Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Regarding Certain Investments of the PGIM Ultra Short Bond ETF, 54793-54796 [2018-23730]
Download as PDF
<![CDATA[
Federal Register / Vol. 83, No. 211 / Wednesday, October 31, 2018 / Notices
All submissions should refer to File
Number SR–ISE–2018–87. 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–ISE–2018–87 and should be
submitted on or before November
21,2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–23732 Filed 10–30–18; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
amozie on DSK3GDR082PROD with NOTICES1
[Release No. 34–84486; File No. SR–
NYSEArca–2018–75]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Regarding Certain
Investments of the PGIM Ultra Short
Bond ETF
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
15 17
1 15
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
VerDate Sep<11>2014
18:06 Oct 30, 2018
Jkt 247001
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes certain
changes regarding investments of the
PGIM Ultra Short Bond ETF (the
‘‘Fund’’), a series of PGIM ETF Trust
(the ‘‘Trust’’), and shares of which are
currently listed and traded on the
Exchange 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
BILLING CODE 8011–01–P
October 25, 2018.
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on October
12, 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
comments on the proposed rule change
from interested persons.
1. Purpose
The Exchange proposes certain
changes, described below under
‘‘Application of Generic Listing
Requirements,’’ regarding investments
of the Fund. The shares (‘‘Shares’’) of
the Fund are currently listed and traded
on the Exchange under Commentary .01
to NYSE Arca Rule 8.600–E,4 which
provides generic criteria applicable to
the listing and trading of Managed Fund
2 15
U.S.C. 78a.
CFR 240.19b–4.
4 Shares of the Fund commenced trading on the
Exchange on April 10, 2018 pursuant to
Commentary .01 to NYSE Arca Rule 8.600–E.
3 17
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
54793
Shares.5 The Commission has
previously approved a proposed rule
change regarding certain changes that
would result in the portfolio for the
Fund not meeting all of the ‘‘generic’’
listing requirements of Commentary .01
to NYSE Arca Rule 8.600–E applicable
to the listing of Managed Fund Shares.6
PGIM Investments LLC (the
‘‘Adviser’’) is the investment adviser for
the Fund. PGIM Fixed Income (the
‘‘Subadviser’’), a unit of PGIM, Inc., is
the subadviser to the Fund. The Adviser
and the Subadviser are indirect whollyowned subsidiaries of Prudential
Financial, Inc.7
As stated in the Prior Releases, the
Fund may invest in derivatives to (i)
provide exposure to the ‘‘Principal
Investment Instruments’’ (as defined in
the Prior Releases), and (ii) enhance
returns, manage portfolio duration, or
manage the risk of securities price
fluctuations. Derivatives that the Fund
may enter into include only: Over-thecounter (‘‘OTC’’) deliverable and nondeliverable foreign exchange forward
contracts; listed futures contracts on one
5 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (the ‘‘1940 Act’’) organized
as an open-end investment company or similar
entity that invests in a portfolio of securities
selected by its investment adviser consistent with
its investment objectives and policies. In contrast,
an open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Rule 5.2–E(j)(3),
seeks to provide investment results that correspond
generally to the price and yield performance of a
specific foreign or domestic stock index, fixed
income securities index or combination thereof.
6 See Amendment No. 1 to SR–NYSEArca–2018–
15, available at https://www.sec.gov/comments/srnysearca-2018-15/nysearca201815-3510337162292.pdf (‘‘Prior Amendment’’); Securities
Exchange Act Release No. 83319 (May 24, 2018), 83
FR 25097 (May 31, 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) (‘‘Approval Order’’ and, together with the
Prior Amendment, the ‘‘Prior Releases’’). The Prior
Releases stated that the Fund’s portfolio would
meet all requirements of Commentary .01 to NYSE
Arca Rule 8.600–E except for those set forth in
Commentary .01(a)(1), Commentary .01(b)(4) and
Commentary .01(b)(5).
