Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules Relating to Investment Company Units, Index-Linked Securities and Managed Trust Securities, 61641-61647 [2017-28000]
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Federal Register / Vol. 82, No. 248 / Thursday, December 28, 2017 / Notices
become effective pursuant to 19(b)(3)(A)
of the Act 19 and Rule 19b–4(f)(6) 20
thereunder.
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 necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
available for website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MIAX–2017–49 and should
be submitted on or before January 18,
2018.
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Assistant Secretary.
Electronic Comments
[FR Doc. 2017–28080 Filed 12–27–17; 8:45 am]
• 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–
MIAX–2017–49 on the subject line.
BILLING CODE 8011–01–P
Paper Comments
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• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MIAX–2017–49. 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 website (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
19 15
U.S.C. 78s(b)(3)(A).
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
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82381; File No. SR–NYSE–
2017–69]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Rules Relating to Investment Company
Units, Index-Linked Securities and
Managed Trust Securities
December 21, 2017.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on December
15, 2017, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory 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 (1) to amend
Supplementary Material .01 and .02 to
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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NYSE Rule 5.2(j)(3) to provide for the
inclusion of cash in an index underlying
a series of Investment Company Units,
which amendments conform to
amendments to NYSE Arca Rule 5.2–
E(j)(3) previously approved by the
Securities and Exchange Commission
(‘‘Commission’’); (2) to amend NYSE
Rule 5.2(j)(6) to exclude Investment
Company Units, securities defined in
Section 2 of NYSE Rule 8P (Trading of
Certain Exchange Traded Products) and
Index-Linked Securities when applying
the quantitative generic listing criteria
applicable to Equity Index-Linked
Securities, which amendments conform
to amendments to NYSE Arca 5.2–E(j)(6)
previously approved by the
Commission; and (3) to amend NYSE
Rule 8.700 (‘‘Managed Trust Securities’’)
to permit the use of swaps on stock
indices, fixed income indices,
commodity indices, commodities,
currencies, currency indices, or interest
rates, and to add EURO STOXX 50
Volatility Index (VSTOXX®) futures and
swaps on VSTOXX to the financial
instruments that an issue of Managed
Trust Securities may hold, which
amendments conform to amendments to
NYSE Arca Rule 8.700–E previously
approved by the Commission. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes (1) to amend
Supplementary Material .01 and .02 to
NYSE Rule 5.2(j)(3) to provide for the
inclusion of cash in an index underlying
a series of Investment Company Units
(‘‘Units’’), which amendments conform
to amendments to NYSE Arca Rule 5.2–
E(j)(3) previously approved by the
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Federal Register / Vol. 82, No. 248 / Thursday, December 28, 2017 / Notices
Securities and Exchange Commission
(‘‘Commission’’); 4 (2) to amend NYSE
Rule 5.2(j)(6) to exclude Investment
Company Units, securities defined in
Section 2 of NYSE Rule 8P (Trading of
Certain Exchange Traded Products) and
Index-Linked Securities when applying
the quantitative generic listing criteria
applicable to Equity Index-Linked
Securities, which amendments conform
to amendments to NYSE Arca 5.2–E(j)(6)
previously approved by the
Commission; 5 and (3) to amend NYSE
Rule 8.700 (‘‘Managed Trust Securities’’)
to permit the use of swaps on stock
indices, fixed income indices,
commodity indices, commodities,
currencies, currency indices, or interest
rates, and to add VSTOXX futures and
swaps on VSTOXX to the financial
instruments that an issue of Managed
Trust Securities may hold, which
amendments conform to amendments to
NYSE Arca Rule 8.700–E previously
approved by the Commission.6
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Amendments to NYSE Rule 5.2(j)(3)
NYSE Rule 5.2(j)(3) permits the
trading, whether by listing or pursuant
to unlisted trading privileges (‘‘UTP’’) of
Units. The Exchange proposes to amend
Supplementary Material .01 and .02 to
NYSE Rule 5.2(j)(3) to permit trading of
Units based on an index or portfolio that
includes cash as a component. While
Units, like mutual funds, will generally
hold an amount of cash, Rule 5.2(j)(3)
currently provides that components of
an index or portfolio underlying a series
of Units consist of securities—namely,
US Component Stocks, Non-US
Component Stocks, Fixed Income
Securities or a combination thereof. As
described below, the proposed
amendments to Supplementary Material
.01 and .02 to Rule 5.2(j)(3) would
permit inclusion of cash as an index or
portfolio component.
4 See Securities Exchange Act Release No. 80777
(May 25, 2017) (SR–NYSEArca–2017–30) (order
approving proposed rule change to amend
Commentary .01 and Commentary.02 to NYSE Arca
Equities Rule 5.2(j)(3) to provide for the inclusion
of cash in an index underlying a series of
Investment Company Units).
5 See Securities Exchange Act Release No. 81442
(August 18, 2017), 82 FR 40178 (August 24, 2017)
(SR–NYSEArca–2017–54) (order approving a
proposed rule change to amend the generic listing
criteria applicable to Equity Index-Linked
Securities).
6 See Securities Exchange Act Release Nos. 80254
(March 15, 2017), 82 FR 14548 (March 21, 2017)
(SR–NYSEArca–2016–96) (order approving
proposed rule change to amend NYSE Arca Equities
Rule 8.700 and to list and trade shares of the
Managed Emerging Markets Trust under NYSE Arca
Equities Rule 8.700); 82066 (November 13, 2017),
82 FR 54434 (November 17, 2017) (SR–NYSEArca–
2017–85) (order approving proposed rule change to
amend NYSE Arca Rule 8.700–E and to list and
trade shares of the ProShares European Volatility
Futures ETF).
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Currently, Supplementary Material
.01(a)(A) provides that an underlying
index or portfolio of US Component
Stocks 7 must meet specified criteria.
The Exchange proposes to amend
Supplementary Material .01(a)(A) to
provide that the components of an index
or portfolio underlying a series of Units
may also include cash. In addition, the
percentage weighting criteria in
Supplementary Material .01(a)(A)(1)
through (4) each would be amended to
make clear that such criteria would be
applied only to the US Component
Stocks portion of an index or portfolio.
For example, in applying the criteria in
proposed Supplementary Material
.01(a)(A)(1),8 if 85% of the weight of an
index consists of US Component Stocks
and 15% of the index weight is cash, the
requirement that component stocks
(excluding Exchange Traded Products)
that in the aggregate account for at least
90% of the weight of the US Component
Stocks portion of the index or portfolio
(excluding such Exchange Traded
Products) each will have a minimum
market value of $75 million minimum
would be applied only to the 85%
portion consisting of US Component
Stocks.
Supplementary Material .01 (a)(B),
which relates to international or global
indexes or portfolios, would be
amended to provide that components of
an index or portfolio underlying a series
of Units may consist of (a) only Non-US
Component Stocks, (b) Non-US
Component Stocks and cash, (c) both US
Component Stocks and Non-US
Component Stocks, or (d) US
Component Stocks, Non-US Component
Stocks and cash. In addition, the
percentage weighting criteria in
Supplementary Material .01(a)(B)(1)
through (4) each would be amended to
make clear that such criteria would be
applied only to the combined US and
Non-US Component Stocks portions of
an index or portfolio.
Supplementary Material .02 to NYSE
Rule 5.2(j)(3) provides generic criteria
applicable to trading of Units whose
underlying index or portfolio includes
Fixed Income Securities.9 Currently,
7 Rule 5.2(j)(3) defines ‘‘US Component Stock’’ as
an equity security that is registered under Sections
12(b) or 12(g) of the Act or an American Depositary
Receipt, the underlying equity security of which is
registered under Sections 12(b) or 12(g) of the Act.
8 Supplementary Material .01(a)(A)(1) provides
that component stocks (excluding Units and
Exchange Traded Products) that in the aggregate
account for at least 90% of the weight of the US
Component Stocks portion of the index or portfolio
(excluding Units and securities defined in Section
2 of Rule 8P, collectively ‘‘Exchange Traded
Products’’) each will have a minimum market value
of at least $75 million.
9 As defined in Supplementary Material .02 to
NYSE Rule 5.2(j)(3), Fixed Income Securities are
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Supplementary Material .02(a)(1)
provides that an underlying index or
portfolio must consist of Fixed Income
Securities. The Exchange proposes to
amend Supplementary Material .02(a)(1)
to provide that the index or portfolio
may also include cash. In addition, the
percentage weighting criteria in
Supplementary Material .02(a)(2), (a)(4)
and (a)(6) each would be amended to
make clear that such criteria would be
applied only to the Fixed Income
Securities portion of an index or
portfolio. For example, in applying the
criteria in the proposed amendments to
Supplementary Material .01(a)(2),10 if
90% of the weight of an index or
portfolio consists of Fixed Income
Securities and 10% of the index weight
is cash, the requirement that Fixed
Income Security components
accounting for at least 75% of the Fixed
Income Securities portion of the weight
of the index or portfolio each will have
a minimum original principal amount
outstanding of $100 million would be
applied only to the 90% portion
consisting of Fixed Income Securities.
The Exchange notes that the
Commission has previously approved
Exchange rules allowing portfolios held
by issues of Managed Fund Shares
(actively-managed exchange-traded
funds) to include cash.11 Like the
provision in Supplementary Material
.01(c) to Rule 8.600, which states that
there is no limit to cash holdings by an
issue of Managed Fund Shares traded
under Supplementary Material .01 to
Rule 8.600, there is no proposed limit to
the weighting of cash in an index
underlying a series of Units. The
Exchange believes this is appropriate in
that cash does not, in itself, impose
investment or market risk.
debt securities that are notes, bonds, debentures or
evidence of indebtedness that include, but are not
limited to, U.S. Department of Treasury securities
(‘‘Treasury Securities’’), government-sponsored
entity securities (‘‘GSE Securities’’), municipal
securities, trust preferred securities, supranational
debt and debt of a foreign country or a subdivision
thereof.
