Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Regarding Certain Changes Relating to Investments of the PGIM Active High Yield Bond ETF, 62915-62924 [2018-26514]
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Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices
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CboeEDGX–2018–056 on the subject
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Paper comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
khammond on DSK30JT082PROD with NOTICES
All submissions should refer to File
Number SR–CboeEDGX–2018–056. This
file number should be included on the
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rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
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provisions of 5 U.S.C. 552, will be
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December 27, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–26516 Filed 12–4–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84696; File No. SR–
NYSEArca–2018–82]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Regarding Certain
Changes Relating to Investments of
the PGIM Active High Yield Bond ETF
November 30, 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
November 16, 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, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes certain
changes regarding investments of the
PGIM Active High Yield Bond ETF (the
‘‘Fund’’), a series of PGIM ETF Trust
(the ‘‘Trust’’). Shares of the Fund
currently are 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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
17 17
CFR 200.30–3(a)(12).
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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 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. PIMS, the
Adviser and the Subadviser are indirect
wholly-owned subsidiaries of
Prudential Financial, Inc. Brown
Brothers Harriman & Co., which is
unaffiliated with PIMS, the Adviser and
the Subadviser, serves as the custodian,
administrator, and transfer agent
(‘‘Transfer Agent’’) for the Fund.6
Prudential Investment Management
Services LLC (‘‘PIMS’’), a registered
broker-dealer, acts as the distributor (the
‘‘Distributor’’) for the Fund’s Shares.
Commentary .06 to Rule 8.600–E
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect and maintain a ‘‘fire wall’’
between the investment adviser and the
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 The Trust is registered under the 1940 Act. On
June 28, 2018, the Trust filed with the Commission
an amendment to its 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).
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broker-dealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s portfolio.
Commentary .06 to Rule 8.600–E is
similar to Commentary .03(a)(i) and (iii)
to NYSE Arca Rule 5.2–E(j)(3); however,
Commentary .06 in connection with the
establishment and maintenance of a
‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds.
The Adviser and the Subadviser are
not registered as broker-dealers but are
affiliated with PIMS, a broker-dealer,
and have implemented and will
maintain a ‘‘fire wall’’ with respect to
such broker-dealer regarding access to
information concerning the composition
and/or changes to the Fund’s portfolio.
In the event (a) the Adviser or the
Subadviser 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 brokerdealer, it will implement and maintain
a ‘‘fire wall’’ with respect to its relevant
personnel or broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures, each designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
PGIM Active High Yield Bond ETF
khammond on DSK30JT082PROD with NOTICES
Principal Investments
According to the Registration
Statement, the investment objective of
the Fund seeks to provide total return
through a combination of current
income and capital appreciation. The
Fund seeks to achieve its investment
objective by investing primarily in a
portfolio of high yield bonds of
companies and governments. Under
normal market conditions,7 the Fund
7 The term ‘‘normal market conditions’’ is defined
in NYSE Arca Rule 8.600–E(c)(5). In response to
adverse market, economic or political conditions,
the Fund may take a temporary defensive position
and invest up to 100% of its assets in cash and
money market instruments, which include shares of
‘‘Money Market Funds’’ (defined below); shares of
affiliated short-term bond funds; short-term
obligations of, or securities guaranteed by, the U.S.
Government, its agencies or instrumentalities; high-
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will invest at least 80% of its net assets
in a diversified portfolio of high yield
bonds and other investments consisting
of (i) the Principal Investment
Instruments (defined below) and (ii)
derivatives 8 that (A) provide exposure
to such Principal Investment
Instruments, or (B) are used to enhance
returns, manage portfolio duration, or
manage the risk of securities price
fluctuations, as further described below
(together, the ‘‘Principal Investments’’).
The Fund may invest in ‘‘Principal
Investment Instruments’’ consisting of
the following fixed income instruments
(each of which shall be denominated in
U.S. dollars):
• fixed income instruments issued by
the US Government, its agencies and
instrumentalities;
• commercial paper;
• asset-backed securities;
• mortgage-backed securities,
• variable and floating rate
instruments;
• bills, notes and other obligations
issued by banks, corporations and other
companies (including trust structures);
• convertible and non-convertible
fixed income securities
• loan participations and
assignments;
• obligations issued by non-U.S.
banks, companies or non-U.S.
governments;
• municipal bonds and notes;
• shares of ‘‘Money Market Funds’’; 9
and
• shares of the Prudential Core Ultra
Short Bond Fund 10 or, if the Prudential
quality obligations of U.S. or foreign banks and
corporations; or any other securities or instruments.
8 The Fund’s investments in derivatives will
include investments in both listed derivatives and
over-the-counter (‘‘OTC’’) derivatives, as those
terms are defined in Commentary .01(d) and (e) to
NYSE Arca Rule 8.600–E.
9 ‘‘Money Market Funds’’ include money market
funds registered under the 1940 Act and money
market funds that are not registered under the 1940
Act but that comply with Rule 2a–7 under the 1940
Act.
10 The Prudential Core Ultra Short Bond Fund is
a series of Prudential Investment Portfolios 2,
which is an open-end investment company
registered under the 1940 Act. Shares of the
Prudential Core Ultra Short Bond Fund are
available for purchase only by certain affiliated
investment companies managed and certain other
institutional investors. The Fund’s Subadviser is
also the subadviser to the Affiliated Short Term
Bond Fund. The investment objective of the
Prudential Core Ultra Short Bond Fund is to seek
current income consistent with the preservation of
capital and the maintenance of liquidity. Like Rule
2a–7 money market funds that are defined as cash
equivalents pursuant to Commentary .01(c) to Rule
8.600–E, the Prudential Core Ultra Short Bond Fund
invests primarily in money market obligations as
defined by Rule 2a–7. Rule 2a–7 defines money
market obligations as obligations that mature in 397
days or less. Additionally, the Prudential Core Ultra
Short Bond Fund seeks investments that are
expected to experience minimal fluctuations in
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Core Ultra Short Bond Fund is no longer
offered with the same investment
objective, shares of any successor fund
or other affiliated open-end investment
company registered under the 1940 Act
with a substantially similar investment
objective (the ‘‘Affiliated Short Term
Bond Fund’’).11
The Fund may hold cash and cash
equivalents.12
The Fund may, without limitation,
enter into dollar rolls and short sales of
Principal Investment Instruments. The
Fund may also purchase securities and
other instruments under when-issued,
delayed delivery, to be announced or
forward commitment transactions. The
Fund will ‘‘set aside’’ liquid assets or
engage in other measures to ‘‘cover’’
open positions held in connection with
the foregoing types of transactions, as
well as derivative transactions.
The Fund may invest in derivatives to
(i) provide exposure to the Principal
Investment Instruments and (ii) enhance
returns, manage portfolio duration, or
(iii) manage the risk of securities price
fluctuations. Derivatives that the Fund
may enter into include only: OTC
deliverable and non-deliverable foreign
exchange forward contracts; listed
futures contracts on one 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
value. See the registration statement for the
Prudential Core Ultra Short Bond Fund on Form N–
1A, dated March 29, 2018 (File No. 811–09999),
available at https://www.sec.gov/Archives/edgar/
data/1099692/000006759018000388/
pip2posami.htm.
11 The Fund’s investment in the Affiliated Short
Term Bond Fund is described further in
‘‘Application of Generic Listing Requirements,’’
infra.
12 For purposes of this filing, the term ‘‘cash
equivalents’’ includes the short-term instruments
enumerated in Commentary .01(c) to NYSE Arca
Rule 8.600–E. Under normal market conditions, the
Fund may invest a significant portion of its assets
in cash and cash equivalents.
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Instruments (both as protection seller
and as protection buyer).
Other Investments
While the Fund, under normal market
conditions, invests at least 80% of its
investable assets in the Principal
Investments described above, the Fund
may invest its remaining assets in the
following ‘‘Non-Principal Investments’’.
The Fund may hold exchange-traded
funds (‘‘ETFs’’) that provide exposure to
Principal Investment Instruments.13
The Fund may hold convertible and
non-convertible securities preferred
stocks traded in the OTC market or
listed on an exchange.
The Fund may hold warrants traded
in the OTC market or listed on an
exchange.
The Fund may hold ‘‘Work Out
Securities,’’ 14 which may be acquired
by the Fund incidental to the purchase
or ownership of the Fund’s Principal
Investments or in connection with a
reorganization of an issuer.
The Fund may invest in securities and
other instruments that would otherwise
qualify as Principal Investment
Instruments but for being denominated
in non-U.S. currency.
Investment Restrictions
In addition to shares of the Affiliated
Short Term Bond Fund or Money
Market Funds referenced above in
‘‘Principal Investments’’, the Fund may
invest up to 10% of the total assets of
the Fund in shares of other nonexchange-traded open-end management
investment company securities,
including investment company
securities for which the Adviser and/or
its affiliates may serve as investment
adviser or administrator.
Not more than 10% of the Fund’s
assets in the aggregate will be held in
convertible and non-convertible
preferred stocks, warrants and Work Out
Securities.
khammond on DSK30JT082PROD with NOTICES
Use of Derivatives by the Fund
The Fund may invest in the types of
derivatives described in the ‘‘Principal
Investments’’ section above to (i)
13 For purposes of this filing, ETFs include
Investment Company Units (as described in NYSE
Arca Rule 5.2(j)(3)–E), 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 in which the Fund invests
will be listed and traded on national securities
exchanges.
14 For purposes of this filing, Work Out Securities
include U.S. or foreign equity securities of any type
acquired in connection with restructurings or
incidental to the purchase or ownership related to
issuers of Principal Investment Instruments 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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provide exposure to the Principal
Investment Instruments,15 (ii) enhance
returns and manage portfolio duration,
or (iii) manage the risk of securities
price fluctuations. Investments in
derivative instruments will be
consistent with the Fund’s investment
objective and policies.
To limit the potential risk associated
with such transactions, the Fund may
enter into offsetting transactions or
segregate or ‘‘earmark’’ assets
determined to be liquid by the Adviser
in accordance with procedures
established by the Trust’s Board of
Trustees (the ‘‘Board’’). In addition, the
Fund has included appropriate risk
disclosure in its offering documents,
including leveraging risk. Leveraging
risk is the risk that certain transactions
of the Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.
Impact on Arbitrage Mechanism
The Adviser and the Subadviser
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 Subadviser
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 Subadviser 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
NAV, which should ensure that Shares
of the Fund will not trade at a material
discount or premium in relation to their
NAV.
Creation and Redemption of Shares
The Fund issues and sells Shares only
in aggregations of at least 25,000 Shares
(each aggregation is called a ‘‘Creation
Unit’’) on a continuous basis through
PIMS at the NAV next determined after
receipt of an order in proper form on
any Business Day.16
The consideration for a purchase of
Creation Units generally will consist of
a cash deposit but may include the inkind deposit of a portfolio of securities
and other investments (the ‘‘Deposit
Instruments’’) included in the Fund and
15 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.
16 A ‘‘Business Day’’ with respect to the Fund is
any day on which the Exchange is open for
business.
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an amount of cash computed as
described below (the ‘‘Cash Amount’’).
The Cash Amount together with the
Deposit Instruments, as applicable, are
referred to as the ‘‘Portfolio Deposit,’’
which represents the minimum initial
and subsequent investment amount for
a Creation Unit of the Fund.
The Cash Amount would be an
amount equal to the difference between
the NAV of the Shares (per Creation
Unit) and the ‘‘Deposit Amount,’’ which
is an amount equal to the aggregate
market value of the Deposit Instruments,
and serves to compensate for any
differences between the NAV per
Creation Unit and the Deposit Amount.