7 The Trust is registered under the 1940 Act. On
March 26, 2018, the Trust filed with the
Commission Pre-Effective Amendment No. 1 to the
Trust’s registration statement on Form N–1A under
the Securities Act of 1933 (15 U.S.C. 77a)
(‘‘Securities Act’’), and under the 1940 Act relating
to the Fund (File Nos. 333–222469 and 811–23324)
(‘‘Registration Statement’’). The Trust will file an
amendment to the Registration Statement as
necessary to conform to the representations in this
filing. The description of the operation of the Trust
and the Fund herein is based, in part, on the
Registration Statement. In addition, the
Commission has issued an order granting certain
exemptive relief to the Trust under the1940 Act.
See Investment Company Act Release No. 31095
(June 24, 2014) (File No. 812–14267).
E:\FR\FM\31OCN1.SGM
31OCN1
54794
Federal Register / Vol. 83, No. 211 / Wednesday, October 31, 2018 / Notices
amozie on DSK3GDR082PROD with NOTICES1
or more Principal Investment
Instruments securities (including
Treasury securities and foreign
government securities), indices relating
to one or more Principal Investment
Instruments, interest rates, financial
rates and currencies; listed or OTC
options (including puts or calls) or
swaptions (i.e., options to enter into a
swap) on one or more Principal
Investment Instruments, indices relating
to one or more Principal Investment
Instruments, interest rates, financial
rates, currencies and futures contracts
on one or more Principal Investment
Instruments; and listed or OTC swaps
(including total return swaps) on
securities, indices relating to one or
more Principal Investment Instruments,
interest rates, financial rates, currencies
and debt and credit default swaps on
single names, baskets and indices on
one or more Principal Investment
Instruments (both as protection seller
and as protection buyer).8
Investments in derivative instruments
will be made in accordance with the
1940 Act and consistent with the Fund’s
investment objective and policies.
Application of Generic Listing
Requirements
The Exchange proposes that up to
50% of the Fund’s assets (calculated as
the aggregate gross notional value) may
be invested in OTC derivatives,
including forwards, OTC options and
OTC swaps, that are used to reduce
currency, interest rate, credit or
duration risk arising from the Fund’s
investments (that is, ‘‘hedge’’). The
Fund’s investments in OTC derivatives,
other than OTC derivatives used to
hedge the Fund’s portfolio against
currency, interest rate, credit or
duration risk will be limited to 20% of
the assets in the Fund’s portfolio,
calculated as the aggregate gross
notional value of such OTC derivatives.
The Exchange is submitting this
proposed rule change because the
change described in the preceding
paragraph would not conform to the
Exchange’s representations regarding
the Fund’s portfolio in the Prior
Amendment. In the Prior Amendment,
the Exchange stated that, other than
Commentary .01(a)(1), Commentary
.01(b)(4) and Commentary .01(b)(5), the
Shares of the Fund will conform to the
initial and continued listing criteria
under NYSE Arca Rule 8.600–E.
8 Because the markets for the Principal
Investment Instruments, or the Principal Investment
Instruments themselves, may be unavailable or cost
prohibitive as compared to derivative instruments,
suitable derivative transactions may be an efficient
alternative for the Fund to obtain the desired asset
exposure to Principal Investment Instruments.
VerDate Sep<11>2014
18:06 Oct 30, 2018
Jkt 247001
However, the proposed change
described in the preceding paragraph
would not meet the requirements set
forth in Commentary .01(e).9
Specifically, the aggregate gross notional
value of the Fund’s investments in OTC
derivatives may exceed 20% of Fund
assets, calculated as the aggregate gross
notional value of such OTC derivatives.
The Adviser and Subadviser believe
that it is important to provide the Fund
with additional flexibility to manage
risk associated with its investments.
Depending on market conditions, it may
be critical that the Fund be able to
utilize available OTC derivatives for this
purpose to attempt to reduce impact of
currency, interest rate, credit or
duration fluctuations on Fund assets.
OTC derivatives provide the Fund with
additional flexibility as well as a more
precise means to effectively attempt to
reduce currency, interest rate, credit or
duration fluctuations on Fund assets.