10 Supplementary Material .01(a)(2) provides that
Fixed Income Security components that in
aggregate account for at least 75% of the Fixed
Income Securities portion of the weight of the index
or portfolio each will have a minimum original
principal amount outstanding of $100 million or
more.
11 See Supplementary Material .01(c) to NYSE
Rule 8.600, approved in Securities Exchange Act
Release No. 80214 (March 10, 2017), 82 FR 14050
(March 16, 2017) (SR–NYSE–2016–44) (order
approving proposed rule change to allow the
Exchange to trade pursuant to UTP any NMS Stock
listed on another national securities exchange;
establishing listing and trading requirements for
Exchange Traded Products; and adopting new
equity trading rules relating to trading halts of
securities traded pursuant to UTP on the Pillar
platform).
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The Exchange believes the proposed
amendments, by permitting inclusion of
cash as a component of indexes
underlying series of Units, would
provide issuers of Units with additional
choice in indexes permitted to underlie
Units that are permitted to trade on the
Exchange, which would enhance
competition among market participants,
to the benefit of investors and the
marketplace. In addition, the proposed
amendments would provide investors
with greater ability to hold Units based
on underlying indexes that may accord
more closely with an investor’s
assessment of market risk, in that some
investors may view cash as a desirable
component of an underlying index
under certain market conditions.
Amendments to NYSE Rule 5.2 (j)(6)
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The Exchange proposes to amend
NYSE Rule 5.2 (j)(6) to exclude
Investment Company Units (‘‘Units’’)
and securities defined in Section 2 of
NYSE Rule 8P (collectively, together
with Units, ‘‘Derivative Securities
Products’’),12 as well as Index-Linked
Securities,13 when applying the
quantitative generic listing criteria
applicable to Equity Index-Linked
Securities.14
Equity Index-Linked Securities are
securities that provide for the payment
at maturity (or earlier redemption) based
on the performance of an underlying
index or indexes of equity securities,
securities of closed end management
investment companies registered under
12 Units are securities that represent an interest in
a registered investment company that could be
organized as a unit investment trust, an open-end
management investment company, or a similar
entity, that holds securities comprising, or
otherwise based on or representing an interest in,
an index or portfolio of securities or securities in
another registered investment company that holds
such securities. See NYSE Rule 5.2 (j)(3). The
following securities currently are included in
Section 2 of NYSE Rule 8P: Portfolio Depositary
Receipts (Rule 8.100); Trust Issued Receipts (Rule
8.200); Commodity-Based Trust Shares (Rule 8.201);
Currency Trust Shares (Rule 8.202); Commodity
Index Trust Shares (Rule 8.203); Commodity
Futures Trust Shares (Rule 8.204); Partnership
Units (Rule 8.300); Paired Trust Shares (Rule
8.400);Trust Units (Rule 8.500); Managed Fund
Shares (Rule 8.600); and Managed Trust Securities
(Rule 8.700).
13 Index-Linked Securities are securities that
qualify for Exchange listing and trading under
NYSE Rule 5.2(j)(6). The securities described in
Rule 5.2(j)(3), Rule 5.2(j)(6) and Section 2 of Rule
8P, as referenced above, would include securities
listed on another national securities exchange
pursuant to substantially equivalent listing rules.
14 The Commission has approved amendments to
NYSE Arca Rule 5.2–E(j)(6) that are substantially
identical to those proposed herein. See Securities
Exchange Act Release No. 81442 (August 18, 2017),
82 FR 40178 (August 24, 2017) (SR–NYSEArca–
2017–54) (order approving a proposed rule change
to amend the generic listing criteria applicable to
Equity Index-Linked Securities).
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the Investment Company Act of 1940
(‘‘1940 Act’’) 15 and/or Units.16 In
addition to certain other generic listing
criteria, Equity Index-Linked Securities
must satisfy the generic quantitative
initial and continued listing criteria
under NYSE Rule 5.2 (j)(6)(B)(I) in order
to become, and continue to be, listed
and traded on the Exchange. Certain of
the applicable quantitative criteria
specify minimum or maximum
thresholds that must be satisfied with
respect to, for example, market value,
trading volume, and dollar weight of the
index represented by a single
component or groups of components.
The applicable initial quantitative
listing criteria include (i) that each
underlying index is required to have at
least ten component securities; 17 (ii)
that each component security has a
minimum market value of at least $75
million, except that for each of the
lowest dollar weighted component
securities in the index that in the
aggregate account for no more than 10%
of the dollar weight of the index, the
market value can be at least $50 million;
(iii) that component stocks that in the
aggregate account for at least 90% of the
weight of the index each have a
minimum global monthly trading
volume of 1,000,000 shares, or
minimum global notional volume traded
per month of $25,000,000, averaged over
the last six months; (iv) that no
underlying component security
represents more than 25% of the dollar
weight of the index, and the five highest
dollar weighted component securities in
the index do not in the aggregate
account for more than 50% of the dollar
weight of the index (60% for an index
consisting of fewer than 25 component
securities); and (v) that 90% of the
index’s numerical value and at least
80% of the total number of component
securities meet the then current criteria
for standardized option trading set forth
in NYSE Arca Rule 5.3–O; except that
an index will not be subject to this last
requirement if (a) no underlying
component security represents more
than 10% of the dollar weight of the
index and (b) the index has a minimum
of 20 components.18 The applicable
continued quantitative listing criteria
require that (1) no single component
represent more than 25% of the dollar
weight of the index and the five highest
dollar weighted components in the
index cannot represent more than 50%
(or 60% for indexes with less than 25
components) of the dollar weight of the
15 15
U.S.C. 80–1.
Rule 5.2(j)(6)(B)(I)(1).
17 See Rule 5.2 (j)(6)(B)(I)(1)(a).
18 See Rule 5.2 (j)(6)(B)(I)(1)(b)(i)–(iv).
16 See
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61643
index, need only be satisfied at the time
the index is rebalanced; 19 and (2)
component stocks that in the aggregate
account for at least 90% of the weight
of the index each have a minimum
global monthly trading volume of
500,000 shares, or minimum global
notional volume traded per month of
$12,500,000, averaged over the last six
months.20
The Exchange proposes to amend
NYSE Rule 5.2 (j)(6)(B)(I)(1)(a), which
provides that each underlying index is
required to have at least ten component
securities, to provide that there will be
no minimum number of component
securities if one or more issues of
Derivative Securities Products or IndexLinked Securities constitute, at least in
part, component securities underlying
an issue of Equity Index-Linked
Securities. The proposed amendment to
NYSE Rule 5.2 (j)(6)(B)(I)(1)(a) also
would provide that the securities
described in Rule 5.2 (j)(3)) and Section
2 of Rule 8P (that is, Derivative
Securities Products), and Rule 5.2 (j)(6)
(that is, Index-Linked Securities), as
referenced in proposed amended Rule
5.2 (j)(6)(B)(I)(1)(b)(2) and Rule 5.2
(j)(6)(B)(I)(2)(a) would include securities
listed on another national securities
exchange pursuant to substantially
equivalent listing rules.
The Exchange also proposes to
exclude Derivative Securities Products
and Index-Linked Securities from
consideration when determining
whether the applicable quantitative
generic thresholds have been satisfied
under the initial listing standards
specified in NYSE Rule 5.2
(j)(6)(B)(I)(1)(b)(i)–(iv) and the
continued listing standards specified in
NYSE Rules 5.2 (j)(6)(B)(I)(2)(a)(i) and
(ii).21 Thus, for example, when
19 See
Rule 5.2 (j)(6)(B)(I)(2)(a)(i).
Rule 5.2 (j)(6)(B)(I)(2)(a)(ii).
21 NYSE Rules 5.2 (j)(6)(B)(I)(2)(a)(i) and (ii)
provide that the Exchange will maintain
surveillance procedures for securities listed under
Rule 5.2 (j)(6) and may halt trading in such
securities and will initiate delisting proceedings
pursuant to Rule 5.5(m) (unless the Commission has
approved the continued trading of the subject
Index-Linked Security), if any of the standards set
forth in Rules 5.2 (j)(6)(B)(I)(1)(a) and 5.2
(j)(6)(B)(I)(1)(b)(2) are not continuously maintained,
except that: (i) The criteria that no single
component represent more than 25% of the dollar
weight of the index and the five highest dollar
weighted components in the index cannot represent
more than 50% (or 60% for indexes with less than
25 components) of the dollar weight of the index,
need only be satisfied at the time the index is
rebalanced (Rule 5.2 (j)(6)(B)(I)(2)(a)(i)), and (ii)
component stocks that in the aggregate account for
at least 90% of the weight of the index each will
have a minimum global monthly trading volume of
500,000 shares, or minimum global notional volume
traded per month of $12,500,000, averaged over the
last six months (Rule 5.2 (j)(6)(B)(I)(2)(a)(ii)).
20 See
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determining compliance with NYSE
Rule 5.2 (j)(6)(B)(I)(1)(b)(ii), component
stocks, excluding Derivative Securities
Products or Index-Linked Securities,
that in the aggregate account for at least
90% of the remaining index weight
would be required to have a minimum
global monthly trading volume of 1
million shares, or minimum global
notional volume traded per month of 25
million, averaged over the last six
months.
The Exchange proposes further to
provide that the weighting limitation for
the five highest weighted component
securities in an index in NYSE Rules 5.2
(j)(6)(B)(I)(1)(b)(iii) and 5.2
(j)(6)(B)(I)(2)(a)(i) would apply ‘‘to the
extent applicable.’’ 22 When considered
in conjunction with the proposed
amendment to NYSE Rule 5.2
(j)(6)(B)(I)(1)(a) referenced above, this
language would make clear that an
index that includes Derivative
Securities Products or Index-Linked
Securities may include fewer than five
component securities.
