Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To List and Trade Shares of the Hartford Schroders Tax-Aware Bond ETF Under NYSE Arca Rule 8.600-E, 14698-14703 [2018-06914]
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14698
Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices
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equitable to only exclude a day from its
calculations for members that would
otherwise have a lower ADV or
percentage of industry volume. Without
these changes, members that route away
in accordance with the Exchange’s
instructions, or that step up and trade
significant volume on excluded trading
days, may be negatively impacted,
resulting in an effective cost increase for
those members. In addition, the
Exchange believes that it is reasonable
and equitable to apply the proposed
language only to ADV based volume
calculations and calculation based on a
percentage of industry volume as
removing the day for straight volume
accumulations would never be
beneficial for the member as it would
reduce the volume counted for the
member for the month. Furthermore, the
proposed language about removing the
day from both the numerator and
denominator of a calculation based on a
percentage of industry volume is
reasonable and equitable and this
treatment ensures that the member
actually benefits from having the day
removed. Finally, the Exchange further
believes that the proposed rule change
is not unfairly discriminatory because it
applies equally to all members. While
the Exchange currently has rules in
place for removing a day from its
pricing, the Exchange believes that the
proposed changes will benefit all
members by providing broader authority
to remove a day similar to that available
on its affiliates, and ensuring that days
are removed only in situations where
the member benefits.
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 not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
standardize the Exchange’s practice for
removing days from its ADV
calculations with its affiliated options
exchanges, with one exception that
accounts for fees based on a percentage
of industry volume. The Exchange
believes that the proposed modifications
to its ADV calculations are procompetitive and will result in lower
total costs to end users, a positive
outcome of competitive markets. The
Exchange operates in a highly
competitive market in which market
participants can readily direct their
order flow to competing venues. In such
an environment, the Exchange must
continually review, and consider
adjusting, its fees and rebates to remain
competitive with other exchanges. For
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the reasons described above, the
Exchange believes that the proposed fee
changes reflect this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.8
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2018–27 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–Phlx–2018–27. 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–Phlx–2018–27 and should
be submitted onor before April 26, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2018–06911 Filed 4–4–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82973; File No. SR–
NYSEArca–2017–99]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 3 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 3, To List and Trade
Shares of the Hartford Schroders TaxAware Bond ETF Under NYSE Arca
Rule 8.600–E
March 30, 2018.
I. Introduction
On October 11, 2017, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the Hartford Schroders
Tax-Aware Bond ETF (‘‘Fund’’) under
NYSE Arca Rule 8.600–E. The proposed
9 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
8 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
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Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices
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rule change was published for comment
in the Federal Register on October 31,
2017.3 On November 21, 2017, the
Exchange filed Amendment No. 1 to the
proposed rule change, which replaced
and superseded the proposed rule
change as originally filed. On December
14, 2017, pursuant to Section 19(b)(2) of
the Act,4 the Commission designated a
longer period within which to approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
On January 18, 2018, the Exchange filed
Amendment No. 2 to the proposed rule
change, which replaced and superseded
the proposed rule change as modified by
Amendment No. 1.6 On January 26,
2018, the Commission published notice
of Amendment No. 2 and instituted
proceedings under Section 19(b)(2)(B) of
3 See Securities Exchange Act Release No. 81944
(October 25, 2017), 82 FR 50461.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 82323,
82 FR 60455 (December 20, 2017). The Commission
designated January 29, 2018 as the date by which
the Commission shall either approve or disapprove,
or institute proceedings to determine whether to
disapprove, the proposed rule change.
6 In Amendment No. 2, the Exchange: (1) Stated
that State Street Bank and Trust Company will
serve as transfer agent and custodian for the Fund;
(2) removed certain conditions on the definition of
the ‘‘fire wall’’ between the Sub-Adviser and its
broker-dealer subsidiary; (3) represented that
personnel who make decisions on the Fund’s
portfolio composition must be subject to procedures
designed to prevent the use and dissemination of
material, non-public information regarding the
Fund’s portfolio; (4) clarified that cash and cash
equivalents are included in the Fund’s principal
investments and specified that for purposes of this
filing, cash equivalents are the short-term
instruments enumerated in Commentary .01(c) to
NYSE Arca Rule 8.600–E; (5) provided additional
information regarding the Fund’s non-principal
investments; (6) specified that restricted securities
are included in the Fund’s non-principal
investments; (7) added an explanation regarding the
Manager’s belief that the creation and redemption
cutoff time (1:00 p.m. Eastern Time) will not have
a material impact on an authorized participant’s
arbitrage opportunities with respect to the Fund; (8)
added a statement that the Manager represents that,
to the extent the Trust effects the creation or
redemption of Shares wholly or partially in cash,
such transactions will be effected in the same
manner for all authorized participants; (9) specified
additional quantitative information relating to the
Shares that will be included on the Fund’s website;
(10) supplemented the description of the
availability of information for the Fund’s
investments; (11) defined the term ‘‘periods of high
cash inflows or outflows’’ as used in this filing; (12)
added a statement that the Manager represents that
the fixed income weight of the Fund’s portfolio,
other than holdings in Municipal Securities, will
meet the generic listing requirements of
Commentary .01(b) to NYSE Arca Rule 8.600–E;
(13) stated that the Manager will be the ‘‘Reporting
Authority’’ for purposes of NYSE Arca Rule 8.600–
E(d)(2)(B)(ii); and (14) made other clarifications,
corrections, and technical changes. Amendment No.
2 is available at https://www.sec.gov/comments/srnysearca-2017-99/nysearca201799-2935844161848.pdf.
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the Act 7 to determine whether to
approve or disapprove the proposed
rule change, as modified by Amendment
No. 2.8 Thereafter, on January 26, 2018,
the Exchange filed Amendment No. 3 to
the proposed rule change, which
replaced and superseded the proposed
rule change as modified by Amendment
Nos. 1 and 2.9 The Commission has
received no comments on the proposed
rule change. The Commission is
publishing this notice to solicit
comments on Amendment No. 3 from
interested persons, and is approving the
proposed rule change, as modified by
Amendment No. 3, on an accelerated
basis.
II. Description of the Proposal, as
Modified by Amendment No. 3 10
The Exchange proposes to list and
trade Shares of the Fund under NYSE
Arca Rule 8.600–E, which governs the
listing and trading of Managed Fund
Shares. The Fund is a series of the
Hartford Funds Exchange-Traded Trust
(‘‘Trust’’), which is registered with the
Commission as an open-end
management investment company.11
Hartford Funds Management
Company, LLC (‘‘Manager’’) will be the
investment manager to the Fund, and
Schroder Investment Management North
America Inc. (‘‘Sub-Adviser’’) will be
the sub-adviser to the Fund and perform
the daily investment of the assets for the
Fund.12 ALPS Distributors, Inc. will be
7 15
U.S.C. 78s(b)(2)(B).
Securities Exchange Act Release No. 82592,
83 FR 4704 (February 1, 2018).
9 Amendment No. 3 includes the changes made
by Amendment No. 2. In addition, in Amendment
No. 3, the Exchange: (1) Removed as permitted
investments of the Fund non-exchange-traded
securities of other registered investment companies
(i.e., mutual funds), as well as convertible and nonconvertible preferred stocks traded over-the-counter
(‘‘OTC’’) or on U.S. and non-U.S. exchanges; (2)
clarified that the Fund may hold fixed income
restricted securities as part of its non-principal
investments; (3) supplemented the description of
the surveillance relating to the Shares; and (4) made
other clarifications, corrections, and technical
changes. Amendment No. 3 is available at https://
www.sec.gov/comments/sr-nysearca-2017-99/
nysearca201799-2965793-161858.pdf.