Generally, OTC derivatives can be
customized to a greater degree than
exchange-traded derivatives and can
provide a better hedge on Fund assets as
well as allow for more control over the
duration of the hedge which can also
mitigate trading costs. Therefore, the
Exchange believes it is appropriate to
apply a limit of up to 50% of the Fund’s
assets to the Fund’s investments in OTC
derivatives (calculated as the aggregate
gross notional value of such OTC
derivatives), including forwards,
options and swaps, that are used for
hedging purposes, as described above.10
9 Commentary .01(e) to NYSE Arca Rule 8.600–E
provides that a portfolio may hold OTC derivatives,
including forwards, options and swaps on
commodities, currencies and financial instruments
(e.g., stocks, fixed income, interest rates, and
volatility) or a basket or index of any of the
foregoing; however, on both an initial and
continuing basis, no more than 20% of the assets
in the portfolio may be invested in OTC derivatives.
For purposes of calculating this limitation, a
portfolio’s investment in OTC derivatives will be
calculated as the aggregate gross notional value of
the OTC derivatives.
10 The Commission has previously approved an
exception from requirements set forth in
Commentary .01(e) relating to investments in OTC
derivatives similar to those proposed with respect
to the Fund in Securities Exchange Act Release No.
80657 (May 11, 2017), 82 FR 22702 (May 17, 2017)
(SR–NYSEArca–2017–09) (Notice of Filing of
Amendment No. 2 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 2, Regarding Investments of the
Janus Short Duration Income ETF Listed Under
NYSE Arca Equities Rule 8.600). See also,
Securities Exchange Act Release No. 84047
(September 6, 2018), 83 FR 46200 (September 12,
2018) (SR–NASDAQ–2017–128) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, to List and Trade Shares of
the Western Asset Total Return ETF), in which the
Nasdaq Stock Market LLC proposed that there
would be no limit on the fund’s investments in
Interest Rate and Currency Derivatives, and that the
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
The Adviser and Subadviser represent
that deviations from the generic
requirements are necessary for the Fund
to achieve its investment objective in a
manner that is cost-effective and that
maximizes investors’ returns because
OTC derivatives generally provide the
Fund with more flexibility to negotiate
the exact exposure and duration that the
Fund requires, and minimize trading
costs because OTC derivatives are not
subject to costs of rolling that are
associated with listed derivatives.
Further, the proposed alternative
requirements are narrowly tailored to
allow the Fund to achieve its
investment objective in 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.
Because the Fund, in furtherance of
its investment objective, may invest a
substantial percentage of its investments
in Principal Investment Instruments
with a maturity of one year or more, the
20% limit in Commentary .01(e) to Rule
8.600 could result in the Fund being
unable to fully pursue its investment
objective while attempting to
sufficiently mitigate investment risks.
The inability of the Fund to adequately
hedge its holdings would effectively
limit the Fund’s ability to invest in
certain instruments, or could expose the
Fund to additional investment risk. For
example, if the Fund’s assets (on a gross
notional value basis) were $100 million
and no listed derivative were suitable to
hedge the Fund’s risk, under the generic
listing criteria, the Fund would be
limited to holding up to $20 million
gross notional value in OTC derivatives
($100 million * 20%). Accordingly, the
maximum amount the Fund would be
able to invest in Principal Investment
Instruments with a maturity of one year
or more while remaining adequately
hedged would be $20 million. The Fund
then would hold $60 million in assets
that could not be hedged, other than
with listed derivatives, which, as noted
above, might not be sufficiently tailored
to the specific instruments to be hedged.
In addition, by applying the 20%
limitation in Commentary .01(e) to Rule
8.600, the Fund would be less able to
protect its holdings from more than one
risk simultaneously. For example, if the
Fund’s assets (on a gross notional basis)
were $100 million and the Fund held
$20 million in Principal Investment
Instruments with a maturity of one year
aggregate weight of all OTC Derivatives other than
Interest Rate and Currency Derivatives will not
exceed 10% of the fund’s assets).
E:\FR\FM\31OCN1.SGM
31OCN1
Federal Register / Vol. 83, No. 211 / Wednesday, October 31, 2018 / Notices
amozie on DSK3GDR082PROD with NOTICES1
or more with two types of risks (e.g.,
duration and credit risk) which could
not be hedged using listed derivatives,
the Fund would be faced with the
choice of either holding $20 million
aggregate gross notional value in OTC
derivatives to mitigate one of the risks
while passing the other risk to its
shareholders, or, for example, holding
$10 million aggregate gross notional
value in OTC derivatives on each of the
risks while passing the remaining
portion of each risk to the Fund’s
shareholders.
