Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the First Trust Long Duration Opportunities ETF Under NYSE Arca Rule 8.600-E, 44312-44320 [2018-18781]
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Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices
II. Docketed Proceeding(s)
section by
telephone for advice on filing
alternatives.
INFORMATION CONTACT
FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
amozie on DSK3GDR082PROD with NOTICES1
I. Introduction
II. Docketed Proceeding(s)
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3007.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3010, and 39
CFR part 3020, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
1 See
Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
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POSTAL SERVICE
1. Docket No(s).: MC2018–213 and
CP2018–295; Filing Title: USPS Request
to Add Priority Mail & First-Class
Package Service Contract 87 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: August 24, 2018;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3020.30 et seq., and 39 CFR 3015.5;
Public Representative: Curtis E. Kidd;
Comments Due: September 4, 2018.
2. Docket No(s).: MC2018–214 and
CP2018–296; Filing Title: USPS Request
to Add Priority Mail Express & Priority
Mail Contract 72 to Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
August 24, 2018; Filing Authority: 39
U.S.C. 3642, 39 CFR 3020.30 et seq., and
39 CFR 3015.5; Public Representative:
Curtis E. Kidd; Comments Due:
September 4, 2018.
This Notice will be published in the
Federal Register.
Stacy L. Ruble,
Secretary.
[FR Doc. 2018–18863 Filed 8–29–18; 8:45 am]
BILLING CODE 7710–FW–P
Product Change—Priority Mail and
First-Class Package Service
Negotiated Service Agreement
Postal ServiceTM.
ACTION: Notice.
AGENCY:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: August
30, 2018.
FOR FURTHER INFORMATION CONTACT:
Elizabeth Reed, 202–268–3179.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on August 24,
2018, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail & First-Class Package
Service Contract 87 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2018–213,
CP2018–295.
SUMMARY:
Elizabeth Reed,
Attorney, Corporate and Postal Business Law.
POSTAL SERVICE
Product Change—Priority Mail Express
and Priority Mail Negotiated Service
Agreement
[FR Doc. 2018–18791 Filed 8–29–18; 8:45 am]
BILLING CODE 7710–12–P
AGENCY:
Postal ServiceTM.
ACTION: Notice.
SECURITIES AND EXCHANGE
COMMISSION
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: August
30, 2018.
FOR FURTHER INFORMATION CONTACT:
Elizabeth Reed, 202–268–3179.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on August 24,
2018, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Express & Priority Mail
Contract 72 to Competitive Product List.
Documents are available at
www.prc.gov, Docket Nos. MC2018–214,
CP2018–296.
[Release No. 34–83936; File No. SR–
NYSEArca–2018–60]
SUMMARY:
Elizabeth Reed,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2018–18792 Filed 8–29–18; 8:45 am]
BILLING CODE 7710–12–P
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Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the First Trust Long Duration
Opportunities ETF Under NYSE Arca
Rule 8.600–E
August 24, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
17, 2018, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the First Trust Long
Duration Opportunities ETF under
NYSE Arca Rule 8.600–E (‘‘Managed
Fund Shares’’). The proposed 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
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1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of First Trust
Long Duration Opportunities ETF (the
‘‘Fund’’) which under NYSE Arca Rule
8.600–E, which governs the listing and
trading of Managed Fund Shares on the
Exchange.4
The Shares are offered by First Trust
Exchange-Traded Fund IV (the ‘‘Trust’’),
which is registered with the
Commission as an open-end
management investment company.5 The
Fund is a series of the Trust.
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Rule 5.2–E(j)(3),
seeks to provide investment results that correspond
generally to the price and yield performance of a
specific foreign or domestic stock index, fixed
income securities index or combination thereof.
5 The Trust is registered under the 1940 Act. On
June 12, 2018, the Trust filed with the Commission
its registration statement on Form N–1A under the
Securities Act of 1933 (15 U.S.C. 77a), and under
the 1940 Act relating to the Fund (File Nos. 333–
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First Trust Advisors L.P. is the
investment adviser (‘‘First Trust’’ or
‘‘Adviser’’) to the Fund. First Trust
Portfolios L.P. is the distributor
(‘‘Distributor’’) for the Fund’s Shares.
The Bank of New York Mellon acts as
the administrator, custodian and
transfer agent (‘‘Custodian’’ or ‘‘Transfer
Agent’’) for the Fund.
Commentary .06 to Rule 8.600–E
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect and maintain a ‘‘fire wall’’
between the investment adviser and the
broker-dealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.6 In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s portfolio.
The Adviser is not registered as a
broker-dealer. The Adviser is affiliated
with First Trust Portfolios L.P., a brokerdealer, and has implemented and will
maintain a fire wall with respect to its
broker-dealer affiliate regarding access
to information concerning the
composition and/or changes to the
portfolio. In the event (a) the Adviser
174332 and 811–22559) (‘‘Registration Statement’’).
The description of the operation of the Trust and
the Fund herein is based, in part, on the
Registration Statement. In addition, the
Commission has issued an order upon which the
Trust may rely, granting certain exemptive relief
under the 1940 Act. See Investment Company Act
Release No. 30029 (April 10, 2012) (File No. 812–
13795).
6 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser is a
registered broker-dealer or becomes
affiliated with a broker-dealer, it will
implement and maintain a fire wall with
respect to its relevant personnel or its
broker-dealer affiliate regarding access
to information concerning the
composition and/or changes to the
portfolio, and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding such
portfolio.
First Trust Long Duration Opportunities
ETF
Principal Investments
According to the Registration
Statement, the investment objective of
the Fund is to generate current income
with a focus on preservation of capital.
Under normal market conditions,7 the
Fund will invest at least 80% of its net
assets in a portfolio of ‘‘Fixed Income
Securities’’ (described below), which
may be represented by derivatives
relating to such securities. The term
Fixed Income Securities means:
• Debt securities issued or guaranteed
by the U.S. Government, its agencies or
government-sponsored entities (‘‘GSE’’
or ‘‘U.S. Government Entities’’), other
than ‘‘Agency Mortgage-Related
Investments’’ as referenced below; 8
• mortgage-related debt securities and
other mortgage-related instruments
issued or guaranteed by the U.S.
Government and U.S. Government
Entities (collectively, ‘‘Agency
Mortgage-Related Investments’’); and
• debentures related to securities
issued or guaranteed by the U.S.
Government and U.S. Government
Entities.
The Fund may invest in the following
derivative instruments: options, futures
contracts and swap agreements.
7 The term ‘‘normal market conditions’’ is defined
in NYSE Arca Rule 8.600–E(c)(5). On a temporary
basis, including for defensive purposes, during the
initial invest-up period (i.e., the six-week period
following the commencement of trading of Shares
on the Exchange) and during periods of high cash
inflows or outflows (i.e., rolling periods of seven
calendar days during which inflows or outflows of
cash, in the aggregate, exceed 10% of the Fund’s net
assets as of the opening of business on the first day
of 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. The Fund may adopt a defensive strategy
when the Adviser believes securities in which the
Fund normally invests have elevated risks due to
political or economic factors and in other
extraordinary circumstances.
8 Government-sponsored entities include, for
example, the Government National Mortgage
Association, the Federal National Mortgage
Association, and the Federal Home Loan Mortgage
Corporation.
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Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices
According to the Registration Statement,
the use of these derivative transactions
may allow the Fund to obtain net long
or short exposures to selected interest
rates or durations. The Fund may also
utilize derivatives to enhance return, to
hedge some of the risks of its
investments in securities, as a substitute
for a position in the underlying asset, to
reduce transaction costs, to maintain
full market exposure (which means to
adjust the characteristics of its
investments to more closely
approximate those of the markets in
which it invests), to manage cash flows
or to preserve capital
The Fund may invest in exchangetraded funds (‘‘ETFs’’) that invest in
Fixed Income Securities.9 Such ETFs
will count towards the Fund’s 80%
investment requirement described
above.
The Fund may enter into mortgage
dollar rolls.
The Fund may invest in to-beannounced transactions (‘‘TBA’’).
Cash earmarked or otherwise held as
collateral for settling mortgage dollar
rolls, TBA transactions, and other
delayed-delivery transactions will count
towards the Fund’s 80% investment
requirement described above.
The Fund may enter into short sales
of any securities in which the Fund may
invest.
Other Investments
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While, under normal market
conditions, the Fund will invest at least
80% of the Fund’s net assets in the
securities and financial instruments
described above under ‘‘Principal
Investments’’, the Fund may invest up
to 20% of its net assets in the securities
and financial instruments described
below.
The Fund may invest in cash and cash
equivalents.10 In addition, the Fund
may hold the following short-term
instruments with maturities of three
months or more: Certificates of deposit;
bankers’ acceptances; repurchase
agreements and reverse repurchase
agreements; bank time deposits; and
commercial paper.
The Fund may invest up to 20% of its
net assets in other fixed income
9 For purposes of this filing, the term ‘‘ETFs’’
includes Investment Company Units (as described
in NYSE Arca Rule 5.2–E(j)(3)); Portfolio Depositary
Receipts (as described in NYSE Arca Rule 8.100–
E); and Managed Fund Shares (as described in
NYSE Arca Rule 8.600–E). All ETFs will be listed
and traded in the U.S. on a national securities
exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g.,
2X, ¥2X, 3X or ¥3X) ETFs.
10 For purposes of this filing, cash equivalents are
the short-term instruments enumerated in
Commentary .01(c) to Rule 8.600–E.
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securities, including asset-backed
securities (‘‘ABS’’) and mortgage-related
debt securities and other mortgagerelated instruments not issued or
guaranteed by the U.S. Government or
U.S. Government Entities (‘‘Non-Agency
Mortgage-Related Investments’’).11
The Fund may invest in nonexchange-traded investment company
securities (i.e., mutual funds).
The Fund will not invest in securities
or other financial instruments that have
not been described in this proposed rule
change.
Other Restrictions
The Fund’s investments, including
derivatives, will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage
(although certain derivatives and other
investments may result in leverage).
That is, the Fund’s investments will not
be used to seek performance that is the
multiple or inverse multiple (e.g., 2X or
¥3X) of the Fund’s primary broadbased securities benchmark index (as
defined in Form N–1A).12
Use of Derivatives by the Fund
The Fund may invest in the types of
derivatives described in the ‘‘Other
Investments’’ section above for the
purposes described in that section.
Investments in derivative instruments
will be made in accordance with the
Fund’s investment objective and
policies.
