Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Regarding Investments of the First Trust TCW Unconstrained Plus Bond ETF, 55439-55444 [2018-24069]
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Federal Register / Vol. 83, No. 214 / Monday, November 5, 2018 / Notices
3. Applicants agree that any order
granting the requested relief will be
subject to the terms and conditions
stated in the application. Such terms
and conditions provide for, among other
safeguards, appropriate disclosure to
Subadvised Funds’ shareholders and
notification about sub-advisory changes
and enhanced Board oversight to protect
the interests of the Subadvised Funds’
shareholders.
4. Section 6(c) of the Act provides that
the Commission may exempt any
person, security, or transaction or any
class or classes of persons, securities, or
transactions from any provisions of the
Act, or any rule thereunder, if such
relief is necessary or appropriate in the
public interest and consistent with the
protection of investors and purposes
fairly intended by the policy and
provisions of the Act. Applicants
believe that the requested relief meets
this standard because, as further
explained in the application, the
Investment Management Agreements
will remain subject to shareholder
approval, while the role of the SubAdvisers is substantially equivalent to
that of individual portfolio managers, so
that requiring shareholder approval of
Sub-Advisory Agreements would
impose unnecessary delays and
expenses on the Subadvised Funds.
Applicants believe that the requested
relief from the Disclosure Requirements
meets this standard because it will
improve the Adviser’s ability to
negotiate fees paid to the Sub-Advisers
that are more advantageous for the
Subadvised Funds.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–24077 Filed 11–2–18; 8:45 am]
BILLING CODE 8011–01–P
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change Regarding Investments of
the First Trust TCW Unconstrained
Plus Bond ETF
October 30, 2018.
On July 11, 2018, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
invested in that Master Fund to disclose Aggregate
Fee Disclosure.
Jkt 247001
The Exchange proposes to make
changes to the investments of the First
Trust TCW Unconstrained Plus Bond
ETF (‘‘Fund’’), the shares (‘‘Shares’’) of
which are currently listed and traded on
the Exchange under NYSE Arca Rule
8.600–E, which governs the listing and
trading of Managed Fund Shares on the
Exchange. According to the Exchange,
the Shares of the Fund commenced
trading on the Exchange on June 5, 2018
pursuant to the generic listing standards
in Commentary .01 to NYSE Arca Rule
8.600–E.
The Shares are offered by First Trust
Exchange-Traded Fund VIII (‘‘Trust’’),
which is registered with the
Commission as an open-end
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 83720
(July 26, 2018), 83 FR 37560 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 84123
(September 14, 2018), 83 FR 47654 (September 20,
2018). The Commission designated October 30,
2018, as the date by which it should approve,
disapprove, or institute proceedings to determine
whether to disapprove the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 The Commission notes that additional
information regarding, among other things, the
Shares, Fund, investment objective, permitted
investments, investment strategies and
methodology, investment restrictions, investment
adviser and sub-adviser, creation and redemption
procedures, availability of information, trading
rules and halts, and surveillance procedures, can be
found in the Notice (see supra note 3) and the
Registration Statement (see infra note 8), as
applicable.
2 17
[Release No. 34–84504; File No. SR–
NYSEArca–2018–43]
18:38 Nov 02, 2018
I. Summary of the Proposal 7
1 15
SECURITIES AND EXCHANGE
COMMISSION
VerDate Sep<11>2014
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change seeking to modify investments of
the First Trust TCW Unconstrained Plus
Bond ETF, the shares of which are
currently listed and traded on the
Exchange pursuant to NYSE Arca Rule
8.600–E. The proposed rule change was
published for comment in the Federal
Register on August 1, 2018.3
On September 14, 2018, pursuant to
Section 19(b)(2) of the Act,4 the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 The Commission
has received no comment letters on the
proposed rule change. The Commission
is publishing this order to institute
proceedings under Section 19(b)(2)(B) of
the Act 6 to determine whether to
approve or disapprove the proposed
rule change.
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55439
management investment company.8 The
Fund is a series of the Trust. First Trust
Advisors L.P. is the investment adviser
(‘‘Adviser’’) to the Fund. TCW
Investment Management Company LLC
(‘‘TCW’’ or the ‘‘Sub-Adviser’’), serves
as the Fund’s investment sub-adviser.9
First Trust Portfolios L.P. is the
distributor for the Fund’s Shares. The
Bank of New York Mellon acts as the
administrator, custodian and transfer
agent for the Fund.
A. Principal Investments of the Fund
According to the Exchange, the
investment objective of the Fund is to
seek to maximize long-term total return.
Under normal market conditions,10 the
Fund intends to invest at least 80% of
its net assets (including investment
8 The Exchange represents that the Trust is
registered under the Investment Company Act of
1940 (‘‘1940 Act’’). On May 29, 2018, the Trust filed
with the Commission its registration statement
(‘‘Registration Statement’’) on Form N–1A under the
Securities Act of 1933 and under the 1940 Act
relating to the Fund (File Nos. 333–210186 and
811–23147). In addition, the Exchange represents
that the Trust has obtained an order from the
Commission granting certain exemptive relief under
the 1940 Act. See Investment Company Act Release
No. 30029 (April 10, 2012) (File No. 812–13795).
9 According to the Exchange, the Adviser and
Sub-Adviser are not registered as broker-dealers.
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 Sub-Adviser is affiliated with multiple brokerdealers and has implemented and will maintain a
fire wall with respect to its broker-dealer affiliates
regarding access to information concerning the
composition and/or changes to the portfolio. In the
event (a) the Adviser or the Sub-Adviser becomes
registered as a broker-dealer or newly affiliated with
a broker-dealer, or (b) any new adviser or subadviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement
and maintain a fire wall with respect to relevant
personnel and any 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.
10 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. During such
periods, the Fund may not be able to achieve its
investment objective. The Fund may adopt a
defensive strategy when the Adviser and/or the
Sub-Adviser believes securities in which the Fund
normally invests have elevated risks due to market,
political or economic factors and in other
extraordinary circumstances.
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Federal Register / Vol. 83, No. 214 / Monday, November 5, 2018 / Notices
borrowings) in a portfolio of ‘‘Fixed
Income Securities’’ (described below).