The Exchange believes that it is
appropriate to exclude Derivative
Securities Products and Index-Linked
Securities from the generic listing and
continued listing criteria specified
above for Equity Index-Linked
Securities because Derivative Securities
Products and Index-Linked Securities
that may be included in an index or
portfolio underlying a series of Equity
Index-Linked Securities are themselves
subject to specific initial and continued
listing requirements of the exchange on
which they are listed. Also, Derivative
Securities Products and Index-Linked
Securities would have been listed and
traded on an exchange pursuant to a
filing submitted under Sections 19(b)(2)
or 19(b)(3)(A) of the Act,23 or would
have been listed by an exchange
pursuant to the requirements of Rule
19b–4(e) under the Act.24 Derivative
Securities Products and Index-Linked
Securities are derivatively priced, and,
therefore, the Exchange does not believe
that it is necessary to apply the generic
quantitative criteria (e.g., market
capitalization, trading volume, or
component weighting) applicable to
securities that are not Derivative
Securities Products or Index-Linked
Securities (e.g., common stocks) to such
products. Finally, by way of
comparison, Derivative Securities
Products are excluded from
22 The phrase ‘‘to the extent applicable’’ also is
included in Supplementary Material .01(a)(A)(3) to
NYSE Rule 5.2 (j)(3) for Investment Company Units
and Supplementary Material .01(a)(1)(C) to NYSE
Rule 8.600 for Managed Fund Shares.
23 15 U.S.C. 78s(b)(2); 15 U.S.C. 78s(b)(3)(A).
24 17 CFR 240.19b–4(e).
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consideration when determining
whether the components of Units satisfy
the applicable listing criteria in Rule 5.2
(j)(3),25 and both Derivative Securities
Products and Index-Linked Securities
are excluded from the applicable listing
criteria for Managed Fund Shares
holding equity securities in
Supplementary Material .01 to Rule
8.600.26
The Exchange also proposes (1) to
replace ‘‘investment company units’’
with ‘‘Investment Company Units’’ in
two places in NYSE Rule 5.2
(j)(6)(B)(I)(1) in order to conform to
other usages of this term in Exchange
rules; and (2) to replace the word
‘‘Index’’ with ‘‘index’’ in two places in
Rule 5.2 (j)(6)(B)(I)(2)(a)(i) to conform to
other usages of this word in Rule 5.2
(j)(6)(B)(I)(2).
Amendments to NYSE Rule 8.700
NYSE Rule 8.700 permits the trading,
whether by listing or pursuant to UTP,
of Managed Trust Securities pursuant to
UTP. The Exchange proposes to amend
NYSE Rule 8.700 to permit the use of
swaps on stock indices, fixed income
indices, commodity indices,
commodities, currencies, currency
indices, or interest rates, and to add
VSTOXX futures and swaps on
VSTOXX to the financial instruments
that an issue of Managed Trust
Securities may hold. The proposed
amendments are substantially identical
to amendments to NYSE Arca Rule
8.700–E approved by the Commission
for issues of Managed Trust Securities
listed and traded on NYSE Arca, Inc.27
The Exchange proposes to amend
NYSE Rule 8.700(c)(1) to specify that
the trust issuing a series of Managed
Trust Securities, or any series of such
trust, is not registered or required to be
registered as an investment company.
This change makes clear that issuers of
Managed Trust Securities are not
investment companies under the 1940
Act, and, therefore, distinguishes
issuances of Managed Trust Securities
from, for example, Managed Fund
Shares traded pursuant to NYSE Rule
8.600 or Investment Company Units
traded pursuant to NYSE Rule 5.2(j)(3).
25 See
Supplementary Material .01 to NYSE Rule
5.2 (j)(3). See also, Securities Exchange Act Release
No. 57751 (May 1, 2008), 73 FR 25818 (May 7,
2008) (SR–NYSEArca–2008–29) (order approving
amendments to the eligibility criteria for
components of an index underlying Investment
Company Units).
26 See Supplementary Material .01 to NYSE Rule
8.600. See also, Securities Exchange Act Release
No. 78397 (July 22, 2016), 81 FR 49320 (July 27,
2016) (SR–NYSEArca–2015–110) (order approving
amendments to NYSE Arca Equities Rule 8.600 to
adopt generic listing standards for Managed Fund
Shares).
27 See note 6, supra.
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Permitting the use of swaps as
referenced above would provide
additional flexibility to an issuer of
Managed Trust Securities seeking to
achieve its investment objective. For
example, because the markets for certain
futures contracts may be unavailable or
cost prohibitive as compared to other
derivative instruments, swaps may be
an efficient alternative for an issuer of
Managed Trust Securities to obtain the
desired asset exposure. Additionally,
swaps would allow parties to replicate
desired returns. As such, the increased
flexibility afforded by the ability of an
issuer of Managed Trust Securities to
use swaps may enhance investor returns
by facilitating the ability to more
economically seek its investment
objective, thereby reducing the costs
incurred by such issuer. Permitting the
use of such futures would provide
additional flexibility to an issuer of
Managed Trust Securities seeking to
achieve its investment objective by
allowing such issuer to gain additional
asset exposure to currencies and
commodities. The Exchange also
proposes to amend NYSE Rule
8.700(c)(1) to specify cash and cash
equivalents as permitted trust holdings.
Such instruments would be held, as
needed, to secure a trust’s trading
obligations with respect to its positions
in other financial instruments.
With respect to adding futures or
swaps on VSTOXX to the financial
instruments in which an issue of
Managed Trust Securities may hold, the
Exchange believes that the proposed
amendment to will provide investors
with the ability to better diversify and
hedge their portfolios using an exchange
traded security without having to trade
directly in underlying futures contracts,
and will facilitate the listing and trading
on the Exchange of additional Managed
Trust Securities that will enhance
competition among market participants,
to the benefit of investors and the
marketplace.28
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
28 The VSTOXX is based on EURO STOXX 50
Index (‘‘Index’’) real-time option prices that are
listed on the Eurex Exchange and are designed to
reflect the market expectations of near-term up to
long-term volatility by measuring the square root of
the implied variances across all options of a given
time to expiration. The Index includes 50 stocks
that are among the largest free-float market
capitalization stocks from 11 Eurozone countries.
For additional information regarding VSTOXX, see
Securities Exchange Act Release No. 82066
(November 13, 2017), 82 FR 54434 (November 17,
2017) (SR–NYSEArca–2017–85) (order approving
proposed rule change to amend NYSE Arca Rule
8.700–E and to list and trade shares of the
ProShares European Volatility Futures ETF).
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under Section 6(b)(5) 29 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 proposed rule changes are
designed to perfect the mechanism of a
free and open market and, in general, to
protect investors and the public interest.
The basis under the Exchange Act for
this proposed rule change is the
requirement under Section 6(b)(5) that
an exchange have rules that are
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to, and
perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest.
With respect to the proposed
amendments to NYSE Rule 5.2(j)(3), the
Exchange notes that, as described above,
the percentage weighting criteria in
Supplementary Material .01(a)(B)(1)
through (4) to Rule 5.2(j)(3) each would
be amended to make clear that such
criteria would be applied only to the
combined US and Non-US Component
Stocks portions of an index or portfolio.
The percentage weighting criteria in
Supplementary Material .02(a)(2), (a)(4)
and (a)(6) to NYSE Rule 5.2(j)(3) each
would be amended to make clear that
such criteria would be applied only to
the Fixed Income Securities portion of
an index or portfolio. Such applications
of the proposed amendments would
assure that the weighting requirements
in Supplementary Material .01 and .02
would continue to be applied only to
securities in an index or portfolio, and
would not be diluted as a result of
inclusion of a cash component. In
addition, the addition of cash as a
permitted component of indexes
underlying Units traded on the
Exchange pursuant to Rule 19b–4(e)
does not raise regulatory issues because
cash does not, in itself, impose
investment or market risk and is not
susceptible to manipulation.
The Exchange believes these proposed
amendments to NYSE Rule 5.2(j)(3), by
permitting inclusion of cash as a
component of indexes underlying series
of Units, would provide issuers of Units
with additional choice in indexes
permitted to underlie Units that are
permitted to trade on the Exchange
pursuant to UTP, which would enhance
competition among market participants,
to the benefit of investors and the
marketplace. In addition, the proposed
amendments would provide investors
with greater ability to hold Units based
on underlying indexes that may accord
more closely with an investor’s
assessment of market risk.
With respect to the proposed
amendments to NYSE Rule 5.2(j)(6), the
Exchange believes that the proposed
change would facilitate the listing and
trading of additional types of Equity
Index-Linked Securities, which would
enhance competition among market
participants, to the benefit of investors
and the marketplace. The proposed
change would also result in greater
efficiencies in the listing process with
respect to Equity Index-Linked
Securities by eliminating an
unnecessary consideration regarding
underlying components, which would
therefore remove impediments to, and
perfect the mechanism of, a free and
open market. In addition, the proposed
amendment to the Equity Index-Linked
Securities listing criteria is intended to
protect investors and the public interest
in that it is consistent with the manner
in which Derivative Securities Products
are also excluded from consideration
when determining whether the
components of an index or portfolio
underlying an issue of Units satisfy the
applicable listing criteria,30 and both
Derivative Securities Products and
Index-Linked Securities are excluded
from the applicable listing criteria for
Managed Fund Shares holding equity
securities in Supplementary Material
.01 to Rule 8.600.31 Additionally, Equity
Index-Linked Securities would remain
subject to all existing listing standards,
thereby maintaining existing levels of
investor protection. The Exchange
believes that the proposed rule change
is designed to prevent fraudulent and
manipulative acts and practices because
the Equity Index-Linked Securities
would continue to be listed and traded
on the Exchange pursuant to the initial
and continued listing criteria in Rule 5.2
(j)(6). Further, the proposed change
would not impact the existing listing
process for Derivative Securities
Products and Index-Linked Securities,
whereby the exchanges on which such
securities are listed must, for example,
submit proposed rule changes with the
Commission prior to listing and trading.
The Exchange believes that it is
appropriate to exclude Derivative
Securities Products and Index-Linked
Securities from the generic criteria
specified above for Equity Index-Linked
Securities because Derivative Securities
Products and Index-Linked Securities
30 See
29 15
U.S.C. 78f(b)(5).
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supra, note 18.
supra, note 19.