10 For more information regarding the Fund and
the Shares, see Amendment No. 3, supra note 9.
11 The Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). The Exchange
states that on June 26, 2017, the Trust filed with the
Commission its registration statement on Form
N–1A under the Securities Act of 1933 and under
the 1940 Act relating to the Fund (File Nos. 333–
215165 and 811–23222). In addition, the Exchange
states that the Commission has issued an order
granting certain exemptive relief to the Trust under
the 1940 Act. See Investment Company Act Release
No. 32454 (January 27, 2017) (File No. 812–13828–
01).
12 According to the Exchange, neither the
Manager nor the Sub-Adviser is registered as a
broker-dealer, but each is affiliated with a brokerdealer. The Exchange states that the Manager and
Sub-Adviser each has implemented and will
8 See
PO 00000
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14699
the principal underwriter to the Fund.
State Street Bank and Trust Company
will serve as transfer agent and
custodian for the Fund.
According to the Exchange, the Fund
will seek total return on an after-tax
basis and will seek to achieve its
investment objective by investing in a
diversified portfolio of fixed income
debt instruments of varying
maturities.13
A. Principal Investments
Under normal market conditions,14
the Fund will invest principally (that is,
more than 50% of its assets) in the U.S.
dollar-denominated fixed income debt
instruments described below, and in
cash and cash equivalents.15
The fixed income debt instruments in
which the Fund may invest as part of its
principal investment strategy are
securities issued or guaranteed by the
U.S. government and its agencies,
government-sponsored enterprise
securities, corporate bonds, agency
mortgage-backed securities (including
‘‘to be announced’’ or ‘‘TBA’’
transactions), agency asset-backed
securities (‘‘ABS’’), ‘‘Municipal
Securities’’ (as described below),
sovereign debt, and debt securities
issued by supranational organizations.
They may pay fixed, variable, or floating
interest rates.
The Fund may invest in the following
Municipal Securities: General obligation
bonds, revenue (or limited obligation)
bonds, private activity (or industrial
development) bonds, bonds that are
collateralized with agency and/or
maintain a ‘‘fire wall’’ with respect to such brokerdealer affiliate regarding access to information
concerning the composition of and/or changes to
the Fund’s portfolio. In addition, personnel who
make decisions on the Fund’s portfolio composition
must be subject to procedures designed to prevent
the use and dissemination of material, non-public
information regarding the Fund’s portfolio. In the
event (a) the Manager or Sub-Adviser becomes
registered as a broker-dealer or newly affiliated with
a broker-dealer, or (b) any new adviser or subadviser to the Fund is a registered broker-dealer or
becomes affiliated with a broker-dealer, the
applicable adviser or sub-adviser will implement
and maintain a fire wall with respect to its relevant
personnel or broker-dealer affiliate regarding access
to information concerning the composition of and/
or changes to the Fund’s portfolio, and will be
subject to procedures designed to prevent the use
and dissemination of material, non-public
information regarding such portfolio.
13 In seeking to achieve the Fund’s investment
objective, the Sub-Adviser will employ a tax-aware
investing strategy that attempts to realize total
return for shareholders, primarily in the form of
current income and price appreciation, by
balancing investment considerations and tax
considerations.
14 The term ‘‘normal market conditions’’ is
defined in NYSE Arca Rule 8.600–E(c)(5).
15 For purposes of the filing, cash equivalents are
the short-term instruments enumerated in
Commentary .01(c) to NYSE Arca Rule 8.600–E.
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Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices
treasury securities, municipal notes,
municipal lease obligations, and
municipal inverse floaters.
B. Other Investments
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While the Fund, under normal market
conditions, will invest principally in the
securities and financial instruments
described above, the Fund may invest
its remaining assets in the securities and
financial instruments described below.
The Fund may invest in U.S. and
foreign non-agency ABS, which are
securities backed by a pool of some
underlying asset, including but not
limited to home equity loans,
installment sale contracts, credit card
receivables, or other assets.
The Fund may invest in U.S. and
foreign non-agency mortgage-related
securities. Mortgage-related securities
may be composed of one or more classes
and may be structured either as passthrough securities or collateralized debt
obligations (which include
collateralized bond obligations and
collateralized loan obligations).
The Fund may invest in U.S.
exchange-traded closed-end funds and
exchange-traded funds (‘‘ETFs’’).16
The Fund may engage actively in
transactions in derivatives (futures,
options, swaps, and forward rate
agreements) as described below. The
Fund will normally use derivatives to
supplement the effective management of
its duration profile, to gain exposure to
particular securities or markets, in
connection with hedging transactions,
or for purposes of efficient portfolio
management, including managing cash
flows or as part of the Fund’s risk
management process.
The Fund may invest in U.S. and
foreign exchange-traded and OTC put
and call options. The Fund may engage
in options transactions on any security,
index, or instrument in which it may
invest.
The Fund may invest in U.S. and
foreign exchange-traded and OTC
currency options.
The Fund may invest in U.S. and
foreign exchange-traded futures
contracts and options on futures
contracts with respect to equity and
debt securities, foreign currencies,
aggregates of equity and debt securities
(aggregates are composites of equity or
debt securities that are not tied to a
16 For purposes of the filing, ETFs include
Investment Company Units (as described in NYSE
Arca Rule 5.2–E(j)(3)); Portfolio Depositary Receipts
(as described in NYSE Arca Rule 8.100–E); and
Managed Fund Shares (as described in NYSE Arca
Rule 8.600–E). The ETFs all will be listed and
traded in the U.S. on registered exchanges. The
Fund will not invest in inverse or leveraged (e.g.,
+2x, ¥2x) index ETFs.
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commonly known index), interest rates,
indices, commodities, and other
financial instruments.
The Fund may enter into the
following U.S. exchange-traded, foreign
exchange-traded, and OTC swaps:
Commodity swaps; total return swaps;
currency swaps; credit default swaps
(‘‘CDS’’); CDS index swaps (‘‘CDX’’);
asset swaps; inflation swaps; eventlinked swaps; interest rate swaps; swaps
on specific securities or indices; and
swaps on rates (such as mortgage
prepayment rates). The Fund may invest
in U.S. exchange-traded and OTC
municipal derivatives (i.e., municipal
credit default swaps, municipal market
data derivatives, rate locks, caps,
collars, and floors). The Fund may also
enter into options on swap agreements
(‘‘swaptions’’).17
The Fund may enter into forward rate
agreements.
The Fund may invest in inflationprotected debt securities.
The Fund may hold fixed income
restricted securities, which are
securities that cannot be offered for
public resale unless registered under the
applicable securities laws or that have a
contractual restriction that prohibits or
limits their resale.18
With respect to any of the Fund’s
investments, the Fund may invest in
when-issued and delayed delivery
securities and forward commitments.
C. Investment Restrictions
The Exchange represents that the
Fund’s investments will be consistent
with its investment goal and will not be
used to provide multiple returns of a
benchmark or to produce leveraged
returns.