The Transfer Agent, through the
National Securities Clearing Corporation
(‘‘NSCC’’), makes available on each
Business Day, immediately prior to the
opening of business on the Exchange
(currently 9:30 a.m. E.T.), the list of the
names and the required number of
securities for each Deposit Instrument to
be included in the current Portfolio
Deposit (based on information at the
end of the previous Business Day), as
well as information regarding the Cash
Amount for the Fund. Such Portfolio
Deposit is applicable, subject to any
adjustments as described below, in
order to effect creations of Creation
Units of the Fund until such time as the
next-announced Portfolio Deposit
composition is made available.
All orders to create Creation Units
generally must be received by the
Distributor no later than the closing
time of the regular trading session on
the Exchange (‘‘Closing Time’’)
(ordinarily 4:00 p.m. E.T.) on the date
such order is placed in order for
creation of Creation Units to be effected
based on the NAV of the Fund as
determined on such date.
In addition, the Trust reserves the
right to accept a basket of securities or
cash that differs from Deposit
Instruments or to permit the
substitution of an amount of cash (i.e.,
a ‘‘cash in lieu’’ amount) to be added to
the Cash Amount to replace any Deposit
Instrument which may, among other
reasons, not be available in sufficient
quantity for delivery, not be permitted
to be re-registered in the name of the
Trust as a result of an in-kind creation
order pursuant to local law or market
convention or which may not be eligible
for transfer through the Clearing Process
(defined below), or which may not be
eligible for trading by a Participating
Party (defined below).
To be eligible to place orders with the
Distributor to create Creation Units of
the Fund, an entity or person either
must be (1) a ‘‘Participating Party,’’ i.e.,
a broker-dealer or other participant in
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khammond on DSK30JT082PROD with NOTICES
the clearing process through the
Continuous Net Settlement System of
the NSCC (the ‘‘Clearing Process’’); or
(2) a DTC Participant; which, in either
case, must have executed an agreement
with the Distributor (as it may be
amended from time to time in
accordance with its terms) (‘‘Participant
Agreement’’). A Participating Party and
DTC Participant are collectively referred
to as an ‘‘Authorized Participant.’’
A standard creation transaction fee is
imposed to offset the transfer and other
transaction costs associated with the
issuance of Creation Units.
Redemption of Creation Units
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by PIMS, only on
a Business Day and only through a
Participating Party or DTC Participant
who has executed a Participant
Agreement. The Trust will not redeem
Shares in amounts less than Creation
Units. Beneficial owners also may sell
Shares in the secondary market, but
must accumulate enough Shares to
constitute a Creation Unit in order to
have such Shares redeemed by the
Trust.
The Transfer Agent, through NSCC,
makes available immediately prior to
the opening of business on the Exchange
on each Business Day, the identity of
the Fund’s securities and/or an amount
of cash that will be applicable (subject
to possible amendment or correction) to
redemption requests received in proper
form on that day. The Fund’s securities
received on redemption (‘‘Redemption
Instruments’’) may not be identical to
Deposit Instruments that are applicable
to creations of Creation Units. Unless
cash redemptions are permitted or
required for the Fund, the redemption
proceeds for a Creation Unit generally
consist of Redemption Instruments as
announced by the Transfer Agent on the
Business Day of the request for
redemption, plus cash in an amount
equal to the difference between the NAV
of the Shares being redeemed, as next
determined after a receipt of a request
in proper form, and the value of the
Redemption Instruments, less the fixed
transaction fee and any variable
transaction fees.
In order to redeem Creation Units of
the Fund, an Authorized Participant
must submit an order to redeem for one
or more Creation Units. An order to
redeem Creation Units of a Fund using
the Clearing Process generally must be
submitted to the Distributor not later
than 4:00 p.m. E.T. on the Business Day
of the request for redemption in order
for such order to be effected based on
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the NAV of the Fund as next
determined. An order to redeem
Creation Units of the Fund using the
NSCC Clearing Process made in proper
form but received by the Fund after 4:00
p.m. E.T. will be deemed received on
the next Business Day immediately
following the day on which such order
request is transmitted.
Application of Generic Listing
Requirements
The Exchange is submitting this
proposed rule change because the
changes described below 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. The Fund’s
portfolio would meet all such
requirements except for those set forth
in Commentary .01(a)(1), Commentary
.01(b)(4) and Commentary .01(b)(5).17
Specifically, the Fund:
• Will not comply with the
requirement in Commentary .01(b)(5)
that investments in non-agency, nongovernment sponsored entity and
privately issued mortgage-related and
other asset-backed securities (i.e.,
Private ABS/MBS) not account, in the
aggregate, for more than 20% of the
weight of the fixed income portion of
the portfolio. Instead, Private ABS/MBS
will, in the aggregate, not exceed more
than 20% of the total assets of the Fund.
• will not comply with the
requirement that securities that in
aggregate account for at least 90% of the
fixed income weight of the portfolio
meet one of the criteria in Commentary
.01(b)(4).18 Instead, fixed income
securities that do not meet any of the
criteria in Commentary .01(b)(4) will not
exceed 10% of the total assets of the
Fund.
• may invest in shares of affiliated
short-term bond funds, which are equity
17 Commentary .01(b)(5) to NYSE Arca Rule
8.600–E provides that non-agency, non-government
sponsored entity and privately issued mortgagerelated and other asset-backed securities
components of a portfolio may not account, in the
aggregate, for more than 20% of the weight of the
fixed income portion of the portfolio.
18 Commentary .01(b)(4) provides that component
securities that in the 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
Act; (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 Act;
or (e) from issuers that are a government of a foreign
country or a political subdivision of a foreign
country.
PO 00000
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securities. Therefore, to the extent the
Fund invests in shares of affiliated
short-term bond funds or other nonexchange-traded open-end management
investment company securities, the
Fund will not comply with the
requirements of Commentary .01(a)(1) to
NYSE Arca Rule 8.600–E (U.S.
Component Stocks) with respect to its
equity securities holdings. Instead, such
securities would not be required to meet
the requirements of Commentary
.01(a)(1)(A) through (E) to Rule 8.600–
E.19
• may invest in convertible and nonconvertible preferred stocks, warrants,
and Work Out Securities, which are
equity securities. To the extent the Fund
invests in such securities, the Fund will
not comply with the requirements of
Commentary .01(a)(1) to NYSE Arca
Rule 8.600–E (U.S. Component Stocks)
and/or Commentary .01(a)(2) to NYSE
Arca Rule 8.600–E (Non-U.S.
Component Stocks) with respect to its
equity securities holdings.20 Instead, the
19 Commentary .01(a) to Rule 8.600–E specifies
the equity securities accommodated by the generic
criteria in Commentary .01(a), namely, U.S.
Component Stocks (as described in Rule 5.2–E(j)(3))
and Non-U.S. Component Stocks (as described in
Rule 5.2–E(j)(3)). Commentary .01(a)(1) to Rule
8.600–E (U.S. Component Stocks) 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 IndexLinked 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) 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.
20 Commentary .01(a)(2) to Rule 8.600–E (NonU.S. Component Stocks) provides that the
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Exchange proposes that not more than
10% of the Fund’s assets in the
aggregate will be held in convertible and
non-convertible preferred stocks,
warrants and Work Out Securities.
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. 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.
As noted above, the Fund will not
comply with the requirement in
Commentary .01(b)(5) that investments
in non-agency, non-government
sponsored entity and privately issued
mortgage-related and other asset-backed
securities (i.e., Private ABS/MBS) not
account, in the aggregate, for more than
20% of the weight of the fixed income
portion of the portfolio. Instead, Private
ABS/MBS will, in the aggregate, not
exceed more than 20% of the total assets
of the Fund.
This alternative requirement is
appropriate because the Fund’s
investment in 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 Fund’s
investment in Private ABS/MBS will be
subject to the Fund’s liquidity
procedures as adopted by the Board,
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.
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20:35 Dec 04, 2018
Jkt 247001
and the Adviser does not expect that
investments in Private ABS/MBS of up
to 20% of the total assets of the Fund
will have any material impact on the
liquidity of the Fund’s investments. The
Exchange notes that the Commission
has previously approved the listing of
actively managed ETFs that can invest
20% of their total assets in non-U.S.
Government, non-agency, non-GSE and
other privately issued ABS and MBS
(i.e., Private ABS/MBS).21 Thus, it is
appropriate to expand the limit on the
Fund’s investments in Private ABS/MBS
set forth in Commentary .01(b)(5) of the
generic listing standards.
The Fund will not comply with the
requirement that securities that in
aggregate account for at least 90% of the
fixed income weight of the portfolio
meet one of the criteria in Commentary
.01(b)(4).19 Instead, fixed income
securities that do ot meet any of the
criteria in Commentary .01(b)(4) will not
exceed 10% of the total assets of the
Fund. The Exchange notes that the
Commission has previously approved
the listing of Managed Fund Shares with
similar investment objectives and
strategies without imposing
requirements that a certain percentage
of such funds’ securities meet one of the
criteria set forth in Commentary
.01(b)(4).22 Thus, it is appropriate to
expand the limit on investments in
fixed income securities that do not
satisfy the criteria in Commentary
.01(b)(4) of the generic listing standards,
as described above.
The Fund may invest in shares of the
Affiliated Short Term Bond Fund,
which are equity securities. Therefore,
21 See, e.g., Securities Exchange Act Release Nos.
80946 (June 15, 2017) 82 FR 28126 (June 20, 2017)
(SR–NASDAQ–2017–039) (permitting the
Guggenheim Limited Duration ETF to invest up to
20% of its total assets in privately-issued, nonagency and non-GSE ABS and MBS); 76412
(November 10, 2015), 80 FR 71880 (November 17,
2015) (SR–NYSEArca–2015–111) (permitting the
RiverFront Strategic Income Fund to invest up to
20% of its assets in privately-issued, non-agency
and non-GSE ABS and MBS); 74814 (April 27,
2015), 80 FR 24986 (May 1, 2015) (SR–NYSEArca–
2014–017) (permitting the Guggenheim Enhanced
Short Duration ETF to invest up to 20% of its assets
in privately-issued, non-agency and non-GSE ABS
and MBS); 74109 (January 21, 2015), 80 FR 4327
(January 27, 2015) (SR–NYSEArca–2014–134)
(permitting the IQ Wilshire Alternative Strategies
ETF to invest up to 20% of its total assets in MSB
and other ABS, without any limit on the type of
such MBS and ABS).
22 See, e.g., Securities Exchange Act Release Nos.
67894 (September 20, 2012) 77 FR 59227
(September 26, 2012) (SR–BATS–2012–033) (order
approving the listing and trading of shares of the
iShares Short Maturity Bond Fund); 70342
(September 6, 2013), 78 FR 56256 (September 12,
2013) (SR–NYSEArca–2013–71) (order approving
the listing and trading of shares of the SPDR SSgA
Ultra Short Term Bond ETF, SPDR SSgA
Conservative Ultra Short Term Bond ETF and SPDR
SSgA Aggressive Ultra Short Term Bond ETF).