The Exchange accordingly believes
that it is appropriate and in the public
interest to approve continued listing
and trading of Shares of the Fund on the
Exchange notwithstanding that the
Fund would not meet the requirements
of Commentary .01(e) to Rule 8.600–E.
The Exchange notes that, other than
Commentary .01(e) and, as described in
the Prior Releases, with the exception of
the requirements of Commentary
.01(a)(1), Commentary .01(b)(4) and
Commentary .01(b)(5), the Shares of the
Fund will conform to the initial and
continued listing criteria under NYSE
Arca Rule 8.600–E.
The Adviser and Subadviser represent
that the proposed change described
above is consistent with the Fund’s
investment objective, and will further
assist the Adviser and Subadviser to
achieve such investment objective.
Except for the changes noted above, all
other representations made in the Prior
Releases remain unchanged. All terms
referenced but not defined in this
proposed rule change are defined in the
Prior Releases.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) of the Act 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 it is
appropriate and in the public interest to
allow the Fund, for hedging purposes
only, to exceed the 20% limit in
Commentary .01(e) to Rule 8.600 of
portfolio assets that may be invested in
OTC derivatives to a maximum of 50%
of Fund assets (calculated as the gross
notional value). As noted above, the
Adviser and Subadviser believe that it is
in the best interests of the Fund’s
shareholders for the Fund to be allowed
to reduce the currency, interest rate,
credit or duration risk arising from the
VerDate Sep<11>2014
18:06 Oct 30, 2018
Jkt 247001
Fund’s investments using the most
efficient financial instruments. While
certain risks can be hedged via listed
derivatives, OTC derivatives (such as
forwards, options and swaps) can be
customized to hedge against precise
risks. Accordingly, the Adviser and
Subadviser believe that OTC derivatives
may frequently be a more efficient
hedging vehicle than listed derivatives.
Depending on market conditions, it may
be critical that the Fund be able to
utilize available OTC derivatives for this
purpose to attempt to reduce impact of
currency, interest rate, credit or
duration fluctuations on Fund assets.
Therefore, the Exchange believes that
increasing the percentage limit in
Commentary .01(e), as described above,
to the Fund’s investments in OTC
derivatives, including forwards, options
and swaps, that are used specifically for
hedging purposes would help protect
investors and the public interest.
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 continued listing
and trading of an actively-managed
exchange-traded product that, through
permitted use of an increased level of
OTC derivatives above that currently
permitted by the generic listing
requirements of Commentary .01 to
NYSE Arca Rule 8.600–E, 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 a change to the Fund’s
investments similar to investments of
another actively managed ETF, shares of
which have been approved for Exchange
listing and trading,11 that principally
holds fixed income 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.
11 See
PO 00000
note 10, supra.
Frm 00095
Fmt 4703
Sfmt 4703
54795
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 rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2018–75 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–2018–75. 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
E:\FR\FM\31OCN1.SGM
31OCN1
54796
Federal Register / Vol. 83, No. 211 / Wednesday, October 31, 2018 / Notices
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–2018–75, and
should be submitted on or before
November 21, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–23730 Filed 10–30–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84490; File No. SR–CBOE–
2018–067]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to List and Trade
Options That Overlie the S&P
Communication Services Select Sector
Index
October 25, 2018.
amozie on DSK3GDR082PROD with NOTICES1
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on October 15, 2018, Cboe Exchange,
Inc. (‘‘Exchange’’ or ‘‘Cboe Options’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The text of the proposed rule change
is provided below in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
12
1 15
VerDate Sep<11>2014
18:06 Oct 30, 2018
Jkt 247001
website (https://www.cboe.com/
AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is currently authorized
to list for trading options on ten S&P
Select Sector Indexes.5 The purpose of
this proposed rule change is to amend
certain rules to authorize the Exchange
to list for trading options on a recently
added eleventh S&P Select Sector
Index—the S&P Communication
Services Select Sector Index. Each S&P
Select Sector Index represents the
performance of companies that are
components of the Standard & Poor’s
500 Index (‘‘S&P 500’’) within a specific
sector (each of which is referred to as an
‘‘S&P Select Sector Index’’). Each
constituent of an S&P Select Sector
Index is a constituent of the S&P 500,
and each S&P Select Sector Index is a
subindex of the S&P 500. S&P Dow
Jones Indices 6 assigns each constituent
to a S&P Select Sector Index(es) based
on the constituent’s classification under
a global industry classification standard.