With respect to the Fund’s
investments in Municipal Securities,
under normal market conditions, except
for periods of high cash inflows or
outflows,19 the Fund will satisfy the
following criteria:
1. The Fund will have a minimum of
20 non-affiliated issuers;
17 Options on swaps are traded OTC. In the event
that there are exchange-traded options on swaps,
the Fund may invest in these instruments.
18 Restricted securities include private placement
securities that have not been registered under the
applicable securities laws, such as Rule 144A
securities, and securities of U.S. and non-U.S.
issuers that are issued pursuant to Regulation S.
19 ‘‘Periods of high cash inflows or outflows’’ as
used in the filing means rolling periods of seven
calendar days during which inflows or outflows of
cash, in the aggregate, exceed 10% of the Fund’s net
assets as of the opening of business on the first day
of such periods. During such periods, the Fund may
depart from its principal investment strategies; for
example, it may hold a higher than normal
proportion of its assets in cash.
PO 00000
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Fmt 4703
Sfmt 4703
2. No single Municipal Securities
issuer will account for more than 10%
of the weight of the Fund’s portfolio;
3. No individual bond will account
for more than 5% of the weight of the
Fund’s portfolio;
4. The Fund will limit its investments
in Municipal Securities of any one state
or U.S. territory to 25% of the Fund’s
total assets, except that up to and
including 40% of the Fund’s total assets
may be invested in Municipal Securities
of issuers in each of California, New
York, and Texas;
5. The Fund’s investments in
Municipal Securities will be diversified
among issuers in at least 10 states and
U.S. territories; and
6. The Fund will be diversified among
a minimum of five different sectors of
the Municipal Securities market.20
The Exchange states that pre-refunded
bonds will be excluded from the above
limits given that they have a high level
of credit quality and liquidity.21
D. Application of Generic Listing
Requirements
The Exchange proposes to list and
trade the Shares under NYSE Arca Rule
8.600–E, which includes generic listing
requirements for Managed Fund Shares.
According to the Exchange, the Fund’s
portfolio will not meet all of the generic
listing requirements of Commentary .01
to NYSE Arca Rule 8.600–E.
Specifically, the Exchange states that
the Fund’s portfolio will meet all such
requirements except for those set forth
in Commentary .01(b)(1) with respect to
Municipal Securities.
Commentary .01(b)(1) to NYSE Arca
Rule 8.600–E requires that, on both an
initial and continuing basis,
components that in the aggregate
account for at least 75% of the fixed
income weight of the portfolio each
have a minimum original principal
amount outstanding of $100 million or
more. The Exchange states that the Fund
would not meet this requirement, as a
20 The Fund’s investments in Municipal
Securities will include investments in state and
local (e.g., county, city, town) Municipal Securities
relating to such sectors as the following: Airports,
bridges and highways, hospitals, housing, jails,
mass transportation, nursing homes, parks, public
buildings, recreational facilities, school facilities,
streets, and water and sewer works.
21 The Exchange states that pre-refunded bonds
(also known as refunded or escrow-secured bonds)
have a high level of credit quality and liquidity
because the issuer ‘‘pre-refunds’’ the bond by
setting aside in advance all or a portion of the
amount to be paid to the bondholders when the
bond is called. Generally, an issuer uses the
proceeds from a new bond issue to buy high grade,
interest bearing debt securities, including direct
obligations of the U.S. government, which are then
deposited in an irrevocable escrow account held by
a trustee bank to secure all future payments of
principal and interest on the pre-refunded bonds.
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result principally of the Fund’s
investments in Municipal Securities.
The Exchange represents that the Fund’s
investments in Municipal Securities
would be subject to the requirements
described in Section II.C. above.
The Exchange represents that, other
than Commentary .01(b)(1) with respect
to Municipal Securities, the Fund’s
portfolio will meet all other
requirements of NYSE Arca Rule 8.600–
E.
III. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 3, is
consistent with the Act and the rules
and regulations thereunder applicable to
a national securities exchange.22 In
particular, the Commission finds that
the proposed rule change, as modified
by Amendment No. 3, is consistent with
Section 6(b)(5) of the Act,23 which
requires, among other things, that the
Exchange’s rules be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
As noted above, the Fund’s
investments in Municipal Securities
would not comply with Commentary
.01(b)(1) to NYSE Arca Rule 8.600–E.
The Exchange represents that the Fund
would invest in various types of fixed
income debt instruments, including
Municipal Securities. According to the
Exchange, permitting the Shares to be
listed and traded on the Exchange,
notwithstanding that, as a result
principally of the Fund’s investments in
Municipal Securities, the Fund would
not comply with Commentary .01(b)(1),
would provide the Fund with greater
ability to select from a broad range of
fixed income securities that would
support the Fund’s investment goal.
The Commission notes that, as
proposed, under normal market
conditions, except for periods of high
cash inflows or outflows, the Fund will
satisfy the following criteria with
respect to Municipal Securities: (1) The
Fund will have a minimum of 20 nonaffiliated issuers; (2) no single
Municipal Securities issuer will account
for more than 10% of the weight of the
Fund’s portfolio; (3) no individual bond
22 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
23 15 U.S.C. 78f(b)(5).
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Jkt 244001
will account for more than 5% of the
weight of the Fund’s portfolio; (4) the
Fund will limit its investments in
Municipal Securities of any one state or
U.S. territory to 25% of the Fund’s total
assets, except that up to and including
40% of the Fund’s total assets may be
invested in Municipal Securities of
issuers in each of California, New York,
and Texas; (5) the Fund’s investments in
Municipal Securities will be diversified
among issuers in at least 10 states and
U.S. territories; and (6) the Fund will be
diversified among a minimum of five
different sectors of the Municipal
Securities market.24 The Commission
also notes that, other than Commentary
.01(b)(1) with respect to Municipal
Securities, the Fund will meet all the
requirements of NYSE Arca Rule 8.600–
E. The Commission believes that these
proposed initial and continued listing
requirements, including the
requirements with respect to Municipal
Securities, are designed to mitigate the
potential for manipulation of the Shares.
The Commission also finds that the
proposal is consistent with Section
11A(a)(1)(C)(iii) of the Act,25 which sets
forth Congress’s finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. Quotation
and last-sale information for the Shares
will be available via the Consolidated
Tape Association (‘‘CTA’’) high-speed
line. The iNAV (which is the Portfolio
Indicative Value, as defined in NYSE
Arca Rule 8.600–E(c)(3)), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Exchange’s Core
Trading Session.26 Information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services.
Information regarding the previous
day’s closing price and trading volume
information for the Shares will be
publicly available and will be published
daily in the financial section of
newspapers.
Quotation and last sale information
for ETFs will be available via the CTA
24 The Exchange states that pre-refunded bonds
will be excluded from the above limits given that
they have a high level of credit quality and
liquidity.
25 15 U.S.C. 78k–1(a)(1)(C)(iii).
26 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Portfolio Indicative
Values taken from the CTA or other data feeds.