PO 00000
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Fmt 4703
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62919
to the extent the Fund invests in shares
of the Affiliated Short Term Bond Fund
or other non-exchange-traded open-end
management investment company
securities, the Fund will not comply
with the requirements of Commentary
.01(a)(1) to NYSE Arca Rule 8.600–E
(U.S. Component Stocks) with respect to
its equity securities holdings. However,
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 securities
would not meet the requirements of
Commentary .01(a)(1)(A) through (E) to
Rule 8.600–E.23 Investments in shares of
the Affiliated Short Term Bond Fund
will not exceed 25% of the total assets
of the Fund. Investments in other nonexchange-traded open-end management
investment company securities will not
exceed 10% of the total assets of the
Fund. The Fund’s investment in shares
of the Affiliated Short Term Bond Fund
will be utilized in order to obtain
income on short-term cash balances
while awaiting attractive investment
opportunities, to provide liquidity in
preparation for anticipated redemptions
or for defensive purposes, which will
allow the Fund to obtain the benefits of
a more diversified portfolio available in
the Affiliated Short Term Bond Fund
than might otherwise be available
through direct investments in Money
Market Funds.24 Moreover, such
investments, which may include mutual
funds that invest, for example,
principally in fixed income securities,
would be utilized to help the Fund meet
its investment objective and to equitize
cash in the short term. The Fund will
invest in such securities only to the
extent that those investments would be
consistent with the requirements of
Section 12(d)(1) of the 1940 Act and the
rules thereunder.25 Because such
23 See
note 19, supra.
purposes of this section of the filing, nonexchange-traded securities of other registered
investment companies do not include money
market funds, which are cash equivalents under
Commentary .01(c) to Rule 8.600–E and for which
there is no limitation in the percentage of the
portfolio invested in such securities. In addition,
the Commission has issued orders granting
exemptive relief under the 1940 Act that apply to
the Trust. See Investment Company Act Release No.
24179 (December 1, 1999) (File No. 812–11354)
with respect to investments by a fund in money
market or ultra-short bond funds for cash
management purposes) and Investment Company
Act Release No. 30200 (September 11, 2012) (File
No. 812–13993) with respect to investments by a
fund in other registered investment companies.
25 The Commission has previously approved
proposed rule changes under Section 19(b) of the
Act for series of Managed Fund Shares that may
invest in non-exchange traded investment company
securities to the extent permitted by Section
12(d)(1) of the 1940 Act and the rules thereunder.
24 For
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securities must satisfy applicable 1940
Act diversification requirements, and
have a net asset value based on the
value of securities and financial assets
the investment company holds, it is
both unnecessary and inappropriate to
apply to such investment company
securities the criteria in Commentary
.01(a)(1).
The Exchange notes that Commentary
.01(a)(1)(A) through (D) to Rule 8.600–
E exclude certain ‘‘Derivative Securities
Products’’ that are exchange-traded
investment company securities,
including Investment Company Units
(as described in NYSE Arca Rule 5.2–
E(j)(3)), Portfolio Depositary Receipts (as
described in NYSE Arca Rule 8.100–E))
and Managed Fund Shares (as described
in NYSE Arca Rule 8.600–E)).26 In its
2008 Approval Order approving
amendments to Commentary .01(a) to
Rule 5.2(j)(3) to exclude Derivative
Securities Products from certain
provisions of Commentary .01(a) (which
exclusions are similar to those in
Commentary .01(a)(1) to Rule 8.600–E),
the Commission stated that ‘‘based on
the trading characteristics of Derivative
Securities Products, it may be difficult
for component Derivative Securities
Products to satisfy certain quantitative
index criteria, such as the minimum
market value and trading volume
limitations.’’ The Exchange notes that it
would be difficult or impossible to
See, e.g., Securities Exchange Act Release No.
78414 (July 26, 2016), 81 FR 50576 (August 1, 2016)
(SR–NYSEArca–2016–79) (order approving listing
and trading of shares of the Virtus Japan Alpha ETF
under NYSE Arca Rule 8.600–E).
26 The Commission initially approved the
Exchange’s proposed rule change to exclude
‘‘Derivative Securities Products’’ (i.e., Investment
Company Units and securities described in Section
2 of Rule 8) and ‘‘Index-Linked Securities (as
described in Rule 5.2–E(j)(6)) from Commentary
.01(a)(A) (1) through (4) to Rule 5.2–E(j)(3) in
Securities Exchange Act Release No. 57751 (May 1,
2008), 73 FR 25818 (May 7, 2008) (SR–NYSEArca–
2008–29) (Order Granting Approval of a Proposed
Rule Change, as Modified by Amendment No. 1
Thereto, to Amend the Eligibility Criteria for
Components of an Index Underlying Investment
Company Units)(‘‘2008 Approval Order’’). See also
Securities Exchange Act Release No. 57561 (March
26, 2008), 73 FR 17390 (April 1, 2008) (Notice of
Filing of Proposed Rule Change and Amendment
No. 1 Thereto to Amend the Eligibility Criteria for
Components of an Index Underlying Investment
Company Units). The Commission subsequently
approved generic criteria applicable to listing and
trading of Managed Fund Shares, including
exclusions for Derivative Securities Products and
Index-Linked Securities in Commentary .01(a)(1)(A)
through (D), in Securities Exchange Act Release No.
78397 (July 22, 2016), 81 FR 49320 (July 27, 2016)
(Order Granting Approval of Proposed Rule Change,
as Modified by Amendment No. 7 Thereto,
Amending NYSE Arca Rule 8.600–E To Adopt
Generic Listing Standards for Managed Fund
Shares). See also Amendment No. 7 to SR–
NYSEArca-2015–110, available at https://
www.sec.gov/comments/sr-nysearca-2015–110/
nysearca2015110–9.pdf.
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20:35 Dec 04, 2018
Jkt 247001
apply to mutual fund shares certain of
the generic quantitative criteria (e.g.,
market capitalization, trading volume,
or portfolio criteria) in Commentary .01
(A) through (D) applicable to U.S.
Component Stocks. For example, the
requirements for U.S. Component
Stocks in Commentary .01(a)(1)(B) that
there be minimum monthly trading
volume of 250,000 shares, or minimum
notional volume traded per month of
$25,000,000, averaged over the last six
months are tailored to exchange-traded
securities (i.e., U.S. Component Stocks)
and not to mutual fund shares, which
do not trade in the secondary market
and for which no such volume
information is reported. In addition,
Commentary .01(a)(1)(A) relating to
minimum market value of portfolio
component stocks, Commentary
.01(a)(1)(C) relating to weighting of
portfolio component stocks, and
Commentary .01(a)(1)(D) relating to
minimum number of portfolio
components are not appropriately
applied to open-end management
investment company securities; openend investment companies hold
multiple individual securities as
disclosed publicly in accordance with
the 1940 Act, and application of
Commentary .01(a)(1)(A) through (D)
would not serve the purposes served
with respect to U.S. Component Stocks,
namely, to establish minimum liquidity
and diversification criteria for U.S.
Component Stocks held by series of
Managed Fund Shares.
The Exchange notes that the
Commission has previously approved
the listing of Managed Fund Shares with
similar investment objectives and
strategies where such funds were
permitted to invest in the shares of other
registered investment companies that
are not ETFs or money market funds.27
Thus, it is appropriate to permit the
Fund to invest up to 25% of its total
assets in shares the Affiliated Short
Term Bond Fund and 10% of its total
assets in other non-exchange-traded
open-end management investment
company securities.
To the extent the Fund invests in
convertible and non-convertible
preferred stocks, warrants and Work Out
27 See, e.g., Securities Exchange Act Release Nos.
79053 (October 5, 2016), 81 FR 70468 (October 12,
2016) (SR–BatsBZX–2016–35) (permitting the
JPMorgan Global Bond Opportunities ETF to invest
in ‘‘investment company securities that are not
ETFs’’); 74297 (February 18, 2015), 80 FR 9788
(February 24, 2015) (SR–BATS–2014–056)
(permitting the U.S. Fixed Income Balanced Risk
ETF to invest in ‘‘exchange traded and nonexchange traded investment companies (including
investment companies advised by the Adviser or its
affiliates) that invest in such Fixed Income
Securities’’).
PO 00000
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Fmt 4703
Sfmt 4703
Securities, the Fund will not comply
with the requirements of Commentary
.01(a)(1) to NYSE Arca Rule 8.600–E
(U.S. Component Stocks) and/or
Commentary .01(a)(2) to NYSE Arca
Rule 8.600–E (Non-U.S. Component
Stocks) with respect to its equity
securities holdings. The Exchange
believes this is appropriate in that the
Adviser represents that the Fund will
not actively invest in such securities but
may, at times, receive a distribution of
such securities in connection with the
Fund’s holdings in certain Principal
Investment Instruments. Therefore, the
Fund’s holdings in such securities
would not be utilized to further the
Fund’s investment objective and
generally would not be acquired as the
result of the Fund’s voluntary
investment decisions. In addition, the
Exchange proposes that not more than
10% of the Fund’s assets in the
aggregate will be held in convertible and
non-convertible preferred stocks,
warrants and Work Out Securities.
The Exchange accordingly 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)(2), (b)(4) and
(b)(5) to Rule 8.600–E. The Exchange
notes that, other than Commentary
.01(a)(1), (a)(2), (b)(4) and (b)(5) to Rule
8.600–E, the Fund’s portfolio will meet
all other requirements of Rule 8.600–E.
Availability of Information
The Fund’s website
(www.pgiminvestments.com) will
include the prospectus for the Fund that
may be downloaded. The Fund’s
website will include additional
quantitative information updated on a
daily basis including, for the Fund, (1)
daily trading volume, the prior Business
Day’s reported closing price, NAV and
midpoint of the bid/ask spread at the
time of calculation of such NAV (the
‘‘Bid/Ask Price’’),28 and a calculation of
the premium and discount of the Bid/
Ask Price against the NAV, and (2) data
in chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each Business Day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund discloses on its
28 The Bid/Ask Price of the Fund’s Shares will
be determined using the mid-point of the highest
bid and the lowest offer on the Exchange as of the
time of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
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website the Disclosed Portfolio as
defined in NYSE Arca Rule 8.600–
E(c)(2) that forms the basis for the
Fund’s calculation of NAV at the end of
the Business Day.29
On a daily basis, the Fund discloses
the information required under NYSE
Arca Rule 8.600–E(c)(2) to the extent
applicable. The website information
will be publicly available at no charge.
In addition, a basket composition file,
which includes the security names and
share quantities, if applicable, required
to be delivered in exchange for the
Fund’s Shares, together with estimates
and actual cash components, will be
publicly disseminated daily prior to the
opening of the Exchange via the NSCC.
The basket represents one Creation Unit
of the Fund. Authorized Participants
may refer to the basket composition file
for information regarding Principal
Investment Instruments, and any other
instrument that may comprise the
Fund’s basket on a given day.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and the Fund’s Forms N–CSR
and Forms N–SAR, filed twice a year.
The Fund’s SAI and Shareholder
Reports will be available free upon
request from the Trust, and those
documents and the Form N–CSR, Form
N–PX and Form N–SAR may be viewed
on-screen or downloaded from the
Commission’s website at www.sec.gov.
Intra-day and closing price
information regarding exchange-traded
options will be available from the
exchange on which such instruments
are traded. Intra-day and closing price
information regarding the Principal
Investment Instruments also will be
available from major market data
vendors. Price information relating to
OTC options and swaps will be
available from major market data
vendors. Intra-day price information for
exchange-traded derivative instruments
will be available from the applicable
exchange and from major market data
vendors. For exchange-listed securities
(including ETFs), intraday price
quotations will generally be available
from broker-dealers and trading
platforms (as applicable). Intraday and
other price information for the fixed
income securities in which the Fund
invests will be available through
subscription services, such as
Bloomberg, Markit and Thomson
29 Under accounting procedures followed by the
Fund, trades made on the prior Business Day (‘‘T’’)
will be booked and reflected in NAV on the current
Business Day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the Business
Day the portfolio that will form the basis for the
NAV calculation at the end of the Business Day.