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61645
that may be included in an index or
portfolio underlying a series of Equity
Index-Linked Securities are themselves
subject to specific initial and continued
listing requirements of the exchange on
which they are listed. For example,
Units listed and traded on the Exchange
are subject to the listing standards
specified under NYSE Rule 5.2 (j)(3).
Also, such Derivative Securities
Products and Index-Linked Securities
would have been listed and traded on
an exchange pursuant to a filing
submitted under Sections 19(b)(2) or
19(b)(3)(A) of the Act,32 or would have
been listed by an exchange pursuant to
the requirements of Rule 19b-4(e) under
the Act.33 The Exchange believes that
quantitative factors—such as market
value, global monthly trading volume,
or weighting—when applied to index
components (such as common stocks)
underlying a series of Equity IndexLinked Securities, are relevant criteria
in establishing that such series is
sufficiently broad-based to minimize
potential manipulation.34 Derivative
Securities Products and Index-Linked
Securities, however, are derivatively
priced, and, therefore, the Exchange
does not believe that it is necessary to
apply the generic quantitative criteria
applicable to securities that are not
Derivative Securities Products and
Index-Linked Securities (e.g., common
stocks) to such products. Derivative
Securities Products are excluded from
consideration on NYSE when
determining whether the components of
Units satisfy the applicable listing
criteria,35 and both Derivative Securities
32 15
U.S.C. 78s(b)(2); 15 U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(e).
34 See, e.g., Securities Exchange Act Release No.
54739 (November 9, 2006), 71 FR 66693 (SR–
Amex–2006–78) (order approving generic listing
standards for Portfolio Depositary Receipts and
Index Fund Shares based on international or global
indexes), in which the Commission stated that
‘‘these standards are reasonably designed to ensure
that stocks with substantial market capitalization
and trading volume account for a substantial
portion of any underlying index or portfolio, and
that when applied in conjunction with the other
applicable listing requirements, will permit the
listing only of ETFs that are sufficiently broadbased in scope to minimize potential
manipulation.’’
35 See Supplementary Material .01 to NYSE Rule
5.2 (j)(3). See also Securities Exchange Act Release
No. 57751 (May 1, 2008), 73 FR 25818 (May 7,
2008) (SR–NYSEArca–2008–29) (order approving
amendments to eligibility criteria for components of
an index underlying Investment Company Units), in
which the Commission noted that ‘‘based on the
trading characteristics of Derivative Securities
Products, it may be difficult for component
Derivative Securities Products to satisfy certain
quantitative index criteria, such as the minimum
market value and trading volume limitations.
However, because Derivative Securities Products
are themselves subject to specific initial and
continued listing requirements, the Commission
33 17
Continued
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sradovich on DSK3GMQ082PROD with NOTICES
Products and Index-Linked Securities
are excluded from the applicable listing
criteria for Managed Fund Shares
holding equity securities in
Supplementary Material .01 to Rule
8.600. Moreover, for shares of Derivative
Securities Products that are not listed on
an exchange pursuant to an exchange’s
generic listing rules, the Commission
must first approve an exchange’s
proposed rule change under Section
19(b) of the Act regarding a particular
Derivative Securities Product or IndexLinked Securities, which is subject to
the representations and restrictions
included in such proposed rule change.
The Exchange also believes it is
appropriate to exclude Derivative
Securities Products and Index-Linked
Securities from the requirement under
NYSE Rule 5.2 (j)(6)(B)(I)(1)(b)(iv) that
90% of the applicable index’s numerical
value and at least 80% of the total
number of component securities will
meet the criteria for standardized option
trading set forth in NYSE Arca Rule
5.3–O. NYSE Arca Rule 5.3–O includes
criteria for securities underlying option
contracts approved for listing and
trading on NYSE Arca. The Exchange
does not believe that criteria in NYSE
Arca Rule 5.3–O should be applied to
Derivative Securities Products and
Index-Linked Securities because such
securities are subject to separate
numerical and other criteria included in
the applicable exchange listing rules,
including both generic listing rules
permitting listing pursuant to Rule 19b–
4(e) and non-generic listing rules.
Derivative Securities Products and
Index-Linked Securities that are the
subject of a Commission approval order
under Section 19(b) of the Act also are
subject to specific representations made
in the applicable Rule 19b–4 filing.
These include representations regarding
the existence of comprehensive
surveillance agreements between the
applicable exchange and the principal
markets for certain financial
instruments underlying Derivative
Securities Products, or percentage
limitations on assets (e.g., non-U.S.
stocks, futures and options) whose
principal market is not a member of the
Intermarket Surveillance Group
(‘‘ISG’’).36
The Exchange believes it is
appropriate to provide that the
weighting limitation for the five highest
weighted component securities in an
index in NYSE Rules 5.2
(j)(6)(B)(I)(1)(b)(iii) and 5.2
(j)(6)(B)(I)(2)(a)(i) would apply ‘‘to the
extent applicable.’’ When considered in
conjunction with the proposed
amendment to NYSE Rule 5.2
(j)(6)(B)(I)(1)(a) referenced above, this
language would make clear that an
index that includes Derivative
Securities Products or Index-Linked
Securities may include fewer than five
component securities. In addition, the
phrase ‘‘to the extent applicable’’ is
included in Supplementary Material
.01(a)(A)(3) to NYSE Rule 5.2 (j)(3) for
Investment Company Units and
Supplementary Material .01(a)(1)(C) to
NYSE Rule 8.600 for Managed Fund
Shares.
The proposed replacement of
‘‘investment company units’’ with
‘‘Investment Company Units’’ in two
places in NYSE Rule 5.2 (j)(6)(B)(I)(1) is
appropriate as such changes conform to
other usages of this term in Exchange
rules. The proposed replacement of the
word ‘‘Index’’ with ‘‘index’’ in two
places in Rule 5.2 (j)(6)(B)(I)(2)(a)(i) is
appropriate as such changes would
conform to other usages of this word in
Rule 5.2 (j)(6)(B)(I)(2).
The proposed amendment to NYSE
Rule 8.700(c)(1) to specify that the trust
issuing a series of Managed Trust
Securities is not an investment company
or similar entity makes clear that issuers
of Managed Trust Securities are not
investment companies under the 1940
Act, and, therefore, distinguishes
issuances of Managed Trust Securities
from, for example, Managed Fund
Shares traded under NYSE Rule 8.600 or
Investment Company Units traded
under NYSE Rule 5.2(j)(3). In permitting
the use of specified swaps, the proposed
amendment to NYSE Rule 8.700 would
provide additional flexibility to an
issuer of Managed Trust Securities
seeking to achieve its investment
objective. Additionally, swaps would
allow parties to replicate desired
returns. As such, the increased
flexibility afforded by the ability of an
issuer of Managed Trust Securities to
believes that it would be reasonable to exclude
Derivative Securities Products, as components, from
certain index component eligibility criteria for
[Investment Company] Units.’’
36 See, e.g., Securities Exchange Act Release No.
76719 (December 21, 2015), 80 FR 80859 (December
28, 2015) (order approving Exchange listing and
trading of shares of the Guggenheim Total Return
Bond ETF (‘‘Fund’’) under NYSE Arca Equities Rule
8.600), which filing stated: ‘‘Not more than 10% of
the net assets of the Fund in the aggregate invested
in equity securities (other than non-exchange-
traded investment company securities) will consist
of equity securities whose principal market is not
a member of the ISG or is a market with which the
Exchange does not have a comprehensive
surveillance sharing agreement. In addition, not
more than 10% of the net assets of the Fund in the
aggregate invested in futures contracts or exchangetraded options contracts will consist of futures
contracts or exchange-traded options contracts
whose principal market is not a member of ISG or
is a market with which the Exchange does not have
a comprehensive surveillance sharing agreement.’’
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use swaps may enhance investor returns
by facilitating the ability to more
economically seek its investment
objective, thereby reducing the costs
incurred by such issuer. The Exchange’s
proposal to amend NYSE Rule
8.700(c)(1) to specify cash and cash
equivalents as permitted trust holdings
is appropriate in that such holdings
would be held, as needed, to secure its
trading obligations with respect to its
positions in other financial instruments,
and, therefore, may assist a trust in
fulfilling its investment objective.
Permitting the use of futures on
currency indices and commodity
indices would provide additional
flexibility to an issuer of Managed Trust
Securities seeking to achieve its
investment objective by allowing such
issuer to gain additional asset exposure
to currencies and commodities. With
respect to adding futures or swaps on
VSTOXX to the financial instruments in
which an issue of Managed Trust
Securities may hold, the Exchange
believes that the proposed amendment
to will provide investors with the ability
to better diversify and hedge their
portfolios using an exchange traded
security without having to trade directly
in underlying futures contracts.
The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
Investment Company Units, IndexLinked Securities and Managed Trust
Securities in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws. Such procedures will continue to
be adequate to properly monitor trading
in Investment Company Units, IndexLinked Securities and Managed Trust
Securities in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws following implementation of the
rule changes proposed in this filing.
Investment Company Units, IndexLinked Securities and Managed Trust
Securities listed and traded pursuant to
NYSE Rules 5.2(j)(3), 5.2 (j)(6) and
8.700, respectively, are included within
the definition of ‘‘security’’ or
‘‘securities’’ as such terms are used in
the Exchange rules and, as such, are
subject to Exchange rules and
procedures that currently govern the
trading of securities on the Exchange.
Trading in the securities will be halted
under the conditions specified in NYSE
Rules 5.5(g)(2)(b), 5.2 (j)(6)(E) and
8.700(e)(2)(D), respectively.
For these reasons, the Exchange
believes that the proposal is consistent
with the Act.
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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
believes the proposed rule change will
enhance competition by permitting
Exchange trading of additional types of
Units, Index-Linked Securities and
Managed Trust Securities, which would
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
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 37 and Rule
19b–4(f)(6) thereunder.38 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.39
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 40 of the Act to
determine whether the proposed rule
sradovich on DSK3GMQ082PROD with NOTICES
37 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
39 17 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.