To limit the potential risk associated
with such transactions, the Fund will
enter into offsetting transactions or
segregate or ‘‘earmark’’ assets
determined to be liquid by the Adviser
in accordance with procedures
established by the Trust’s Board of
Trustees (the ‘‘Board’’). In addition, the
Fund has included appropriate risk
disclosure in its offering documents,
including leveraging risk. Leveraging
risk is the risk that certain transactions
of the Fund, including the Fund’s use of
derivatives, may give rise to leverage,
11 For purposes of this filing, Agency MortgageRelated Investments and Non-Agency MortgageRelated Investments consist of: (1) Residential
mortgage-backed securities (‘‘RMBS’’); (2)
commercial mortgage-backed securities (‘‘CMBS’’);
(3) stripped mortgage-backed securities (‘‘SMBS’’),
which are mortgage-backed securities where
mortgage payments are divided up between paying
the loan’s principal and paying the loan’s interest;
and (4) collateralized mortgage obligations
(‘‘CMOs’’) and real estate mortgage investment
conduits (‘‘REMICs’’) where they are divided into
multiple classes with each class being entitled to a
different share of the principal and/or interest
payments received from the pool of underlying
assets.
12 The Fund’s broad-based securities benchmark
index will be identified in a future amendment to
the Registration Statement following the Fund’s
first full calendar year of performance.
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causing the Fund to be more volatile
than if it had not been leveraged.
Impact on Arbitrage Mechanism
The Adviser believes there will be
minimal, if any, impact to the arbitrage
mechanism as a result of the Fund’s use
of derivatives. The Adviser understands
that market makers and participants
should be able to value derivatives as
long as the positions are disclosed with
relevant information. The Adviser
believes that the price at which Shares
of the Fund trade will continue to be
disciplined by arbitrage opportunities
created by the ability to purchase or
redeem Shares of the Fund at their net
asset value (‘‘NAV’’), which should
ensure that Shares of the Fund will not
trade at a material discount or premium
in relation to their NAV.
The Adviser does not believe there
will be any significant impacts to the
settlement or operational aspects of the
Fund’s arbitrage mechanism due to the
use of derivatives.
Creation and Redemption of Shares
The Fund will issue and redeem
Shares on a continuous basis at NAV 13
only in large blocks of Shares (‘‘Creation
Units’’) in transactions with authorized
participants, generally including brokerdealers and large institutional investors
(‘‘Authorized Participants’’). Creation
Units generally will consist of 50,000
Shares. The size of a Creation Unit is
subject to change. As described in the
Registration Statement, the Fund will
issue and redeem Creation Units in
exchange for an in-kind portfolio of
instruments and/or cash in lieu of such
instruments (the ‘‘Creation Basket’’).14
In addition, if there is a difference
between the NAV attributable to a
Creation Unit and the market value of
the Creation Basket exchanged for the
Creation Unit, the party conveying
instruments (which may include cashin-lieu amounts) with the lower value
will pay to the other an amount in cash
equal to the difference (referred to as the
‘‘Cash Component’’).
Creations and redemptions must be
made by or through an Authorized
Participant that has executed an
agreement that has been agreed to by the
Distributor and the Transfer Agent with
13 The NAV of the Fund’s Shares generally will
be calculated once daily Monday through Friday as
of the close of regular trading on the New York
Stock Exchange (‘‘NYSE’’), generally 4:00 p.m.,
Eastern Time (‘‘E.T.’’). NAV per Share will be
calculated by dividing the Fund’s net assets by the
number of Fund Shares outstanding.
14 It is expected that the Fund will typically issue
and redeem Creation Units on a cash basis;
however, at times, the Fund may issue and redeem
Creation Units on an in-kind (or partially in-kind)
(or partially cash) basis.
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Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices
respect to creations and redemptions of
Creation Units. All standard orders to
create Creation Units must be received
by the Transfer Agent no later than the
closing time of the regular trading
session on the NYSE (ordinarily 4:00
p.m., E.T.) (the ‘‘Closing Time’’) in each
case on the date such order is placed in
order for the creation of Creation Units
to be effected based on the NAV of
Shares as next determined on such date
after receipt of the order in proper form.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt not later than
the Closing Time of a redemption
request in proper form by the Fund
through the Transfer Agent and only on
a business day. The Custodian, through
the National Securities Clearing
Corporation (‘‘NSCC’’), will make
available on each business day, prior to
the opening of business of the Exchange,
the list of the names and quantities of
the instruments comprising the Creation
Basket, as well as the estimated Cash
Component (if any), for that day. The
published Creation Basket will apply
until a new Creation Basket is
announced on the following business
day prior to commencement of trading
in the Shares.
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Application of Generic Listing
Requirements
The Exchange is submitting this
proposed rule change because the
portfolio for the Fund will not meet all
of the ‘‘generic’’ listing requirements of
Commentary .01 to NYSE Arca Rule
8.600–E applicable to the listing of
Managed Fund Shares. The Fund’s
portfolio will meet all such
requirements except for those set forth
in Commentary .01(a)(1),15 (b)(1), and
(b)(5), as described below.
15 Commentary .01(a)(1) to NYSE Arca Rule
8.600–E provides that the component stocks of the
equity portion of a portfolio that are U.S.
Component Stocks shall meet the following criteria
initially and on a continuing basis: (A) Component
stocks (excluding Derivative Securities Products
and Index-Linked Securities) that in the aggregate
account for at least 90% of the equity weight of the
portfolio (excluding such Derivative Securities
Products and Index-Linked Securities) each shall
have a minimum market value of at least $75
million; (B) Component stocks (excluding
Derivative Securities Products and Index-Linked
Securities) that in the aggregate account for at least
70% of the equity weight of the portfolio (excluding
such Derivative Securities Products and IndexLinked Securities) each shall have a minimum
monthly trading volume of 250,000 shares, or
minimum notional volume traded per month of
$25,000,000, averaged over the last six months; (C)
The most heavily weighted component stock
(excluding Derivative Securities Products and
Index-Linked Securities) shall not exceed 30% of
the equity weight of the portfolio, and, to the extent
applicable, the five most heavily weighted
component stocks (excluding Derivative Securities
Products and Index-Linked Securities) shall not
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The Fund will not comply with the
requirements set forth in Commentary
(b)(1) and (b)(5) to NYSE Arca Rule
8.600–E with respect to the Fund’s
investments in Fixed Income Securities.
The Fund will not comply with the
requirement in Commentary .01(b)(1) to
Rule 8.600–E that components that in
the aggregate account for at least 75% of
the fixed income weight of the portfolio
each shall have a minimum original
principal amount outstanding of $100
million or more.16 Instead, the Exchange
proposes that, except for periods of high
cash inflows or outflows,17 components
that in the aggregate account for at least
30% of the fixed income weight of the
portfolio each shall have a minimum
original principal amount outstanding
of $50 million or more.
As noted above in ‘‘Principal
Investments’’, under normal market
conditions, the Fund’s principal
holdings will include Agency MortgageRelated Investments (as defined above),
securities issued or guaranteed by the
U.S. Government and U.S. Government
Entities other than Agency MortgageRelated Investments, and debentures
related to securities issued or
guaranteed by the U.S. Government and
U.S. Government Entities. The Adviser
represents that the Agency MortgageRelated Investments market is extremely
large and liquid; 18 however, individual
bond sizes in Agency Mortgage-Related
Investments tend to be slightly smaller
exceed 65% of the equity weight of the portfolio;
(D) Where the equity portion of the portfolio does
not include Non-U.S. Component Stocks, the equity
portion of the portfolio shall include a minimum of
13 component stocks; provided, however, that there
shall be no minimum number of component stocks
if (i) one or more series of Derivative Securities
Products or Index-Linked Securities constitute, at
least in part, components underlying a series of
Managed Fund Shares, or (ii) one or more series of
Derivative Securities Products or Index-Linked
Securities account for 100% of the equity weight of
the portfolio of a series of Managed Fund Shares;
(E) Except as provided herein, equity securities in
the portfolio shall be U.S. Component Stocks listed
on a national securities exchange and shall be NMS
Stocks as defined in Rule 600 of Regulation NMS
under the Securities Exchange Act of 1934; and (F)
American Depositary Receipts (‘‘ADRs’’) in a
portfolio may be exchange-traded or non- exchangetraded. However, no more than 10% of the equity
weight of a portfolio shall consist of non-exchangetraded ADRs.
16 Commentary .01(b)(1) to Rule 8.600–E provides
that components that in the aggregate account for
at least 75% of the fixed income weight of the
portfolio each shall have a minimum original
principal amount outstanding of $100 million or
more.
17 See note 7, supra.
18 The approximate average daily trading volume
in agency mortgage-backed securities (‘‘MBS’’) from
2003–2017 was $249 billion. The average daily
trading volume in agency MBS for June 2018 was
approximately $223.2 billion. As of March 31, 2018,
approximately $6.99 trillion in agency MBS was
outstanding. (Source: Securities Industry and
Financial Markets Association (SIFMA)).
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44315
on average than standard corporate
obligation deal issuances. For example,
as of March 31, 2018 there were
approximately $3.06 trillion in Fannie
Mae outstanding; however, that amount
is comprised of tens of thousands of
individual pools with a range of
individual pool specific issue sizes.
While an individual tranche may be less
than $100 million, it may have been
issued as part of a deal in excess of $100
million. The Adviser represents that,
except for periods of high cash inflows
or outflows, at least 30% (based on
dollar amount invested) of the fixed
income weight of the securities in
which the Fund invests would have a
minimum original principal amount
outstanding of $50 million or more. The
Adviser represents that these criteria are
appropriate, based on the size and
liquidity of the market in which agency
mortgage securities generally trade and
the anticipated availability of Agency
Mortgage-Related Investments that
would satisfy the Fund’s investment
parameters.
As noted above, the Fund will not
comply with the requirement in
Commentary .01(b)(5) that investments
in non-agency, non-government
sponsored entity and privately issued
mortgage-related and other asset-backed
securities (i.e., Non-Agency MortgageRelated Investments) not account, in the
aggregate, for more than 20% of the
weight of the fixed income portion of
the portfolio.19 Instead, Non-Agency
Mortgage-Related Investments will, in
the aggregate, not exceed more than
20% of the total assets of the Fund.