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20:35 Dec 04, 2018
Jkt 247001
Reuters, which can be accessed by
Authorized Participants and other
market participants. Additionally, the
Trade Reporting and Compliance Engine
(‘‘TRACE’’) of the Financial Industry
Regulatory Authority (‘‘FINRA’’) will be
a source of price information for
corporate bonds, privately-issued
securities, MBS and ABS, to the extent
transactions in such securities are
reported to TRACE.30 Money market
funds and affiliated short-term bond
funds are typically priced once each
Business Day and their prices will be
available through the applicable fund’s
website or from major market data
vendors. Electronic Municipal Market
Access (‘‘EMMA’’) will be a source of
price information for municipal bonds.
Price information regarding U.S.
government securities, repurchase
agreements, reverse repurchase
agreements and cash equivalents
generally may be obtained from brokers
and dealers who make markets in such
securities or through nationally
recognized pricing services through
subscription agreements.
Information regarding market price
and trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume information for the Shares will
be published daily in the financial
section of newspapers.
Quotation and last sale information
for the Shares will be available via the
Consolidated Tape Association (‘‘CTA’’)
high-speed line. Exchange-traded
options quotation and last sale
information for options cleared via the
Options Clearing Corporation are
available via the Options Price
Reporting Authority. In addition, the
Portfolio Indicative Value (‘‘PIV’’), as
defined in NYSE Arca Rule 8.600–
E(c)(3), will be widely disseminated by
one or more major market data vendors
at least every 15 seconds during the
Core Trading Session.
Price information for instruments that
would otherwise qualify as Principal
Investment Instruments but for being
denominated in non-U.S. currency is
30 Broker-dealers that are FINRA member firms
have an obligation to report transactions in
specified debt securities to TRACE to the extent
required under applicable FINRA rules. Generally,
such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income
securities that are not reported to TRACE, (i)
intraday price quotations will generally be available
from broker-dealers and trading platforms (as
applicable) and (ii) price information will be
available from feeds from market data vendors,
published or other public sources, or online
information services, as described above.
PO 00000
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Fmt 4703
Sfmt 4703
62921
available from major market data
vendors.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund. Trading in Shares of the Fund
will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12–E
have been reached. Trading also may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. These may include: (1) The
extent to which trading is not occurring
in the securities and/or the financial
instruments comprising the Disclosed
Portfolio of the Fund; or (2) whether
other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares will be subject to NYSE Arca
Rule 8.600–E(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00
a.m. to 8:00 p.m. E.T. in accordance
with NYSE Arca Rule 7.34–E (Trading
Sessions). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Rule 7.6–E, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
the NYSE Arca Marketplace is $0.01,
with the exception of securities that are
priced less than $1.00 for which the
MPV for order entry is $0.0001.
With the exception of the
requirements of Commentary .01(a)(1),
Commentary .01(b)(4) and Commentary
.01(b)(5) as described above under
‘‘Application of Generic Listing
Requirements,’’ the Shares of the Fund
will conform to the initial and
continued listing criteria under NYSE
Arca Rule 8.600–E. The Exchange
represents that for initial and/or
continued listing, the Fund will be in
compliance with Rule 10A–3 under the
Act, as provided by NYSE Arca Rule
5.3–E. A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange. The Exchange has obtained a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
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the Disclosed Portfolio will be made
available to all market participants at
the same time.
khammond on DSK30JT082PROD with NOTICES
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange, as well
as cross-market surveillances
administered by FINRA on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, ETFs, certain
exchange-traded options and certain
futures with other markets and other
entities that are members of the
Intermarket Surveillance Group (‘‘ISG’’),
and the Exchange or FINRA, on behalf
of the Exchange, or both, may obtain
trading information regarding trading in
the Shares, ETFs, certain exchangetraded options and certain futures from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, ETFs, certain exchange-traded
options and certain futures from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement
(‘‘CSSA’’). The Exchange is able to
access from FINRA, as needed, trade
information for certain fixed income
securities held by the Fund reported to
TRACE. FINRA also can access data
obtained from the Municipal Securities
Rulemaking Board (‘‘MSRB’’) relating to
certain municipal bond trading activity
for surveillance purposes in connection
with trading in the Shares.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
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20:35 Dec 04, 2018
Jkt 247001
All statements and representations
made in this filing regarding (a) the
description of the portfolio, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange listing rules specified in
this rule filing shall constitute
continued listing requirements for
listing the Shares on the Exchange.
The issuer has represented to the
Exchange that it will advise the
Exchange of any failure by the Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Rule 5.5(m)–E.
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 the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Rule
8.600–E. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and federal securities laws
applicable to trading on the Exchange.
The Adviser and Subadviser are not
registered as broker-dealers, but the
Adviser and Subadviser are affiliated
with a broker-dealer and have
implemented and will maintain a ‘‘fire
wall’’ with respect to such broker-dealer
regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. The
Exchange or FINRA, on behalf of the
Exchange, or both, will communicate as
needed regarding trading in the Shares,
certain exchange-traded options and
certain futures with other markets and
other entities that are members of the
ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may
obtain trading information regarding
trading in the Shares, certain exchangetraded options and certain futures from
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, certain exchange-traded options
and certain futures with other markets
and other entities that are members of
the ISG, or with which the Exchange has
in place a comprehensive surveillance
sharing agreement. The Exchange is able
to access from FINRA, as needed, trade
information for certain fixed income
securities held by the Fund reported to
FINRA’s TRACE. FINRA also can access
data obtained from the MSRB relating to
certain municipal bond trading activity
for surveillance purposes in connection
with trading in the Shares.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. The website for
the Fund includes a form of the
prospectus for the Fund and additional
data relating to NAV and other
applicable quantitative information.
Trading in Shares of the Fund will be
halted if the circuit breaker parameters
in NYSE Arca Rule 7.12–E have been
reached or because of market conditions
or for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable, and trading in the Shares
will be subject to NYSE Arca Rule
8.600–E(d)(2)(D), which sets forth
circumstances under which trading in
the Shares of the Fund may be halted.
In addition, as noted above, investors
have ready access to information
regarding the Fund’s holdings, the PIV,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
In the aggregate, at least 90% of the
weight of the Fund’s holdings invested
in futures, exchange-traded options, and
listed swaps shall, on both an initial and
continuing basis, consist of futures,
options, and swaps for which the
Exchange may obtain information from
other members or affiliates of the ISG or
for which the principal market is a
market with which the Exchange has a
CSSA. For purposes of calculating this
limitation, a portfolio’s investment in
listed derivatives will be calculated as
the aggregate gross notional value of the
listed derivatives.
As described above, deviations from
the generic requirements of
Commentary .01(a) are necessary for the
E:\FR\FM\06DEN1.SGM
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Fund to achieve its investment objective
in a manner that is cost-effective and
that maximizes investors’ returns.
Further, the proposed alternative
requirements are narrowly tailored to
allow the Fund to achieve its
investment objective in manner that is
consistent with the principles of Section
6(b)(5) of the Act. As a result, it is in the
public interest to approve listing and
trading of Shares of the Fund on the
Exchange pursuant to the requirements
set forth herein.
As discussed above, the Fund will not
comply with the requirement in
Commentary .01(b)(5) that investments
in non-agency, non-government
sponsored entity and privately issued
mortgage-related and other asset-backed
securities (i.e., Private ABS/MBS) not
account, in the aggregate, for more than
20% of the weight of the fixed income
portion of the portfolio. Instead, Private
ABS/MBS will, in the aggregate, not
exceed more than 20% of the total assets
of the Fund.
This alternative requirement is
appropriate because the Fund’s
investment in 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 Fund’s
investment in Private ABS/MBS will be
subject to the Fund’s liquidity
procedures as adopted by the Board,
and the Adviser does not expect that
investments in Private ABS/MBS of up
to 20% of the total assets of the Fund
will have any material impact on the
liquidity of the Fund’s investments. The
Exchange notes that the Commission
has previously approved the listing of
actively managed ETFs that can invest
20% of their total assets in non-U.S.
Government, non-agency, non-GSE and
other privately issued ABS and MBS
(i.e., Private ABS/MBS).31 Thus, it is
appropriate to expand the limit on the
Fund’s investments in Private ABS/MBS
set forth in Commentary .01(b)(5) of the
generic listing standards.
The Fund will not comply with the
requirement that securities that in
aggregate account for at least 90% of the
fixed income weight of the portfolio
meet one of the criteria in Commentary
.01(b)(4). Instead, fixed income
securities that do not meet any of the
criteria in Commentary .01(b)(4) will not
exceed 10% of the total assets of the
Fund. The Exchange notes that the
Commission has previously approved
the listing of Managed Fund Shares with
similar investment objectives and
31See
note 21, supra.
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20:35 Dec 04, 2018
Jkt 247001
strategies without imposing
requirements that a certain percentage
of such funds’ securities meet one of the
criteria set forth in Commentary
.01(b)(4). Thus, it is appropriate to
expand the limit on investments in
fixed income securities that do not
satisfy the criteria in Commentary
.01(b)(4) of the generic listing standards,
as described above.
The Fund may invest in shares of
affiliated short-term bond funds, which
are equity securities. Therefore, to the
extent the Fund invests in shares of
affiliated short-term bond funds or other
non-exchange-traded open-end
management investment company
securities, the Fund will not comply
with the requirements of Commentary
.01(a)(1) to NYSE Arca Rule 8.600–E
(U.S. Component Stocks) with respect to
its equity securities holdings. 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 securities
would not meet the requirements of
Commentary .01(a)(1)(A) through (E) to
Rule 8.600–E. The Fund’s investment in
the Affiliated Short Term Bond Fund
will not exceed 25% of the total assets
of the Fund. Investments in other nonexchange-traded open-end management
investment company securities will not
exceed 10% of the total assets of the
Fund. The Fund’s investment in shares
of affiliated short-term bond funds will
be utilized in order to obtain income on
short-term cash balances while awaiting
attractive investment opportunities, to
provide liquidity in preparation for
anticipated redemptions or for defensive
purposes, which will allow the Fund to
obtain the benefits of a more diversified
portfolio available in the shares of
affiliated short-term bond funds than
might otherwise be available through
direct investments in Money Market
Funds. Moreover, such investments,
which may include mutual funds that
invest, for example, principally in fixed
income securities, would be utilized to
help the Fund meet its investment
objective and to equitize cash in the
short term. The Fund will invest in such
securities only to the extent that those
investments would be consistent with
the requirements of Section 12(d)(1) of
the 1940 Act and the rules thereunder.
Because such securities must satisfy
applicable 1940 Act diversification
requirements, and have a net asset value
based on the value of securities and
financial assets the investment company
holds, it is both unnecessary and
inappropriate to apply to such
investment company securities the
criteria in Commentary .01(a)(1).
PO 00000
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Fmt 4703
Sfmt 4703
62923
The Exchange notes that it would be
difficult or impossible to apply to
mutual fund shares certain of the
generic quantitative criteria (e.g., market
capitalization, trading volume, or
portfolio criteria) in Commentary .01 (A)
through (D) applicable to U.S.