PO 00000
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Sfmt 4703
14701
high-speed line, and from the national
securities exchanges on which they are
listed. U.S. exchange-traded options
quotation and last sale information is
available via the Options Price
Reporting Authority. Foreign exchangetraded options, U.S. and foreign
exchange-traded futures contracts and
options on futures contracts, U.S. and
foreign exchange-traded swaps (if
applicable), and exchange-traded
municipal derivatives price information
is available from the applicable U.S. or
foreign exchange and major market data
vendors. Quotation information from
brokers and dealers or pricing services
will be available for Municipal
Securities. Price information for money
market funds and other investment
company securities (other than ETFs)
will be available from the applicable
investment company’s website and from
market data vendors. Pricing
information regarding fixed income debt
instruments, cash equivalents, OTC
options, OTC swaps, swaptions,
restricted securities, non-agency ABS,
non-agency mortgage-related securities,
forward rate agreements, OTC
municipal derivatives, CDX, and
inflation-protected debt securities will
generally be available through
nationally recognized data service
providers through subscription
agreements. One source of price
information for municipal securities is
the Electronic Municipal Market Access,
which is administered by the Municipal
Securities Rulemaking Board.
In addition, the Fund’s website will
include the Fund’s prospectus and
additional data relating to net asset
value (‘‘NAV’’) and other applicable
quantitative information.
The Commission also believes that the
proposal is reasonably designed to
promote fair disclosure of information
that may be necessary to price the
Shares appropriately and to prevent
trading when a reasonable degree of
transparency cannot be assured. The
Exchange will obtain a representation
from the issuer of the Shares that the
NAV per Share will be calculated daily
and that the NAV and the Disclosed
Portfolio (as defined in NYSE Arca Rule
8.600–E(c)(2)) will be made available to
all market participants at the same time.
Trading in the Shares will be halted if
the circuit-breaker parameters in NYSE
Arca Rule 7.12–E have been reached.
Trading also may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. Moreover,
trading in the Shares will be subject to
NYSE Arca Rule 8.600–E(d)(2)(D),
which sets forth circumstances under
which the Shares may be halted.
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The Exchange states that it has a
general policy prohibiting the
distribution of material, non-public
information by its employees. The
Exchange states that neither the
Manager nor the Sub-Adviser is
registered as a broker-dealer, but each is
affiliated with a broker-dealer. The
Exchange states that the Manager and
Sub-Adviser each has implemented and
will maintain a fire wall with respect to
such broker-dealer affiliate regarding
access to information concerning the
composition of and/or changes to the
Fund’s portfolio.27 Further, the
Exchange states that, consistent with
NYSE Arca Rule 8.600–E(d)(2)(B)(ii), the
Manager will implement and maintain,
or be subject to, procedures designed to
prevent the use and dissemination of
material, non-public information
regarding the actual components of the
Fund’s portfolio.28
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange represents that:
(1) Other than Commentary .01(b)(1)
with respect to Municipal Securities,
the Fund will meet all the requirements
of NYSE Arca Rule 8.600–E. The Fund’s
investments in Municipal Securities
will be subject to the requirements
described in Section II.C. above.
(2) A minimum of 100,000 Shares will
be outstanding at the commencement of
trading on the Exchange.
(3) Trading in the Shares will be
subject to the existing trading
surveillances, administered by the
Financial Industry Regulatory Authority
(‘‘FINRA’’) on behalf of the Exchange, or
by regulatory staff of the Exchange, and
these procedures are adequate to
properly monitor Exchange trading of
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and federal securities laws
applicable to trading on the Exchange.29
(4) The Exchange or FINRA, on behalf
of the Exchange, or both, will
communicate as needed regarding
trading in the Shares, ETFs, exchangetraded closed-end funds, exchangetraded municipal derivatives, certain
27 The Exchange also represents that an
investment adviser to an open-end fund is required
to be registered under the Investment Advisers Act
of 1940.
28 The Exchange states that the Manager will be
the Reporting Authority for purposes of NYSE Arca
Rule 8.600–E(d)(2)(B)(ii).
29 The Exchange states that FINRA conducts
cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services
agreement, and that the Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
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18:33 Apr 04, 2018
Jkt 244001
exchange-traded options, and certain
exchange-traded futures with other
markets and other entities that are
members of the Intermarket
Surveillance Group, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading in the Shares, ETFs,
exchange-traded closed-end funds,
exchange-traded municipal derivatives,
certain exchange-traded options, and
certain exchange-traded futures from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, ETFs, exchange-traded closedend funds, exchange-traded municipal
derivatives, certain exchange-traded
options, and certain exchange-traded
futures from markets and other entities
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s Trade Reporting
and Compliance Engine. FINRA also can
access data obtained from the Municipal
Securities Rulemaking Board relating to
municipal bond trading activity for
surveillance purposes in connection
with trading in the Shares.
(5) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Information Bulletin will discuss: (a)
The procedures for purchases and
redemptions of Shares in creation unit
aggregations (and that Shares are not
individually redeemable); (b) NYSE
Arca Rule 9.2–E(a), which imposes a
duty of due diligence on its Equity
Trading Permit Holders to learn the
essential facts relating to every customer
prior to trading the Shares; (c) the risks
involved in trading the Shares during
the Early and Late Trading Sessions
when an updated iNAV will not be
calculated or publicly disseminated; (d)
how information regarding the iNAV
and the Disclosed Portfolio is
disseminated; (e) the requirement that
Equity Trading Permit Holders deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (f) trading information.
(6) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(7) For initial and continued listing,
the Fund will be in compliance with
Rule 10A–3 under the Act.30
30 See
PO 00000
17 CFR 240.10A–3.
Frm 00081
Fmt 4703
Sfmt 4703
(8) The Fund’s investments will be
consistent with its investment goal and
will not be used to provide multiple
returns of a benchmark or to produce
leveraged returns.
The Exchange represents that all
statements and representations made in
the filing regarding: (1) The description
of the portfolio or reference asset; (2)
limitations on portfolio holdings or
reference assets; or (3) the applicability
of Exchange listing rules specified in the
rule filing constitute continued listing
requirements for listing the Shares on
the Exchange. In addition, the issuer
must notify the Exchange of any failure
by the Fund to comply with the
continued listing requirements and,
pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange
will monitor 31 for compliance with the
continued listing requirements. If the
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under NYSE Arca Rule 5.5–
E(m).
This approval order is based on all of
the Exchange’s statements and
representations, including those set
forth above and in Amendment No. 3.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 3, is consistent with Section 6(b)(5)
of the Act 32 and Section
11A(a)(1)(C)(iii) of the Act 33 and the
rules and regulations thereunder
applicable to a national securities
exchange.
IV. Solicitation of Comments on
Amendment No. 3 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning whether
Amendment No. 3 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
31 The Commission notes that certain proposals
for the listing and trading of exchange-traded
products include a representation that the exchange
will ‘‘surveil’’ for compliance with the continued
listing requirements. See, e.g., Securities Exchange
Act Release No. 77499 (April 1, 2016), 81 FR 20428,
20432 (April 7, 2016) (SR–BATS–2016–04). In the
context of this representation, it is the
Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of compliance with
the continued listing requirements. Therefore, the
Commission does not view ‘‘monitor’’ as a more or
less stringent obligation than ‘‘surveil’’ with respect
to the continued listing requirements.
32 15 U.S.C. 78f(b)(5).
33 15 U.S.C. 78k–1(a)(1)(C)(iii).