This alternative requirement is
appropriate because the Fund’s
investment in Non-Agency MortgageRelated Investments is expected to
provide the Fund with benefits
associated with increased
diversification, as Non-Agency
Mortgage-Related Investments tend to be
less correlated to interest rates than
many other fixed income securities. The
Adviser represents that the Fund’s
investment in Non-Agency MortgageRelated Investments will be subject to
the Fund’s liquidity procedures as
adopted by the Board, and the Adviser
does not expect that investments in
Non-Agency Mortgage-Related
Investments of up to 20% of the total
assets of the Fund will have any
material impact on the liquidity of the
Fund’s investments. The Exchange
19 Commentary .01(b)(5) to NYSE Arca Rule
8.600–E provides that non-agency, non-GSE and
privately-issued mortgage-related and other assetbacked securities components of a portfolio shall
not account, in the aggregate, for more than 20%
of the weight of the fixed income portion of the
portfolio.
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notes that the Commission has
previously approved the listing of
actively managed ETFs that can invest
20% of their total assets in non-U.S.
Government, non-agency, non-GSE and
other privately issued ABS and MBS.20
Thus, it is appropriate to allow an
exception to the Fund’s investments in
Non-Agency Mortgage-Related
Investments set forth in Commentary
.01(b)(5) of the generic listing standards.
As noted above, the Fund may invest
in equity securities that are nonexchange-traded open-end investment
company securities (i.e., mutual funds).
The Exchange believes that it is
appropriate and in the public interest to
approve listing and trading of Shares of
the Fund on the Exchange
notwithstanding that the Fund would
not meet the requirements of
Commentary .01(a)(1)(A) through (E) to
Rule 8.600–E with respect to the Fund’s
investments in non-exchange-traded
open-end investment company
securities.21 Investments in nonexchange-traded open-end investment
company securities will not be principal
investments of the Fund.22 Such
investments, which may include mutual
funds that invest, for example,
principally in fixed income securities,
would be utilized to help the Fund meet
20 See, e.g., Securities Exchange Act Release Nos.
80946 (June 15, 2017) 82 FR 28126 (June 20, 2017)
(SR–NASDAQ–2017–039) (permitting the
Guggenheim Limited Duration ETF to invest up to
20% of its total assets in privately-issued, nonagency and non-GSE ABS and MBS); 76412
(November 10, 2015), 80 FR 71880 (November 17,
2015) (SR–NYSEArca–2015–111) (permitting the
RiverFront Strategic Income Fund to invest up to
20% of its assets in privately-issued, non-agency
and non-GSE ABS and MBS); 74814 (April 27,
2015), 80 FR 24986 (May 1, 2015) (SR–NYSEArca–
2014–017) (permitting the Guggenheim Enhanced
Short Duration ETF to invest up to 20% of its assets
in privately-issued, non-agency and non-GSE ABS
and MBS); 74109 (January 21, 2015), 80 FR 4327
(January 27, 2015) (SR–NYSEArca–2014–134)
(permitting the IQ Wilshire Alternative Strategies
ETF to invest up to 20% of its total assets in MBS
and other ABS, without any limit on the type of
such MBS and ABS); 83319 (May 24, 2018) (SR–
NYSEArca–2018–15) (Order Approving a Proposed
Rule Change, as Modified by Amendment No. 1
Thereto, to Continue Listing and Trading Shares of
the PGIM Ultra Short Bond ETF Under NYSE Arca
Rule 8.600–E).
21 Commentary .01 (a) to Rule 8.600–E specifies
the equity securities accommodated by the generic
criteria in Commentary .01(a), namely, U.S.
Component Stocks (as described in Rule 5.2–
E(j)(3)); Non-U.S. Component Stocks (as described
in Rule 5.2–E(j)(3)); Derivative Securities Products
(i.e., Investment Company Units and securities
described in Section 2 of Rule 8–E); and IndexLinked Securities that qualify for Exchange listing
and trading under Rule 5.2–E(j)(6).
22 For purposes of this section of the filing, nonexchange-traded securities of other registered
investment companies do not include money
market funds, which are cash equivalents under
Commentary .01(c) to Rule 8.600–E and for which
there is no limitation in the percentage of the
portfolio invested in such securities.
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its investment objective and to equitize
cash in the short term.
With respect to investments by the
Fund in non-exchange-traded
investment company securities, because
such securities have a net asset value
based on the value of securities and
financial assets the investment company
holds, the Exchange believes it is both
unnecessary and inappropriate to apply
to such investment company securities
the criteria in Commentary .01(a)(1).
The Exchange notes that Commentary
.01(A) through (D) to Rule 8.600–E
exclude application of those provisions
to certain ‘‘Derivative Securities
Products’’ that are exchange-traded
investment company securities,
including 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).23 In its
2008 Approval Order approving
amendments to Commentary .01(a) to
Rule 5.2(j)(3) that exclude Derivative
Securities Products from certain
provisions of Commentary .01(a) (which
exclusions are similar to those in
Commentary .01(a)(1) to Rule 8.600–E),
the Commission stated 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.’’ The Exchange notes that it
would be difficult or impossible to
23 The Commission initially approved the
Exchange’s proposed rule change to exclude
‘‘Derivative Securities Products’’ (i.e., Investment
Company Units and securities described in Section
2 of Rule 8) and ‘‘Index-Linked Securities (as
described in Rule 5.2–E (j)(6)) from Commentary
.01(a)(A) (1) through (4) to Rule 5.2–E(j) (3 in
Securities Exchange Act Release No. 57751 (May 1,
2008), 73 FR 25818 (May 7, 2008) (SR–NYSEArca–
2008–29) (Order Granting Approval of a Proposed
Rule Change, as Modified by Amendment No. 1
Thereto, to Amend the Eligibility Criteria for
Components of an Index Underlying Investment
Company Units) (‘‘2008 Approval Order’’). See also,
Securities Exchange Act Release No. 57561 (March
26, 2008), 73 FR 17390 (April 1, 2008) (Notice of
Filing of Proposed Rule Change and Amendment
No. 1 Thereto to Amend the Eligibility Criteria for
Components of an Index Underlying Investment
Company Units). The Commission subsequently
approved generic criteria applicable to listing and
trading of Managed Fund Shares, including
exclusions for Derivative Securities Products and
Index-Linked Securities in Commentary .01(a)(1)(A)
through (D), in Securities Exchange Act Release No.
78397 (July 22, 2016), 81 FR 49320 (July 27, 2016)
(Order Granting Approval of Proposed Rule Change,
as Modified by Amendment No. 7 Thereto,
Amending NYSE Arca Equities Rule 8.600 To
Adopt Generic Listing Standards for Managed Fund
Shares). See also, Amendment No. 7 to SR–
NYSEArca–2015–110, available at https://
www.sec.gov/comments/sr-nysearca-2015-110/
nysearca2015110-9.pdf.
PO 00000
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apply to non-exchange-traded
investment company securities the
generic quantitative criteria (e.g., market
capitalization, trading volume, or
portfolio criteria) in Commentary .01 (A)
through (D) applicable to U.S.
Component Stocks. For example, the
requirement for U.S. Component Stocks
in Commentary .01(a)(1)(B) that there be
minimum monthly trading volume of
250,000 shares, or minimum notional
volume traded per month of
$25,000,000, averaged over the last six
months is tailored to exchange-traded
securities (e.g., U.S. Component Stocks)
and not to mutual fund shares, which
do not trade in the secondary market.
Moreover, application of such criteria
would not serve the purpose served
with respect to U.S. Component Stocks,
namely, to establish minimum liquidity
and diversification criteria for U.S.
Component Stocks held by series of
Managed Fund Shares.
The Exchange notes that the
Commission has previously approved
listing and trading of an issue of
Managed Fund Shares that may invest
in equity securities that are nonexchange-traded open-end investment
company securities notwithstanding
that the fund would not meet the
requirements of Commentary
.01(a)(1)(A) through (E) to Rule 8.600–E
with respect to such fund’s investments
in such securities.24 Thus, the Exchange
believes that it is appropriate to permit
the Fund to invest in non-exchangetraded open-end management
investment company securities, as
described above.
The Exchange notes that, other than
Commentary .01(a)(1), (b)(1), and (b)(5)
to Rule 8.600–E, as described above, the
Fund’s portfolio will meet all other
requirements of Rule 8.600–E.
Availability of Information
The Fund’s website
(www.ftportfolios.com) will include the
prospectus for the Fund that may be
downloaded. The Fund’s website will
include additional quantitative
information updated on a daily basis
including, for the Fund, (1) daily trading
volume, the prior business day’s
reported closing price, NAV and
midpoint of the bid/ask spread at the
time of calculation of such NAV (the
‘‘Bid/Ask Price’’),25 and a calculation of
24 See Securities Exchange Act Release No. 83319
(May 24, 2018) (SR–NYSEArca–2018–15) (Order
Approving a Proposed Rule Change, as Modified by
Amendment No. 1 Thereto, to Continue Listing and
Trading Shares of the PGIM Ultra Short Bond ETF
Under NYSE Arca Rule 8.600–E).
25 The Bid/Ask Price of the Fund’s Shares will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
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the premium and discount of the Bid/
Ask Price against the NAV, and (2) data
in chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund will disclose on its
website the Disclosed Portfolio as
defined in NYSE Arca Rule 8.600–
E(c)(2) that forms the basis for the
Fund’s calculation of NAV at the end of
the business day.26
On a daily basis, the Fund will
disclose the information required under
NYSE Arca Rule 8.600–E(c)(2) to the
extent applicable. The website
information will be publicly available at
no charge.
In addition, a basket composition file,
which includes the security names and
share quantities, if applicable, required
to be delivered in exchange for the
Fund’s Shares, together with estimates
and actual cash components, will be
publicly disseminated daily prior to the
opening of the Exchange via the NSCC.
The basket represents one Creation Unit
of the Fund. Authorized Participants
may refer to the basket composition file
for information regarding Fixed Income
Securities, and any other instrument
that may comprise the Fund’s basket on
a given day.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and the Fund’s Form N–CSR,
filed twice a year. The Fund’s SAI and
Shareholder Reports will be available
free upon request from the Trust, and
those documents and the Forms N–CSR
and N–PX may be viewed on-screen or
downloaded from the Commission’s
website at www.sec.gov.
Intra-day and closing price
information regarding futures and
exchange-traded options will be
available from the exchange on which
such instruments are traded. Intra-day
and closing price information regarding
fixed income securities will be available
from major market data vendors. Price
information relating to OTC options and
swaps will be available from major
market data vendors. Intra-day price
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
26 Under accounting procedures followed by the
Fund, trades made on the prior business day (‘‘T’’)
will be booked and reflected in NAV on the current
business day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the business
day the portfolio that will form the basis for the
NAV calculation at the end of the business day.
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17:25 Aug 29, 2018
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information for exchange-traded
derivative instruments will be available
from the applicable exchange and from
major market data vendors. For
exchange-listed securities, intraday
price quotations will generally be
available from broker-dealers and
trading platforms (as applicable).
