
that the foreign exchange forward market is OTC and swaps may be traded 
OTC, and, as such, it is not possible to implement these strategies 
efficiently using listed derivatives. If the Fund were limited to 
investing up to 20% of assets in OTC derivatives, the Fund would have 
to exclude or underweight these strategies and would be less 
diversified, concentrating risk in the other strategies it will 
utilize.
    The Adviser represents that the Fund will follow an investment 
strategy utilized within the JP Morgan Diversified Alternative ETF, 
shares of which have previously been approved by the Commission for 
Exchange listing and trading.\19\ As noted above, the Fund may use the 
derivative instruments described above to increase gain, to effectively 
gain targeted exposure from its cash positions, to hedge various 
investments and/or for risk management.
---------------------------------------------------------------------------

    \19\ See Securities Exchange Act Release No. 77904 (May 25, 
2016), 81 FR 35101 (June 1, 2016) (SR-NYSEArca-2016-17) (order 
approving listing and trading of shares of the JPMorgan Diversified 
Alternative ETF under NYSE Arca Equities Rule 8.600).
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    The Exchange notes that, other than Commentary.01(e) to Rule 8.600-
E, the Fund will meet all other requirements of Rule 8.600-E.
Availability of Information
    The Fund's Web site (www.jpmorganfunds.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\20\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Adviser will disclose on the Fund's Web site the Disclosed Portfolio 
for the Fund as defined in NYSE Arca Rule 8.600-E(c)(2) that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day.\21\
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    \20\ The Bid/Ask Price of the Fund's Shares will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Fund's NAV. The 
records relating to Bid/Ask Prices will be retained by the Fund and 
its service providers.
    \21\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
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    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are 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.
    Quotation and last sale information for the Shares and for 
portfolio holdings of the Fund that are U.S. exchange-listed, including 
U.S. and foreign exchange-traded options, preferred stocks, and REITs 
will be available via the CTA high speed line. Quotation and last sale 
information for such U.S. exchange-listed securities, as well as U.S. 
and foreign exchange-traded futures will be available from the exchange 
on which they are listed. Quotation and last sale information for 
exchange-listed options cleared via the Options Clearing Corporation 
will be available via the Options Price Reporting Authority. Price 
information for preferred stocks will also be available from one or 
more major market data vendors or from broker-dealers.

[[Page 46572]]

    Quotation information for cash equivalents, swaps, obligations of 
supranational agencies, money market funds, non-exchange-listed 
investment company securities (other than money market funds), U.S. 
Government obligations, U.S. Government agency obligations, sovereign 
obligations, repurchase agreements, reverse repurchase agreements, and 
U.S. and foreign corporate debt may be obtained from brokers and 
dealers who make markets in such securities or through nationally 
recognized pricing services through subscription agreements. The U.S. 
dollar value of foreign securities, instruments and currencies can be 
derived by using foreign currency exchange rate quotations obtained 
from nationally recognized pricing services. Forwards and spot currency 
price information will be available from major market data vendors.
    In addition, the PIV, as defined in NYSE Arca Rule 8.600-E(c)(3), 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session.\22\ The 
dissemination of the PIV, together with the Disclosed Portfolio, will 
allow investors to determine the approximate value of the underlying 
portfolio of the Fund on a daily basis and will provide a close 
estimate of that value throughout the trading day.
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    \22\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available PIVs 
taken from the CTA or other data feeds.
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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.\23\ 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 of the Fund inadvisable.
---------------------------------------------------------------------------

    \23\ See NYSE Arca Rule 7.12-E.
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    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.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in 
accordance with NYSE Arca Rule 7.34-E (Opening, 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 the NYSE Arca 
Marketplace is $0.01, with the exception of securities that are priced 
less than $1.00 for which the MPV for order entry is $0.0001.
    The Shares of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Rule 8.600-E. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 \24\ under the Act, as provided by NYSE Arca 
Rule 5.3-E. A minimum of 100,000 Shares of the Fund will be outstanding 
at the commencement of trading on the Exchange. The Exchange will 
obtain a representation from the issuer of the Shares of the Fund that 
the NAV and the Disclosed Portfolio will be made available to all 
market participants at the same time.
---------------------------------------------------------------------------

    \24\ 17 CFR 240 10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances administered by the Exchange, as 
well as cross-market surveillances administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\25\ 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 applicable federal securities laws.
---------------------------------------------------------------------------

    \25\ 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.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, exchange-listed 
equity securities, certain futures, and certain exchange-traded options 
with other markets and other entities that are members of the 
Intermarket Surveillance Group (``ISG''), and the Exchange or FINRA, on 
behalf of the Exchange, or both, may obtain trading information 
regarding trading such securities and financial instruments from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in such securities and financial 
instruments from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.\26\ 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'').
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    \26\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
listing rules specified in this rule filing shall constitute continued 
listing requirements for listing the Shares on the Exchange.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares of the Fund. Specifically, the Bulletin will discuss 
the following: (1) The procedures for purchases and redemptions of 
Shares in Creation Units (and that Shares are not individually 
redeemable); (2) NYSE Arca Rule 9.2-E(a), which imposes a duty of due 
diligence on its ETP Holders to learn the