In managing the Fund’s portfolio,
TCW intends to employ a flexible
approach that allocates the Fund’s
investments across a range of global
investment opportunities and actively
manage exposure to interest rates, credit
sectors, and currencies. TCW seeks to
utilize independent, bottom-up research
to identify securities that are
undervalued and that offer a superior
risk/return profile. Pursuant to this
investment strategy, the Fund may
invest in the following Fixed Income
Securities, which may be represented by
derivatives relating to such securities, as
discussed below:
• Securities issued or guaranteed by
the U.S. government or its agencies,
instrumentalities or U.S. governmentsponsored entities;
• Treasury Inflation Protected
Securities;
• agency and non-agency residential
mortgage-backed securities (‘‘RMBS’’);
agency and non-agency commercial
mortgage-backed securities (‘‘CMBS’’);
agency and non-agency asset-backed
securities (‘‘ABS’’); 11
• domestic corporate bonds;
• Fixed Income Securities issued by
non-U.S. corporations and non-U.S.
governments;
• bank loans, including first lien
senior secured floating rate bank loans
(‘‘Senior Loans’’), secured and
unsecured loans, second lien or more
junior loans, and bridge loans;
• fixed income convertible securities;
• fixed income preferred securities;
• municipal bonds;
• collateralized loan obligations; and
• Rule 144A securities.
In addition, the Fund may invest in
agency RMBS and CMBS by investing in
to-be-announced transactions. The Fund
may hold cash and cash equivalents,12
as well as 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 also may
enter into short sales of any securities in
which the Fund may invest.
The Fund may utilize exchange-listed
and over-the-counter (‘‘OTC’’) traded
derivatives instruments for duration/
yield curve management and/or hedging
purposes, for risk management
11 Non-agency RMBS, CMBS, and ABS are
referred to collectively herein as ‘‘Private ABS/
MBS.’’
12 For purposes of this filing, cash equivalents are
the short-term instruments with maturities of less
than 3 months enumerated in Commentary .01(c) to
NYSE Arca Rule 8.600–E.
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18:38 Nov 02, 2018
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purposes, or as part of its investment
strategies. The Fund will use derivative
instruments primarily to hedge interest
rate risk, actively manage interest rate
exposure, hedge foreign currency risk,
and actively manage foreign currency
exposure. The Fund may also use
derivative instruments to enhance
returns, as a substitute for, or to gain
exposure to, a position in an underlying
asset, to reduce transaction costs, to
maintain full market exposure, to
manage cash flows, or to preserve
capital. Derivatives may also be used to
hedge risks associated with the Fund’s
other portfolio investments. Derivatives
that the Fund may enter into are the
following: Futures on interest rates,
currencies, fixed income securities, and
fixed income indices; exchange-traded
and OTC options on interest rates,
currencies, fixed income securities, and
fixed income indices; swap agreements
on interest rates, currencies, fixed
income securities, and fixed income
indices; credit default swaps; and
currency forward contracts.
B. Other Investments of the Fund
While the Fund, under normal market
conditions, invests at least 80% of its
net assets in the principal investments
described above, the Fund may invest
its remaining assets in the following
non-principal investments.
The Fund may invest in exchangetraded common stock, exchange-traded
preferred stock, and exchange-traded
real estate investment trusts (‘‘REITs’’),
and securities of other investment
companies registered under the 1940
Act, including money market funds,
exchange-traded funds (‘‘ETFs’’), openend funds (other than money market
funds and other ETFs), and U.S.
exchange-traded closed-end funds.13
In addition, the Fund may hold
exchange-traded notes (‘‘ETNs’’),14
exchange-traded or OTC ‘‘Work Out
Securities,’’ 15 and exchange-traded or
13 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.
14 ETNs include Index-Linked Securities (as
described in NYSE Arca Rule 5.2–E(j)(6)). While the
Fund may invest in inverse ETNs, the Fund will not
invest in leveraged or inverse leveraged ETNs (e.g.,
2X or ¥3X).
15 For purposes of this filing, Work Out Securities
include U.S. or foreign equity securities of any type
acquired in connection with restructurings related
to issuers of Fixed Income Securities held by the
Fund. Work Out Securities are generally traded
OTC, but may be traded on a U.S. or foreign
exchange.
PO 00000
Frm 00095
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OTC equity securities issued upon
conversion of fixed income convertible
securities.
C. Investment Restrictions of the Fund 16
The Exchange proposes that the Fund
may invest up to 50% of its total assets
(calculated as the aggregate gross
notional value) in Private ABS/MBS,
provided that the Fund may not invest
more than 30% of its total assets
(calculated as the aggregate gross
notional value) in non-agency RMBS.
The Exchange proposes that up to
25% of the Fund’s assets may be
invested in OTC derivatives that are
used to reduce currency, interest rate or
credit 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 or credit risk will
be limited to 20% of the assets in the
Fund’s portfolio. For purposes of these
percentage limitations on OTC
derivatives, the weight of such OTC
derivatives will be calculated as the
aggregate gross notional value of such
OTC derivatives.
The Fund’s holdings of bank loans
will not exceed 15% of the Fund’s total
assets, and the Fund’s holdings of bank
loans other than Senior Loans will not
exceed 5% of the Fund’s total assets.
The Fund’s holdings in fixed income
convertible securities and in equity
securities issued upon conversion of
such convertible securities will not
exceed 10% of the Fund’s total assets.
The Fund’s holdings in Work Out
Securities will not exceed 5% of the
Fund’s total assets.
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).
D. Use of Derivatives by the Fund
The Fund may invest in the types of
derivatives described in the principal
investments above. 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
16 The Exchange represents that the Fund will not
invest in securities or other financial instruments
that have not been described in this proposed rule
change.
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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 (‘‘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.
E. Impact on Arbitrage Mechanism
The Adviser and the Sub-Adviser
believe there will be minimal, if any,
impact to the arbitrage mechanism as a
result of the Fund’s use of derivatives.
The Adviser and the Sub-Adviser
understand that market makers and
participants should be able to value
derivatives as long as the positions are
disclosed with relevant information.
The Adviser and the Sub-Adviser
believe 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 and Sub-Adviser do 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.
F. Application of Generic Listing
Requirements
The Exchange represents that 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), (a)(2), (b)(5),
and (e), as described below.
(1) Diversification Requirements for
Investments in Equity Securities.
According to the Exchange, the Fund
will not comply with the requirements
set forth in Commentary .01(a)(1) 17 and
17 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
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18:38 Nov 02, 2018
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(a)(2) 18 to NYSE Arca Rule 8.600–E
with respect to the Fund’s investments
in equity securities.19 Specifically, the
Exchange proposes that the Fund’s
investments in equity securities will
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
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.
18 Commentary .01(a)(2) to NYSE Arca Rule
8.600–E provides that the component stocks of the
equity portion of a portfolio that are Non-U.S.
Component Stocks shall meet the following criteria
initially and on a continuing basis: (A) Non-U.S.