Intraday and other price information for
the fixed income securities in which the
Fund will invest will be available
through subscription services, such as
Bloomberg, Markit and Thomson
Reuters, which can be accessed by
Authorized Participants and other
market participants. Additionally, the
Trade Reporting and Compliance Engine
(‘‘TRACE’’) of the Financial Industry
Regulatory Authority (‘‘FINRA’’) will be
a source of price information for certain
Fixed Income Securities, including
Agency Mortgage-Related Investments
and Non-Agency Mortgage-Related
Investments, to the extent transactions
in such securities are reported to
TRACE.27 Non-exchange-traded openend investment company securities are
typically priced once each business day
and their prices will be available
through the applicable fund’s website or
from major market data vendors. Price
information regarding U.S. government
securities, GSEs, debentures, cash
equivalents and other short-term
instruments generally may be obtained
from brokers and dealers who make
markets in such securities or through
nationally recognized pricing services
through subscription agreements.
Information regarding market price
and trading volume of the Shares and
ETFs will be continually available on a
real-time basis throughout the day on
brokers’ computer screens and other
electronic services. Information
regarding the previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last sale information
for the Shares and ETFs will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line.
Exchange-traded options quotation and
last sale information for options cleared
via the Options Clearing Corporation
(‘‘OCC’’) are available via the Options
27 Broker-dealers that are FINRA member firms
have an obligation to report transactions in
specified debt securities to TRACE to the extent
required under applicable FINRA rules. Generally,
such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income
securities that are not reported to TRACE, (i)
intraday price quotations will generally be available
from broker-dealers and trading platforms (as
applicable) and (ii) price information will be
available from feeds from market data vendors,
published or other public sources, or online
information services, as described above.
PO 00000
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44317
Price Reporting Authority (‘‘OPRA’’). In
addition, the Portfolio Indicative Value
(‘‘PIV’’), as defined in NYSE Arca Rule
8.600–E(c)(3), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Core Trading
Session.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund.28 Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12–E
have been reached. Trading also may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. Trading in the Fund’s
Shares also will be subject to Rule
8.600–E(d)(2)(D) (‘‘Trading Halts’’).
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m.
to 8 p.m., E.T. in accordance with NYSE
Arca Rule 7.34–E (Early, Core, and Late
Trading Sessions). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Rule 7.6–E, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
the NYSE Arca Marketplace is $0.01,
with the exception of securities that are
priced less than $1.00 for which the
MPV for order entry is $0.0001.
With the exception of the
requirements of Commentary .01(a)(1),
(b)(5), and (e) to Rule 8.600–E as
described above in ‘‘Application of
Generic Listing Requirements,’’ the
Shares of the Fund will conform to the
initial and continued listing criteria
under NYSE Arca Rule 8.600–E.
Consistent with NYSE Arca Rule 8.600–
E(d)(2)(B)(ii), the Adviser will
implement and maintain, or be subject
to, procedures designed to prevent the
use and dissemination of material nonpublic information regarding the actual
components of the Fund’s portfolio. The
Exchange represents that, for initial and
continued listing, the Fund will be in
compliance with Rule 10A–3 29 under
the Act, as provided by NYSE Arca Rule
5.3–E. The Exchange will obtain a
representation from the issuer of the
28 See
29 17
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NYSE Arca Rule 7.12–E.
CFR 240.10A–3.
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Shares that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time. The Fund’s investments
will be consistent with its investment
goal and will not be used to provide
multiple returns of a benchmark or to
produce leveraged returns.
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Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by FINRA on behalf of the
Exchange, or by regulatory staff of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.30
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, certain exchangetraded options and certain exchangetraded futures, and ETFs with other
markets and other entities that are
members of the Intermarket
Surveillance Group (‘‘ISG’’), and the
Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading
information regarding trading in such
securities and financial instruments
from such markets and other entities.31
In addition, the Exchange may obtain
information regarding trading in such
securities and financial instruments
from markets and other entities that are
members of ISG or with which the
Exchange has in place a CSSA. In
addition, FINRA, on behalf of the
Exchange, is able to access, as needed,
30 FINRA conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
31 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement (‘‘CSSA’’).
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Jkt 244001
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s TRACE.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
All statements and representations
made in this filing regarding (a) the
description of the portfolio or reference
asset, (b) limitations on portfolio
holdings or reference assets, or (c) the
applicability of Exchange listing rules
specified in this rule filing shall
constitute continued listing
requirements for listing the Shares of
the Fund on the Exchange.
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 for compliance with the
continued listing requirements. If the
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under NYSE Arca Rule 5.5–
E(m).
Information Bulletin
The Exchange will inform its Equity
Trading Permit Holders in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Rule 9.2–E(a), which
imposes a duty of due diligence on its
Equity Trading Permit Holders to learn
the essential facts relating to every
customer prior to trading the Shares; (3)
the risks involved in trading the Shares
during the Early and Late Trading
Sessions when an updated PIV will not
be calculated or publicly disseminated;
(4) how information regarding the PIV
and the Disclosed Portfolio is
disseminated; (5) the requirement that
Equity Trading Permit Holders deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (6) trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Act. The Bulletin will also disclose that
the NAV for the Shares will be
calculated after 4:00 p.m., E.T. each
trading day.
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2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 32 that an
exchange have rules that are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares are
listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Rule
8.600–E. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws. The Exchange or FINRA, on behalf
of the Exchange, or both, will
communicate as needed regarding
trading in the Shares, certain exchangetraded options and certain exchangetraded futures, and ETFs with other
markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading in such securities and
financial instruments from such markets
and other entities. The Exchange may
obtain information regarding trading in
such securities and financial
instruments from markets and other
entities that are members of ISG or with
which the Exchange has in place a
CSSA. In addition, FINRA, on behalf of
the Exchange, is able to access, as
needed, trade information for certain
fixed income securities held by the
Fund reported to TRACE. The Adviser
is not registered as a broker-dealer. The
Adviser is affiliated with First Trust
Portfolios L.P., a broker-dealer and has
implemented and will maintain a fire
wall with respect to its broker-dealer
affiliate regarding access to information
concerning the composition and/or
changes to the portfolio.
The Exchange notes that, other than
Commentary .01(a)(1), (b)(5), and (e) to
Rule 8.600–E, as described above, the
Fund’s portfolio will meet all other
requirements of Rule 8.600–E.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
32 15
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of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
will be publicly available regarding the
Fund and the Shares, thereby promoting
market transparency. Quotation and last
sale information for the Shares and
ETFs will be available via the CTA highspeed line, and from the national
securities exchanges on which they are
listed. The Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Trading in Shares of
the Fund will be halted if the circuit
breaker parameters in NYSE Arca Rule
7.12–E have been reached or because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. Trading in the
Shares will be subject to NYSE Arca
Rule 8.600–E(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, NAV, the PIV, the
Disclosed Portfolio, and quotation and
last sale information for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
principally will hold fixed income
securities and that will enhance
competition among market participants,
to the benefit of investors and the
marketplace. As noted above, the
Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a CSSA. In
addition, as noted above, investors will
have ready access to information
regarding the Fund’s holdings, NAV,
Disclosed Portfolio, and quotation and
last sale information for the Shares.
Deviations from the generic
requirements, as described above, are
necessary for the Fund to achieve its
investment objective in a manner that is
cost-effective and that maximizes
investors’ returns. Further, the proposed
alternative requirements are narrowly
tailored to allow the Fund to achieve its
investment objective in a manner that is
consistent with the principles of Section
6(b)(5) of the Act. As a result, it is in the
public interest to approve listing and
trading of Shares of the Fund on the
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17:25 Aug 29, 2018
Jkt 244001
Exchange pursuant to the requirements
set forth herein.
As noted above, the Fund will not
comply with the requirement in
Commentary .01(b)(1) to Rule 8.600–E
that components that in the aggregate
account for at least 75% of the fixed
income weight of the portfolio each
shall have a minimum original principal
amount outstanding of $100 million or
more. Instead, the Exchange proposes
that components that in the aggregate
account for at least 30% of the fixed
income weight of the portfolio each
shall have a minimum original principal
amount outstanding of $50 million or
more. The Adviser represents that the
Agency Mortgage-Related Investments
market is extremely large and liquid; 33
however, individual bond sizes in
Agency Mortgage-Related Investments
tend to be slightly smaller on average
than standard corporate obligation deal
issuances. The Adviser represents that,
except for periods of high cash inflows
or outflows, at least 30% (based on
dollar amount invested) of the fixed
income weight of the securities in
which the Fund invests would have a
minimum original principal amount
outstanding of $50 million or more. The
Adviser represents that these criteria are
appropriate, based on the size and
liquidity of the market in which agency
mortgage securities generally trade and
the anticipated availability of Agency
Mortgage-Related Investments that
would satisfy the Fund’s investment
parameters.
As noted above, the Fund will not
comply with the requirement in
Commentary .01(b)(5) that investments
in non-agency, non-government
sponsored entity and privately issued
mortgage-related and other asset-backed
securities (i.e., Non-Agency MortgageRelated Investments and ABS) not
account, in the aggregate, for more than
20% of the weight of the fixed income
portion of the portfolio. Instead, NonAgency Mortgage-Related Investments
will, in the aggregate, not exceed more
than 20% of the total assets of the Fund.
This alternative requirement is
appropriate because the Fund’s
investment in Non-Agency MortgageRelated Investments is expected to
provide the Fund with benefits
associated with increased
diversification, as Non-Agency
Mortgage-Related Investments tend to be
less correlated to interest rates than
many other fixed income securities. The
Adviser represents that the Fund’s
investment in Non-Agency MortgageRelated Investments will be subject to
the Fund’s liquidity procedures as
33 See
PO 00000
note 18, supra.
Frm 00063
Fmt 4703
adopted by the Board, and the Adviser
does not expect that investments in
Non-Agency Mortgage-Related
Investments of up to 20% of the total
assets of the Fund will have any
material impact on the liquidity of the
Fund’s investments. The Exchange
notes that the Commission has
previously approved the listing of
actively managed ETFs that can invest
20% of their total assets in non-U.S.
Government, non-agency, non-GSE and
other privately issued ABS and MBS.34
Thus, it is appropriate to expand the
limit on the Fund’s investments in NonAgency Mortgage-Related Investments
set forth in Commentary .01(b)(5) of the
generic listing standards.