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Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2017–99 on the subject line.
amozie on DSK30RV082PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2017–99. 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–NYSEArca–2017–99, and
should be submitted on or before April
26, 2018.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 3
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 3, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 3 in the Federal
Register. The Commission notes that
Amendment No. 3 clarified the
application of NYSE Arca Rule 8.600–E
to the Fund’s investments. Amendment
No. 3 also provided other clarifications
and additional information to the
proposed rule change. The changes and
additional information in Amendment
No. 3 assisted the Commission in
VerDate Sep<11>2014
18:33 Apr 04, 2018
Jkt 244001
finding that the proposal is consistent
with the Act. Accordingly, the
Commission finds good cause, pursuant
to Section 19(b)(2) of the Act,34 to
approve the proposed rule change, as
modified by Amendment No. 3, on an
accelerated basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,35 that the
proposed rule change (SR–NYSEArca–
2017–99), as modified by Amendment
No. 3 be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2018–06914 Filed 4–4–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82969; File No. SR–
NASDAQ–2018–024]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Clarify the
Requirements for Delivery of a
Contrary Exercise Advice
March 30, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 20,
2018, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
rules of the Nasdaq Options Market LLC
(‘‘NOM’’), at Chapter VIII, Exercises and
Deliveries.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
34 15
U.S.C. 78s(b)(2).
35 Id.
36 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
14703
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to correct
Chapter VIII, Exercises and Deliveries,
Section 1, Exercise of Options Contracts,
to clarify the requirements for delivery
of a Contrary Exercise Advice. Section
1(b) currently provides that option
holders desiring to exercise or not
exercise expiring options must either (i)
take no action and allow exercise
determinations to be made in
accordance with the Options Clearing
Corporation’s Ex-by-Ex procedure where
applicable, or (ii) submit a ‘‘Contrary
Exercise Advice’’ to the Options
Clearing Corporation through the
participant’s clearing firm. In actual
practice, however, an option holder
delivers a Contrary Exchange Advice to
the Exchange, not to the Options
Clearing Corporation. The Exchange
therefore proposes to replace the words
‘‘Options Clearing Corporation through
the participants clearing firm’’ in
Section 1(b)(ii) with a reference to the
Exchange and make similar, conforming
changes to Section 1(e)(i). As amended,
Section 1(b) would be consistent with
Nasdaq ISE Rule 1100(b) which directs
option holders to submit Contrary
Exercise Advices to the Exchange (not to
the Options Clearing Corporation).
The Exchange proposes to further
replace the words ‘‘by the deadline
specified in paragraph (d) below’’ with
the words ‘‘as specified in paragraph (d)
below’’ given that paragraph (d)
contains a number of requirements
associated with submission of Contrary
Exercise Advices in addition to the
deadline. As revised, Section (b)(ii)
tracks the language of ISE Rule
1100(b)(ii) which permits an options
holder desiring to exercise or not
E:\FR\FM\05APN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 66 (Thursday, April 5, 2018)]
[Notices]
[Pages 14698-14703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06914]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82973; File No. SR-NYSEArca-2017-99]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 3, To List and Trade
Shares of the Hartford Schroders Tax-Aware Bond ETF Under NYSE Arca
Rule 8.600-E
March 30, 2018.
I. Introduction
On October 11, 2017, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
Hartford Schroders Tax-Aware Bond ETF (``Fund'') under NYSE Arca Rule
8.600-E. The proposed
[[Page 14699]]
rule change was published for comment in the Federal Register on
October 31, 2017.\3\ On November 21, 2017, the Exchange filed Amendment
No. 1 to the proposed rule change, which replaced and superseded the
proposed rule change as originally filed. On December 14, 2017,
pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a
longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\5\ On January
18, 2018, the Exchange filed Amendment No. 2 to the proposed rule
change, which replaced and superseded the proposed rule change as
modified by Amendment No. 1.\6\ On January 26, 2018, the Commission
published notice of Amendment No. 2 and instituted proceedings under
Section 19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 2.\8\
Thereafter, on January 26, 2018, the Exchange filed Amendment No. 3 to
the proposed rule change, which replaced and superseded the proposed
rule change as modified by Amendment Nos. 1 and 2.\9\ The Commission
has received no comments on the proposed rule change. The Commission is
publishing this notice to solicit comments on Amendment No. 3 from
interested persons, and is approving the proposed rule change, as
modified by Amendment No. 3, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 81944 (October 25,
2017), 82 FR 50461.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 82323, 82 FR 60455
(December 20, 2017). The Commission designated January 29, 2018 as
the date by which the Commission shall either approve or disapprove,
or institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ In Amendment No. 2, the Exchange: (1) Stated that State
Street Bank and Trust Company will serve as transfer agent and
custodian for the Fund; (2) removed certain conditions on the
definition of the ``fire wall'' between the Sub-Adviser and its
broker-dealer subsidiary; (3) represented that personnel who make
decisions on the Fund's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of
material, non-public information regarding the Fund's portfolio; (4)
clarified that cash and cash equivalents are included in the Fund's
principal investments and specified that for purposes of this
filing, cash equivalents are the short-term instruments enumerated
in Commentary .01(c) to NYSE Arca Rule 8.600-E; (5) provided
additional information regarding the Fund's non-principal
investments; (6) specified that restricted securities are included
in the Fund's non-principal investments; (7) added an explanation
regarding the Manager's belief that the creation and redemption
cutoff time (1:00 p.m. Eastern Time) will not have a material impact
on an authorized participant's arbitrage opportunities with respect
to the Fund; (8) added a statement that the Manager represents that,
to the extent the Trust effects the creation or redemption of Shares
wholly or partially in cash, such transactions will be effected in
the same manner for all authorized participants; (9) specified
additional quantitative information relating to the Shares that will
be included on the Fund's website; (10) supplemented the description
of the availability of information for the Fund's investments; (11)
defined the term ``periods of high cash inflows or outflows'' as
used in this filing; (12) added a statement that the Manager
represents that the fixed income weight of the Fund's portfolio,
other than holdings in Municipal Securities, will meet the generic
listing requirements of Commentary .01(b) to NYSE Arca Rule 8.600-E;
(13) stated that the Manager will be the ``Reporting Authority'' for
purposes of NYSE Arca Rule 8.600-E(d)(2)(B)(ii); and (14) made other
clarifications, corrections, and technical changes. Amendment No. 2
is available at https://www.sec.gov/comments/sr-nysearca-2017-99/nysearca201799-2935844-161848.pdf.
\7\ 15 U.S.C. 78s(b)(2)(B).
\8\ See Securities Exchange Act Release No. 82592, 83 FR 4704
(February 1, 2018).
\9\ Amendment No. 3 includes the changes made by Amendment No.
2. In addition, in Amendment No. 3, the Exchange: (1) Removed as
permitted investments of the Fund non-exchange-traded securities of
other registered investment companies (i.e., mutual funds), as well
as convertible and non-convertible preferred stocks traded over-the-
counter (``OTC'') or on U.S. and non-U.S. exchanges; (2) clarified
that the Fund may hold fixed income restricted securities as part of
its non-principal investments; (3) supplemented the description of
the surveillance relating to the Shares; and (4) made other
clarifications, corrections, and technical changes. Amendment No. 3
is available at https://www.sec.gov/comments/sr-nysearca-2017-99/nysearca201799-2965793-161858.pdf.