Component Stocks. For example, the
requirements for U.S. Component
Stocks in Commentary .01(a)(1)(B) that
there be minimum monthly trading
volume of 250,000 shares, or minimum
notional volume traded per month of
$25,000,000, averaged over the last six
months are tailored to exchange-traded
securities (i.e., U.S. Component Stocks)
and not to mutual fund shares, which
do not trade in the secondary market
and for which no such volume
information is reported. In addition,
Commentary .01(a)(1)(A) relating to
minimum market value of portfolio
component stocks, Commentary
.01(a)(1)(C) relating to weighting of
portfolio component stocks, and
Commentary .01(a)(1)(D) relating to
minimum number of portfolio
components are not appropriately
applied to open-end management
investment company securities; openend investment companies hold
multiple individual securities as
disclosed publicly in accordance with
the 1940 Act, and application of
Commentary .01(a)(1)(A) through (D)
would not serve the purposes served
with respect to U.S. Component Stocks,
namely, to establish minimum liquidity
and diversification criteria for U.S.
Component Stocks held by series of
Managed Fund Shares.
To the extent the Fund invests in
convertible and non-convertible
preferred stocks, warrants and Work Out
Securities, the Fund will not comply
with the requirements of Commentary
.01(a)(1) to NYSE Arca Rule 8.600–E
(U.S. Component Stocks) and/or
Commentary .01(a)(2) to NYSE Arca
Rule 8.600–E (Non-U.S. Component
Stocks) with respect to its equity
securities holdings. The Exchange
believes this is appropriate in that the
Adviser represents that the Fund will
not actively invest in such securities but
may, at times, receive a distribution of
such securities in connection with the
Fund’s holdings in certain Principal
Investment Instruments. Therefore, the
Fund’s holdings in such securities
would not be utilized to further the
Fund’s investment objective and
generally would not be acquired as the
result of the Fund’s voluntary
investment decisions. In addition, the
Exchange proposes that not more than
10% of the Fund’s assets in the
aggregate will be held in convertible and
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non-convertible preferred stocks,
warrants and Work Out Securities.
The Exchange accordingly 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)(2), (b)(4) and
(b)(5) to Rule 8.600–E. The Exchange
notes that, other than Commentary
.01(a)(1), (a)(2), (b)(4) and (b)(5) to Rule
8.600–E, the Fund’s portfolio will meet
all other requirements of Rule 8.600–E.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of actively
managed ETF that will enhance
competition among market participants,
to the benefit of investors and the
marketplace. As noted above, the
Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a CSSA. In
addition, as noted above, investors have
ready access to information regarding
the Fund’s holdings, the PIV, the
Disclosed Portfolio, and quotation and
last sale information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of an
additional type of actively managed ETF
that principally holds fixed income
securities and that will enhance
competition among market participants,
to the benefit of investors and the
marketplace.
khammond on DSK30JT082PROD with NOTICES
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
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20:35 Dec 04, 2018
Jkt 247001
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–2018–82 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–2018–82. 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
filng 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
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
Number SR–NYSEArca–2018–82, and
should be submitted on or before
December 27, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority. 32
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–26514 Filed 12–4–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33309; File No. 812–14822]
American Fidelity Assurance
Company, et al.
November 29, 2018.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
approving the substitution of certain
securities pursuant to section 26(c) of
the Investment Company Act of 1940, as
amended (the ‘‘1940 Act’’).
APPLICANTS: American Fidelity
Assurance Company (the ‘‘Insurance
Company’’), American Fidelity Separate
Account B and American Fidelity
Separate Account C (each, a ‘‘Separate
Account’’ and together, the ‘‘Separate
Accounts’’). Together, the Insurance
Company and the Separate Accounts are
referred to as the ‘‘Applicants.’’
SUMMARY OF APPLICATION: Applicants
seek an order pursuant to section 26(c)
of the 1940 Act approving the
substitution of shares of American
Funds IS Blue Chip Income and Growth
Fund (the ‘‘American Funds Blue Chip
Fund’’) and Dreyfus VIF Opportunistic
Small Cap Portfolio (the ‘‘Dreyfus Small
Cap Fund,’’ and together with the
American Funds Blue Chip Fund, the
‘‘Replacement Funds’’), respectively, for
shares of BlackRock Basic Value V.I.
Fund (the ‘‘BlackRock Basic Value
Fund’’), and BlackRock Advantage U.S.
Total Market V.I. Fund (the ‘‘BlackRock
Total Market Fund,’’ and together with
the BlackRock Basic Value Fund, the
‘‘Existing Funds’’), respectively, held by
the Separate Accounts (the
‘‘Substitution’’), to support the Separate
Accounts’ variable annuity contracts
(each, a ‘‘Contract’’ and collectively, the
‘‘Contracts’’) that are issued by the
Insurance Company.
FILING DATES: The application was filed
on September 26, 2017, and amended
32 17
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CFR 200.30–3(a)(12).
06DEN1
]]>Agencies
[Federal Register Volume 83, Number 234 (Thursday, December 6, 2018)]
[Notices]
[Pages 62915-62924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26514]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84696; File No. SR-NYSEArca-2018-82]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Regarding Certain Changes Relating to
Investments of the PGIM Active High Yield Bond ETF
November 30, 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 November 16, 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, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 Active High Yield Bond ETF (the ``Fund''), a series of PGIM ETF
Trust (the ``Trust''). Shares of the Fund currently are 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\ 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. PIMS, the Adviser and the Subadviser are indirect wholly-owned
subsidiaries of Prudential Financial, Inc. Brown Brothers Harriman &
Co., which is unaffiliated with PIMS, the Adviser and the Subadviser,
serves as the custodian, administrator, and transfer agent (``Transfer
Agent'') for the Fund.\6\ Prudential Investment Management Services LLC
(``PIMS''), a registered broker-dealer, acts as the distributor (the
``Distributor'') for the Fund's Shares.
---------------------------------------------------------------------------
\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\ The Trust is registered under the 1940 Act. On June 28,
2018, the Trust filed with the Commission an amendment to its
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).
---------------------------------------------------------------------------
Commentary .06 to Rule 8.600-E provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect
and maintain a ``fire wall'' between the investment adviser and the
[[Page 62916]]
broker-dealer with respect to access to information concerning the
composition and/or changes to such investment company portfolio. In
addition, Commentary .06 further requires that personnel who make
decisions on the open-end fund's portfolio composition must be subject
to procedures designed to prevent the use and dissemination of material
nonpublic information regarding the open-end fund's portfolio.
Commentary .06 to Rule 8.600-E is similar to Commentary .03(a)(i) and
(iii) to NYSE Arca Rule 5.2-E(j)(3); however, Commentary .06 in
connection with the establishment and maintenance of a ``fire wall''
between the investment adviser and the broker-dealer reflects the
applicable open-end fund's portfolio, not an underlying benchmark
index, as is the case with index-based funds.
The Adviser and the Subadviser are not registered as broker-dealers
but are affiliated with PIMS, a broker-dealer, and have implemented and
will maintain a ``fire wall'' with respect to such broker-dealer
regarding access to information concerning the composition and/or
changes to the Fund's portfolio. In the event (a) the Adviser or the
Subadviser becomes registered as a broker-dealer or newly affiliated
with a broker-dealer, or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes affiliated with a broker-dealer, it
will implement and maintain a ``fire wall'' with respect to its
relevant personnel or broker-dealer affiliate regarding access to
information concerning the composition and/or changes to the portfolio,
and will be subject to procedures, each designed to prevent the use and
dissemination of material non-public information regarding such
portfolio.
PGIM Active High Yield Bond ETF
Principal Investments
According to the Registration Statement, the investment objective
of the Fund seeks to provide total return through a combination of
current income and capital appreciation. The Fund seeks to achieve its
investment objective by investing primarily in a portfolio of high
yield bonds of companies and governments. Under normal market
conditions,\7\ the Fund will invest at least 80% of its net assets in a
diversified portfolio of high yield bonds and other investments
consisting of (i) the Principal Investment Instruments (defined below)
and (ii) derivatives \8\ that (A) provide exposure to such Principal
Investment Instruments, or (B) are used to enhance returns, manage
portfolio duration, or manage the risk of securities price
fluctuations, as further described below (together, the ``Principal
Investments'').
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\7\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5). In response to adverse market, economic or
political conditions, the Fund may take a temporary defensive
position and invest up to 100% of its assets in cash and money
market instruments, which include shares of ``Money Market Funds''
(defined below); shares of affiliated short-term bond funds; short-
term obligations of, or securities guaranteed by, the U.S.
Government, its agencies or instrumentalities; high-quality
obligations of U.S. or foreign banks and corporations; or any other
securities or instruments.
\8\ The Fund's investments in derivatives will include
investments in both listed derivatives and over-the-counter
(``OTC'') derivatives, as those terms are defined in Commentary
.01(d) and (e) to NYSE Arca Rule 8.600-E.
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The Fund may invest in ``Principal Investment Instruments''
consisting of the following fixed income instruments (each of which
shall be denominated in U.S. dollars):
fixed income instruments issued by the US Government, its
agencies and instrumentalities;
commercial paper;
asset-backed securities;
mortgage-backed securities,
variable and floating rate instruments;
bills, notes and other obligations issued by banks,
corporations and other companies (including trust structures);
convertible and non-convertible fixed income securities
loan participations and assignments;
obligations issued by non-U.S. banks, companies or non-
U.S. governments;
municipal bonds and notes;
shares of ``Money Market Funds''; \9\ and
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\9\ ``Money Market Funds'' include money market funds registered
under the 1940 Act and money market funds that are not registered
under the 1940 Act but that comply with Rule 2a-7 under the 1940
Act.
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shares of the Prudential Core Ultra Short Bond Fund \10\
or, if the Prudential Core Ultra Short Bond Fund is no longer offered
with the same investment objective, shares of any successor fund or
other affiliated open-end investment company registered under the 1940
Act with a substantially similar investment objective (the ``Affiliated
Short Term Bond Fund'').\11\
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\10\ The Prudential Core Ultra Short Bond Fund is a series of
Prudential Investment Portfolios 2, which is an open-end investment
company registered under the 1940 Act. Shares of the Prudential Core
Ultra Short Bond Fund are available for purchase only by certain
affiliated investment companies managed and certain other
institutional investors. The Fund's Subadviser is also the
subadviser to the Affiliated Short Term Bond Fund. The investment
objective of the Prudential Core Ultra Short Bond Fund is to seek
current income consistent with the preservation of capital and the
maintenance of liquidity. Like Rule 2a-7 money market funds that are
defined as cash equivalents pursuant to Commentary .01(c) to Rule
8.600-E, the Prudential Core Ultra Short Bond Fund invests primarily
in money market obligations as defined by Rule 2a-7. Rule 2a-7
defines money market obligations as obligations that mature in 397
days or less. Additionally, the Prudential Core Ultra Short Bond
Fund seeks investments that are expected to experience minimal
fluctuations in value. See the registration statement for the
Prudential Core Ultra Short Bond Fund on Form N-1A, dated March 29,
2018 (File No. 811-09999), available at https://www.sec.gov/Archives/edgar/data/1099692/000006759018000388/pip2posami.htm.
\11\ The Fund's investment in the Affiliated Short Term Bond
Fund is described further in ``Application of Generic Listing
Requirements,'' infra.
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The Fund may hold cash and cash equivalents.\12\
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\12\ For purposes of this filing, the term ``cash equivalents''
includes the short-term instruments enumerated in Commentary .01(c)
to NYSE Arca Rule 8.600-E. Under normal market conditions, the Fund
may invest a significant portion of its assets in cash and cash
equivalents.