As noted above, the Fund’s portfolio
will not meet the requirements of
Commentary .01(a)(1)(A) through (E) to
Rule 8.600–E with respect to the Fund’s
investments in non-exchange-traded
open-end investment company
securities. The Exchange believes that it
is appropriate and in the public interest
to approve listing and trading of Shares
of the Fund on the Exchange
notwithstanding that the Fund would
not meet the requirements of
Commentary .01(a)(1)(A) through (E) to
Rule 8.600–E with respect to the Fund’s
investments in non-exchange-traded
open-end investment company
securities. Investments in nonexchange-traded open-end investment
company securities will not be principal
investments of the Fund. Such
investments, which may include mutual
funds that invest, for example,
principally in fixed income securities,
would be utilized to help the Fund meet
its investment objective and to equitize
cash in the short term.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of shares of an additional type of
actively-managed exchange-traded
product that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
additional type of actively-managed
exchange-traded product that
principally will hold fixed income
34 See
Sfmt 4703
44319
E:\FR\FM\30AUN1.SGM
note 20, supra.
30AUN1
44320
Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices
securities and that will enhance
competition among market participants,
to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
amozie on DSK3GDR082PROD with NOTICES1
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–
NYSEArca–2018–60 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–2018–60. 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
VerDate Sep<11>2014
17:25 Aug 29, 2018
Jkt 244001
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–2018–60, and
should be submitted on or before
October 1, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–18781 Filed 8–29–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83941; File No. SR–BOX–
2018–25]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Reflect in
the Exchange’s Governing Documents
and the Exchange’s Rulebook,
Changes to the Exchange’s Name
August 24, 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 August
15, 2018, BOX Options Exchange LLC
(the ‘‘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 self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule from
interested persons.
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to reflect in
the Exchange’s governing documents
and the Exchange’s rulebook, changes to
the Exchange’s name. The text of the
proposed rule change is available from
the principal office of the Exchange, at
the Commission’s Public Reference
Room and also on the Exchange’s
internet website at https://
boxoptions.com.
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 these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to reflect
in the Exchange’s governing documents
and the Exchange’s rulebook, changes to
the Exchange’s name. On July 19, 2018,
the BOX Options Exchange LLC Board
of Directors approved that the name of
BOX Options Exchange LLC be changed
to ‘‘BOX Exchange LLC’’ and that each
officer of the Company be, and hereby
is, authorized and directed to undertake
any actions required or advisable to
carry out the name change, including
with respect to the SEC and any
governmental or third parties. The
Exchange intends for these changes to
be effective upon filing.
As proposed, references to the
Exchange’s name will be deleted and
revised to state the new name, as
described more fully below. No other
substantive changes are being proposed
in this filing. The Exchange represents
that these changes are concerned solely
with the administration of the Exchange
and do not affect the meaning,
administration, or enforcement of any
rules of the Exchange or the rights,
obligations, or privileges of Exchange
members or their associated persons in
any way. Accordingly, this filing is
being submitted under Rule 19b–4(f)(3).
In lieu of providing a copy of the
E:\FR\FM\30AUN1.SGM
30AUN1
]]>Agencies
[Federal Register Volume 83, Number 169 (Thursday, August 30, 2018)]
[Notices]
[Pages 44312-44320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18781]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83936; File No. SR-NYSEArca-2018-60]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the First Trust
Long Duration Opportunities ETF Under NYSE Arca Rule 8.600-E
August 24, 2018.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 17, 2018, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
[[Page 44313]]
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the First Trust
Long Duration Opportunities ETF under NYSE Arca Rule 8.600-E (``Managed
Fund Shares''). The proposed 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 to list and trade shares (``Shares'') of
First Trust Long Duration Opportunities ETF (the ``Fund'') which under
NYSE Arca Rule 8.600-E, which governs the listing and trading of
Managed Fund Shares on the Exchange.\4\
---------------------------------------------------------------------------
\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3),
seeks to provide investment results that correspond generally to the
price and yield performance of a specific foreign or domestic stock
index, fixed income securities index or combination thereof.
---------------------------------------------------------------------------
The Shares are offered by First Trust Exchange-Traded Fund IV (the
``Trust''), which is registered with the Commission as an open-end
management investment company.\5\ The Fund is a series of the Trust.
---------------------------------------------------------------------------
\5\ The Trust is registered under the 1940 Act. On June 12,
2018, the Trust filed with the Commission its registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a), and
under the 1940 Act relating to the Fund (File Nos. 333-174332 and
811-22559) (``Registration Statement''). The description of the
operation of the Trust and the Fund herein is based, in part, on the
Registration Statement. In addition, the Commission has issued an
order upon which the Trust may rely, granting certain exemptive
relief under the 1940 Act. See Investment Company Act Release No.
30029 (April 10, 2012) (File No. 812-13795).
---------------------------------------------------------------------------
First Trust Advisors L.P. is the investment adviser (``First
Trust'' or ``Adviser'') to the Fund. First Trust Portfolios L.P. is the
distributor (``Distributor'') for the Fund's Shares. The Bank of New
York Mellon acts as the administrator, custodian and transfer agent
(``Custodian'' or ``Transfer Agent'') for the Fund.
Commentary .06 to Rule 8.600-E provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect
and maintain a ``fire wall'' between the investment adviser and the
broker-dealer with respect to access to information concerning the
composition and/or changes to such investment company portfolio.\6\ In
addition, Commentary .06 further requires that personnel who make
decisions on the open-end fund's portfolio composition must be subject
to procedures designed to prevent the use and dissemination of material
nonpublic information regarding the open-end fund's portfolio. The
Adviser is not registered as a broker-dealer. The Adviser is affiliated
with First Trust Portfolios L.P., a broker-dealer, and has implemented
and will maintain a fire wall with respect to its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio. In the event (a) the Adviser becomes
registered as a broker-dealer or newly affiliated with a broker-dealer,
or (b) any new adviser or sub-adviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, it will implement and maintain
a fire wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
---------------------------------------------------------------------------
\6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
---------------------------------------------------------------------------
First Trust Long Duration Opportunities ETF
Principal Investments
According to the Registration Statement, the investment objective
of the Fund is to generate current income with a focus on preservation
of capital. Under normal market conditions,\7\ the Fund will invest at
least 80% of its net assets in a portfolio of ``Fixed Income
Securities'' (described below), which may be represented by derivatives
relating to such securities. The term Fixed Income Securities means:
---------------------------------------------------------------------------
\7\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5). On a temporary basis, including for
defensive purposes, during the initial invest-up period (i.e., the
six-week period following the commencement of trading of Shares on
the Exchange) and during periods of high cash inflows or outflows
(i.e., rolling periods of seven calendar days during which inflows
or outflows of cash, in the aggregate, exceed 10% of the Fund's net
assets as of the opening of business on the first day of 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. The Fund may adopt a defensive strategy when
the Adviser believes securities in which the Fund normally invests
have elevated risks due to political or economic factors and in
other extraordinary circumstances.
---------------------------------------------------------------------------
Debt securities issued or guaranteed by the U.S.
Government, its agencies or government-sponsored entities (``GSE'' or
``U.S. Government Entities''), other than ``Agency Mortgage-Related
Investments'' as referenced below; \8\
---------------------------------------------------------------------------
\8\ Government-sponsored entities include, for example, the
Government National Mortgage Association, the Federal National
Mortgage Association, and the Federal Home Loan Mortgage
Corporation.
---------------------------------------------------------------------------
mortgage-related debt securities and other mortgage-
related instruments issued or guaranteed by the U.S. Government and
U.S. Government Entities (collectively, ``Agency Mortgage-Related
Investments''); and
debentures related to securities issued or guaranteed by
the U.S. Government and U.S. Government Entities.
The Fund may invest in the following derivative instruments:
options, futures contracts and swap agreements.
[[Page 44314]]
According to the Registration Statement, the use of these derivative
transactions may allow the Fund to obtain net long or short exposures
to selected interest rates or durations. The Fund may also utilize
derivatives to enhance return, to hedge some of the risks of its
investments in securities, as a substitute for a position in the
underlying asset, to reduce transaction costs, to maintain full market
exposure (which means to adjust the characteristics of its investments
to more closely approximate those of the markets in which it invests),
to manage cash flows or to preserve capital
The Fund may invest in exchange-traded funds (``ETFs'') that invest
in Fixed Income Securities.\9\ Such ETFs will count towards the Fund's
80% investment requirement described above.
---------------------------------------------------------------------------
\9\ For purposes of this filing, the term ``ETFs'' includes
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a
national securities exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
---------------------------------------------------------------------------
The Fund may enter into mortgage dollar rolls.
The Fund may invest in to-be-announced transactions (``TBA'').
Cash earmarked or otherwise held as collateral for settling
mortgage dollar rolls, TBA transactions, and other delayed-delivery
transactions will count towards the Fund's 80% investment requirement
described above.
The Fund may enter into short sales of any securities in which the
Fund may invest.
Other Investments
While, under normal market conditions, the Fund will invest at
least 80% of the Fund's net assets in the securities and financial
instruments described above under ``Principal Investments'', the Fund
may invest up to 20% of its net assets in the securities and financial
instruments described below.
The Fund may invest in cash and cash equivalents.\10\ In addition,
the Fund may hold the following short-term instruments with maturities
of three months or more: Certificates of deposit; bankers' acceptances;
repurchase agreements and reverse repurchase agreements; bank time
deposits; and commercial paper.
---------------------------------------------------------------------------
\10\ For purposes of this filing, cash equivalents are the
short-term instruments enumerated in Commentary .01(c) to Rule
8.600-E.
---------------------------------------------------------------------------
The Fund may invest up to 20% of its net assets in other fixed
income securities, including asset-backed securities (``ABS'') and
mortgage-related debt securities and other mortgage-related instruments
not issued or guaranteed by the U.S. Government or U.S. Government
Entities (``Non-Agency Mortgage-Related Investments'').\11\
---------------------------------------------------------------------------
\11\ For purposes of this filing, Agency Mortgage-Related
Investments and Non-Agency Mortgage-Related Investments consist of:
(1) Residential mortgage-backed securities (``RMBS''); (2)
commercial mortgage-backed securities (``CMBS''); (3) stripped
mortgage-backed securities (``SMBS''), which are mortgage-backed
securities where mortgage payments are divided up between paying the
loan's principal and paying the loan's interest; and (4)
collateralized mortgage obligations (``CMOs'') and real estate
mortgage investment conduits (``REMICs'') where they are divided
into multiple classes with each class being entitled to a different
share of the principal and/or interest payments received from the
pool of underlying assets.
---------------------------------------------------------------------------
The Fund may invest in non-exchange-traded investment company
securities (i.e., mutual funds).