Component Stocks each shall have a minimum
market value of at least $100 million; (B) Non-U.S.
Component Stocks each shall have a minimum
global monthly trading volume of 250,000 shares,
or minimum global notional volume traded per
month of $25,000,000, averaged over the last six
months; (C) The most heavily weighted Non-U.S.
Component stock shall not exceed 25% of the
equity weight of the portfolio, and, to the extent
applicable, the five most heavily weighted Non-U.S.
Component Stocks shall not exceed 60% of the
equity weight of the portfolio; (D) Where the equity
portion of the portfolio includes Non-U.S.
Component Stocks, the equity portion of the
portfolio shall include a minimum of 20 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; and
(E) Each Non-U.S. Component Stock shall be listed
and traded on an exchange that has last-sale
reporting.
19 The Exchange represents that, for purposes of
these exceptions, investments in equity securities
that are OTC Work Out Securities, OTC equity
securities issued upon conversion of fixed income
convertible securities, or non-exchange-traded
securities of other open-end investment companies
(e.g., mutual funds) are excluded.
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55441
meet the requirements of Commentary
.01(a) with the exception of (i)
Commentary .01(a)(1)(C) and
.01(a)(1)(D) (with respect to U.S.
Component Stocks), and (ii)
Commentary .01(a)(2)(C) and
.01(a)(2)(D) (with respect to Non-U.S.
Component Stocks). Any Fund
investment in exchange-traded common
stocks, preferred stocks, REITS, ETFs,
ETNs, exchange-traded equity securities
issued upon conversion of fixed income
convertible securities, exchange-traded
Work Out Securities, and U.S.
exchange-traded closed-end funds
would provide for enhanced
diversification of the Fund’s portfolio
and, in any case, would be nonprincipal Fund investments and would
not exceed 20% of the Fund’s net assets
in the aggregate. With respect to any
Fund holdings of exchange-traded
equity securities issued upon
conversion of fixed income convertible
securities and exchange-traded Work
Out Securities, such securities will not
exceed 10% and 5%, respectively, of the
Fund’s total assets. The Adviser and
Sub-Adviser represent that the Fund
generally will not actively invest in
equity securities issued upon
conversion of fixed income convertible
securities or Work Out Securities, but
may, at times, receive a distribution of
such securities in connection with the
Fund’s holdings in other securities.
Therefore, the Fund’s holdings in equity
securities issued upon conversion of
fixed income convertible securities and
Work Out Securities generally would
not be acquired as the result of the
Fund’s voluntary investment decisions.
The Adviser and Sub-Adviser represent
that, under these circumstances,
application of the weighting
requirements of Commentary
.01(a)(1)(C) and Commentary .01(a)(2)(C)
and the minimum number of
components requirements of
Commentary .01(a)(1)(D) and
Commentary .01(a)(2)(D) would impose
an unnecessary burden on the Fund’s
ability to hold such equity securities.
(2) Investments in Private ABS/MBS.
The Exchange further represents that the
Fund will not comply with the
requirement in Commentary .01(b)(5) to
NYSE Arca Rule 8.600–E that Private
ABS/MBS in the Fund’s portfolio
account, in the aggregate, for no more
than 20% of the weight of the fixed
income portion of the Fund’s
portfolio.20 Instead, the Exchange
20 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%
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proposes that, in order to enable the
portfolio to be more diversified and
provide the Fund with an opportunity
to earn higher returns, the Fund may
invest up to 50% of its total assets in
Private ABS/MBS (calculated as the
aggregate gross notional value),
provided that the Fund may not invest
more than 30% of its total assets in nonagency RMBS (calculated as the
aggregate gross notional value).
The Adviser and Sub-Adviser
represent that the non-agency RMBS
sector can be an important component
of the Fund’s investment strategy
because of the potential for attractive
risk-adjusted returns relative to other
fixed income sectors and the potential
to add significantly to the
diversification in the Fund’s portfolio.
Similarly, the CMBS and ABS sectors
also have the potential for attractive
risk-adjusted returns and added
portfolio diversification.
(3) Investments in OTC Derivatives.
The Fund’s portfolio will not comply
with the requirements set forth in
Commentary .01(e) to NYSE Arca Rule
8.600–E.21 Specifically, 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 Exchange
proposes that up to 25% of the Fund’s
assets (calculated as the aggregate gross
notional value) may be invested in OTC
derivatives that are used to reduce
currency, interest rate or credit 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 or credit 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 Adviser and Sub-Adviser 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
of the weight of the fixed income portion of the
portfolio.
21 Commentary .01(e) to NYSE Arca Rule 8.600–
E provides that the 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.
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18:38 Nov 02, 2018
Jkt 247001
purpose to attempt to reduce impact of
currency, interest rate or credit
fluctuations on Fund assets. Therefore,
the Exchange believes it is appropriate
to apply a limit of up to 25% 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.
(4) Investments in OTC Equity
Securities. As noted above, the Fund
may hold equity securities that are Work
Out Securities, which generally are
traded OTC (but that may be traded on
a U.S. or foreign exchange), exchangetraded or OTC equity securities issued
upon conversion of fixed income
convertible securities, and nonexchange-traded securities of other
open-end investment company
securities (e.g., 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 NYSE Arca
Rule 8.600–E with respect to the Fund’s
investments in non-exchange-traded
securities of open-end investment
company securities,22 and
notwithstanding that the Fund’s
holdings of OTC equity securities issued
upon conversion of fixed income
convertible securities and OTC Work
Out Securities would not meet the
requirements of Commentary
.01(a)(1)(A) through (E) and
Commentary .01(a)(2) (A) through (E) to
NYSE Arca Rule 8.600–E. Investments
in non-exchange-traded securities of
open-end investment company
securities will not be principal
investments of the Fund.23 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. With respect to
any Fund holdings of OTC equity
22 Commentary .01 (a) to NYSE Arca 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).
23 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 NYSE Arca Rule 8.600–E and
for which there is no limitation in the percentage
of the portfolio invested in such securities.
PO 00000
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Sfmt 4703
securities issued upon conversion of
fixed income convertible securities and
OTC Work Out Securities, such
securities will not exceed 10% and 5%,
respectively, of the Fund’s total assets.
According to the Exchange, the Adviser
and Sub-Adviser represent that the
Fund generally will not actively invest
in OTC equity securities issued upon
conversion of fixed income convertible
securities or OTC Work Out Securities,
but may, at times, receive a distribution
of such securities in connection with
the Fund’s holdings in other securities.