40 15 U.S.C. 78s(b)(2)(B).
38 17
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change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–
NYSE–2017–69 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–NYSE–2017–69. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2017–69 and should
be submitted on or before January 18,
2018.
41 17
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CFR 200.30–3(a)(12).
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61647
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–28000 Filed 12–27–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82389; File No. SR–
CboeBZX–2017–016]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change to Rule 21.5,
Minimum Increments, To Extend the
Penny Pilot Program
December 22, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
14, 2017, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. 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 filed a proposal for the
BZX Options Market (‘‘BZX Options’’)
to extend through June 30, 2018, the
Penny Pilot Program (‘‘Penny Pilot’’) in
options classes in certain issues (‘‘Pilot
Program’’) previously approved by the
Commission.5
The text of the proposed rule change
is available at the Exchange’s website at
www.markets.cboe.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
5 The rules of BZX Options, including rules
applicable to BZX Options’ participation in the
Penny Pilot, were approved on January 26, 2010.
See Securities Exchange Act Release No. 61419
(January 26, 2010), 75 FR 5157 (February 1, 2010)
(SR–BATS–2009–031). BZX Options commenced
operations on February 26, 2010.
2 17
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]]>Agencies
[Federal Register Volume 82, Number 248 (Thursday, December 28, 2017)]
[Notices]
[Pages 61641-61647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28000]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82381; File No. SR-NYSE-2017-69]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rules Relating to Investment Company Units, Index-Linked
Securities and Managed Trust Securities
December 21, 2017.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on December 15, 2017, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes (1) to amend Supplementary Material .01 and
.02 to NYSE Rule 5.2(j)(3) to provide for the inclusion of cash in an
index underlying a series of Investment Company Units, which amendments
conform to amendments to NYSE Arca Rule 5.2-E(j)(3) previously approved
by the Securities and Exchange Commission (``Commission''); (2) to
amend NYSE Rule 5.2(j)(6) to exclude Investment Company Units,
securities defined in Section 2 of NYSE Rule 8P (Trading of Certain
Exchange Traded Products) and Index-Linked Securities when applying the
quantitative generic listing criteria applicable to Equity Index-Linked
Securities, which amendments conform to amendments to NYSE Arca 5.2-
E(j)(6) previously approved by the Commission; and (3) to amend NYSE
Rule 8.700 (``Managed Trust Securities'') to permit the use of swaps on
stock indices, fixed income indices, commodity indices, commodities,
currencies, currency indices, or interest rates, and to add EURO STOXX
50 Volatility Index (VSTOXX[supreg]) futures and swaps on VSTOXX to the
financial instruments that an issue of Managed Trust Securities may
hold, which amendments conform to amendments to NYSE Arca Rule 8.700-E
previously approved by the Commission. The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes (1) to amend Supplementary Material .01 and
.02 to NYSE Rule 5.2(j)(3) to provide for the inclusion of cash in an
index underlying a series of Investment Company Units (``Units''),
which amendments conform to amendments to NYSE Arca Rule 5.2-E(j)(3)
previously approved by the
[[Page 61642]]
Securities and Exchange Commission (``Commission''); \4\ (2) to amend
NYSE Rule 5.2(j)(6) to exclude Investment Company Units, securities
defined in Section 2 of NYSE Rule 8P (Trading of Certain Exchange
Traded Products) and Index-Linked Securities when applying the
quantitative generic listing criteria applicable to Equity Index-Linked
Securities, which amendments conform to amendments to NYSE Arca 5.2-
E(j)(6) previously approved by the Commission; \5\ and (3) to amend
NYSE Rule 8.700 (``Managed Trust Securities'') to permit the use of
swaps on stock indices, fixed income indices, commodity indices,
commodities, currencies, currency indices, or interest rates, and to
add VSTOXX futures and swaps on VSTOXX to the financial instruments
that an issue of Managed Trust Securities may hold, which amendments
conform to amendments to NYSE Arca Rule 8.700-E previously approved by
the Commission.\6\
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\4\ See Securities Exchange Act Release No. 80777 (May 25, 2017)
(SR-NYSEArca-2017-30) (order approving proposed rule change to amend
Commentary .01 and Commentary.02 to NYSE Arca Equities Rule
5.2(j)(3) to provide for the inclusion of cash in an index
underlying a series of Investment Company Units).
\5\ See Securities Exchange Act Release No. 81442 (August 18,
2017), 82 FR 40178 (August 24, 2017) (SR-NYSEArca-2017-54) (order
approving a proposed rule change to amend the generic listing
criteria applicable to Equity Index-Linked Securities).
\6\ See Securities Exchange Act Release Nos. 80254 (March 15,
2017), 82 FR 14548 (March 21, 2017) (SR-NYSEArca-2016-96) (order
approving proposed rule change to amend NYSE Arca Equities Rule
8.700 and to list and trade shares of the Managed Emerging Markets
Trust under NYSE Arca Equities Rule 8.700); 82066 (November 13,
2017), 82 FR 54434 (November 17, 2017) (SR-NYSEArca-2017-85) (order
approving proposed rule change to amend NYSE Arca Rule 8.700-E and
to list and trade shares of the ProShares European Volatility
Futures ETF).
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Amendments to NYSE Rule 5.2(j)(3)
NYSE Rule 5.2(j)(3) permits the trading, whether by listing or
pursuant to unlisted trading privileges (``UTP'') of Units. The
Exchange proposes to amend Supplementary Material .01 and .02 to NYSE
Rule 5.2(j)(3) to permit trading of Units based on an index or
portfolio that includes cash as a component. While Units, like mutual
funds, will generally hold an amount of cash, Rule 5.2(j)(3) currently
provides that components of an index or portfolio underlying a series
of Units consist of securities--namely, US Component Stocks, Non-US
Component Stocks, Fixed Income Securities or a combination thereof. As
described below, the proposed amendments to Supplementary Material .01
and .02 to Rule 5.2(j)(3) would permit inclusion of cash as an index or
portfolio component.
Currently, Supplementary Material .01(a)(A) provides that an
underlying index or portfolio of US Component Stocks \7\ must meet
specified criteria. The Exchange proposes to amend Supplementary
Material .01(a)(A) to provide that the components of an index or
portfolio underlying a series of Units may also include cash. In
addition, the percentage weighting criteria in Supplementary Material
.01(a)(A)(1) through (4) each would be amended to make clear that such
criteria would be applied only to the US Component Stocks portion of an
index or portfolio. For example, in applying the criteria in proposed
Supplementary Material .01(a)(A)(1),\8\ if 85% of the weight of an
index consists of US Component Stocks and 15% of the index weight is
cash, the requirement that component stocks (excluding Exchange Traded
Products) that in the aggregate account for at least 90% of the weight
of the US Component Stocks portion of the index or portfolio (excluding
such Exchange Traded Products) each will have a minimum market value of
$75 million minimum would be applied only to the 85% portion consisting
of US Component Stocks.
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\7\ Rule 5.2(j)(3) defines ``US Component Stock'' as an equity
security that is registered under Sections 12(b) or 12(g) of the Act
or an American Depositary Receipt, the underlying equity security of
which is registered under Sections 12(b) or 12(g) of the Act.
\8\ Supplementary Material .01(a)(A)(1) provides that component
stocks (excluding Units and Exchange Traded Products) that in the
aggregate account for at least 90% of the weight of the US Component
Stocks portion of the index or portfolio (excluding Units and
securities defined in Section 2 of Rule 8P, collectively ``Exchange
Traded Products'') each will have a minimum market value of at least
$75 million.
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Supplementary Material .01 (a)(B), which relates to international
or global indexes or portfolios, would be amended to provide that
components of an index or portfolio underlying a series of Units may
consist of (a) only Non-US Component Stocks, (b) Non-US Component
Stocks and cash, (c) both US Component Stocks and Non-US Component
Stocks, or (d) US Component Stocks, Non-US Component Stocks and cash.
In addition, the percentage weighting criteria in Supplementary
Material .01(a)(B)(1) through (4) each would be amended to make clear
that such criteria would be applied only to the combined US and Non-US
Component Stocks portions of an index or portfolio.
Supplementary Material .02 to NYSE Rule 5.2(j)(3) provides generic
criteria applicable to trading of Units whose underlying index or
portfolio includes Fixed Income Securities.\9\ Currently, Supplementary
Material .02(a)(1) provides that an underlying index or portfolio must
consist of Fixed Income Securities. The Exchange proposes to amend
Supplementary Material .02(a)(1) to provide that the index or portfolio
may also include cash. In addition, the percentage weighting criteria
in Supplementary Material .02(a)(2), (a)(4) and (a)(6) each would be
amended to make clear that such criteria would be applied only to the
Fixed Income Securities portion of an index or portfolio. For example,
in applying the criteria in the proposed amendments to Supplementary
Material .01(a)(2),\10\ if 90% of the weight of an index or portfolio
consists of Fixed Income Securities and 10% of the index weight is
cash, the requirement that Fixed Income Security components accounting
for at least 75% of the Fixed Income Securities portion of the weight
of the index or portfolio each will have a minimum original principal
amount outstanding of $100 million would be applied only to the 90%
portion consisting of Fixed Income Securities.
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\9\ As defined in Supplementary Material .02 to NYSE Rule
5.2(j)(3), Fixed Income Securities are debt securities that are
notes, bonds, debentures or evidence of indebtedness that include,
but are not limited to, U.S. Department of Treasury securities
(``Treasury Securities''), government-sponsored entity securities
(``GSE Securities''), municipal securities, trust preferred
securities, supranational debt and debt of a foreign country or a
subdivision thereof.
\10\ Supplementary Material .01(a)(2) provides that Fixed Income
Security components that in aggregate account for at least 75% of
the Fixed Income Securities portion of the weight of the index or
portfolio each will have a minimum original principal amount
outstanding of $100 million or more.