S&P Dow Jones Indices monitors and
maintains each Select Sector Index and
rebalances each S&P Select Sector Index
quarterly. S&P Dow Jones Indices
recently added an eleventh sector. As a
result, the following represents the
current breakdown of the sectors and
the components of each sector:
5 See Rule 24.9(a); see also Securities Exchange
Act Release No. 34–81879 (October 16, 2017), 82 FR
48858 (October 20, 2017) (SR–CBOE–2017–065).
6 S&P Dow Jones Indices is the reporting authority
for the S&P Select Sector Indexes, including the
S&P Communication Services Select Sector Index.
See proposed Rule 24.1, Interpretation and Policy
.01.
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
Sector
Financial ...............
Energy ..................
Technology ...........
Health Care ..........
Utilities ..................
Consumer Staples
Industrials .............
Consumer Discretionary.
Materials ...............
Real Estate ...........
Communication
Services.
Symbol 7
Number of
components
IXM
IXE
IXT
IXV
IXU
IXR
IXI
IXY
68
31
76
63
29
32
70
80
IXB
IXRE
IXC
24
32
26
Initial and Maintenance Listing Criteria
The S&P Communication Services
Select Sector Index meets the definition
of a narrow-based index as set forth in
Rule 24.1(i)(2) (an index designed to be
representative of a particular industry or
a group of related industries and
include indices having component
securities that are all headquartered
with in a single country). Additionally,
the S&P Communication Services Select
Sector Index satisfies the initial listing
criteria of a narrow-based index, as set
forth in Rule 24.2(b):
(1) Options will be A.M.-settled;
(2) the index is capitalizationweighted, price-weighted, equal dollarweighted, or modified capitalizationweighted, and consists of ten or more
component securities (the S&P
Communication Services Select Sector
Index is modified capitalizationweighted);
(3) each component security has a
market capitalization of at least $75
million, except that for each of the
lowest weighted component securities
in the index that in the aggregate
account for no more than 10% of the
weight of the index, the market
capitalization is at least $50 million;
(4) trading volume of each component
security has been at least one million
shares for each of the last six months,
except that for each of the lowest
weighted component securities in the
index that in the aggregate account for
no more than 10% of the weight of the
index, trading volume has been at least
500,000 shares for each of the last six
months;
(5) in a capitalization-weighted index
or a modified capitalization-weighted
index, the lesser of the five highest
weighted component securities in the
index or the highest weighted
component securities in the index that
in the aggregate represent at least 30%
7 These symbols represent the index. The
corresponding option symbols are SIXM, SIXE,
SIXT, SIXV, SIXU, SIXR, SIXI, SIXY, SIXB, SIXRE,
and SIXC respectively.
E:\FR\FM\31OCN1.SGM
31OCN1
]]>Agencies
[Federal Register Volume 83, Number 211 (Wednesday, October 31, 2018)]
[Notices]
[Pages 54793-54796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23730]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84486; File No. SR-NYSEArca-2018-75]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Regarding Certain Investments of the PGIM Ultra
Short Bond ETF
October 25, 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 October 12, 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
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 certain changes regarding investments of the
PGIM Ultra Short Bond ETF (the ``Fund''), a series of PGIM ETF Trust
(the ``Trust''), and shares of which are currently listed and traded on
the Exchange 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 certain changes, described below under
``Application of Generic Listing Requirements,'' regarding investments
of the Fund. The shares (``Shares'') of the Fund are currently listed
and traded on the Exchange under Commentary .01 to NYSE Arca Rule
8.600-E,\4\ which provides generic criteria applicable to the listing
and trading of Managed Fund Shares.\5\ The Commission has previously
approved a proposed rule change regarding certain changes that would
result in the portfolio for the Fund not meeting all of the ``generic''
listing requirements of Commentary .01 to NYSE Arca Rule 8.600-E
applicable to the listing of Managed Fund Shares.\6\
---------------------------------------------------------------------------
\4\ Shares of the Fund commenced trading on the Exchange on
April 10, 2018 pursuant to Commentary .01 to NYSE Arca Rule 8.600-E.