---------------------------------------------------------------------------
II. Description of the Proposal, as Modified by Amendment No. 3 \10\
---------------------------------------------------------------------------
\10\ For more information regarding the Fund and the Shares, see
Amendment No. 3, supra note 9.
---------------------------------------------------------------------------
The Exchange proposes to list and trade Shares of the Fund under
NYSE Arca Rule 8.600-E, which governs the listing and trading of
Managed Fund Shares. The Fund is a series of the Hartford Funds
Exchange-Traded Trust (``Trust''), which is registered with the
Commission as an open-end management investment company.\11\
---------------------------------------------------------------------------
\11\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). The Exchange states that on June 26, 2017, the
Trust filed with the Commission its registration statement on Form
N-1A under the Securities Act of 1933 and under the 1940 Act
relating to the Fund (File Nos. 333-215165 and 811-23222). In
addition, the Exchange states that the Commission has issued an
order granting certain exemptive relief to the Trust under the 1940
Act. See Investment Company Act Release No. 32454 (January 27, 2017)
(File No. 812-13828-01).
---------------------------------------------------------------------------
Hartford Funds Management Company, LLC (``Manager'') will be the
investment manager to the Fund, and Schroder Investment Management
North America Inc. (``Sub-Adviser'') will be the sub-adviser to the
Fund and perform the daily investment of the assets for the Fund.\12\
ALPS Distributors, Inc. will be the principal underwriter to the Fund.
State Street Bank and Trust Company will serve as transfer agent and
custodian for the Fund.
---------------------------------------------------------------------------
\12\ According to the Exchange, neither the Manager nor the Sub-
Adviser is registered as a broker-dealer, but each is affiliated
with a broker-dealer. The Exchange states that the Manager and Sub-
Adviser each has implemented and will maintain a ``fire wall'' with
respect to such broker-dealer affiliate regarding access to
information concerning the composition of and/or changes to the
Fund's portfolio. In addition, personnel who make decisions on the
Fund's portfolio composition must be subject to procedures designed
to prevent the use and dissemination of material, non-public
information regarding the Fund's portfolio. In the event (a) the
Manager or Sub-Adviser becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, or (b) any new adviser or
sub-adviser to the Fund is a registered broker-dealer or becomes
affiliated with a broker-dealer, the applicable adviser or sub-
adviser will implement and maintain a fire wall with respect to its
relevant personnel or broker-dealer affiliate regarding access to
information concerning the composition of and/or changes to the
Fund's portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material, non-public
information regarding such portfolio.
---------------------------------------------------------------------------
According to the Exchange, the Fund will seek total return on an
after-tax basis and will seek to achieve its investment objective by
investing in a diversified portfolio of fixed income debt instruments
of varying maturities.\13\
---------------------------------------------------------------------------
\13\ In seeking to achieve the Fund's investment objective, the
Sub-Adviser will employ a tax-aware investing strategy that attempts
to realize total return for shareholders, primarily in the form of
current income and price appreciation, by balancing investment
considerations and tax considerations.
---------------------------------------------------------------------------
A. Principal Investments
Under normal market conditions,\14\ the Fund will invest
principally (that is, more than 50% of its assets) in the U.S. dollar-
denominated fixed income debt instruments described below, and in cash
and cash equivalents.\15\
---------------------------------------------------------------------------
\14\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5).
\15\ For purposes of the filing, cash equivalents are the short-
term instruments enumerated in Commentary .01(c) to NYSE Arca Rule
8.600-E.
---------------------------------------------------------------------------
The fixed income debt instruments in which the Fund may invest as
part of its principal investment strategy are securities issued or
guaranteed by the U.S. government and its agencies, government-
sponsored enterprise securities, corporate bonds, agency mortgage-
backed securities (including ``to be announced'' or ``TBA''
transactions), agency asset-backed securities (``ABS''), ``Municipal
Securities'' (as described below), sovereign debt, and debt securities
issued by supranational organizations. They may pay fixed, variable, or
floating interest rates.
The Fund may invest in the following Municipal Securities: General
obligation bonds, revenue (or limited obligation) bonds, private
activity (or industrial development) bonds, bonds that are
collateralized with agency and/or
[[Page 14700]]
treasury securities, municipal notes, municipal lease obligations, and
municipal inverse floaters.
B. Other Investments
While the Fund, under normal market conditions, will invest
principally in the securities and financial instruments described
above, the Fund may invest its remaining assets in the securities and
financial instruments described below.
The Fund may invest in U.S. and foreign non-agency ABS, which are
securities backed by a pool of some underlying asset, including but not
limited to home equity loans, installment sale contracts, credit card
receivables, or other assets.
The Fund may invest in U.S. and foreign non-agency mortgage-related
securities. Mortgage-related securities may be composed of one or more
classes and may be structured either as pass-through securities or
collateralized debt obligations (which include collateralized bond
obligations and collateralized loan obligations).
The Fund may invest in U.S. exchange-traded closed-end funds and
exchange-traded funds (``ETFs'').\16\
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\16\ For purposes of the filing, ETFs include Investment Company
Units (as described in NYSE Arca Rule 5.2-E(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca Rule 8.100-E); and
Managed Fund Shares (as described in NYSE Arca Rule 8.600-E). The
ETFs all will be listed and traded in the U.S. on registered
exchanges. The Fund will not invest in inverse or leveraged (e.g.,
+2x, -2x) index ETFs.
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The Fund may engage actively in transactions in derivatives
(futures, options, swaps, and forward rate agreements) as described
below. The Fund will normally use derivatives to supplement the
effective management of its duration profile, to gain exposure to
particular securities or markets, in connection with hedging
transactions, or for purposes of efficient portfolio management,
including managing cash flows or as part of the Fund's risk management
process.
The Fund may invest in U.S. and foreign exchange-traded and OTC put
and call options. The Fund may engage in options transactions on any
security, index, or instrument in which it may invest.
The Fund may invest in U.S. and foreign exchange-traded and OTC
currency options.
The Fund may invest in U.S. and foreign exchange-traded futures
contracts and options on futures contracts with respect to equity and
debt securities, foreign currencies, aggregates of equity and debt
securities (aggregates are composites of equity or debt securities that
are not tied to a commonly known index), interest rates, indices,
commodities, and other financial instruments.
The Fund may enter into the following U.S. exchange-traded, foreign
exchange-traded, and OTC swaps: Commodity swaps; total return swaps;
currency swaps; credit default swaps (``CDS''); CDS index swaps
(``CDX''); asset swaps; inflation swaps; event-linked swaps; interest
rate swaps; swaps on specific securities or indices; and swaps on rates
(such as mortgage prepayment rates). The Fund may invest in U.S.
exchange-traded and OTC municipal derivatives (i.e., municipal credit
default swaps, municipal market data derivatives, rate locks, caps,
collars, and floors). The Fund may also enter into options on swap
agreements (``swaptions'').\17\
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\17\ Options on swaps are traded OTC. In the event that there
are exchange-traded options on swaps, the Fund may invest in these
instruments.
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The Fund may enter into forward rate agreements.
The Fund may invest in inflation-protected debt securities.