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The Exchange notes that the Commission has previously approved
Exchange rules allowing portfolios held by issues of Managed Fund
Shares (actively-managed exchange-traded funds) to include cash.\11\
Like the provision in Supplementary Material .01(c) to Rule 8.600,
which states that there is no limit to cash holdings by an issue of
Managed Fund Shares traded under Supplementary Material .01 to Rule
8.600, there is no proposed limit to the weighting of cash in an index
underlying a series of Units. The Exchange believes this is appropriate
in that cash does not, in itself, impose investment or market risk.
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\11\ See Supplementary Material .01(c) to NYSE Rule 8.600,
approved in Securities Exchange Act Release No. 80214 (March 10,
2017), 82 FR 14050 (March 16, 2017) (SR-NYSE-2016-44) (order
approving proposed rule change to allow the Exchange to trade
pursuant to UTP any NMS Stock listed on another national securities
exchange; establishing listing and trading requirements for Exchange
Traded Products; and adopting new equity trading rules relating to
trading halts of securities traded pursuant to UTP on the Pillar
platform).
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[[Page 61643]]
The Exchange believes the proposed amendments, by permitting
inclusion of cash as a component of indexes underlying series of Units,
would provide issuers of Units with additional choice in indexes
permitted to underlie Units that are permitted to trade on the
Exchange, which would enhance competition among market participants, to
the benefit of investors and the marketplace. In addition, the proposed
amendments would provide investors with greater ability to hold Units
based on underlying indexes that may accord more closely with an
investor's assessment of market risk, in that some investors may view
cash as a desirable component of an underlying index under certain
market conditions.
Amendments to NYSE Rule 5.2 (j)(6)
The Exchange proposes to amend NYSE Rule 5.2 (j)(6) to exclude
Investment Company Units (``Units'') and securities defined in Section
2 of NYSE Rule 8P (collectively, together with Units, ``Derivative
Securities Products''),\12\ as well as Index-Linked Securities,\13\
when applying the quantitative generic listing criteria applicable to
Equity Index-Linked Securities.\14\
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\12\ Units are securities that represent an interest in a
registered investment company that could be organized as a unit
investment trust, an open-end management investment company, or a
similar entity, that holds securities comprising, or otherwise based
on or representing an interest in, an index or portfolio of
securities or securities in another registered investment company
that holds such securities. See NYSE Rule 5.2 (j)(3). The following
securities currently are included in Section 2 of NYSE Rule 8P:
Portfolio Depositary Receipts (Rule 8.100); Trust Issued Receipts
(Rule 8.200); Commodity-Based Trust Shares (Rule 8.201); Currency
Trust Shares (Rule 8.202); Commodity Index Trust Shares (Rule
8.203); Commodity Futures Trust Shares (Rule 8.204); Partnership
Units (Rule 8.300); Paired Trust Shares (Rule 8.400);Trust Units
(Rule 8.500); Managed Fund Shares (Rule 8.600); and Managed Trust
Securities (Rule 8.700).
\13\ Index-Linked Securities are securities that qualify for
Exchange listing and trading under NYSE Rule 5.2(j)(6). The
securities described in Rule 5.2(j)(3), Rule 5.2(j)(6) and Section 2
of Rule 8P, as referenced above, would include securities listed on
another national securities exchange pursuant to substantially
equivalent listing rules.
\14\ The Commission has approved amendments to NYSE Arca Rule
5.2-E(j)(6) that are substantially identical to those proposed
herein. See Securities Exchange Act Release No. 81442 (August 18,
2017), 82 FR 40178 (August 24, 2017) (SR-NYSEArca-2017-54) (order
approving a proposed rule change to amend the generic listing
criteria applicable to Equity Index-Linked Securities).
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Equity Index-Linked Securities are securities that provide for the
payment at maturity (or earlier redemption) based on the performance of
an underlying index or indexes of equity securities, securities of
closed end management investment companies registered under the
Investment Company Act of 1940 (``1940 Act'') \15\ and/or Units.\16\ In
addition to certain other generic listing criteria, Equity Index-Linked
Securities must satisfy the generic quantitative initial and continued
listing criteria under NYSE Rule 5.2 (j)(6)(B)(I) in order to become,
and continue to be, listed and traded on the Exchange. Certain of the
applicable quantitative criteria specify minimum or maximum thresholds
that must be satisfied with respect to, for example, market value,
trading volume, and dollar weight of the index represented by a single
component or groups of components.
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\15\ 15 U.S.C. 80-1.
\16\ See Rule 5.2(j)(6)(B)(I)(1).
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The applicable initial quantitative listing criteria include (i)
that each underlying index is required to have at least ten component
securities; \17\ (ii) that each component security has a minimum market
value of at least $75 million, except that for each of the lowest
dollar weighted component securities in the index that in the aggregate
account for no more than 10% of the dollar weight of the index, the
market value can be at least $50 million; (iii) that component stocks
that in the aggregate account for at least 90% of the weight of the
index each have a minimum global monthly trading volume of 1,000,000
shares, or minimum global notional volume traded per month of
$25,000,000, averaged over the last six months; (iv) that no underlying
component security represents more than 25% of the dollar weight of the
index, and the five highest dollar weighted component securities in the
index do not in the aggregate account for more than 50% of the dollar
weight of the index (60% for an index consisting of fewer than 25
component securities); and (v) that 90% of the index's numerical value
and at least 80% of the total number of component securities meet the
then current criteria for standardized option trading set forth in NYSE
Arca Rule 5.3-O; except that an index will not be subject to this last
requirement if (a) no underlying component security represents more
than 10% of the dollar weight of the index and (b) the index has a
minimum of 20 components.\18\ The applicable continued quantitative
listing criteria require that (1) no single component represent more
than 25% of the dollar weight of the index and the five highest dollar
weighted components in the index cannot represent more than 50% (or 60%
for indexes with less than 25 components) of the dollar weight of the
index, need only be satisfied at the time the index is rebalanced; \19\
and (2) component stocks that in the aggregate account for at least 90%
of the weight of the index each have a minimum global monthly trading
volume of 500,000 shares, or minimum global notional volume traded per
month of $12,500,000, averaged over the last six months.\20\
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\17\ See Rule 5.2 (j)(6)(B)(I)(1)(a).
\18\ See Rule 5.2 (j)(6)(B)(I)(1)(b)(i)-(iv).
\19\ See Rule 5.2 (j)(6)(B)(I)(2)(a)(i).
\20\ See Rule 5.2 (j)(6)(B)(I)(2)(a)(ii).
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The Exchange proposes to amend NYSE Rule 5.2 (j)(6)(B)(I)(1)(a),
which provides that each underlying index is required to have at least
ten component securities, to provide that there will be no minimum
number of component securities if one or more issues of Derivative
Securities Products or Index-Linked Securities constitute, at least in
part, component securities underlying an issue of Equity Index-Linked
Securities. The proposed amendment to NYSE Rule 5.2 (j)(6)(B)(I)(1)(a)
also would provide that the securities described in Rule 5.2 (j)(3))
and Section 2 of Rule 8P (that is, Derivative Securities Products), and
Rule 5.2 (j)(6) (that is, Index-Linked Securities), as referenced in
proposed amended Rule 5.2 (j)(6)(B)(I)(1)(b)(2) and Rule 5.2
(j)(6)(B)(I)(2)(a) would include securities listed on another national
securities exchange pursuant to substantially equivalent listing rules.
The Exchange also proposes to exclude Derivative Securities
Products and Index-Linked Securities from consideration when
determining whether the applicable quantitative generic thresholds have
been satisfied under the initial listing standards specified in NYSE
Rule 5.2 (j)(6)(B)(I)(1)(b)(i)-(iv) and the continued listing standards
specified in NYSE Rules 5.2 (j)(6)(B)(I)(2)(a)(i) and (ii).\21\ Thus,
for example, when
[[Page 61644]]
determining compliance with NYSE Rule 5.2 (j)(6)(B)(I)(1)(b)(ii),
component stocks, excluding Derivative Securities Products or Index-
Linked Securities, that in the aggregate account for at least 90% of
the remaining index weight would be required to have a minimum global
monthly trading volume of 1 million shares, or minimum global notional
volume traded per month of 25 million, averaged over the last six
months.
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\21\ NYSE Rules 5.2 (j)(6)(B)(I)(2)(a)(i) and (ii) provide that
the Exchange will maintain surveillance procedures for securities
listed under Rule 5.2 (j)(6) and may halt trading in such securities
and will initiate delisting proceedings pursuant to Rule 5.5(m)
(unless the Commission has approved the continued trading of the
subject Index-Linked Security), if any of the standards set forth in
Rules 5.2 (j)(6)(B)(I)(1)(a) and 5.2 (j)(6)(B)(I)(1)(b)(2) are not
continuously maintained, except that: (i) The criteria that no
single component represent more than 25% of the dollar weight of the
index and the five highest dollar weighted components in the index
cannot represent more than 50% (or 60% for indexes with less than 25
components) of the dollar weight of the index, need only be
satisfied at the time the index is rebalanced (Rule 5.2
(j)(6)(B)(I)(2)(a)(i)), and (ii) component stocks that in the
aggregate account for at least 90% of the weight of the index each
will have a minimum global monthly trading volume of 500,000 shares,
or minimum global notional volume traded per month of $12,500,000,
averaged over the last six months (Rule 5.2 (j)(6)(B)(I)(2)(a)(ii)).
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The Exchange proposes further to provide that the weighting
limitation for the five highest weighted component securities in an
index in NYSE Rules 5.2 (j)(6)(B)(I)(1)(b)(iii) and 5.2
(j)(6)(B)(I)(2)(a)(i) would apply ``to the extent applicable.'' \22\
When considered in conjunction with the proposed amendment to NYSE Rule
5.2 (j)(6)(B)(I)(1)(a) referenced above, this language would make clear
that an index that includes Derivative Securities Products or Index-
Linked Securities may include fewer than five component securities.
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\22\ The phrase ``to the extent applicable'' also is included in
Supplementary Material .01(a)(A)(3) to NYSE Rule 5.2 (j)(3) for
Investment Company Units and Supplementary Material .01(a)(1)(C) to
NYSE Rule 8.600 for Managed Fund Shares.