\5\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3),
seeks to provide investment results that correspond generally to the
price and yield performance of a specific foreign or domestic stock
index, fixed income securities index or combination thereof.
\6\ See Amendment No. 1 to SR-NYSEArca-2018-15, available at
https://www.sec.gov/comments/sr-nysearca-2018-15/nysearca201815-3510337-162292.pdf (``Prior Amendment''); Securities Exchange Act
Release No. 83319 (May 24, 2018), 83 FR 25097 (May 31, 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) (``Approval Order'' and, together with the Prior Amendment, the
``Prior Releases''). The Prior Releases stated that the Fund's
portfolio would meet all requirements of Commentary .01 to NYSE Arca
Rule 8.600-E except for those set forth in Commentary .01(a)(1),
Commentary .01(b)(4) and Commentary .01(b)(5).
---------------------------------------------------------------------------
PGIM Investments LLC (the ``Adviser'') is the investment adviser
for the Fund. PGIM Fixed Income (the ``Subadviser''), a unit of PGIM,
Inc., is the subadviser to the Fund. The Adviser and the Subadviser are
indirect wholly-owned subsidiaries of Prudential Financial, Inc.\7\
---------------------------------------------------------------------------
\7\ The Trust is registered under the 1940 Act. On March 26,
2018, the Trust filed with the Commission Pre-Effective Amendment
No. 1 to the Trust's registration statement on Form N-1A under the
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act''), and
under the 1940 Act relating to the Fund (File Nos. 333-222469 and
811-23324) (``Registration Statement''). The Trust will file an
amendment to the Registration Statement as necessary to conform to
the representations in this filing. The description of the operation
of the Trust and the Fund herein is based, in part, on the
Registration Statement. In addition, the Commission has issued an
order granting certain exemptive relief to the Trust under the1940
Act. See Investment Company Act Release No. 31095 (June 24, 2014)
(File No. 812-14267).
---------------------------------------------------------------------------
As stated in the Prior Releases, the Fund may invest in derivatives
to (i) provide exposure to the ``Principal Investment Instruments'' (as
defined in the Prior Releases), and (ii) enhance returns, manage
portfolio duration, or manage the risk of securities price
fluctuations. Derivatives that the Fund may enter into include only:
Over-the-counter (``OTC'') deliverable and non-deliverable foreign
exchange forward contracts; listed futures contracts on one
[[Page 54794]]
or more Principal Investment Instruments securities (including Treasury
securities and foreign government securities), indices relating to one
or more Principal Investment Instruments, interest rates, financial
rates and currencies; listed or OTC options (including puts or calls)
or swaptions (i.e., options to enter into a swap) on one or more
Principal Investment Instruments, indices relating to one or more
Principal Investment Instruments, interest rates, financial rates,
currencies and futures contracts on one or more Principal Investment
Instruments; and listed or OTC swaps (including total return swaps) on
securities, indices relating to one or more Principal Investment
Instruments, interest rates, financial rates, currencies and debt and
credit default swaps on single names, baskets and indices on one or
more Principal Investment Instruments (both as protection seller and as
protection buyer).\8\
---------------------------------------------------------------------------
\8\ Because the markets for the Principal Investment
Instruments, or the Principal Investment Instruments themselves, may
be unavailable or cost prohibitive as compared to derivative
instruments, suitable derivative transactions may be an efficient
alternative for the Fund to obtain the desired asset exposure to
Principal Investment Instruments.
---------------------------------------------------------------------------
Investments in derivative instruments will be made in accordance
with the 1940 Act and consistent with the Fund's investment objective
and policies.
Application of Generic Listing Requirements
The Exchange proposes that up to 50% of the Fund's assets
(calculated as the aggregate gross notional value) may be invested in
OTC derivatives, including forwards, OTC options and OTC swaps, that
are used to reduce currency, interest rate, credit or duration risk
arising from the Fund's investments (that is, ``hedge''). The Fund's
investments in OTC derivatives, other than OTC derivatives used to
hedge the Fund's portfolio against currency, interest rate, credit or
duration risk will be limited to 20% of the assets in the Fund's
portfolio, calculated as the aggregate gross notional value of such OTC
derivatives.