The Fund will not invest in securities or other financial
instruments that have not been described in this proposed rule change.
Other Restrictions
The Fund's investments, including derivatives, will be consistent
with the Fund's investment objective and will not be used to enhance
leverage (although certain derivatives and other investments may result
in leverage). That is, the Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (e.g., 2X or -3X)
of the Fund's primary broad-based securities benchmark index (as
defined in Form N-1A).\12\
---------------------------------------------------------------------------
\12\ The Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------
Use of Derivatives by the Fund
The Fund may invest in the types of derivatives described in the
``Other Investments'' section above for the purposes described in that
section. Investments in derivative instruments will be made in
accordance with the Fund's investment objective and policies.
To limit the potential risk associated with such transactions, the
Fund will enter into offsetting transactions or segregate or
``earmark'' assets determined to be liquid by the Adviser in accordance
with procedures established by the Trust's Board of Trustees (the
``Board''). In addition, the Fund has included appropriate risk
disclosure in its offering documents, including leveraging risk.
Leveraging risk is the risk that certain transactions of the Fund,
including the Fund's use of derivatives, may give rise to leverage,
causing the Fund to be more volatile than if it had not been leveraged.
Impact on Arbitrage Mechanism
The Adviser believes there will be minimal, if any, impact to the
arbitrage mechanism as a result of the Fund's use of derivatives. The
Adviser understands that market makers and participants should be able
to value derivatives as long as the positions are disclosed with
relevant information. The Adviser believes that the price at which
Shares of the Fund trade will continue to be disciplined by arbitrage
opportunities created by the ability to purchase or redeem Shares of
the Fund at their net asset value (``NAV''), which should ensure that
Shares of the Fund will not trade at a material discount or premium in
relation to their NAV.
The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of the Fund's arbitrage
mechanism due to the use of derivatives.
Creation and Redemption of Shares
The Fund will issue and redeem Shares on a continuous basis at NAV
\13\ only in large blocks of Shares (``Creation Units'') in
transactions with authorized participants, generally including broker-
dealers and large institutional investors (``Authorized
Participants''). Creation Units generally will consist of 50,000
Shares. The size of a Creation Unit is subject to change. As described
in the Registration Statement, the Fund will issue and redeem Creation
Units in exchange for an in-kind portfolio of instruments and/or cash
in lieu of such instruments (the ``Creation Basket'').\14\ In addition,
if there is a difference between the NAV attributable to a Creation
Unit and the market value of the Creation Basket exchanged for the
Creation Unit, the party conveying instruments (which may include cash-
in-lieu amounts) with the lower value will pay to the other an amount
in cash equal to the difference (referred to as the ``Cash
Component'').
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\13\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of regular trading
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m.,
Eastern Time (``E.T.''). NAV per Share will be calculated by
dividing the Fund's net assets by the number of Fund Shares
outstanding.
\14\ It is expected that the Fund will typically issue and
redeem Creation Units on a cash basis; however, at times, the Fund
may issue and redeem Creation Units on an in-kind (or partially in-
kind) (or partially cash) basis.
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Creations and redemptions must be made by or through an Authorized
Participant that has executed an agreement that has been agreed to by
the Distributor and the Transfer Agent with
[[Page 44315]]
respect to creations and redemptions of Creation Units. All standard
orders to create Creation Units must be received by the Transfer Agent
no later than the closing time of the regular trading session on the
NYSE (ordinarily 4:00 p.m., E.T.) (the ``Closing Time'') in each case
on the date such order is placed in order for the creation of Creation
Units to be effected based on the NAV of Shares as next determined on
such date after receipt of the order in proper form. Shares may be
redeemed only in Creation Units at their NAV next determined after
receipt not later than the Closing Time of a redemption request in
proper form by the Fund through the Transfer Agent and only on a
business day. The Custodian, through the National Securities Clearing
Corporation (``NSCC''), will make available on each business day, prior
to the opening of business of the Exchange, the list of the names and
quantities of the instruments comprising the Creation Basket, as well
as the estimated Cash Component (if any), for that day. The published
Creation Basket will apply until a new Creation Basket is announced on
the following business day prior to commencement of trading in the
Shares.
Application of Generic Listing Requirements
The Exchange is submitting this proposed rule change because the
portfolio for the Fund will not meet all of the ``generic'' listing
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to
the listing of Managed Fund Shares. The Fund's portfolio will meet all
such requirements except for those set forth in Commentary
.01(a)(1),\15\ (b)(1), and (b)(5), as described below.
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\15\ Commentary .01(a)(1) to NYSE Arca Rule 8.600-E provides
that the component stocks of the equity portion of a portfolio that
are U.S. Component Stocks shall meet the following criteria
initially and on a continuing basis: (A) Component stocks (excluding
Derivative Securities Products and Index-Linked Securities) that in
the aggregate account for at least 90% of the equity weight of the
portfolio (excluding such Derivative Securities Products and Index-
Linked Securities) each shall have a minimum market value of at
least $75 million; (B) Component stocks (excluding Derivative
Securities Products and Index-Linked Securities) that in the
aggregate account for at least 70% of the equity weight of the
portfolio (excluding such Derivative Securities Products and Index-
Linked Securities) each shall have a minimum monthly trading volume
of 250,000 shares, or minimum notional volume traded per month of
$25,000,000, averaged over the last six months; (C) The most heavily
weighted component stock (excluding Derivative Securities Products
and Index-Linked Securities) shall not exceed 30% of the equity
weight of the portfolio, and, to the extent applicable, the five
most heavily weighted component stocks (excluding Derivative
Securities Products and Index-Linked Securities) shall not exceed
65% of the equity weight of the portfolio; (D) Where the equity
portion of the portfolio does not include Non-U.S. Component Stocks,
the equity portion of the portfolio shall include a minimum of 13
component stocks; provided, however, that there shall be no minimum
number of component stocks if (i) one or more series of Derivative
Securities Products or Index-Linked Securities constitute, at least
in part, components underlying a series of Managed Fund Shares, or
(ii) one or more series of Derivative Securities Products or Index-
Linked Securities account for 100% of the equity weight of the
portfolio of a series of Managed Fund Shares; (E) Except as provided
herein, equity securities in the portfolio shall be U.S. Component
Stocks listed on a national securities exchange and shall be NMS
Stocks as defined in Rule 600 of Regulation NMS under the Securities
Exchange Act of 1934; and (F) American Depositary Receipts
(``ADRs'') in a portfolio may be exchange-traded or non- exchange-
traded. However, no more than 10% of the equity weight of a
portfolio shall consist of non-exchange-traded ADRs.
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The Fund will not comply with the requirements set forth in
Commentary (b)(1) and (b)(5) to NYSE Arca Rule 8.600-E with respect to
the Fund's investments in Fixed Income Securities.
The Fund will not comply with the requirement in Commentary
.01(b)(1) to Rule 8.600-E that components that in the aggregate account
for at least 75% of the fixed income weight of the portfolio each shall
have a minimum original principal amount outstanding of $100 million or
more.\16\ Instead, the Exchange proposes that, except for periods of
high cash inflows or outflows,\17\ components that in the aggregate
account for at least 30% of the fixed income weight of the portfolio
each shall have a minimum original principal amount outstanding of $50
million or more.
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\16\ Commentary .01(b)(1) to Rule 8.600-E provides that
components that in the aggregate account for at least 75% of the
fixed income weight of the portfolio each shall have a minimum
original principal amount outstanding of $100 million or more.
\17\ See note 7, supra.
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As noted above in ``Principal Investments'', under normal market
conditions, the Fund's principal holdings will include Agency Mortgage-
Related Investments (as defined above), securities issued or guaranteed
by the U.S. Government and U.S. Government Entities other than Agency
Mortgage-Related Investments, and debentures related to securities
issued or guaranteed by the U.S. Government and U.S. Government
Entities. The Adviser represents that the Agency Mortgage-Related
Investments market is extremely large and liquid; \18\ however,
individual bond sizes in Agency Mortgage-Related Investments tend to be
slightly smaller on average than standard corporate obligation deal
issuances. For example, as of March 31, 2018 there were approximately
$3.06 trillion in Fannie Mae outstanding; however, that amount is
comprised of tens of thousands of individual pools with a range of
individual pool specific issue sizes. While an individual tranche may
be less than $100 million, it may have been issued as part of a deal in
excess of $100 million. The Adviser represents that, except for periods
of high cash inflows or outflows, at least 30% (based on dollar amount
invested) of the fixed income weight of the securities in which the
Fund invests would have a minimum original principal amount outstanding
of $50 million or more. The Adviser represents that these criteria are
appropriate, based on the size and liquidity of the market in which
agency mortgage securities generally trade and the anticipated
availability of Agency Mortgage-Related Investments that would satisfy
the Fund's investment parameters.
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\18\ The approximate average daily trading volume in agency
mortgage-backed securities (``MBS'') from 2003-2017 was $249
billion. The average daily trading volume in agency MBS for June
2018 was approximately $223.2 billion. As of March 31, 2018,
approximately $6.99 trillion in agency MBS was outstanding. (Source:
Securities Industry and Financial Markets Association (SIFMA)).
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As noted above, the Fund will not comply with the requirement in
Commentary .01(b)(5) that investments in non-agency, non-government
sponsored entity and privately issued mortgage-related and other asset-
backed securities (i.e., Non-Agency Mortgage-Related Investments) not
account, in the aggregate, for more than 20% of the weight of the fixed
income portion of the portfolio.\19\ Instead, Non-Agency Mortgage-
Related Investments will, in the aggregate, not exceed more than 20% of
the total assets of the Fund.
---------------------------------------------------------------------------
\19\ Commentary .01(b)(5) to NYSE Arca Rule 8.600-E provides
that non-agency, non-GSE and privately-issued mortgage-related and
other asset-backed securities components of a portfolio shall not
account, in the aggregate, for more than 20% of the weight of the
fixed income portion of the portfolio.
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This alternative requirement is appropriate because the Fund's
investment in Non-Agency Mortgage-Related Investments is expected to
provide the Fund with benefits associated with increased
diversification, as Non-Agency Mortgage-Related Investments tend to be
less correlated to interest rates than many other fixed income
securities. The Adviser represents that the Fund's investment in Non-
Agency Mortgage-Related Investments will be subject to the Fund's
liquidity procedures as adopted by the Board, and the Adviser does not
expect that investments in Non-Agency Mortgage-Related Investments of
up to 20% of the total assets of the Fund will have any material impact
on the liquidity of the Fund's investments. The Exchange
[[Page 44316]]
notes that the Commission has previously approved the listing of
actively managed ETFs that can invest 20% of their total assets in non-
U.S. Government, non-agency, non-GSE and other privately issued ABS and
MBS.\20\ Thus, it is appropriate to allow an exception to the Fund's
investments in Non-Agency Mortgage-Related Investments set forth in
Commentary .01(b)(5) of the generic listing standards.