Therefore, the Fund’s holdings in equity
securities issued upon conversion of
fixed income convertible securities and
Work Out Securities generally would
not be acquired as the result of the
Fund’s voluntary investment decisions.
With respect to investments in nonexchange-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 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
securities of other open-end investment
company securities. The Exchange
believes that it is appropriate to permit
the Fund to invest in non-exchangetraded open-end management
investment company securities.
The Exchange notes that, other than
Commentary .01(a)(1), (a)(2), (b)(5), and
(e) to NYSE Arca Rule 8.600–E, the
Fund’s portfolio will meet all other
requirements of NYSE Arca Rule
8.600–E.
II. Proceedings To Determine Whether
To Approve or Disapprove SR–
NYSEArca–2018–43 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 24 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
24 15
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U.S.C. 78s(b)(2)(B).
05NON1
Federal Register / Vol. 83, No. 214 / Monday, November 5, 2018 / Notices
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,25 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act, which requires,
among other things, that the rules of a
national securities exchange be
‘‘designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, and ‘‘to protect investors and the
public interest.’’ 26
1. In its filing, the Exchange proposes
that the Fund may invest up to 50% of
its total assets (calculated as the
aggregate gross notional value) in
Private ABS/MBS, provided that the
Fund may not invest more than 30% of
its total assets (calculated as the
aggregate gross notional value) in nonagency RMBS. Accordingly, the
Exchange states that the Fund will not
comply with the requirement in
Commentary .01(b)(5) to NYSE Arca
Rule 8.600–E that Private ABS/MBS in
the Fund’s portfolio account, in the
aggregate, for no more than 20% of the
weight of the fixed income portion of
the Fund’s portfolio. The Exchange also
represents that, other than Commentary
.01(a)(1), (a)(2), (b)(5), and (e) to NYSE
Arca Rule 8.600–E, the Fund’s portfolio
will meet all other requirements of
NYSE Arca Rule 8.600–E.
a. The Commission seeks
commenters’ views on whether the
Private ABS/MBS will meet the
requirements of Commentary .01(b)(4) to
NYSE Arca Rule 8.600–E, which
requires that ‘‘[c]omponent securities
that in aggregate account for at least
90% of the fixed income weight of the
portfolio must be either (a) from issuers
that are required to file reports pursuant
to Sections 13 and 15(d) of the
Securities Exchange Act of 1934; (b)
from issuers that have a worldwide
market value of its outstanding common
equity held by non-affiliates of $700
million or more; (c) from issuers that
have outstanding securities that are
notes, bonds debentures, or evidence of
indebtedness having a total remaining
principal amount of at least $1 billion;
(d) exempted securities as defined in
Section 3(a)(12) of the Securities
Exchange Act of 1934; or (e) from
issuers that are a government of a
foreign country or a political
subdivision of a foreign country.’’
25 Id.
26 15
U.S.C. 78f(b)(5).
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18:38 Nov 02, 2018
Jkt 247001
b. The Commission further seeks
commenters’ views on whether the
Fund will meet the requirements of
Commentary .01(f) to NYSE Arca Rule
8.600–E, which requires that ‘‘[to] the
extent that listed or OTC derivatives are
used to gain exposure to individual
equities and/or fixed income securities,
or to indexes of equities and/or indexes
of fixed income securities, the aggregate
gross notional value of such exposure
shall meet the criteria set forth in
Commentary .01(a) and .01(b) (including
gross notional exposures), respectively.’’
2. With respect to the Fund’s
permitted investments in Private ABS/
MBS, the Exchange claims that it is
appropriate and in the public interest to
approve listing and trading of Shares of
the Fund notwithstanding that the
Fund’s holdings in such Private ABS/
MBS do not comply with the
requirements set forth in Commentary
.01(b)(5) to NYSE Arca Rule 8.600–E
because the Fund’s investment in
Private ABS/MBS is expected to provide
the Fund with benefits associated with
increased diversification, as Private
ABS/MBS investments tend to be less
correlated to interest rates than many
other fixed income securities. The
Exchange further states that the Fund’s
investment in Private ABS/MBS will be
subject to the Fund’s liquidity
procedures as adopted by the Board,
and the Adviser and Sub-Adviser do not
expect that investments in Private ABS/
MBS of up to 50% of the total assets of
the Fund will have any material impact
on the liquidity of the Fund’s
investments. In addition, according to
the Exchange, the non-agency RMBS
sector can be an important component
of the Fund’s investment strategy
because of the potential for attractive
risk-adjusted returns relative to other
fixed income sectors and the potential
to add significantly to the
diversification in the Fund’s portfolio.
Similarly, the CMBS and ABS sectors
also have the potential for attractive
risk-adjusted returns and added
portfolio diversification.
a. The Commission seeks
commenters’ views on an investor’s
ability to evaluate or discern pricing
accuracy of the underlying Private ABS/
MBS to be held by the Fund.
b. The Commission seeks
commenters’ views on the potential for
susceptibility to manipulation or other
fraudulent behavior of the Private ABS/
MBS in the Fund’s portfolio.
c. Given the potentially significant
holdings in Private ABS/MBS of the
Fund, the Commission seeks
commenters’ views on possible factors
that might impair the ability of the
arbitrage mechanism to keep the trading
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
55443
price of the Shares tied to the NAV of
the Fund. Specifically, the Commission
seeks commenters’ views on whether or
how these potential impairments of the
arbitrage mechanism may affect the
Fund’s ability to ensure adequate
participation by Authorized
Participants. What are commenters’
views on the potential effects on
investors if the arbitrage mechanism is
impaired?
III. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the Act,
or the rules and regulations thereunder.
Although there do not appear to be any
issues relevant to approval or
disapproval that would be facilitated by
an oral presentation of views, data, and
arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.27
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by November 26, 2018.
Any person who wishes to file a rebuttal
to any other person’s submission must
file that rebuttal by December 10, 2018.
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–2018–43 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
27 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
E:\FR\FM\05NON1.SGM
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55444
Federal Register / Vol. 83, No. 214 / Monday, November 5, 2018 / Notices
All submissions should refer to File
Number SR–NYSEArca–2018–43. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet 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–2018–43 and
should be submitted by November 26,
2018. Rebuttal comments should be
submitted by December 10, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–24069 Filed 11–2–18; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
Data Collection Available for Public
Comments
AGENCY:
Small Business Administration
(SBA).
60-Day notice and request for
comments.
ACTION:
The Small Business
Administration (SBA) intends to request
approval from the Office of Management
and Budget (OMB) for the collection of
information described below. The
Paperwork Reduction Act (PRA) of 1995
SUMMARY:
28 17
CFR 200.30–3(a)(57).