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The Exchange believes that it is appropriate to exclude Derivative
Securities Products and Index-Linked Securities from the generic
listing and continued listing criteria specified above for Equity
Index-Linked Securities because Derivative Securities Products and
Index-Linked Securities that may be included in an index or portfolio
underlying a series of Equity Index-Linked Securities are themselves
subject to specific initial and continued listing requirements of the
exchange on which they are listed. Also, Derivative Securities Products
and Index-Linked Securities would have been listed and traded on an
exchange pursuant to a filing submitted under Sections 19(b)(2) or
19(b)(3)(A) of the Act,\23\ or would have been listed by an exchange
pursuant to the requirements of Rule 19b-4(e) under the Act.\24\
Derivative Securities Products and Index-Linked Securities are
derivatively priced, and, therefore, the Exchange does not believe that
it is necessary to apply the generic quantitative criteria (e.g.,
market capitalization, trading volume, or component weighting)
applicable to securities that are not Derivative Securities Products or
Index-Linked Securities (e.g., common stocks) to such products.
Finally, by way of comparison, Derivative Securities Products are
excluded from consideration when determining whether the components of
Units satisfy the applicable listing criteria in Rule 5.2 (j)(3),\25\
and both Derivative Securities Products and Index-Linked Securities are
excluded from the applicable listing criteria for Managed Fund Shares
holding equity securities in Supplementary Material .01 to Rule
8.600.\26\
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\23\ 15 U.S.C. 78s(b)(2); 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(e).
\25\ See Supplementary Material .01 to NYSE Rule 5.2 (j)(3). See
also, Securities Exchange Act Release No. 57751 (May 1, 2008), 73 FR
25818 (May 7, 2008) (SR-NYSEArca-2008-29) (order approving
amendments to the eligibility criteria for components of an index
underlying Investment Company Units).
\26\ See Supplementary Material .01 to NYSE Rule 8.600. See
also, Securities Exchange Act Release No. 78397 (July 22, 2016), 81
FR 49320 (July 27, 2016) (SR-NYSEArca-2015-110) (order approving
amendments to NYSE Arca Equities Rule 8.600 to adopt generic listing
standards for Managed Fund Shares).
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The Exchange also proposes (1) to replace ``investment company
units'' with ``Investment Company Units'' in two places in NYSE Rule
5.2 (j)(6)(B)(I)(1) in order to conform to other usages of this term in
Exchange rules; and (2) to replace the word ``Index'' with ``index'' in
two places in Rule 5.2 (j)(6)(B)(I)(2)(a)(i) to conform to other usages
of this word in Rule 5.2 (j)(6)(B)(I)(2).
Amendments to NYSE Rule 8.700
NYSE Rule 8.700 permits the trading, whether by listing or pursuant
to UTP, of Managed Trust Securities pursuant to UTP. The Exchange
proposes to amend NYSE Rule 8.700 to permit the use of swaps on stock
indices, fixed income indices, commodity indices, commodities,
currencies, currency indices, or interest rates, and to add VSTOXX
futures and swaps on VSTOXX to the financial instruments that an issue
of Managed Trust Securities may hold. The proposed amendments are
substantially identical to amendments to NYSE Arca Rule 8.700-E
approved by the Commission for issues of Managed Trust Securities
listed and traded on NYSE Arca, Inc.\27\
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\27\ See note 6, supra.
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The Exchange proposes to amend NYSE Rule 8.700(c)(1) to specify
that the trust issuing a series of Managed Trust Securities, or any
series of such trust, is not registered or required to be registered as
an investment company. This change makes clear that issuers of Managed
Trust Securities are not investment companies under the 1940 Act, and,
therefore, distinguishes issuances of Managed Trust Securities from,
for example, Managed Fund Shares traded pursuant to NYSE Rule 8.600 or
Investment Company Units traded pursuant to NYSE Rule 5.2(j)(3).
Permitting the use of swaps as referenced above would provide
additional flexibility to an issuer of Managed Trust Securities seeking
to achieve its investment objective. For example, because the markets
for certain futures contracts may be unavailable or cost prohibitive as
compared to other derivative instruments, swaps may be an efficient
alternative for an issuer of Managed Trust Securities to obtain the
desired asset exposure. Additionally, swaps would allow parties to
replicate desired returns. As such, the increased flexibility afforded
by the ability of an issuer of Managed Trust Securities to use swaps
may enhance investor returns by facilitating the ability to more
economically seek its investment objective, thereby reducing the costs
incurred by such issuer. Permitting the use of such futures would
provide additional flexibility to an issuer of Managed Trust Securities
seeking to achieve its investment objective by allowing such issuer to
gain additional asset exposure to currencies and commodities. The
Exchange also proposes to amend NYSE Rule 8.700(c)(1) to specify cash
and cash equivalents as permitted trust holdings. Such instruments
would be held, as needed, to secure a trust's trading obligations with
respect to its positions in other financial instruments.
With respect to adding futures or swaps on VSTOXX to the financial
instruments in which an issue of Managed Trust Securities may hold, the
Exchange believes that the proposed amendment to will provide investors
with the ability to better diversify and hedge their portfolios using
an exchange traded security without having to trade directly in
underlying futures contracts, and will facilitate the listing and
trading on the Exchange of additional Managed Trust Securities that
will enhance competition among market participants, to the benefit of
investors and the marketplace.\28\
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\28\ The VSTOXX is based on EURO STOXX 50 Index (``Index'')
real-time option prices that are listed on the Eurex Exchange and
are designed to reflect the market expectations of near-term up to
long-term volatility by measuring the square root of the implied
variances across all options of a given time to expiration. The
Index includes 50 stocks that are among the largest free-float
market capitalization stocks from 11 Eurozone countries. For
additional information regarding VSTOXX, see Securities Exchange Act
Release No. 82066 (November 13, 2017), 82 FR 54434 (November 17,
2017) (SR-NYSEArca-2017-85) (order approving proposed rule change to
amend NYSE Arca Rule 8.700-E and to list and trade shares of the
ProShares European Volatility Futures ETF).
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2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement
[[Page 61645]]
under Section 6(b)(5) \29\ that an exchange have rules that are
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to, and perfect the mechanism of a free and open market and, in
general, to protect investors and the public interest.
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\29\ 15 U.S.C. 78f(b)(5).
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The proposed rule changes are designed to perfect the mechanism of
a free and open market and, in general, to protect investors and the
public interest. The basis under the Exchange Act for this proposed
rule change is the requirement under Section 6(b)(5) that an exchange
have rules that are designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to, and perfect the mechanism of a free and open
market and, in general, to protect investors and the public interest.
With respect to the proposed amendments to NYSE Rule 5.2(j)(3), the
Exchange notes that, as described above, the percentage weighting
criteria in Supplementary Material .01(a)(B)(1) through (4) to Rule
5.2(j)(3) each would be amended to make clear that such criteria would
be applied only to the combined US and Non-US Component Stocks portions
of an index or portfolio. The percentage weighting criteria in
Supplementary Material .02(a)(2), (a)(4) and (a)(6) to NYSE Rule
5.2(j)(3) each would be amended to make clear that such criteria would
be applied only to the Fixed Income Securities portion of an index or
portfolio. Such applications of the proposed amendments would assure
that the weighting requirements in Supplementary Material .01 and .02
would continue to be applied only to securities in an index or
portfolio, and would not be diluted as a result of inclusion of a cash
component. In addition, the addition of cash as a permitted component
of indexes underlying Units traded on the Exchange pursuant to Rule
19b-4(e) does not raise regulatory issues because cash does not, in
itself, impose investment or market risk and is not susceptible to
manipulation.
The Exchange believes these proposed amendments to NYSE Rule
5.2(j)(3), by permitting inclusion of cash as a component of indexes
underlying series of Units, would provide issuers of Units with
additional choice in indexes permitted to underlie Units that are
permitted to trade on the Exchange pursuant to UTP, which would enhance
competition among market participants, to the benefit of investors and
the marketplace. In addition, the proposed amendments would provide
investors with greater ability to hold Units based on underlying
indexes that may accord more closely with an investor's assessment of
market risk.
With respect to the proposed amendments to NYSE Rule 5.2(j)(6), the
Exchange believes that the proposed change would facilitate the listing
and trading of additional types of Equity Index-Linked Securities,
which would enhance competition among market participants, to the
benefit of investors and the marketplace. The proposed change would
also result in greater efficiencies in the listing process with respect
to Equity Index-Linked Securities by eliminating an unnecessary
consideration regarding underlying components, which would therefore
remove impediments to, and perfect the mechanism of, a free and open
market. In addition, the proposed amendment to the Equity Index-Linked
Securities listing criteria is intended to protect investors and the
public interest in that it is consistent with the manner in which
Derivative Securities Products are also excluded from consideration
when determining whether the components of an index or portfolio
underlying an issue of Units satisfy the applicable listing
criteria,\30\ and both Derivative Securities Products and Index-Linked
Securities are excluded from the applicable listing criteria for
Managed Fund Shares holding equity securities in Supplementary Material
.01 to Rule 8.600.\31\ Additionally, Equity Index-Linked Securities
would remain subject to all existing listing standards, thereby
maintaining existing levels of investor protection. The Exchange
believes that the proposed rule change is designed to prevent
fraudulent and manipulative acts and practices because the Equity
Index-Linked Securities would continue to be listed and traded on the
Exchange pursuant to the initial and continued listing criteria in Rule
5.2 (j)(6). Further, the proposed change would not impact the existing
listing process for Derivative Securities Products and Index-Linked
Securities, whereby the exchanges on which such securities are listed
must, for example, submit proposed rule changes with the Commission
prior to listing and trading.
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\30\ See supra, note 18.
\31\ See supra, note 19.