The Exchange is submitting this proposed rule change because the
change described in the preceding paragraph would not conform to the
Exchange's representations regarding the Fund's portfolio in the Prior
Amendment. In the Prior Amendment, the Exchange stated that, other than
Commentary .01(a)(1), Commentary .01(b)(4) and Commentary .01(b)(5),
the Shares of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Rule 8.600-E. However, the proposed
change described in the preceding paragraph would not meet the
requirements set forth in Commentary .01(e).\9\ Specifically, the
aggregate gross notional value of the Fund's investments in OTC
derivatives may exceed 20% of Fund assets, calculated as the aggregate
gross notional value of such OTC derivatives.
---------------------------------------------------------------------------
\9\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that a
portfolio may hold OTC derivatives, including forwards, options and
swaps on commodities, currencies and financial instruments (e.g.,
stocks, fixed income, interest rates, and volatility) or a basket or
index of any of the foregoing; however, on both an initial and
continuing basis, no more than 20% of the assets in the portfolio
may be invested in OTC derivatives. For purposes of calculating this
limitation, a portfolio's investment in OTC derivatives will be
calculated as the aggregate gross notional value of the OTC
derivatives.
---------------------------------------------------------------------------
The Adviser and Subadviser believe that it is important to provide
the Fund with additional flexibility to manage risk associated with its
investments. Depending on market conditions, it may be critical that
the Fund be able to utilize available OTC derivatives for this purpose
to attempt to reduce impact of currency, interest rate, credit or
duration fluctuations on Fund assets. OTC derivatives provide the Fund
with additional flexibility as well as a more precise means to
effectively attempt to reduce currency, interest rate, credit or
duration fluctuations on Fund assets. Generally, OTC derivatives can be
customized to a greater degree than exchange-traded derivatives and can
provide a better hedge on Fund assets as well as allow for more control
over the duration of the hedge which can also mitigate trading costs.
Therefore, the Exchange believes it is appropriate to apply a limit of
up to 50% of the Fund's assets to the Fund's investments in OTC
derivatives (calculated as the aggregate gross notional value of such
OTC derivatives), including forwards, options and swaps, that are used
for hedging purposes, as described above.\10\
---------------------------------------------------------------------------
\10\ The Commission has previously approved an exception from
requirements set forth in Commentary .01(e) relating to investments
in OTC derivatives similar to those proposed with respect to the
Fund in Securities Exchange Act Release No. 80657 (May 11, 2017), 82
FR 22702 (May 17, 2017) (SR-NYSEArca-2017-09) (Notice of Filing of
Amendment No. 2 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 2, Regarding
Investments of the Janus Short Duration Income ETF Listed Under NYSE
Arca Equities Rule 8.600). See also, Securities Exchange Act Release
No. 84047 (September 6, 2018), 83 FR 46200 (September 12, 2018) (SR-
NASDAQ-2017-128) (Notice of Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, to List and Trade Shares of the Western Asset
Total Return ETF), in which the Nasdaq Stock Market LLC proposed
that there would be no limit on the fund's investments in Interest
Rate and Currency Derivatives, and that the aggregate weight of all
OTC Derivatives other than Interest Rate and Currency Derivatives
will not exceed 10% of the fund's assets).
---------------------------------------------------------------------------
The Adviser and Subadviser represent that deviations from the
generic requirements are necessary for the Fund to achieve its
investment objective in a manner that is cost-effective and that
maximizes investors' returns because OTC derivatives generally provide
the Fund with more flexibility to negotiate the exact exposure and
duration that the Fund requires, and minimize trading costs because OTC
derivatives are not subject to costs of rolling that are associated
with listed derivatives. Further, the proposed alternative requirements
are narrowly tailored to allow the Fund to achieve its investment
objective in 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.