VerDate Sep<11>2014
18:38 Nov 02, 2018
Jkt 247001
requires federal agencies to publish a
notice in the Federal Register
concerning each proposed collection of
information before submission to OMB
and to allow 60 days for public
comment in response to the notice. This
notice complies with that requirement.
DATES: Submit comments on or before
January 4, 2019.
ADDRESSES: Send all comments to Dena
Moglia, Senior Management & Program
Analyst, Office of Performance
Management, Small Business
Administration, 409 3rd Street SW,
Washington, DC 20416.
Comments may be sent to: Comments
may also be submitted via fax to the
attention of Dena Moglia at 202–205–
7034 or via email to dena.moglia@
sba.gov. Comments will also be
accepted through the Federal
eRulemaking Portal. Visit https://
www.regulations.gov, and follow the
online instructions for submitting
comments electronically. All responses
to this notice will be summarized and
included in the request for OMB
approval. All comments will be a matter
of public record.
FOR FURTHER INFORMATION CONTACT:
Requests for additional information or
copies of this information collection
should be directed to Dena Moglia at
dena.moglia@sba.gov or Curtis B. Rich,
Management Analyst, 202–205–7030
curtis.rich@sba.gov.
SUPPLEMENTARY INFORMATION:
Abstract: The SBA’s Women’s
Business Centers represent a national
network of over 100 educational centers
designed to assist women in starting and
growing small businesses. WBCs operate
with the mission to ‘‘level the playing
field’’ for women entrepreneurs, who
still face unique obstacles in the world
of business. Through the management
and technical assistance provided by the
WBCs, entrepreneurs (especially women
who are economically or socially
disadvantaged) are offered
comprehensive training and counseling
on a variety of topics in many languages
to help them start and grow their own
businesses. The SBA plans to conduct a
web-based survey to understand to what
degree the Agency’s WBC programs and
services help entrepreneurs start,
manage, and grow businesses. The
survey will help determine customer
satisfaction and the outcomes of the
delivered business assistance services.
Surveys will be completed by a sample
of clients who received business
assistance services at least 1 year ago. A
minimum 1-year lag is desired to allow
the business outcomes of the services to
be observed. Because WBCs offer both
training and counseling services, clients
PO 00000
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Fmt 4703
Sfmt 4703
who received either service will be
included.
Solicitation of Public Comments
SBA is requesting comments on (a)
Whether the collection of information is
necessary for the agency to properly
perform its functions; (b) whether the
burden estimates are accurate; (c)
whether there are ways to minimize the
burden, including through the use of
automated techniques or other forms of
information technology; and (d) whether
there are ways to enhance the quality,
utility, and clarity of the information.
Summary of Information Collection
Title: SBA’s Women’s Business Center
(WBC) Client Survey.
Form Number: N/A.
Affected Public: This study includes
WBCs and WBC clients who received
entrepreneurship counseling and/or
training services at least 1 year ago.
Estimated Total Annual Burden
Hours on Respondents: 1,005.49 hours.
Curtis Rich,
Agency Clearance Office.
[FR Doc. 2018–24109 Filed 11–2–18; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15782 and #15783;
Northern Mariana Islands Disaster Number
MP–00009]
Presidential Declaration of a Major
Disaster for the Commonwealth of the
Northern Mariana Islands
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a Notice of the
Presidential declaration of a major
disaster for the Commonwealth of the
NORTHERN MARIANA ISLANDS
(FEMA–4404–DR), dated 10/26/2018.
Incident: Super Typhoon Yutu.
Incident Period: 10/24/2018 and
continuing.
SUMMARY:
Issued on 10/26/2018.
Physical Loan Application Deadline
Date: 12/26/2018.
Economic Injury (EIDL) Loan
Application Deadline Date: 07/26/2019.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
DATES:
E:\FR\FM\05NON1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 214 (Monday, November 5, 2018)]
[Notices]
[Pages 55439-55444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24069]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84504; File No. SR-NYSEArca-2018-43]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change Regarding Investments of the First Trust TCW Unconstrained
Plus Bond ETF
October 30, 2018.
On July 11, 2018, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change
seeking to modify investments of the First Trust TCW Unconstrained Plus
Bond ETF, the shares of which are currently listed and traded on the
Exchange pursuant to NYSE Arca Rule 8.600-E. The proposed rule change
was published for comment in the Federal Register on August 1, 2018.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 83720 (July 26,
2018), 83 FR 37560 (``Notice'').
---------------------------------------------------------------------------
On September 14, 2018, pursuant to Section 19(b)(2) of the Act,\4\
the Commission extended the time period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ The Commission has received no comment letters on the
proposed rule change. The Commission is publishing this order to
institute proceedings under Section 19(b)(2)(B) of the Act \6\ to
determine whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 84123 (September 14,
2018), 83 FR 47654 (September 20, 2018). The Commission designated
October 30, 2018, as the date by which it should approve,
disapprove, or institute proceedings to determine whether to
disapprove the proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
I. Summary of the Proposal 7
---------------------------------------------------------------------------
\7\ The Commission notes that additional information regarding,
among other things, the Shares, Fund, investment objective,
permitted investments, investment strategies and methodology,
investment restrictions, investment adviser and sub-adviser,
creation and redemption procedures, availability of information,
trading rules and halts, and surveillance procedures, can be found
in the Notice (see supra note 3) and the Registration Statement (see
infra note 8), as applicable.
---------------------------------------------------------------------------
The Exchange proposes to make changes to the investments of the
First Trust TCW Unconstrained Plus Bond ETF (``Fund''), the shares
(``Shares'') of which are currently listed and traded on the Exchange
under NYSE Arca Rule 8.600-E, which governs the listing and trading of
Managed Fund Shares on the Exchange. According to the Exchange, the
Shares of the Fund commenced trading on the Exchange on June 5, 2018
pursuant to the generic listing standards in Commentary .01 to NYSE
Arca Rule 8.600-E.
The Shares are offered by First Trust Exchange-Traded Fund VIII
(``Trust''), which is registered with the Commission as an open-end
management investment company.\8\ The Fund is a series of the Trust.
First Trust Advisors L.P. is the investment adviser (``Adviser'') to
the Fund. TCW Investment Management Company LLC (``TCW'' or the ``Sub-
Adviser''), serves as the Fund's investment sub-adviser.\9\ First Trust
Portfolios L.P. is the distributor for the Fund's Shares. The Bank of
New York Mellon acts as the administrator, custodian and transfer agent
for the Fund.