---------------------------------------------------------------------------
\20\ See, e.g., Securities Exchange Act Release Nos. 80946 (June
15, 2017) 82 FR 28126 (June 20, 2017) (SR-NASDAQ-2017-039)
(permitting the Guggenheim Limited Duration ETF to invest up to 20%
of its total assets in privately-issued, non-agency and non-GSE ABS
and MBS); 76412 (November 10, 2015), 80 FR 71880 (November 17, 2015)
(SR-NYSEArca-2015-111) (permitting the RiverFront Strategic Income
Fund to invest up to 20% of its assets in privately-issued, non-
agency and non-GSE ABS and MBS); 74814 (April 27, 2015), 80 FR 24986
(May 1, 2015) (SR-NYSEArca-2014-017) (permitting the Guggenheim
Enhanced Short Duration ETF to invest up to 20% of its assets in
privately-issued, non-agency and non-GSE ABS and MBS); 74109
(January 21, 2015), 80 FR 4327 (January 27, 2015) (SR-NYSEArca-2014-
134) (permitting the IQ Wilshire Alternative Strategies ETF to
invest up to 20% of its total assets in MBS and other ABS, without
any limit on the type of such MBS and ABS); 83319 (May 24, 2018)
(SR-NYSEArca-2018-15) (Order Approving a Proposed Rule Change, as
Modified by Amendment No. 1 Thereto, to Continue Listing and Trading
Shares of the PGIM Ultra Short Bond ETF Under NYSE Arca Rule 8.600-
E).
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As noted above, the Fund may invest in equity securities that are
non-exchange-traded open-end investment company securities (i.e.,
mutual funds). The Exchange believes that it is appropriate and in the
public interest to approve listing and trading of Shares of the Fund on
the Exchange notwithstanding that the Fund would not meet the
requirements of Commentary .01(a)(1)(A) through (E) to Rule 8.600-E
with respect to the Fund's investments in non-exchange-traded open-end
investment company securities.\21\ Investments in non-exchange-traded
open-end investment company securities will not be principal
investments of the Fund.\22\ Such investments, which may include mutual
funds that invest, for example, principally in fixed income securities,
would be utilized to help the Fund meet its investment objective and to
equitize cash in the short term.
---------------------------------------------------------------------------
\21\ Commentary .01 (a) to Rule 8.600-E specifies the equity
securities accommodated by the generic criteria in Commentary
.01(a), namely, U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)); Non-U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)); Derivative Securities Products (i.e., Investment Company
Units and securities described in Section 2 of Rule 8-E); and Index-
Linked Securities that qualify for Exchange listing and trading
under Rule 5.2-E(j)(6).
\22\ For purposes of this section of the filing, non-exchange-
traded securities of other registered investment companies do not
include money market funds, which are cash equivalents under
Commentary .01(c) to Rule 8.600-E and for which there is no
limitation in the percentage of the portfolio invested in such
securities.
---------------------------------------------------------------------------
With respect to investments by the Fund in non-exchange-traded
investment company securities, because such securities have a net asset
value based on the value of securities and financial assets the
investment company holds, the Exchange believes it is both unnecessary
and inappropriate to apply to such investment company securities the
criteria in Commentary .01(a)(1).
The Exchange notes that Commentary .01(A) through (D) to Rule
8.600-E exclude application of those provisions to certain ``Derivative
Securities Products'' that are exchange-traded investment company
securities, including 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).\23\ In its 2008 Approval Order approving amendments
to Commentary .01(a) to Rule 5.2(j)(3) that exclude Derivative
Securities Products from certain provisions of Commentary .01(a) (which
exclusions are similar to those in Commentary .01(a)(1) to Rule 8.600-
E), the Commission stated 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.'' The Exchange notes that it would be difficult or
impossible to apply to non-exchange-traded investment company
securities the generic quantitative criteria (e.g., market
capitalization, trading volume, or portfolio criteria) in Commentary
.01 (A) through (D) applicable to U.S. Component Stocks. For example,
the requirement for U.S. Component Stocks in Commentary .01(a)(1)(B)
that there be minimum monthly trading volume of 250,000 shares, or
minimum notional volume traded per month of $25,000,000, averaged over
the last six months is tailored to exchange-traded securities (e.g.,
U.S. Component Stocks) and not to mutual fund shares, which do not
trade in the secondary market. Moreover, application of such criteria
would not serve the purpose served with respect to U.S. Component
Stocks, namely, to establish minimum liquidity and diversification
criteria for U.S. Component Stocks held by series of Managed Fund
Shares.
---------------------------------------------------------------------------
\23\ The Commission initially approved the Exchange's proposed
rule change to exclude ``Derivative Securities Products'' (i.e.,
Investment Company Units and securities described in Section 2 of
Rule 8) and ``Index-Linked Securities (as described in Rule 5.2-E
(j)(6)) from Commentary .01(a)(A) (1) through (4) to Rule 5.2-E(j)
(3 in Securities Exchange Act Release No. 57751 (May 1, 2008), 73 FR
25818 (May 7, 2008) (SR-NYSEArca-2008-29) (Order Granting Approval
of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto,
to Amend the Eligibility Criteria for Components of an Index
Underlying Investment Company Units) (``2008 Approval Order''). See
also, Securities Exchange Act Release No. 57561 (March 26, 2008), 73
FR 17390 (April 1, 2008) (Notice of Filing of Proposed Rule Change
and Amendment No. 1 Thereto to Amend the Eligibility Criteria for
Components of an Index Underlying Investment Company Units). The
Commission subsequently approved generic criteria applicable to
listing and trading of Managed Fund Shares, including exclusions for
Derivative Securities Products and Index-Linked Securities in
Commentary .01(a)(1)(A) through (D), in Securities Exchange Act
Release No. 78397 (July 22, 2016), 81 FR 49320 (July 27, 2016)
(Order Granting Approval of Proposed Rule Change, as Modified by
Amendment No. 7 Thereto, Amending NYSE Arca Equities Rule 8.600 To
Adopt Generic Listing Standards for Managed Fund Shares). See also,
Amendment No. 7 to SR-NYSEArca-2015-110, available at https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-9.pdf.
---------------------------------------------------------------------------
The Exchange notes that the Commission has previously approved
listing and trading of an issue of Managed Fund Shares that may invest
in equity securities that are non-exchange-traded open-end investment
company securities notwithstanding that the fund would not meet the
requirements of Commentary .01(a)(1)(A) through (E) to Rule 8.600-E
with respect to such fund's investments in such securities.\24\ Thus,
the Exchange believes that it is appropriate to permit the Fund to
invest in non-exchange-traded open-end management investment company
securities, as described above.
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\24\ See Securities Exchange Act Release No. 83319 (May 24,
2018) (SR-NYSEArca-2018-15) (Order Approving a Proposed Rule Change,
as Modified by Amendment No. 1 Thereto, to Continue Listing and
Trading Shares of the PGIM Ultra Short Bond ETF Under NYSE Arca Rule
8.600-E).
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The Exchange notes that, other than Commentary .01(a)(1), (b)(1),
and (b)(5) to Rule 8.600-E, as described above, the Fund's portfolio
will meet all other requirements of Rule 8.600-E.
Availability of Information
The Fund's website (www.ftportfolios.com) will include the
prospectus for the Fund that may be downloaded. The Fund's website will
include additional quantitative information updated on a daily basis
including, for the Fund, (1) daily trading volume, the prior business
day's reported closing price, NAV and midpoint of the bid/ask spread at
the time of calculation of such NAV (the ``Bid/Ask Price''),\25\ and a
calculation of
[[Page 44317]]
the premium and discount of the Bid/Ask Price against the NAV, and (2)
data in chart format displaying the frequency distribution of discounts
and premiums of the daily Bid/Ask Price against the NAV, within
appropriate ranges, for each of the four previous calendar quarters. On
each business day, before commencement of trading in Shares in the Core
Trading Session on the Exchange, the Fund will disclose on its website
the Disclosed Portfolio as defined in NYSE Arca Rule 8.600-E(c)(2) that
forms the basis for the Fund's calculation of NAV at the end of the
business day.\26\
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\25\ The Bid/Ask Price of the Fund's Shares will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid/Ask Prices will be retained by the Fund and
its service providers.
\26\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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On a daily basis, the Fund will disclose the information required
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The
website information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of
the Fund. Authorized Participants may refer to the basket composition
file for information regarding Fixed Income Securities, and any other
instrument that may comprise the Fund's basket on a given day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's
Form N-CSR, filed twice a year. The Fund's SAI and Shareholder Reports
will be available free upon request from the Trust, and those documents
and the Forms N-CSR and N-PX may be viewed on-screen or downloaded from
the Commission's website at www.sec.gov.
Intra-day and closing price information regarding futures and
exchange-traded options will be available from the exchange on which
such instruments are traded. Intra-day and closing price information
regarding fixed income securities will be available from major market
data vendors. Price information relating to OTC options and swaps will
be available from major market data vendors. Intra-day price
information for exchange-traded derivative instruments will be
available from the applicable exchange and from major market data
vendors. For exchange-listed securities, intraday price quotations will
generally be available from broker-dealers and trading platforms (as
applicable). Intraday and other price information for the fixed income
securities in which the Fund will invest will be available through
subscription services, such as Bloomberg, Markit and Thomson Reuters,
which can be accessed by Authorized Participants and other market
participants. Additionally, the Trade Reporting and Compliance Engine
(``TRACE'') of the Financial Industry Regulatory Authority (``FINRA'')
will be a source of price information for certain Fixed Income
Securities, including Agency Mortgage-Related Investments and Non-
Agency Mortgage-Related Investments, to the extent transactions in such
securities are reported to TRACE.\27\ Non-exchange-traded open-end
investment company securities are typically priced once each business
day and their prices will be available through the applicable fund's
website or from major market data vendors. Price information regarding
U.S. government securities, GSEs, debentures, cash equivalents and
other short-term instruments generally may be obtained from brokers and
dealers who make markets in such securities or through nationally
recognized pricing services through subscription agreements.
---------------------------------------------------------------------------
\27\ Broker-dealers that are FINRA member firms have an
obligation to report transactions in specified debt securities to
TRACE to the extent required under applicable FINRA rules.