The Fund may hold fixed income restricted securities, which are
securities that cannot be offered for public resale unless registered
under the applicable securities laws or that have a contractual
restriction that prohibits or limits their resale.\18\
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\18\ Restricted securities include private placement securities
that have not been registered under the applicable securities laws,
such as Rule 144A securities, and securities of U.S. and non-U.S.
issuers that are issued pursuant to Regulation S.
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With respect to any of the Fund's investments, the Fund may invest
in when-issued and delayed delivery securities and forward commitments.
C. Investment Restrictions
The Exchange represents that the Fund's investments will be
consistent with its investment goal and will not be used to provide
multiple returns of a benchmark or to produce leveraged returns.
With respect to the Fund's investments in Municipal Securities,
under normal market conditions, except for periods of high cash inflows
or outflows,\19\ the Fund will satisfy the following criteria:
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\19\ ``Periods of high cash inflows or outflows'' as used in the
filing means rolling periods of seven calendar days during which
inflows or outflows of cash, in the aggregate, exceed 10% of the
Fund's net assets as of the opening of business on the first day of
such periods. During such periods, the Fund may depart from its
principal investment strategies; for example, it may hold a higher
than normal proportion of its assets in cash.
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1. The Fund will have a minimum of 20 non-affiliated issuers;
2. No single Municipal Securities issuer will account for more than
10% of the weight of the Fund's portfolio;
3. No individual bond will account for more than 5% of the weight
of the Fund's portfolio;
4. The Fund will limit its investments in Municipal Securities of
any one state or U.S. territory to 25% of the Fund's total assets,
except that up to and including 40% of the Fund's total assets may be
invested in Municipal Securities of issuers in each of California, New
York, and Texas;
5. The Fund's investments in Municipal Securities will be
diversified among issuers in at least 10 states and U.S. territories;
and
6. The Fund will be diversified among a minimum of five different
sectors of the Municipal Securities market.\20\
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\20\ The Fund's investments in Municipal Securities will include
investments in state and local (e.g., county, city, town) Municipal
Securities relating to such sectors as the following: Airports,
bridges and highways, hospitals, housing, jails, mass
transportation, nursing homes, parks, public buildings, recreational
facilities, school facilities, streets, and water and sewer works.
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The Exchange states that pre-refunded bonds will be excluded from
the above limits given that they have a high level of credit quality
and liquidity.\21\
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\21\ The Exchange states that pre-refunded bonds (also known as
refunded or escrow-secured bonds) have a high level of credit
quality and liquidity because the issuer ``pre-refunds'' the bond by
setting aside in advance all or a portion of the amount to be paid
to the bondholders when the bond is called. Generally, an issuer
uses the proceeds from a new bond issue to buy high grade, interest
bearing debt securities, including direct obligations of the U.S.
government, which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments of
principal and interest on the pre-refunded bonds.
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D. Application of Generic Listing Requirements
The Exchange proposes to list and trade the Shares under NYSE Arca
Rule 8.600-E, which includes generic listing requirements for Managed
Fund Shares. According to the Exchange, the Fund's portfolio will not
meet all of the generic listing requirements of Commentary .01 to NYSE
Arca Rule 8.600-E. Specifically, the Exchange states that the Fund's
portfolio will meet all such requirements except for those set forth in
Commentary .01(b)(1) with respect to Municipal Securities.
Commentary .01(b)(1) to NYSE Arca Rule 8.600-E requires that, on
both an initial and continuing basis, components that in the aggregate
account for at least 75% of the fixed income weight of the portfolio
each have a minimum original principal amount outstanding of $100
million or more. The Exchange states that the Fund would not meet this
requirement, as a
[[Page 14701]]
result principally of the Fund's investments in Municipal Securities.
The Exchange represents that the Fund's investments in Municipal
Securities would be subject to the requirements described in Section
II.C. above.
The Exchange represents that, other than Commentary .01(b)(1) with
respect to Municipal Securities, the Fund's portfolio will meet all
other requirements of NYSE Arca Rule 8.600-E.
III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 3, is consistent with the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\22\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment No. 3, is consistent
with Section 6(b)(5) of the Act,\23\ which requires, among other
things, that the Exchange's rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78f(b)(5).
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As noted above, the Fund's investments in Municipal Securities
would not comply with Commentary .01(b)(1) to NYSE Arca Rule 8.600-E.
The Exchange represents that the Fund would invest in various types of
fixed income debt instruments, including Municipal Securities.
According to the Exchange, permitting the Shares to be listed and
traded on the Exchange, notwithstanding that, as a result principally
of the Fund's investments in Municipal Securities, the Fund would not
comply with Commentary .01(b)(1), would provide the Fund with greater
ability to select from a broad range of fixed income securities that
would support the Fund's investment goal.
The Commission notes that, as proposed, under normal market
conditions, except for periods of high cash inflows or outflows, the
Fund will satisfy the following criteria with respect to Municipal
Securities: (1) The Fund will have a minimum of 20 non-affiliated
issuers; (2) no single Municipal Securities issuer will account for
more than 10% of the weight of the Fund's portfolio; (3) no individual
bond will account for more than 5% of the weight of the Fund's
portfolio; (4) the Fund will limit its investments in Municipal
Securities of any one state or U.S. territory to 25% of the Fund's
total assets, except that up to and including 40% of the Fund's total
assets may be invested in Municipal Securities of issuers in each of
California, New York, and Texas; (5) the Fund's investments in
Municipal Securities will be diversified among issuers in at least 10
states and U.S. territories; and (6) the Fund will be diversified among
a minimum of five different sectors of the Municipal Securities
market.\24\ The Commission also notes that, other than Commentary
.01(b)(1) with respect to Municipal Securities, the Fund will meet all
the requirements of NYSE Arca Rule 8.600-E. The Commission believes
that these proposed initial and continued listing requirements,
including the requirements with respect to Municipal Securities, are
designed to mitigate the potential for manipulation of the Shares.
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\24\ The Exchange states that pre-refunded bonds will be
excluded from the above limits given that they have a high level of
credit quality and liquidity.
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The Commission also finds that the proposal is consistent with
Section 11A(a)(1)(C)(iii) of the Act,\25\ which sets forth Congress's
finding that it is in the public interest and appropriate for the
protection of investors and the maintenance of fair and orderly markets
to assure the availability to brokers, dealers, and investors of
information with respect to quotations for, and transactions in,
securities. Quotation and last-sale information for the Shares will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. The iNAV (which is the Portfolio Indicative Value, as defined in
NYSE Arca Rule 8.600-E(c)(3)), will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Exchange's Core Trading Session.\26\ Information regarding market price
and trading volume of the Shares will be continually available on a
real-time basis throughout the day on brokers' computer screens and
other electronic services. Information regarding the previous day's
closing price and trading volume information for the Shares will be
publicly available and will be published daily in the financial section
of newspapers.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\26\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from the CTA or other data feeds.
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Quotation and last sale information for ETFs will be available via
the CTA high-speed line, and from the national securities exchanges on
which they are listed. U.S. exchange-traded options quotation and last
sale information is available via the Options Price Reporting
Authority. Foreign exchange-traded options, U.S. and foreign exchange-
traded futures contracts and options on futures contracts, U.S. and
foreign exchange-traded swaps (if applicable), and exchange-traded
municipal derivatives price information is available from the
applicable U.S. or foreign exchange and major market data vendors.