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The Fund may, without limitation, enter into dollar rolls and short
sales of Principal Investment Instruments. The Fund may also purchase
securities and other instruments under when-issued, delayed delivery,
to be announced or forward commitment transactions. The Fund will ``set
aside'' liquid assets or engage in other measures to ``cover'' open
positions held in connection with the foregoing types of transactions,
as well as derivative transactions.
The Fund may invest in derivatives to (i) provide exposure to the
Principal Investment Instruments and (ii) enhance returns, manage
portfolio duration, or (iii) manage the risk of securities price
fluctuations. Derivatives that the Fund may enter into include only:
OTC deliverable and non-deliverable foreign exchange forward contracts;
listed futures contracts on one 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
[[Page 62917]]
Instruments (both as protection seller and as protection buyer).
Other Investments
While the Fund, under normal market conditions, invests at least
80% of its investable assets in the Principal Investments described
above, the Fund may invest its remaining assets in the following ``Non-
Principal Investments''.
The Fund may hold exchange-traded funds (``ETFs'') that provide
exposure to Principal Investment Instruments.\13\
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\13\ For purposes of this filing, ETFs include Investment
Company Units (as described in NYSE Arca Rule 5.2(j)(3)-E),
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 in which the Fund invests will be listed and traded on
national securities exchanges.
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The Fund may hold convertible and non-convertible securities
preferred stocks traded in the OTC market or listed on an exchange.
The Fund may hold warrants traded in the OTC market or listed on an
exchange.
The Fund may hold ``Work Out Securities,'' \14\ which may be
acquired by the Fund incidental to the purchase or ownership of the
Fund's Principal Investments or in connection with a reorganization of
an issuer.
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\14\ For purposes of this filing, Work Out Securities include
U.S. or foreign equity securities of any type acquired in connection
with restructurings or incidental to the purchase or ownership
related to issuers of Principal Investment Instruments 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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The Fund may invest in securities and other instruments that would
otherwise qualify as Principal Investment Instruments but for being
denominated in non-U.S. currency.
Investment Restrictions
In addition to shares of the Affiliated Short Term Bond Fund or
Money Market Funds referenced above in ``Principal Investments'', the
Fund may invest up to 10% of the total assets of the Fund in shares of
other non-exchange-traded open-end management investment company
securities, including investment company securities for which the
Adviser and/or its affiliates may serve as investment adviser or
administrator.
Not more than 10% of the Fund's assets in the aggregate will be
held in convertible and non-convertible preferred stocks, warrants and
Work Out Securities.
Use of Derivatives by the Fund
The Fund may invest in the types of derivatives described in the
``Principal Investments'' section above to (i) provide exposure to the
Principal Investment Instruments,\15\ (ii) enhance returns and manage
portfolio duration, or (iii) manage the risk of securities price
fluctuations. Investments in derivative instruments will be consistent
with the Fund's investment objective and policies.
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\15\ 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.
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To limit the potential risk associated with such transactions, the
Fund may enter into offsetting transactions or segregate or ``earmark''
assets determined to be liquid by the Adviser in accordance with
procedures established by the Trust's Board of Trustees (the
``Board''). In addition, the Fund has included appropriate risk
disclosure in its offering documents, including leveraging risk.
Leveraging risk is the risk that certain transactions of the Fund,
including the Fund's use of derivatives, may give rise to leverage,
causing the Fund to be more volatile than if it had not been leveraged.
Impact on Arbitrage Mechanism
The Adviser and the Subadviser 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 Subadviser 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 Subadviser 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 NAV,
which should ensure that Shares of the Fund will not trade at a
material discount or premium in relation to their NAV.
Creation and Redemption of Shares
The Fund issues and sells Shares only in aggregations of at least
25,000 Shares (each aggregation is called a ``Creation Unit'') on a
continuous basis through PIMS at the NAV next determined after receipt
of an order in proper form on any Business Day.\16\
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\16\ A ``Business Day'' with respect to the Fund is any day on
which the Exchange is open for business.
---------------------------------------------------------------------------
The consideration for a purchase of Creation Units generally will
consist of a cash deposit but may include the in-kind deposit of a
portfolio of securities and other investments (the ``Deposit
Instruments'') included in the Fund and an amount of cash computed as
described below (the ``Cash Amount''). The Cash Amount together with
the Deposit Instruments, as applicable, are referred to as the
``Portfolio Deposit,'' which represents the minimum initial and
subsequent investment amount for a Creation Unit of the Fund.
The Cash Amount would be an amount equal to the difference between
the NAV of the Shares (per Creation Unit) and the ``Deposit Amount,''
which is an amount equal to the aggregate market value of the Deposit
Instruments, and serves to compensate for any differences between the
NAV per Creation Unit and the Deposit Amount.
The Transfer Agent, through the National Securities Clearing
Corporation (``NSCC''), makes available on each Business Day,
immediately prior to the opening of business on the Exchange (currently
9:30 a.m. E.T.), the list of the names and the required number of
securities for each Deposit Instrument to be included in the current
Portfolio Deposit (based on information at the end of the previous
Business Day), as well as information regarding the Cash Amount for the
Fund. Such Portfolio Deposit is applicable, subject to any adjustments
as described below, in order to effect creations of Creation Units of
the Fund until such time as the next-announced Portfolio Deposit
composition is made available.
All orders to create Creation Units generally must be received by
the Distributor no later than the closing time of the regular trading
session on the Exchange (``Closing Time'') (ordinarily 4:00 p.m. E.T.)
on the date such order is placed in order for creation of Creation
Units to be effected based on the NAV of the Fund as determined on such
date.
In addition, the Trust reserves the right to accept a basket of
securities or cash that differs from Deposit Instruments or to permit
the substitution of an amount of cash (i.e., a ``cash in lieu'' amount)
to be added to the Cash Amount to replace any Deposit Instrument which
may, among other reasons, not be available in sufficient quantity for
delivery, not be permitted to be re-registered in the name of the Trust
as a result of an in-kind creation order pursuant to local law or
market convention or which may not be eligible for transfer through the
Clearing Process (defined below), or which may not be eligible for
trading by a Participating Party (defined below).
To be eligible to place orders with the Distributor to create
Creation Units of the Fund, an entity or person either must be (1) a
``Participating Party,'' i.e., a broker-dealer or other participant in
[[Page 62918]]
the clearing process through the Continuous Net Settlement System of
the NSCC (the ``Clearing Process''); or (2) a DTC Participant; which,
in either case, must have executed an agreement with the Distributor
(as it may be amended from time to time in accordance with its terms)
(``Participant Agreement''). A Participating Party and DTC Participant
are collectively referred to as an ``Authorized Participant.''
A standard creation transaction fee is imposed to offset the
transfer and other transaction costs associated with the issuance of
Creation Units.
Redemption of Creation Units
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by
PIMS, only on a Business Day and only through a Participating Party or
DTC Participant who has executed a Participant Agreement. The Trust
will not redeem Shares in amounts less than Creation Units. Beneficial
owners also may sell Shares in the secondary market, but must
accumulate enough Shares to constitute a Creation Unit in order to have
such Shares redeemed by the Trust.
The Transfer Agent, through NSCC, makes available immediately prior
to the opening of business on the Exchange on each Business Day, the
identity of the Fund's securities and/or an amount of cash that will be
applicable (subject to possible amendment or correction) to redemption
requests received in proper form on that day. The Fund's securities
received on redemption (``Redemption Instruments'') may not be
identical to Deposit Instruments that are applicable to creations of
Creation Units. Unless cash redemptions are permitted or required for
the Fund, the redemption proceeds for a Creation Unit generally consist
of Redemption Instruments as announced by the Transfer Agent on the
Business Day of the request for redemption, plus cash in an amount
equal to the difference between the NAV of the Shares being redeemed,
as next determined after a receipt of a request in proper form, and the
value of the Redemption Instruments, less the fixed transaction fee and
any variable transaction fees.
In order to redeem Creation Units of the Fund, an Authorized
Participant must submit an order to redeem for one or more Creation
Units. An order to redeem Creation Units of a Fund using the Clearing
Process generally must be submitted to the Distributor not later than
4:00 p.m. E.T. on the Business Day of the request for redemption in
order for such order to be effected based on the NAV of the Fund as
next determined. An order to redeem Creation Units of the Fund using
the NSCC Clearing Process made in proper form but received by the Fund
after 4:00 p.m. E.T. will be deemed received on the next Business Day
immediately following the day on which such order request is
transmitted.
Application of Generic Listing Requirements
The Exchange is submitting this proposed rule change because the
changes described below 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. The Fund's portfolio would meet all such requirements except
for those set forth in Commentary .01(a)(1), Commentary .01(b)(4) and
Commentary .01(b)(5).\17\ Specifically, the Fund:
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\17\ Commentary .01(b)(5) to NYSE Arca Rule 8.600-E provides
that non-agency, non-government sponsored entity and privately
issued mortgage-related and other asset-backed securities components
of a portfolio may not account, in the aggregate, for more than 20%
of the weight of the fixed income portion of the portfolio.
---------------------------------------------------------------------------
Will not comply with the requirement in Commentary
.01(b)(5) that investments in non-agency, non-government sponsored
entity and privately issued mortgage-related and other asset-backed
securities (i.e., Private ABS/MBS) not account, in the aggregate, for
more than 20% of the weight of the fixed income portion of the
portfolio. Instead, Private ABS/MBS will, in the aggregate, not exceed
more than 20% of the total assets of the Fund.
will not comply with the requirement that securities that
in aggregate account for at least 90% of the fixed income weight of the
portfolio meet one of the criteria in Commentary .01(b)(4).\18\
Instead, fixed income securities that do not meet any of the criteria
in Commentary .01(b)(4) will not exceed 10% of the total assets of the
Fund.
---------------------------------------------------------------------------
\18\ Commentary .01(b)(4) provides that component securities
that in the 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
Act; (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 Act; or (e) from
issuers that are a government of a foreign country or a political
subdivision of a foreign country.
---------------------------------------------------------------------------
may invest in shares of affiliated short-term bond funds,
which are equity securities. Therefore, to the extent the Fund invests
in shares of affiliated short-term bond funds or other non-exchange-
traded open-end management investment company securities, the Fund will
not comply with the requirements of Commentary .01(a)(1) to NYSE Arca
Rule 8.600-E (U.S. Component Stocks) with respect to its equity
securities holdings. Instead, such securities would not be required to
meet the requirements of Commentary .01(a)(1)(A) through (E) to Rule
8.600-E.\19\
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\19\ Commentary .01(a) to Rule 8.600-E specifies the equity
securities accommodated by the generic criteria in Commentary
.01(a), namely, U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)) and Non-U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)). Commentary .01(a)(1) to Rule 8.600-E (U.S. Component
Stocks) 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; and (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.
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may invest in convertible and non-convertible preferred
stocks, warrants, and Work Out Securities, which are equity securities.
To the extent the Fund invests in such securities, the Fund will not
comply with the requirements of Commentary .01(a)(1) to NYSE Arca Rule
8.600-E (U.S. Component Stocks) and/or Commentary .01(a)(2) to NYSE
Arca Rule 8.600-E (Non-U.S. Component Stocks) with respect to its
equity securities holdings.\20\ Instead, the
[[Page 62919]]
Exchange proposes that not more than 10% of the Fund's assets in the
aggregate will be held in convertible and non-convertible preferred
stocks, warrants and Work Out Securities.
---------------------------------------------------------------------------
\20\ Commentary .01(a)(2) to Rule 8.600-E (Non-U.S. Component
Stocks) 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.
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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. 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.