Generally, such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income securities that are
not reported to TRACE, (i) intraday price quotations will generally
be available from broker-dealers and trading platforms (as
applicable) and (ii) price information will be available from feeds
from market data vendors, published or other public sources, or
online information services, as described above.
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Information regarding market price and trading volume of the Shares
and ETFs will be continually available on a real-time basis throughout
the day on brokers' computer screens and other electronic services.
Information regarding the previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.
Quotation and last sale information for the Shares and ETFs will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. Exchange-traded options quotation and last sale information for
options cleared via the Options Clearing Corporation (``OCC'') are
available via the Options Price Reporting Authority (``OPRA''). In
addition, the Portfolio Indicative Value (``PIV''), as defined in NYSE
Arca Rule 8.600-E(c)(3), will be widely disseminated by one or more
major market data vendors at least every 15 seconds during the Core
Trading Session.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\28\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. Trading in the Fund's Shares also
will be subject to Rule 8.600-E(d)(2)(D) (``Trading Halts'').
---------------------------------------------------------------------------
\28\ See NYSE Arca Rule 7.12-E.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m., E.T. in accordance
with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading Sessions).
The Exchange has appropriate rules to facilitate transactions in the
Shares during all trading sessions. As provided in NYSE Arca Rule 7.6-
E, the minimum price variation (``MPV'') for quoting and entry of
orders in equity securities traded on the NYSE Arca Marketplace is
$0.01, with the exception of securities that are priced less than $1.00
for which the MPV for order entry is $0.0001.
With the exception of the requirements of Commentary .01(a)(1),
(b)(5), and (e) to Rule 8.600-E as described above in ``Application of
Generic Listing Requirements,'' the Shares of the Fund will conform to
the initial and continued listing criteria under NYSE Arca Rule 8.600-
E. Consistent with NYSE Arca Rule 8.600-E(d)(2)(B)(ii), the Adviser
will implement and maintain, or be subject to, procedures designed to
prevent the use and dissemination of material non-public information
regarding the actual components of the Fund's portfolio. The Exchange
represents that, for initial and continued listing, the Fund will be in
compliance with Rule 10A-3 \29\ under the Act, as provided by NYSE Arca
Rule 5.3-E. The Exchange will obtain a representation from the issuer
of the
[[Page 44318]]
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. The Fund's investments will be
consistent with its investment goal and will not be used to provide
multiple returns of a benchmark or to produce leveraged returns.
---------------------------------------------------------------------------
\29\ 17 CFR 240.10A-3.
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Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by FINRA on behalf
of the Exchange, or by regulatory staff of the Exchange, which are
designed to detect violations of Exchange rules and applicable federal
securities laws. The Exchange represents that these procedures are
adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and federal securities laws applicable to trading on the Exchange.\30\
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\30\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, certain
exchange-traded options and certain exchange-traded futures, and ETFs
with other markets and other entities that are members of the
Intermarket Surveillance Group (``ISG''), and the Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading in such securities and financial instruments from
such markets and other entities.\31\ In addition, the Exchange may
obtain information regarding trading in such securities and financial
instruments from markets and other entities that are members of ISG or
with which the Exchange has in place a CSSA. In addition, FINRA, on
behalf of the Exchange, is able to access, as needed, trade information
for certain fixed income securities held by the Fund reported to
FINRA's TRACE.
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\31\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement (``CSSA'').
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio or reference asset, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules specified in this rule filing
shall constitute continued listing requirements for listing the Shares
of the Fund on the Exchange.
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 for compliance with the continued listing requirements. If the
Fund is not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
Information Bulletin
The Exchange will inform its Equity Trading Permit Holders in an
Information Bulletin (``Bulletin'') of the special characteristics and
risks associated with trading the Shares. Specifically, the Bulletin
will discuss the following: (1) The procedures for purchases and
redemptions of Shares in Creation Unit aggregations (and that Shares
are not individually redeemable); (2) NYSE Arca Rule 9.2-E(a), which
imposes a duty of due diligence on its Equity Trading Permit Holders to
learn the essential facts relating to every customer prior to trading
the Shares; (3) the risks involved in trading the Shares during the
Early and Late Trading Sessions when an updated PIV will not be
calculated or publicly disseminated; (4) how information regarding the
PIV and the Disclosed Portfolio is disseminated; (5) the requirement
that Equity Trading Permit Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \32\ 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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\32\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares are listed and traded on the Exchange pursuant to the initial
and continued listing criteria in NYSE Arca Rule 8.600-E. The Exchange
has in place surveillance procedures that are adequate to properly
monitor trading in the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws. The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, certain
exchange-traded options and certain exchange-traded futures, and ETFs
with other markets and other entities that are members of the ISG, and
the Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in such securities and financial
instruments from such markets and other entities. The Exchange may
obtain information regarding trading in such securities and financial
instruments from markets and other entities that are members of ISG or
with which the Exchange has in place a CSSA. In addition, FINRA, on
behalf of the Exchange, is able to access, as needed, trade information
for certain fixed income securities held by the Fund reported to TRACE.
The Adviser is not registered as a broker-dealer. The Adviser is
affiliated with First Trust Portfolios L.P., a broker-dealer and has
implemented and will maintain a fire wall with respect to its broker-
dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio.
The Exchange notes that, other than Commentary .01(a)(1), (b)(5),
and (e) to Rule 8.600-E, as described above, the Fund's portfolio will
meet all other requirements of Rule 8.600-E.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer
[[Page 44319]]
of the Shares that the NAV per Share will be calculated daily and that
the NAV and the Disclosed Portfolio will be made available to all
market participants at the same time. In addition, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. Quotation and last sale
information for the Shares and ETFs will be available via the CTA high-
speed line, and from the national securities exchanges on which they
are listed. The Exchange will inform its Equity Trading Permit Holders
in an Information Bulletin of the special characteristics and risks
associated with trading the Shares. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E
have been reached or because of market conditions or for reasons that,
in the view of the Exchange, make trading in the Shares inadvisable.
Trading in the Shares will be subject to NYSE Arca Rule 8.600-
E(d)(2)(D), which sets forth circumstances under which Shares of the
Fund may be halted. In addition, as noted above, investors will have
ready access to information regarding the Fund's holdings, NAV, the
PIV, the Disclosed Portfolio, and quotation and last sale information
for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
principally will hold fixed income securities and that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a CSSA. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, NAV, Disclosed Portfolio, and quotation and last sale
information for the Shares.
Deviations from the generic requirements, as described above, are
necessary for the Fund to achieve its investment objective in a manner
that is cost-effective and that maximizes investors' returns. Further,
the proposed alternative requirements are narrowly tailored to allow
the Fund to achieve its investment objective in a manner that is
consistent with the principles of Section 6(b)(5) of the Act. As a
result, it is in the public interest to approve listing and trading of
Shares of the Fund on the Exchange pursuant to the requirements set
forth herein.
As noted above, the Fund will not comply with the requirement in
Commentary .01(b)(1) to Rule 8.600-E that components that in the
aggregate account for at least 75% of the fixed income weight of the
portfolio each shall have a minimum original principal amount
outstanding of $100 million or more. Instead, the Exchange proposes
that components that in the aggregate account for at least 30% of the
fixed income weight of the portfolio each shall have a minimum original
principal amount outstanding of $50 million or more. The Adviser
represents that the Agency Mortgage-Related Investments market is
extremely large and liquid; \33\ however, individual bond sizes in
Agency Mortgage-Related Investments tend to be slightly smaller on
average than standard corporate obligation deal issuances. The Adviser
represents that, except for periods of high cash inflows or outflows,
at least 30% (based on dollar amount invested) of the fixed income
weight of the securities in which the Fund invests would have a minimum
original principal amount outstanding of $50 million or more. The
Adviser represents that these criteria are appropriate, based on the
size and liquidity of the market in which agency mortgage securities
generally trade and the anticipated availability of Agency Mortgage-
Related Investments that would satisfy the Fund's investment
parameters.
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\33\ See note 18, supra.
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As noted above, the Fund will not comply with the requirement in
Commentary .01(b)(5) that investments in non-agency, non-government
sponsored entity and privately issued mortgage-related and other asset-
backed securities (i.e., Non-Agency Mortgage-Related Investments and
ABS) not account, in the aggregate, for more than 20% of the weight of
the fixed income portion of the portfolio. Instead, Non-Agency
Mortgage-Related Investments will, in the aggregate, not exceed more
than 20% of the total assets of the Fund.
This alternative requirement is appropriate because the Fund's
investment in Non-Agency Mortgage-Related Investments is expected to
provide the Fund with benefits associated with increased
diversification, as Non-Agency Mortgage-Related Investments tend to be
less correlated to interest rates than many other fixed income
securities. The Adviser represents that the Fund's investment in Non-
Agency Mortgage-Related Investments will be subject to the Fund's
liquidity procedures as adopted by the Board, and the Adviser does not
expect that investments in Non-Agency Mortgage-Related Investments of
up to 20% of the total assets of the Fund will have any material impact
on the liquidity of the Fund's investments. The Exchange notes that the
Commission has previously approved the listing of actively managed ETFs
that can invest 20% of their total assets in non-U.S. Government, non-
agency, non-GSE and other privately issued ABS and MBS.\34\ Thus, it is
appropriate to expand the limit on the Fund's investments in Non-Agency
Mortgage-Related Investments set forth in Commentary .01(b)(5) of the
generic listing standards.
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\34\ See note 20, supra.
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As noted above, the Fund's portfolio will not meet the requirements
of Commentary .01(a)(1)(A) through (E) to Rule 8.600-E with respect to
the Fund's investments in non-exchange-traded open-end investment
company securities. The Exchange believes that it is appropriate and in
the public interest to approve listing and trading of Shares of the
Fund on the Exchange notwithstanding that the Fund would not meet the
requirements of Commentary .01(a)(1)(A) through (E) to Rule 8.600-E
with respect to the Fund's investments in non-exchange-traded open-end
investment company securities. Investments in non-exchange-traded open-
end investment company securities will not be principal investments of
the Fund. Such investments, which may include mutual funds that invest,
for example, principally in fixed income securities, would be utilized
to help the Fund meet its investment objective and to equitize cash in
the short term.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
shares of an additional type of actively-managed exchange-traded
product that will enhance competition among market participants, to the
benefit of investors and the marketplace.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded product that
principally will hold fixed income
[[Page 44320]]
securities and that will enhance competition among market participants,
to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2018-60 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-2018-60. 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-2018-60, and should be
submitted on or before October 1, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18781 Filed 8-29-18; 8:45 am]
BILLING CODE 8011-01-P