Quotation information from brokers and dealers or pricing services will
be available for Municipal Securities. Price information for money
market funds and other investment company securities (other than ETFs)
will be available from the applicable investment company's website and
from market data vendors. Pricing information regarding fixed income
debt instruments, cash equivalents, OTC options, OTC swaps, swaptions,
restricted securities, non-agency ABS, non-agency mortgage-related
securities, forward rate agreements, OTC municipal derivatives, CDX,
and inflation-protected debt securities will generally be available
through nationally recognized data service providers through
subscription agreements. One source of price information for municipal
securities is the Electronic Municipal Market Access, which is
administered by the Municipal Securities Rulemaking Board.
In addition, the Fund's website will include the Fund's prospectus
and additional data relating to net asset value (``NAV'') and other
applicable quantitative information.
The Commission also believes that the proposal is reasonably
designed to promote fair disclosure of information that may be
necessary to price the Shares appropriately and to prevent trading when
a reasonable degree of transparency cannot be assured. The Exchange
will obtain a representation from the issuer of the Shares that the NAV
per Share will be calculated daily and that the NAV and the Disclosed
Portfolio (as defined in NYSE Arca Rule 8.600-E(c)(2)) will be made
available to all market participants at the same time. Trading in the
Shares will be halted if the circuit-breaker parameters in NYSE Arca
Rule 7.12-E have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. Moreover, trading in the Shares
will be subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets forth
circumstances under which the Shares may be halted.
[[Page 14702]]
The Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its employees. The
Exchange states that neither the Manager nor the Sub-Adviser is
registered as a broker-dealer, but each is affiliated with a broker-
dealer. The Exchange states that the Manager and Sub-Adviser each has
implemented and will maintain a fire wall with respect to such broker-
dealer affiliate regarding access to information concerning the
composition of and/or changes to the Fund's portfolio.\27\ Further, the
Exchange states that, consistent with NYSE Arca Rule 8.600-
E(d)(2)(B)(ii), the Manager will implement and maintain, or be subject
to, procedures designed to prevent the use and dissemination of
material, non-public information regarding the actual components of the
Fund's portfolio.\28\
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\27\ The Exchange also represents that an investment adviser to
an open-end fund is required to be registered under the Investment
Advisers Act of 1940.
\28\ The Exchange states that the Manager will be the Reporting
Authority for purposes of NYSE Arca Rule 8.600-E(d)(2)(B)(ii).
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The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. In support of this
proposal, the Exchange represents that:
(1) Other than Commentary .01(b)(1) with respect to Municipal
Securities, the Fund will meet all the requirements of NYSE Arca Rule
8.600-E. The Fund's investments in Municipal Securities will be subject
to the requirements described in Section II.C. above.
(2) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
(3) Trading in the Shares will be subject to the existing trading
surveillances, administered by the Financial Industry Regulatory
Authority (``FINRA'') on behalf of the Exchange, or by regulatory staff
of the Exchange, and these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and federal securities laws
applicable to trading on the Exchange.\29\
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\29\ The Exchange states that FINRA conducts cross-market
surveillances on behalf of the Exchange pursuant to a regulatory
services agreement, and that the Exchange is responsible for FINRA's
performance under this regulatory services agreement.
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(4) The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, ETFs, exchange-
traded closed-end funds, exchange-traded municipal derivatives, certain
exchange-traded options, and certain exchange-traded futures with other
markets and other entities that are members of the Intermarket
Surveillance Group, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading in
the Shares, ETFs, exchange-traded closed-end funds, exchange-traded
municipal derivatives, certain exchange-traded options, and certain
exchange-traded futures from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares, ETFs, exchange-traded closed-end funds, exchange-traded
municipal derivatives, certain exchange-traded options, and certain
exchange-traded futures from markets and other entities with which the
Exchange has in place a comprehensive surveillance sharing agreement.
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine. FINRA also
can access data obtained from the Municipal Securities Rulemaking Board
relating to municipal bond trading activity for surveillance purposes
in connection with trading in the Shares.
(5) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss: (a) The procedures
for purchases and redemptions of Shares in creation unit aggregations
(and that Shares are not individually redeemable); (b) NYSE Arca Rule
9.2-E(a), which imposes a duty of due diligence on its Equity Trading
Permit Holders to learn the essential facts relating to every customer
prior to trading the Shares; (c) the risks involved in trading the
Shares during the Early and Late Trading Sessions when an updated iNAV
will not be calculated or publicly disseminated; (d) how information
regarding the iNAV and the Disclosed Portfolio is disseminated; (e) the
requirement that Equity Trading Permit Holders deliver a prospectus to
investors purchasing newly issued Shares prior to or concurrently with
the confirmation of a transaction; and (f) trading information.
(6) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(7) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Act.\30\
---------------------------------------------------------------------------
\30\ See 17 CFR 240.10A-3.
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(8) The Fund's investments will be consistent with its investment
goal and will not be used to provide multiple returns of a benchmark or
to produce leveraged returns.
The Exchange represents that all statements and representations
made in the filing regarding: (1) The description of the portfolio or
reference asset; (2) limitations on portfolio holdings or reference
assets; or (3) the applicability of Exchange listing rules specified in
the rule filing constitute continued listing requirements for listing
the Shares on the Exchange. In addition, the issuer must notify the
Exchange of any failure by the Fund to comply with the continued
listing requirements and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor \31\ for compliance with
the continued listing requirements. If the Fund is not in compliance
with the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Rule 5.5-E(m).
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\31\ The Commission notes that certain proposals for the listing
and trading of exchange-traded products include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
77499 (April 1, 2016), 81 FR 20428, 20432 (April 7, 2016) (SR-BATS-
2016-04). In the context of this representation, it is the
Commission's view that ``monitor'' and ``surveil'' both mean ongoing
oversight of compliance with the continued listing requirements.
Therefore, the Commission does not view ``monitor'' as a more or
less stringent obligation than ``surveil'' with respect to the
continued listing requirements.
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This approval order is based on all of the Exchange's statements
and representations, including those set forth above and in Amendment
No. 3.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 3, is consistent with Section
6(b)(5) of the Act \32\ and Section 11A(a)(1)(C)(iii) of the Act \33\
and the rules and regulations thereunder applicable to a national
securities exchange.
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\32\ 15 U.S.C. 78f(b)(5).
\33\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Solicitation of Comments on Amendment No. 3 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 3 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
[[Page 14703]]
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2017-99 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2017-99. 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-NYSEArca-2017-99, and should be
submitted on or before April 26, 2018.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 3
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 3, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
3 in the Federal Register. The Commission notes that Amendment No. 3
clarified the application of NYSE Arca Rule 8.600-E to the Fund's
investments. Amendment No. 3 also provided other clarifications and
additional information to the proposed rule change. The changes and
additional information in Amendment No. 3 assisted the Commission in
finding that the proposal is consistent with the Act. Accordingly, the
Commission finds good cause, pursuant to Section 19(b)(2) of the
Act,\34\ to approve the proposed rule change, as modified by Amendment
No. 3, on an accelerated basis.
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\34\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\35\ that the proposed rule change (SR-NYSEArca-2017-99), as
modified by Amendment No. 3 be, and hereby is, approved on an
accelerated basis.
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\35\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2018-06914 Filed 4-4-18; 8:45 am]
BILLING CODE 8011-01-P