As noted above, the Fund will not comply with the requirement in
Commentary .01(b)(5) that investments in non-agency, non-government
sponsored entity and privately issued mortgage-related and other asset-
backed securities (i.e., Private ABS/MBS) not account, in the
aggregate, for more than 20% of the weight of the fixed income portion
of the portfolio. Instead, Private ABS/MBS will, in the aggregate, not
exceed more than 20% of the total assets of the Fund.
This alternative requirement is appropriate because the Fund's
investment in 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 Fund's investment in Private ABS/MBS
will be subject to the Fund's liquidity procedures as adopted by the
Board, and the Adviser does not expect that investments in Private ABS/
MBS of up to 20% of the total assets of the Fund will have any material
impact on the liquidity of the Fund's investments. The Exchange notes
that the Commission has previously approved the listing of actively
managed ETFs that can invest 20% of their total assets in non-U.S.
Government, non-agency, non-GSE and other privately issued ABS and MBS
(i.e., Private ABS/MBS).\21\ Thus, it is appropriate to expand the
limit on the Fund's investments in Private ABS/MBS set forth in
Commentary .01(b)(5) of the generic listing standards.
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\21\ See, e.g., Securities Exchange Act Release Nos. 80946 (June
15, 2017) 82 FR 28126 (June 20, 2017) (SR-NASDAQ-2017-039)
(permitting the Guggenheim Limited Duration ETF to invest up to 20%
of its total assets in privately-issued, non-agency and non-GSE ABS
and MBS); 76412 (November 10, 2015), 80 FR 71880 (November 17, 2015)
(SR-NYSEArca-2015-111) (permitting the RiverFront Strategic Income
Fund to invest up to 20% of its assets in privately-issued, non-
agency and non-GSE ABS and MBS); 74814 (April 27, 2015), 80 FR 24986
(May 1, 2015) (SR-NYSEArca-2014-017) (permitting the Guggenheim
Enhanced Short Duration ETF to invest up to 20% of its assets in
privately-issued, non-agency and non-GSE ABS and MBS); 74109
(January 21, 2015), 80 FR 4327 (January 27, 2015) (SR-NYSEArca-2014-
134) (permitting the IQ Wilshire Alternative Strategies ETF to
invest up to 20% of its total assets in MSB and other ABS, without
any limit on the type of such MBS and ABS).
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The Fund will not comply with the requirement that securities that
in aggregate account for at least 90% of the fixed income weight of the
portfolio meet one of the criteria in Commentary .01(b)(4).19 Instead,
fixed income securities that do ot meet any of the criteria in
Commentary .01(b)(4) will not exceed 10% of the total assets of the
Fund. The Exchange notes that the Commission has previously approved
the listing of Managed Fund Shares with similar investment objectives
and strategies without imposing requirements that a certain percentage
of such funds' securities meet one of the criteria set forth in
Commentary .01(b)(4).\22\ Thus, it is appropriate to expand the limit
on investments in fixed income securities that do not satisfy the
criteria in Commentary .01(b)(4) of the generic listing standards, as
described above.
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\22\ See, e.g., Securities Exchange Act Release Nos. 67894
(September 20, 2012) 77 FR 59227 (September 26, 2012) (SR-BATS-2012-
033) (order approving the listing and trading of shares of the
iShares Short Maturity Bond Fund); 70342 (September 6, 2013), 78 FR
56256 (September 12, 2013) (SR-NYSEArca-2013-71) (order approving
the listing and trading of shares of the SPDR SSgA Ultra Short Term
Bond ETF, SPDR SSgA Conservative Ultra Short Term Bond ETF and SPDR
SSgA Aggressive Ultra Short Term Bond ETF).
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The Fund may invest in shares of the Affiliated Short Term Bond
Fund, which are equity securities. Therefore, to the extent the Fund
invests in shares of the Affiliated Short Term Bond Fund or other non-
exchange-traded open-end management investment company securities, the
Fund will not comply with the requirements of Commentary .01(a)(1) to
NYSE Arca Rule 8.600-E (U.S. Component Stocks) with respect to its
equity securities holdings. However, 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 securities would not
meet the requirements of Commentary .01(a)(1)(A) through (E) to Rule
8.600-E.\23\ Investments in shares of the Affiliated Short Term Bond
Fund will not exceed 25% of the total assets of the Fund. Investments
in other non-exchange-traded open-end management investment company
securities will not exceed 10% of the total assets of the Fund. The
Fund's investment in shares of the Affiliated Short Term Bond Fund will
be utilized in order to obtain income on short-term cash balances while
awaiting attractive investment opportunities, to provide liquidity in
preparation for anticipated redemptions or for defensive purposes,
which will allow the Fund to obtain the benefits of a more diversified
portfolio available in the Affiliated Short Term Bond Fund than might
otherwise be available through direct investments in Money Market
Funds.\24\ Moreover, such investments, which may include mutual funds
that invest, for example, principally in fixed income securities, would
be utilized to help the Fund meet its investment objective and to
equitize cash in the short term. The Fund will invest in such
securities only to the extent that those investments would be
consistent with the requirements of Section 12(d)(1) of the 1940 Act
and the rules thereunder.\25\ Because such
[[Page 62920]]
securities must satisfy applicable 1940 Act diversification
requirements, and have a net asset value based on the value of
securities and financial assets the investment company holds, it is
both unnecessary and inappropriate to apply to such investment company
securities the criteria in Commentary .01(a)(1).
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\23\ See note 19, supra.
\24\ For purposes of this section of the filing, non-exchange-
traded securities of other registered investment companies do not
include money market funds, which are cash equivalents under
Commentary .01(c) to Rule 8.600-E and for which there is no
limitation in the percentage of the portfolio invested in such
securities. In addition, the Commission has issued orders granting
exemptive relief under the 1940 Act that apply to the Trust. See
Investment Company Act Release No. 24179 (December 1, 1999) (File
No. 812-11354) with respect to investments by a fund in money market
or ultra-short bond funds for cash management purposes) and
Investment Company Act Release No. 30200 (September 11, 2012) (File
No. 812-13993) with respect to investments by a fund in other
registered investment companies.
\25\ The Commission has previously approved proposed rule
changes under Section 19(b) of the Act for series of Managed Fund
Shares that may invest in non-exchange traded investment company
securities to the extent permitted by Section 12(d)(1) of the 1940
Act and the rules thereunder. See, e.g., Securities Exchange Act
Release No. 78414 (July 26, 2016), 81 FR 50576 (August 1, 2016) (SR-
NYSEArca-2016-79) (order approving listing and trading of shares of
the Virtus Japan Alpha ETF under NYSE Arca Rule 8.600-E).
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The Exchange notes that Commentary .01(a)(1)(A) through (D) to Rule
8.600-E exclude certain ``Derivative Securities Products'' that are
exchange-traded investment company securities, including Investment
Company Units (as described in NYSE Arca Rule 5.2-E(j)(3)), Portfolio
Depositary Receipts (as described in NYSE Arca Rule 8.100-E)) and
Managed Fund Shares (as described in NYSE Arca Rule 8.600-E)).\26\ In
its 2008 Approval Order approving amendments to Commentary .01(a) to
Rule 5.2(j)(3) to exclude Derivative Securities Products from certain
provisions of Commentary .01(a) (which exclusions are similar to those
in Commentary .01(a)(1) to Rule 8.600-E), the Commission stated that
``based on the trading characteristics of Derivative Securities
Products, it may be difficult for component Derivative Securities
Products to satisfy certain quantitative index criteria, such as the
minimum market value and trading volume limitations.'' The Exchange
notes that it would be difficult or impossible to apply to mutual fund
shares certain of the generic quantitative criteria (e.g., market
capitalization, trading volume, or portfolio criteria) in Commentary
.01 (A) through (D) applicable to U.S. Component Stocks. For example,
the requirements for U.S. Component Stocks in Commentary .01(a)(1)(B)
that there be minimum monthly trading volume of 250,000 shares, or
minimum notional volume traded per month of $25,000,000, averaged over
the last six months are tailored to exchange-traded securities (i.e.,
U.S. Component Stocks) and not to mutual fund shares, which do not
trade in the secondary market and for which no such volume information
is reported. In addition, Commentary .01(a)(1)(A) relating to minimum
market value of portfolio component stocks, Commentary .01(a)(1)(C)
relating to weighting of portfolio component stocks, and Commentary
.01(a)(1)(D) relating to minimum number of portfolio components are not
appropriately applied to open-end management investment company
securities; open-end investment companies hold multiple individual
securities as disclosed publicly in accordance with the 1940 Act, and
application of Commentary .01(a)(1)(A) through (D) would not serve the
purposes served with respect to U.S. Component Stocks, namely, to
establish minimum liquidity and diversification criteria for U.S.
Component Stocks held by series of Managed Fund Shares.
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\26\ The Commission initially approved the Exchange's proposed
rule change to exclude ``Derivative Securities Products'' (i.e.,
Investment Company Units and securities described in Section 2 of
Rule 8) and ``Index-Linked Securities (as described in Rule 5.2-
E(j)(6)) from Commentary .01(a)(A) (1) through (4) to Rule 5.2-
E(j)(3) in Securities Exchange Act Release No. 57751 (May 1, 2008),
73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29) (Order Granting
Approval of a Proposed Rule Change, as Modified by Amendment No. 1
Thereto, to Amend the Eligibility Criteria for Components of an
Index Underlying Investment Company Units)(``2008 Approval Order'').
See also Securities Exchange Act Release No. 57561 (March 26, 2008),
73 FR 17390 (April 1, 2008) (Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto to Amend the Eligibility Criteria
for Components of an Index Underlying Investment Company Units). The
Commission subsequently approved generic criteria applicable to
listing and trading of Managed Fund Shares, including exclusions for
Derivative Securities Products and Index-Linked Securities in
Commentary .01(a)(1)(A) through (D), in Securities Exchange Act
Release No. 78397 (July 22, 2016), 81 FR 49320 (July 27, 2016)
(Order Granting Approval of Proposed Rule Change, as Modified by
Amendment No. 7 Thereto, Amending NYSE Arca Rule 8.600-E To Adopt
Generic Listing Standards for Managed Fund Shares). See also
Amendment No. 7 to SR-NYSEArca-2015-110, available at https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-9.pdf.
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The Exchange notes that the Commission has previously approved the
listing of Managed Fund Shares with similar investment objectives and
strategies where such funds were permitted to invest in the shares of
other registered investment companies that are not ETFs or money market
funds.\27\ Thus, it is appropriate to permit the Fund to invest up to
25% of its total assets in shares the Affiliated Short Term Bond Fund
and 10% of its total assets in other non-exchange-traded open-end
management investment company securities.
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\27\ See, e.g., Securities Exchange Act Release Nos. 79053
(October 5, 2016), 81 FR 70468 (October 12, 2016) (SR-BatsBZX-2016-
35) (permitting the JPMorgan Global Bond Opportunities ETF to invest
in ``investment company securities that are not ETFs''); 74297
(February 18, 2015), 80 FR 9788 (February 24, 2015) (SR-BATS-2014-
056) (permitting the U.S. Fixed Income Balanced Risk ETF to invest
in ``exchange traded and non-exchange traded investment companies
(including investment companies advised by the Adviser or its
affiliates) that invest in such Fixed Income Securities'').