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The Exchange believes that it is appropriate to exclude Derivative
Securities Products and Index-Linked Securities from the generic
criteria specified above for Equity Index-Linked Securities because
Derivative Securities Products and Index-Linked Securities that may be
included in an index or portfolio underlying a series of Equity Index-
Linked Securities are themselves subject to specific initial and
continued listing requirements of the exchange on which they are
listed. For example, Units listed and traded on the Exchange are
subject to the listing standards specified under NYSE Rule 5.2 (j)(3).
Also, such Derivative Securities Products and Index-Linked Securities
would have been listed and traded on an exchange pursuant to a filing
submitted under Sections 19(b)(2) or 19(b)(3)(A) of the Act,\32\ or
would have been listed by an exchange pursuant to the requirements of
Rule 19b-4(e) under the Act.\33\ The Exchange believes that
quantitative factors--such as market value, global monthly trading
volume, or weighting--when applied to index components (such as common
stocks) underlying a series of Equity Index-Linked Securities, are
relevant criteria in establishing that such series is sufficiently
broad-based to minimize potential manipulation.\34\ Derivative
Securities Products and Index-Linked Securities, however, are
derivatively priced, and, therefore, the Exchange does not believe that
it is necessary to apply the generic quantitative criteria applicable
to securities that are not Derivative Securities Products and Index-
Linked Securities (e.g., common stocks) to such products. Derivative
Securities Products are excluded from consideration on NYSE when
determining whether the components of Units satisfy the applicable
listing criteria,\35\ and both Derivative Securities
[[Page 61646]]
Products and Index-Linked Securities are excluded from the applicable
listing criteria for Managed Fund Shares holding equity securities in
Supplementary Material .01 to Rule 8.600. Moreover, for shares of
Derivative Securities Products that are not listed on an exchange
pursuant to an exchange's generic listing rules, the Commission must
first approve an exchange's proposed rule change under Section 19(b) of
the Act regarding a particular Derivative Securities Product or Index-
Linked Securities, which is subject to the representations and
restrictions included in such proposed rule change.
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\32\ 15 U.S.C. 78s(b)(2); 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(e).
\34\ See, e.g., Securities Exchange Act Release No. 54739
(November 9, 2006), 71 FR 66693 (SR-Amex-2006-78) (order approving
generic listing standards for Portfolio Depositary Receipts and
Index Fund Shares based on international or global indexes), in
which the Commission stated that ``these standards are reasonably
designed to ensure that stocks with substantial market
capitalization and trading volume account for a substantial portion
of any underlying index or portfolio, and that when applied in
conjunction with the other applicable listing requirements, will
permit the listing only of ETFs that are sufficiently broad-based in
scope to minimize potential manipulation.''
\35\ See Supplementary Material .01 to NYSE Rule 5.2 (j)(3). See
also Securities Exchange Act Release No. 57751 (May 1, 2008), 73 FR
25818 (May 7, 2008) (SR-NYSEArca-2008-29) (order approving
amendments to eligibility criteria for components of an index
underlying Investment Company Units), in which the Commission noted
that ``based on the trading characteristics of Derivative Securities
Products, it may be difficult for component Derivative Securities
Products to satisfy certain quantitative index criteria, such as the
minimum market value and trading volume limitations. However,
because Derivative Securities Products are themselves subject to
specific initial and continued listing requirements, the Commission
believes that it would be reasonable to exclude Derivative
Securities Products, as components, from certain index component
eligibility criteria for [Investment Company] Units.''
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The Exchange also believes it is appropriate to exclude Derivative
Securities Products and Index-Linked Securities from the requirement
under NYSE Rule 5.2 (j)(6)(B)(I)(1)(b)(iv) that 90% of the applicable
index's numerical value and at least 80% of the total number of
component securities will meet the criteria for standardized option
trading set forth in NYSE Arca Rule 5.3-O. NYSE Arca Rule 5.3-O
includes criteria for securities underlying option contracts approved
for listing and trading on NYSE Arca. The Exchange does not believe
that criteria in NYSE Arca Rule 5.3-O should be applied to Derivative
Securities Products and Index-Linked Securities because such securities
are subject to separate numerical and other criteria included in the
applicable exchange listing rules, including both generic listing rules
permitting listing pursuant to Rule 19b-4(e) and non-generic listing
rules. Derivative Securities Products and Index-Linked Securities that
are the subject of a Commission approval order under Section 19(b) of
the Act also are subject to specific representations made in the
applicable Rule 19b-4 filing. These include representations regarding
the existence of comprehensive surveillance agreements between the
applicable exchange and the principal markets for certain financial
instruments underlying Derivative Securities Products, or percentage
limitations on assets (e.g., non-U.S. stocks, futures and options)
whose principal market is not a member of the Intermarket Surveillance
Group (``ISG'').\36\
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\36\ See, e.g., Securities Exchange Act Release No. 76719
(December 21, 2015), 80 FR 80859 (December 28, 2015) (order
approving Exchange listing and trading of shares of the Guggenheim
Total Return Bond ETF (``Fund'') under NYSE Arca Equities Rule
8.600), which filing stated: ``Not more than 10% of the net assets
of the Fund in the aggregate invested in equity securities (other
than non-exchange-traded investment company securities) will consist
of equity securities whose principal market is not a member of the
ISG or is a market with which the Exchange does not have a
comprehensive surveillance sharing agreement. In addition, not more
than 10% of the net assets of the Fund in the aggregate invested in
futures contracts or exchange-traded options contracts will consist
of futures contracts or exchange-traded options contracts whose
principal market is not a member of ISG or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement.''
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The Exchange believes it is appropriate to provide that the
weighting limitation for the five highest weighted component securities
in an index in NYSE Rules 5.2 (j)(6)(B)(I)(1)(b)(iii) and 5.2
(j)(6)(B)(I)(2)(a)(i) would apply ``to the extent applicable.'' When
considered in conjunction with the proposed amendment to NYSE Rule 5.2
(j)(6)(B)(I)(1)(a) referenced above, this language would make clear
that an index that includes Derivative Securities Products or Index-
Linked Securities may include fewer than five component securities. In
addition, the phrase ``to the extent applicable'' is included in
Supplementary Material .01(a)(A)(3) to NYSE Rule 5.2 (j)(3) for
Investment Company Units and Supplementary Material .01(a)(1)(C) to
NYSE Rule 8.600 for Managed Fund Shares.
The proposed replacement of ``investment company units'' with
``Investment Company Units'' in two places in NYSE Rule 5.2
(j)(6)(B)(I)(1) is appropriate as such changes conform to other usages
of this term in Exchange rules. The proposed replacement of the word
``Index'' with ``index'' in two places in Rule 5.2
(j)(6)(B)(I)(2)(a)(i) is appropriate as such changes would conform to
other usages of this word in Rule 5.2 (j)(6)(B)(I)(2).
The proposed amendment to NYSE Rule 8.700(c)(1) to specify that the
trust issuing a series of Managed Trust Securities is not an investment
company or similar entity makes clear that issuers of Managed Trust
Securities are not investment companies under the 1940 Act, and,
therefore, distinguishes issuances of Managed Trust Securities from,
for example, Managed Fund Shares traded under NYSE Rule 8.600 or
Investment Company Units traded under NYSE Rule 5.2(j)(3). In
permitting the use of specified swaps, the proposed amendment to NYSE
Rule 8.700 would provide additional flexibility to an issuer of Managed
Trust Securities seeking to achieve its investment objective.
Additionally, swaps would allow parties to replicate desired returns.
As such, the increased flexibility afforded by the ability of an issuer
of Managed Trust Securities to use swaps may enhance investor returns
by facilitating the ability to more economically seek its investment
objective, thereby reducing the costs incurred by such issuer. The
Exchange's proposal to amend NYSE Rule 8.700(c)(1) to specify cash and
cash equivalents as permitted trust holdings is appropriate in that
such holdings would be held, as needed, to secure its trading
obligations with respect to its positions in other financial
instruments, and, therefore, may assist a trust in fulfilling its
investment objective. Permitting the use of futures on currency indices
and commodity indices would provide additional flexibility to an issuer
of Managed Trust Securities seeking to achieve its investment objective
by allowing such issuer to gain additional asset exposure to currencies
and commodities. With respect to adding futures or swaps on VSTOXX to
the financial instruments in which an issue of Managed Trust Securities
may hold, the Exchange believes that the proposed amendment to will
provide investors with the ability to better diversify and hedge their
portfolios using an exchange traded security without having to trade
directly in underlying futures contracts.
The Exchange has in place surveillance procedures that are adequate
to properly monitor trading in Investment Company Units, Index-Linked
Securities and Managed Trust Securities in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws. Such procedures will continue to be adequate to
properly monitor trading in Investment Company Units, Index-Linked
Securities and Managed Trust Securities in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws following implementation of the rule changes proposed
in this filing. Investment Company Units, Index-Linked Securities and
Managed Trust Securities listed and traded pursuant to NYSE Rules
5.2(j)(3), 5.2 (j)(6) and 8.700, respectively, are included within the
definition of ``security'' or ``securities'' as such terms are used in
the Exchange rules and, as such, are subject to Exchange rules and
procedures that currently govern the trading of securities on the
Exchange. Trading in the securities will be halted under the conditions
specified in NYSE Rules 5.5(g)(2)(b), 5.2 (j)(6)(E) and 8.700(e)(2)(D),
respectively.
For these reasons, the Exchange believes that the proposal is
consistent with the Act.
[[Page 61647]]
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 believes the
proposed rule change will enhance competition by permitting Exchange
trading of additional types of Units, Index-Linked Securities and
Managed Trust Securities, which would 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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \37\ and Rule 19b-4(f)(6) thereunder.\38\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\39\
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\37\ 15 U.S.C. 78s(b)(3)(A)(iii).
\38\ 17 CFR 240.19b-4(f)(6).
\39\ 17 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.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \40\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\40\ 15 U.S.C. 78s(b)(2)(B).
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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 [email protected]. Please include
File Number SR-NYSE-2017-69 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-NYSE-2017-69. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2017-69 and should be submitted on
or before January 18, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-28000 Filed 12-27-17; 8:45 am]
BILLING CODE 8011-01-P