Because the Fund, in furtherance of its investment objective, may
invest a substantial percentage of its investments in Principal
Investment Instruments with a maturity of one year or more, the 20%
limit in Commentary .01(e) to Rule 8.600 could result in the Fund being
unable to fully pursue its investment objective while attempting to
sufficiently mitigate investment risks. The inability of the Fund to
adequately hedge its holdings would effectively limit the Fund's
ability to invest in certain instruments, or could expose the Fund to
additional investment risk. For example, if the Fund's assets (on a
gross notional value basis) were $100 million and no listed derivative
were suitable to hedge the Fund's risk, under the generic listing
criteria, the Fund would be limited to holding up to $20 million gross
notional value in OTC derivatives ($100 million * 20%). Accordingly,
the maximum amount the Fund would be able to invest in Principal
Investment Instruments with a maturity of one year or more while
remaining adequately hedged would be $20 million. The Fund then would
hold $60 million in assets that could not be hedged, other than with
listed derivatives, which, as noted above, might not be sufficiently
tailored to the specific instruments to be hedged.
In addition, by applying the 20% limitation in Commentary .01(e) to
Rule 8.600, the Fund would be less able to protect its holdings from
more than one risk simultaneously. For example, if the Fund's assets
(on a gross notional basis) were $100 million and the Fund held $20
million in Principal Investment Instruments with a maturity of one year
[[Page 54795]]
or more with two types of risks (e.g., duration and credit risk) which
could not be hedged using listed derivatives, the Fund would be faced
with the choice of either holding $20 million aggregate gross notional
value in OTC derivatives to mitigate one of the risks while passing the
other risk to its shareholders, or, for example, holding $10 million
aggregate gross notional value in OTC derivatives on each of the risks
while passing the remaining portion of each risk to the Fund's
shareholders.
The Exchange accordingly believes that it is appropriate and in the
public interest to approve continued listing and trading of Shares of
the Fund on the Exchange notwithstanding that the Fund would not meet
the requirements of Commentary .01(e) to Rule 8.600-E. The Exchange
notes that, other than Commentary .01(e) and, as described in the Prior
Releases, with the exception of the requirements of Commentary
.01(a)(1), Commentary .01(b)(4) and Commentary .01(b)(5), the Shares of
the Fund will conform to the initial and continued listing criteria
under NYSE Arca Rule 8.600-E.
The Adviser and Subadviser represent that the proposed change
described above is consistent with the Fund's investment objective, and
will further assist the Adviser and Subadviser to achieve such
investment objective. Except for the changes noted above, all other
representations made in the Prior Releases remain unchanged. All terms
referenced but not defined in this proposed rule change are defined in
the Prior Releases.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) of the Act 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 it is appropriate and in the public
interest to allow the Fund, for hedging purposes only, to exceed the
20% limit in Commentary .01(e) to Rule 8.600 of portfolio assets that
may be invested in OTC derivatives to a maximum of 50% of Fund assets
(calculated as the gross notional value). As noted above, the Adviser
and Subadviser believe that it is in the best interests of the Fund's
shareholders for the Fund to be allowed to reduce the currency,
interest rate, credit or duration risk arising from the Fund's
investments using the most efficient financial instruments. While
certain risks can be hedged via listed derivatives, OTC derivatives
(such as forwards, options and swaps) can be customized to hedge
against precise risks. Accordingly, the Adviser and Subadviser believe
that OTC derivatives may frequently be a more efficient hedging vehicle
than listed derivatives. Depending on market conditions, it may be
critical that the Fund be able to utilize available OTC derivatives for
this purpose to attempt to reduce impact of currency, interest rate,
credit or duration fluctuations on Fund assets. Therefore, the Exchange
believes that increasing the percentage limit in Commentary .01(e), as
described above, to the Fund's investments in OTC derivatives,
including forwards, options and swaps, that are used specifically for
hedging purposes would help protect investors and the public interest.
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 continued listing and
trading of an actively-managed exchange-traded product that, through
permitted use of an increased level of OTC derivatives above that
currently permitted by the generic listing requirements of Commentary
.01 to NYSE Arca Rule 8.600-E, 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 a change to the Fund's investments
similar to investments of another actively managed ETF, shares of which
have been approved for Exchange listing and trading,\11\ that
principally holds fixed income securities, and that will enhance
competition among market participants, to the benefit of investors and
the marketplace.
---------------------------------------------------------------------------
\11\ See note 10, supra.
---------------------------------------------------------------------------
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-2018-75 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-2018-75. 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
[[Page 54796]]
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-2018-75, and should
be submitted on or before November 21, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------
\12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23730 Filed 10-30-18; 8:45 am]
BILLING CODE 8011-01-P