---------------------------------------------------------------------------
\8\ The Exchange represents that the Trust is registered under
the Investment Company Act of 1940 (``1940 Act''). On May 29, 2018,
the Trust filed with the Commission its registration statement
(``Registration Statement'') on Form N-1A under the Securities Act
of 1933 and under the 1940 Act relating to the Fund (File Nos. 333-
210186 and 811-23147). In addition, the Exchange represents that the
Trust has obtained an order from the Commission granting certain
exemptive relief under the 1940 Act. See Investment Company Act
Release No. 30029 (April 10, 2012) (File No. 812-13795).
\9\ According to the Exchange, the Adviser and Sub-Adviser are
not registered as broker-dealers. 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 Sub-Adviser is affiliated with
multiple broker-dealers and has implemented and will maintain a fire
wall with respect to its broker-dealer affiliates regarding access
to information concerning the composition and/or changes to the
portfolio. In the event (a) the Adviser or the Sub-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 relevant
personnel and any 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.
---------------------------------------------------------------------------
A. Principal Investments of the Fund
According to the Exchange, the investment objective of the Fund is
to seek to maximize long-term total return. Under normal market
conditions,\10\ the Fund intends to invest at least 80% of its net
assets (including investment
[[Page 55440]]
borrowings) in a portfolio of ``Fixed Income Securities'' (described
below).
---------------------------------------------------------------------------
\10\ 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. During such periods, the Fund may not be able
to achieve its investment objective. The Fund may adopt a defensive
strategy when the Adviser and/or the Sub-Adviser believes securities
in which the Fund normally invests have elevated risks due to
market, political or economic factors and in other extraordinary
circumstances.
---------------------------------------------------------------------------
In managing the Fund's portfolio, TCW intends to employ a flexible
approach that allocates the Fund's investments across a range of global
investment opportunities and actively manage exposure to interest
rates, credit sectors, and currencies. TCW seeks to utilize
independent, bottom-up research to identify securities that are
undervalued and that offer a superior risk/return profile. Pursuant to
this investment strategy, the Fund may invest in the following Fixed
Income Securities, which may be represented by derivatives relating to
such securities, as discussed below:
Securities issued or guaranteed by the U.S. government or
its agencies, instrumentalities or U.S. government-sponsored entities;
Treasury Inflation Protected Securities;
agency and non-agency residential mortgage-backed
securities (``RMBS''); agency and non-agency commercial mortgage-backed
securities (``CMBS''); agency and non-agency asset-backed securities
(``ABS''); \11\
---------------------------------------------------------------------------
\11\ Non-agency RMBS, CMBS, and ABS are referred to collectively
herein as ``Private ABS/MBS.''
---------------------------------------------------------------------------
domestic corporate bonds;
Fixed Income Securities issued by non-U.S. corporations
and non-U.S. governments;
bank loans, including first lien senior secured floating
rate bank loans (``Senior Loans''), secured and unsecured loans, second
lien or more junior loans, and bridge loans;
fixed income convertible securities;
fixed income preferred securities;
municipal bonds;
collateralized loan obligations; and
Rule 144A securities.
In addition, the Fund may invest in agency RMBS and CMBS by
investing in to-be-announced transactions. The Fund may hold cash and
cash equivalents,\12\ as well as 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 also may
enter into short sales of any securities in which the Fund may invest.
---------------------------------------------------------------------------
\12\ For purposes of this filing, cash equivalents are the
short-term instruments with maturities of less than 3 months
enumerated in Commentary .01(c) to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------
The Fund may utilize exchange-listed and over-the-counter (``OTC'')
traded derivatives instruments for duration/yield curve management and/
or hedging purposes, for risk management purposes, or as part of its
investment strategies. The Fund will use derivative instruments
primarily to hedge interest rate risk, actively manage interest rate
exposure, hedge foreign currency risk, and actively manage foreign
currency exposure. The Fund may also use derivative instruments to
enhance returns, as a substitute for, or to gain exposure to, a
position in an underlying asset, to reduce transaction costs, to
maintain full market exposure, to manage cash flows, or to preserve
capital. Derivatives may also be used to hedge risks associated with
the Fund's other portfolio investments. Derivatives that the Fund may
enter into are the following: Futures on interest rates, currencies,
fixed income securities, and fixed income indices; exchange-traded and
OTC options on interest rates, currencies, fixed income securities, and
fixed income indices; swap agreements on interest rates, currencies,
fixed income securities, and fixed income indices; credit default
swaps; and currency forward contracts.
B. Other Investments of the Fund
While the Fund, under normal market conditions, invests at least
80% of its net assets in the principal investments described above, the
Fund may invest its remaining assets in the following non-principal
investments.
The Fund may invest in exchange-traded common stock, exchange-
traded preferred stock, and exchange-traded real estate investment
trusts (``REITs''), and securities of other investment companies
registered under the 1940 Act, including money market funds, exchange-
traded funds (``ETFs''), open-end funds (other than money market funds
and other ETFs), and U.S. exchange-traded closed-end funds.\13\
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\13\ 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.
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In addition, the Fund may hold exchange-traded notes
(``ETNs''),\14\ exchange-traded or OTC ``Work Out Securities,'' \15\
and exchange-traded or OTC equity securities issued upon conversion of
fixed income convertible securities.
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\14\ ETNs include Index-Linked Securities (as described in NYSE
Arca Rule 5.2-E(j)(6)). While the Fund may invest in inverse ETNs,
the Fund will not invest in leveraged or inverse leveraged ETNs
(e.g., 2X or -3X).
\15\ For purposes of this filing, Work Out Securities include
U.S. or foreign equity securities of any type acquired in connection
with restructurings related to issuers of Fixed Income Securities
held by the Fund. Work Out Securities are generally traded OTC, but
may be traded on a U.S. or foreign exchange.
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C. Investment Restrictions of the Fund 16
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\16\ The Exchange represents that the Fund will not invest in
securities or other financial instruments that have not been
described in this proposed rule change.
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The Exchange proposes that the Fund may invest up to 50% of its
total assets (calculated as the aggregate gross notional value) in
Private ABS/MBS, provided that the Fund may not invest more than 30% of
its total assets (calculated as the aggregate gross notional value) in
non-agency RMBS.
The Exchange proposes that up to 25% of the Fund's assets may be
invested in OTC derivatives that are used to reduce currency, interest
rate or credit 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 or credit risk will be limited to 20% of the assets in
the Fund's portfolio. For purposes of these percentage limitations on
OTC derivatives, the weight of such OTC derivatives will be calculated
as the aggregate gross notional value of such OTC derivatives.