[[Page 46573]]

essential facts relating to every customer prior to trading the Shares; 
(3) the risks involved in trading the Shares during the Early and Late 
Trading Sessions when an updated PIV will not be calculated or publicly 
disseminated; (4) how information regarding the PIV and the Disclosed 
Portfolio is disseminated; (5) the requirement that ETP 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 of the Fund 
will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \27\ 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.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 
Adviser is not registered as a broker-dealer but is affiliated with a 
broker-dealer and has implemented and will maintain a fire wall with 
respect to such broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the portfolio. The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances administered by the Exchange, as well as 
cross-market surveillances administered by FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws. The Exchange represents that these 
procedures are adequate to properly monitor Exchange trading of the 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and applicable federal securities laws. The Exchange or 
FINRA, on behalf of the Exchange, or both, will communicate as needed 
regarding trading in the Shares, exchange-listed equity securities, 
certain futures, and certain exchange-traded options 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 such securities and financial instruments 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in such securities and financial 
instruments from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. FINRA, on behalf of the Exchange, is able to access, 
as needed, trade information for certain fixed income securities held 
by the Fund reported to FINRA's TRACE.
    The PIV, as defined in NYSE Arca Rule 8.600-E(c)(3), will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session. The 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 Shares of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Rule 8.600-E. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act, as provided by NYSE Arca Rule 
5.3-E. A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares of the Fund that the NAV 
per Share will be calculated daily and that the NAV and the Disclosed 
Portfolio will be made available to all market participants at the same 
time. In addition, a large amount of information is publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. The Fund's portfolio holdings (including those of the 
Subsidiary) will be disclosed on its 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 regarding the Disclosed Portfolio required under NYSE 
Arca Rule 8.600-E (c)(2) to the extent applicable. The Fund's Web site 
information will be publicly available at no charge.
    The Fund's portfolio would meet all requirements of Rule 8.600-E 
except for those set forth in Commentary .01(e) of Rule 8.600.\28\ 
Specifically, the aggregate gross notional value of the Fund's 
investments in OTC derivatives may exceed 20% of Fund assets, 
calculated based on the aggregate gross notional value of such OTC 
derivatives.
---------------------------------------------------------------------------

    \28\ See note 18, supra.
---------------------------------------------------------------------------

    The Exchange believes that it is appropriate and in the public 
interest to allow the Fund to exceed the 20% limit in Commentary .01(e) 
to Rule 8.600 of portfolio assets that may be invested in OTC 
derivatives. Because the Fund, in furtherance of its investment 
objective, may seek to gain market exposure using OTC traded foreign 
currency forwards and swaps, the 20% limit in Commentary .01(e) to Rule 
8.600 could result in the Fund being unable to fully pursue its 
investment objective while attempting to sufficiently mitigate 
investment risks. As noted above, the Fund's investments in derivative 
instruments will be made in accordance with the 1940 Act and consistent 
with the Fund's investment objective and policies. To limit the 
potential risk associated with such transactions, the Fund will 
segregate or ``earmark'' assets determined to be liquid by the Adviser 
in accordance with procedures established by the Trust's Board and in 
accordance with the 1940 Act (or, as permitted by applicable 
regulation, enter into certain offsetting positions) to cover its 
obligations under derivative instruments. These procedures have been 
adopted consistent with Section 18 of the 1940 Act and related 
Commission guidance. In addition, the Fund will include appropriate 
risk disclosure in its offering documents, including leveraging risk. 
To mitigate leveraging risk, the Adviser will segregate or ``earmark'' 
liquid assets or otherwise cover the transactions that may give rise to 
such risk. Because the markets for certain assets, or the assets 
themselves, may be unavailable or cost prohibitive as compared to 
derivative instruments, suitable derivative transactions may be an 
efficient alternative for the Fund to obtain the desired asset 
exposure. In addition, OTC derivatives may be tailored more 
specifically to the assets held by the Fund than available listed 
derivatives. The Adviser also represents that the Fund will follow an 
investment strategy utilized within the JP Morgan Diversified 
Alternatives ETF, shares of which have previously been approved by the 
Commission for Exchange listing and trading pursuant to Section 
19(b)(2)

[[Page 46574]]

of the Act.\29\ The Exchange further believes that the Fund would be 
placed at a competitive disadvantage to the JP Morgan Diversified 
Alternatives ETF, if the Fund's portfolio could not exceed the 20% 
limit in Commentary .01(e) to Rule 8.600 of portfolio assets that may 
be invested in OTC derivatives, as described above.
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release No. 77904 (May 25, 
2016), 81 FR 35101 (June 1, 2016) (SR-NYSEArca-2016-17) (order 
approving listing and trading of shares of the JPMorgan Diversified 
Alternative ETF under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    The Exchange notes that, other than Commentary .01(e) to Rule 
8.600-E, the Fund's portfolio will meet all other requirements of Rule 
8.600-E.
    The Web site for the Fund will include a form of the prospectus for 
the Fund and additional data relating to NAV and other applicable 
quantitative information. Moreover, prior to the commencement of 
trading, the Exchange will inform its ETP Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares of the Fund. 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, and 
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 PIV, the 
Disclosed Portfolio, and quotation and last sale information for the 
Shares. The Fund's investments, including derivatives, will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage (although certain derivatives and other investments 
may result in leverage). That is, while the Fund will be permitted to 
borrow as permitted under the 1940 Act, the Fund's investments will not 
be used to seek performance that is the multiple or inverse multiple 
(e.g., 2Xs and 3Xs) of the Fund's primary broad-based securities 
benchmark index (as defined in Form N-1A).
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product 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 of the 
Fund 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, the PIV, the Disclosed Portfolio for the Fund, and 
quotation and last sale information for the Shares of the Fund.

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 holds 
fixed income securities, equity securities, commodities, currencies and 
derivatives 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:

Ele

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