The Fund's holdings of bank loans will not exceed 15% of the Fund's
total assets, and the Fund's holdings of bank loans other than Senior
Loans will not exceed 5% of the Fund's total assets. The Fund's
holdings in fixed income convertible securities and in equity
securities issued upon conversion of such convertible securities will
not exceed 10% of the Fund's total assets. The Fund's holdings in Work
Out Securities will not exceed 5% of the Fund's total assets.
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).
D. Use of Derivatives by the Fund
The Fund may invest in the types of derivatives described in the
principal investments above. 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
[[Page 55441]]
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 (``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.
E. Impact on Arbitrage Mechanism
The Adviser and the Sub-Adviser believe there will be minimal, if
any, impact to the arbitrage mechanism as a result of the Fund's use of
derivatives. The Adviser and the Sub-Adviser understand that market
makers and participants should be able to value derivatives as long as
the positions are disclosed with relevant information. The Adviser and
the Sub-Adviser believe 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 and Sub-Adviser do 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.
F. Application of Generic Listing Requirements
The Exchange represents that 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), (a)(2), (b)(5), and (e), as
described below.
(1) Diversification Requirements for Investments in Equity
Securities. According to the Exchange, the Fund will not comply with
the requirements set forth in Commentary .01(a)(1) \17\ and (a)(2) \18\
to NYSE Arca Rule 8.600-E with respect to the Fund's investments in
equity securities.\19\ Specifically, the Exchange proposes that the
Fund's investments in equity securities will meet the requirements of
Commentary .01(a) with the exception of (i) Commentary .01(a)(1)(C) and
.01(a)(1)(D) (with respect to U.S. Component Stocks), and (ii)
Commentary .01(a)(2)(C) and .01(a)(2)(D) (with respect to Non-U.S.
Component Stocks). Any Fund investment in exchange-traded common
stocks, preferred stocks, REITS, ETFs, ETNs, exchange-traded equity
securities issued upon conversion of fixed income convertible
securities, exchange-traded Work Out Securities, and U.S. exchange-
traded closed-end funds would provide for enhanced diversification of
the Fund's portfolio and, in any case, would be non-principal Fund
investments and would not exceed 20% of the Fund's net assets in the
aggregate. With respect to any Fund holdings of exchange-traded equity
securities issued upon conversion of fixed income convertible
securities and exchange-traded Work Out Securities, such securities
will not exceed 10% and 5%, respectively, of the Fund's total assets.
The Adviser and Sub-Adviser represent that the Fund generally will not
actively invest in equity securities issued upon conversion of fixed
income convertible securities or Work Out Securities, but may, at
times, receive a distribution of such securities in connection with the
Fund's holdings in other securities. Therefore, the Fund's holdings in
equity securities issued upon conversion of fixed income convertible
securities and Work Out Securities generally would not be acquired as
the result of the Fund's voluntary investment decisions. The Adviser
and Sub-Adviser represent that, under these circumstances, application
of the weighting requirements of Commentary .01(a)(1)(C) and Commentary
.01(a)(2)(C) and the minimum number of components requirements of
Commentary .01(a)(1)(D) and Commentary .01(a)(2)(D) would impose an
unnecessary burden on the Fund's ability to hold such equity
securities.
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\17\ 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.
\18\ Commentary .01(a)(2) to NYSE Arca Rule 8.600-E provides
that the component stocks of the equity portion of a portfolio that
are Non-U.S. Component Stocks shall meet the following criteria
initially and on a continuing basis: (A) Non-U.S. Component Stocks
each shall have a minimum market value of at least $100 million; (B)
Non-U.S. Component Stocks each shall have a minimum global monthly
trading volume of 250,000 shares, or minimum global notional volume
traded per month of $25,000,000, averaged over the last six months;
(C) The most heavily weighted Non-U.S. Component stock shall not
exceed 25% of the equity weight of the portfolio, and, to the extent
applicable, the five most heavily weighted Non-U.S. Component Stocks
shall not exceed 60% of the equity weight of the portfolio; (D)
Where the equity portion of the portfolio includes Non-U.S.
Component Stocks, the equity portion of the portfolio shall include
a minimum of 20 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; and (E) Each Non-U.S. Component Stock shall be listed and
traded on an exchange that has last-sale reporting.
\19\ The Exchange represents that, for purposes of these
exceptions, investments in equity securities that are OTC Work Out
Securities, OTC equity securities issued upon conversion of fixed
income convertible securities, or non-exchange-traded securities of
other open-end investment companies (e.g., mutual funds) are
excluded.
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(2) Investments in Private ABS/MBS. The Exchange further represents
that the Fund will not comply with the requirement in Commentary
.01(b)(5) to NYSE Arca Rule 8.600-E that Private ABS/MBS in the Fund's
portfolio account, in the aggregate, for no more than 20% of the weight
of the fixed income portion of the Fund's portfolio.\20\ Instead, the
Exchange
[[Page 55442]]
proposes that, in order to enable the portfolio to be more diversified
and provide the Fund with an opportunity to earn higher returns, the
Fund may invest up to 50% of its total assets in Private ABS/MBS
(calculated as the aggregate gross notional value), provided that the
Fund may not invest more than 30% of its total assets in non-agency
RMBS (calculated as the aggregate gross notional value).
---------------------------------------------------------------------------
\20\ 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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The Adviser and Sub-Adviser represent that the non-agency RMBS
sector can be an important component of the Fund's investment strategy
because of the potential for attractive risk-adjusted returns relative
to other fixed income sectors and the potential to add significantly to
the diversification in the Fund's portfolio. Similarly, the CMBS and
ABS sectors also have the potential for attractive risk-adjusted
returns and added portfolio diversification.
(3) Investments in OTC Derivatives. The Fund's portfolio will not
comply with the requirements set forth in Commentary .01(e) to NYSE
Arca Rule 8.600-E.\21\ Specifically, 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 Exchange proposes
that up to 25% of the Fund's assets (calculated as the aggregate gross
notional value) may be invested in OTC derivatives that are used to
reduce currency, interest rate or credit 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 or credit 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.
---------------------------------------------------------------------------
\21\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that
the 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 Sub-Adviser 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 or credit
fluctuations on Fund assets. Therefore, the Exchange believes it is
appropriate to apply a limit of up to 25% 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.
(4) Investments in OTC Equity Securities. As noted above, the Fund
may hold equity securities that are Work Out Securities, which
generally are traded OTC (but that may be traded on a U.S. or foreign
exchange), exchange-traded or OTC equity securities issued upon
conversion of fixed income convertible securities, and non-exchange-
traded securities of other open-end investment company securities
(e.g., 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 NYSE Arca Rule
8.600-E with respect to the Fund's investments in non-exchange-traded
securities of open-end investment company securities,\22\ and
notwithstanding that the Fund's holdings of OTC equity securities
issued upon conversion of fixed income convertible securities and OTC
Work Out Securities would not meet the requirements of Commentary
.01(a)(1)(A) through (E) and Commentary .01(a)(2) (A) through (E) to
NYSE Arca Rule 8.600-E. Investments in non-exchange-traded securities
of open-end investment company securities will not be principal
investments of the Fund.\23\ 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. With respect to any Fund holdings of
OTC equity securities issued upon conversion of fixed income
convertible securities and OTC Work Out Securities, such securities
will not exceed 10% and 5%, respectively, of the Fund's total assets.
According to the Exchange, the Adviser and Sub-Adviser represent that
the Fund generally will not actively invest in OTC equity securities
issued upon conversion of fixed income convertible securities or OTC
Work Out Securities, but may, at times, receive a distribution of such
securities in connection with the Fund's holdings in other securities.
Therefore, the Fund's holdings in equity securities issued upon
conversion of fixed income convertible securities and Work Out
Securities generally would not be acquired as the result of the Fund's
voluntary investment decisions.
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\22\ Commentary .01 (a) to NYSE Arca 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).
\23\ 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 NYSE Arca 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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With respect to investments 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 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 securities of other open-end investment company
securities. The Exchange believes that it is appropriate to permit the
Fund to invest in non-exchange-traded open-end management investment
company securities.
The Exchange notes that, other than Commentary .01(a)(1), (a)(2),
(b)(5), and (e) to NYSE Arca Rule 8.600-E, the Fund's portfolio will
meet all other requirements of NYSE Arca Rule 8.600-E.
II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2018-43 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \24\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to
[[Page 55443]]
provide comments on the proposed rule change.
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\24\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\25\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act, which requires, among other things, that the rules of a
national securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and ``to protect investors and the public
interest.'' \26\
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\25\ Id.
\26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
1. In its filing, the Exchange proposes that the Fund may invest up
to 50% of its total assets (calculated as the aggregate gross notional
value) in Private ABS/MBS, provided that the Fund may not invest more
than 30% of its total assets (calculated as the aggregate gross
notional value) in non-agency RMBS. Accordingly, the Exchange states
that the Fund will not comply with the requirement in Commentary
.01(b)(5) to NYSE Arca Rule 8.600-E that Private ABS/MBS in the Fund's
portfolio account, in the aggregate, for no more than 20% of the weight
of the fixed income portion of the Fund's portfolio. The Exchange also
represents that, other than Commentary .01(a)(1), (a)(2), (b)(5), and
(e) to NYSE Arca Rule 8.600-E, the Fund's portfolio will meet all other
requirements of NYSE Arca Rule 8.600-E.
a. The Commission seeks commenters' views on whether the Private
ABS/MBS will meet the requirements of Commentary .01(b)(4) to NYSE Arca
Rule 8.600-E, which requires that ``[c]omponent securities that in
aggregate account for at least 90% of the fixed income weight of the
portfolio must be either (a) from issuers that are required to file
reports pursuant to Sections 13 and 15(d) of the Securities Exchange
Act of 1934; (b) from issuers that have a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more; (c) from issuers that have outstanding securities that are notes,
bonds debentures, or evidence of indebtedness having a total remaining
principal amount of at least $1 billion; (d) exempted securities as
defined in Section 3(a)(12) of the Securities Exchange Act of 1934; or
(e) from issuers that are a government of a foreign country or a
political subdivision of a foreign country.''
b. The Commission further seeks commenters' views on whether the
Fund will meet the requirements of Commentary .01(f) to NYSE Arca Rule
8.600-E, which requires that ``[to] the extent that listed or OTC
derivatives are used to gain exposure to individual equities and/or
fixed income securities, or to indexes of equities and/or indexes of
fixed income securities, the aggregate gross notional value of such
exposure shall meet the criteria set forth in Commentary .01(a) and
.01(b) (including gross notional exposures), respectively.''
2. With respect to the Fund's permitted investments in Private ABS/
MBS, the Exchange claims that it is appropriate and in the public
interest to approve listing and trading of Shares of the Fund
notwithstanding that the Fund's holdings in such Private ABS/MBS do not
comply with the requirements set forth in Commentary .01(b)(5) to NYSE
Arca Rule 8.600-E because the Fund's investment in Private ABS/MBS is
expected to provide the Fund with benefits associated with increased
diversification, as Private ABS/MBS investments tend to be less
correlated to interest rates than many other fixed income securities.
The Exchange further states that the Fund's investment in Private ABS/
MBS will be subject to the Fund's liquidity procedures as adopted by
the Board, and the Adviser and Sub-Adviser do not expect that
investments in Private ABS/MBS of up to 50% of the total assets of the
Fund will have any material impact on the liquidity of the Fund's
investments. In addition, according to the Exchange, the non-agency
RMBS sector can be an important component of the Fund's investment
strategy because of the potential for attractive risk-adjusted returns
relative to other fixed income sectors and the potential to add
significantly to the diversification in the Fund's portfolio.
Similarly, the CMBS and ABS sectors also have the potential for
attractive risk-adjusted returns and added portfolio diversification.
a. The Commission seeks commenters' views on an investor's ability
to evaluate or discern pricing accuracy of the underlying Private ABS/
MBS to be held by the Fund.
b. The Commission seeks commenters' views on the potential for
susceptibility to manipulation or other fraudulent behavior of the
Private ABS/MBS in the Fund's portfolio.
c. Given the potentially significant holdings in Private ABS/MBS of
the Fund, the Commission seeks commenters' views on possible factors
that might impair the ability of the arbitrage mechanism to keep the
trading price of the Shares tied to the NAV of the Fund. Specifically,
the Commission seeks commenters' views on whether or how these
potential impairments of the arbitrage mechanism may affect the Fund's
ability to ensure adequate participation by Authorized Participants.
What are commenters' views on the potential effects on investors if the
arbitrage mechanism is impaired?
III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, or
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\27\
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\27\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by November 26, 2018. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 10, 2018.
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-2018-43 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[[Page 55444]]
All submissions should refer to File Number SR-NYSEArca-2018-43. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet 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-2018-43 and should be submitted
by November 26, 2018. Rebuttal comments should be submitted by December
10, 2018.
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\28\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24069 Filed 11-2-18; 8:45 am]
BILLING CODE 8011-01-P