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To the extent the Fund invests in convertible and non-convertible
preferred stocks, warrants and Work Out Securities, the Fund will not
comply with the requirements of Commentary .01(a)(1) to NYSE Arca Rule
8.600-E (U.S. Component Stocks) and/or Commentary .01(a)(2) to NYSE
Arca Rule 8.600-E (Non-U.S. Component Stocks) with respect to its
equity securities holdings. The Exchange believes this is appropriate
in that the Adviser represents that the Fund will not actively invest
in such securities but may, at times, receive a distribution of such
securities in connection with the Fund's holdings in certain Principal
Investment Instruments. Therefore, the Fund's holdings in such
securities would not be utilized to further the Fund's investment
objective and generally would not be acquired as the result of the
Fund's voluntary investment decisions. In addition, the Exchange
proposes that not more than 10% of the Fund's assets in the aggregate
will be held in convertible and non-convertible preferred stocks,
warrants and Work Out Securities.
The Exchange accordingly 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)(2), (b)(4) and (b)(5) to Rule
8.600-E. The Exchange notes that, other than Commentary .01(a)(1),
(a)(2), (b)(4) and (b)(5) to Rule 8.600-E, the Fund's portfolio will
meet all other requirements of Rule 8.600-E.
Availability of Information
The Fund's website (www.pgiminvestments.com) will include the
prospectus for the Fund that may be downloaded. The Fund's website will
include additional quantitative information updated on a daily basis
including, for the Fund, (1) daily trading volume, the prior Business
Day's reported closing price, NAV and midpoint of the bid/ask spread at
the time of calculation of such NAV (the ``Bid/Ask Price''),\28\ and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV, and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each Business Day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund discloses on its
[[Page 62921]]
website the Disclosed Portfolio as defined in NYSE Arca Rule 8.600-
E(c)(2) that forms the basis for the Fund's calculation of NAV at the
end of the Business Day.\29\
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\28\ The Bid/Ask Price of the Fund's Shares will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid/Ask Prices will be retained by the Fund and
its service providers.
\29\ Under accounting procedures followed by the Fund, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
---------------------------------------------------------------------------
On a daily basis, the Fund discloses the information required under
NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The website
information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of
the Fund. Authorized Participants may refer to the basket composition
file for information regarding Principal Investment Instruments, and
any other instrument that may comprise the Fund's basket on a given
day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's
Forms N-CSR and Forms N-SAR, filed twice a year. The Fund's SAI and
Shareholder Reports will be available free upon request from the Trust,
and those documents and the Form N-CSR, Form N-PX and Form N-SAR may be
viewed on-screen or downloaded from the Commission's website at
www.sec.gov.
Intra-day and closing price information regarding exchange-traded
options will be available from the exchange on which such instruments
are traded. Intra-day and closing price information regarding the
Principal Investment Instruments also will be available from major
market data vendors. Price information relating to OTC options and
swaps will be available from major market data vendors. Intra-day price
information for exchange-traded derivative instruments will be
available from the applicable exchange and from major market data
vendors. For exchange-listed securities (including ETFs), intraday
price quotations will generally be available from broker-dealers and
trading platforms (as applicable). Intraday and other price information
for the fixed income securities in which the Fund invests will be
available through subscription services, such as Bloomberg, Markit and
Thomson Reuters, which can be accessed by Authorized Participants and
other market participants. Additionally, the Trade Reporting and
Compliance Engine (``TRACE'') of the Financial Industry Regulatory
Authority (``FINRA'') will be a source of price information for
corporate bonds, privately-issued securities, MBS and ABS, to the
extent transactions in such securities are reported to TRACE.\30\ Money
market funds and affiliated short-term bond funds are typically priced
once each Business Day and their prices will be available through the
applicable fund's website or from major market data vendors. Electronic
Municipal Market Access (``EMMA'') will be a source of price
information for municipal bonds. Price information regarding U.S.
government securities, repurchase agreements, reverse repurchase
agreements and cash equivalents generally may be obtained from brokers
and dealers who make markets in such securities or through nationally
recognized pricing services through subscription agreements.
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\30\ Broker-dealers that are FINRA member firms have an
obligation to report transactions in specified debt securities to
TRACE to the extent required under applicable FINRA rules.
Generally, such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income securities that are
not reported to TRACE, (i) intraday price quotations will generally
be available from broker-dealers and trading platforms (as
applicable) and (ii) price information will be available from feeds
from market data vendors, published or other public sources, or
online information services, as described above.
---------------------------------------------------------------------------
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers.
Quotation and last sale information for the Shares will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. Exchange-traded options quotation and last sale information for
options cleared via the Options Clearing Corporation are available via
the Options Price Reporting Authority. In addition, the Portfolio
Indicative Value (``PIV''), as defined in NYSE Arca Rule 8.600-E(c)(3),
will be widely disseminated by one or more major market data vendors at
least every 15 seconds during the Core Trading Session.
Price information for instruments that would otherwise qualify as
Principal Investment Instruments but for being denominated in non-U.S.
currency is available from major market data vendors.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E
have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) The extent to
which trading is not occurring in the securities and/or the financial
instruments comprising the Disclosed Portfolio of the Fund; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Trading in the
Shares will be subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets
forth circumstances under which Shares of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Rule 7.34-E (Trading Sessions). The Exchange
has appropriate rules to facilitate transactions in the Shares during
all trading sessions. As provided in NYSE Arca Rule 7.6-E, the minimum
price variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
With the exception of the requirements of Commentary .01(a)(1),
Commentary .01(b)(4) and Commentary .01(b)(5) as described above under
``Application of Generic Listing Requirements,'' the Shares of the Fund
will conform to the initial and continued listing criteria under NYSE
Arca Rule 8.600-E. The Exchange represents that for initial and/or
continued listing, the Fund will be in compliance with Rule 10A-3 under
the Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 100,000
Shares will be outstanding at the commencement of trading on the
Exchange. The Exchange has obtained a representation from the issuer of
the Shares that the NAV per Share will be calculated daily and that the
NAV and
[[Page 62922]]
the Disclosed Portfolio will be made available to all market
participants at the same time.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by FINRA on behalf of
the Exchange, which are designed to detect violations of Exchange rules
and applicable federal securities laws. The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, ETFs, certain
exchange-traded options and certain futures with other markets and
other entities that are members of the Intermarket Surveillance Group
(``ISG''), and the Exchange or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading in the Shares,
ETFs, certain exchange-traded options and certain futures from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, ETFs, certain exchange-
traded options and certain futures from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement (``CSSA''). The Exchange
is able to access from FINRA, as needed, trade information for certain
fixed income securities held by the Fund reported to TRACE. FINRA also
can access data obtained from the Municipal Securities Rulemaking Board
(``MSRB'') relating to certain municipal bond trading activity for
surveillance purposes in connection with trading in the Shares.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) the applicability of Exchange
listing rules specified in this rule filing shall constitute continued
listing requirements for listing the Shares on the Exchange.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Fund to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Fund is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Rule 5.5(m)-E.
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 the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.600-E. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Shares in all trading sessions and to
deter and detect violations of Exchange rules and federal securities
laws applicable to trading on the Exchange. The Adviser and Subadviser
are not registered as broker-dealers, but the Adviser and Subadviser
are affiliated with a broker-dealer and have implemented and will
maintain a ``fire wall'' with respect to such broker-dealer regarding
access to information concerning the composition and/or changes to the
Fund's portfolio. The Exchange or FINRA, on behalf of the Exchange, or
both, will communicate as needed regarding trading in the Shares,
certain exchange-traded options and certain futures with other markets
and other entities that are members of the ISG, and the Exchange or
FINRA, on behalf of the Exchange, or both, may obtain trading
information regarding trading in the Shares, certain exchange-traded
options and certain futures from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares, certain exchange-traded options and certain futures with other
markets and other entities that are members of the ISG, or with which
the Exchange has in place a comprehensive surveillance sharing
agreement. The Exchange is able to access from FINRA, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's TRACE. FINRA also can access data obtained from the
MSRB relating to certain municipal bond trading activity for
surveillance purposes in connection with trading in the Shares.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. The website for the Fund
includes a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information. Trading
in Shares of the Fund will be halted if the circuit breaker parameters
in NYSE Arca Rule 7.12-E have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable, and trading in the Shares will be
subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets forth
circumstances under which trading in the Shares of the Fund may be
halted. In addition, as noted above, investors have ready access to
information regarding the Fund's holdings, the PIV, the Disclosed
Portfolio, and quotation and last sale information for the Shares. In
the aggregate, at least 90% of the weight of the Fund's holdings
invested in futures, exchange-traded options, and listed swaps shall,
on both an initial and continuing basis, consist of futures, options,
and swaps for which the Exchange may obtain information from other
members or affiliates of the ISG or for which the principal market is a
market with which the Exchange has a CSSA. For purposes of calculating
this limitation, a portfolio's investment in listed derivatives will be
calculated as the aggregate gross notional value of the listed
derivatives.
As described above, deviations from the generic requirements of
Commentary .01(a) are necessary for the
[[Page 62923]]
Fund to achieve its investment objective in a manner that is cost-
effective and that maximizes investors' returns. Further, the proposed
alternative requirements are narrowly tailored to allow the Fund to
achieve its investment objective in manner that is consistent with the
principles of Section 6(b)(5) of the Act. As a result, it is in the
public interest to approve listing and trading of Shares of the Fund on
the Exchange pursuant to the requirements set forth herein.
As discussed above, the Fund will not comply with the requirement
in Commentary .01(b)(5) that investments in non-agency, non-government
sponsored entity and privately issued mortgage-related and other asset-
backed securities (i.e., Private ABS/MBS) not account, in the
aggregate, for more than 20% of the weight of the fixed income portion
of the portfolio. Instead, Private ABS/MBS will, in the aggregate, not
exceed more than 20% of the total assets of the Fund.
This alternative requirement is appropriate because the Fund's
investment in 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 Fund's investment in Private ABS/MBS
will be subject to the Fund's liquidity procedures as adopted by the
Board, and the Adviser does not expect that investments in Private ABS/
MBS of up to 20% of the total assets of the Fund will have any material
impact on the liquidity of the Fund's investments. The Exchange notes
that the Commission has previously approved the listing of actively
managed ETFs that can invest 20% of their total assets in non-U.S.
Government, non-agency, non-GSE and other privately issued ABS and MBS
(i.e., Private ABS/MBS).\31\ Thus, it is appropriate to expand the
limit on the Fund's investments in Private ABS/MBS set forth in
Commentary .01(b)(5) of the generic listing standards.
---------------------------------------------------------------------------
\31\See note 21, supra.
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The Fund will not comply with the requirement that securities that
in aggregate account for at least 90% of the fixed income weight of the
portfolio meet one of the criteria in Commentary .01(b)(4). Instead,
fixed income securities that do not meet any of the criteria in
Commentary .01(b)(4) will not exceed 10% of the total assets of the
Fund. The Exchange notes that the Commission has previously approved
the listing of Managed Fund Shares with similar investment objectives
and strategies without imposing requirements that a certain percentage
of such funds' securities meet one of the criteria set forth in
Commentary .01(b)(4). Thus, it is appropriate to expand the limit on
investments in fixed income securities that do not satisfy the criteria
in Commentary .01(b)(4) of the generic listing standards, as described
above.
The Fund may invest in shares of affiliated short-term bond funds,
which are equity securities. Therefore, to the extent the Fund invests
in shares of affiliated short-term bond funds or other non-exchange-
traded open-end management investment company securities, the Fund will
not comply with the requirements of Commentary .01(a)(1) to NYSE Arca
Rule 8.600-E (U.S. Component Stocks) with respect to its equity
securities holdings. 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 securities would not meet the requirements
of Commentary .01(a)(1)(A) through (E) to Rule 8.600-E. The Fund's
investment in the Affiliated Short Term Bond Fund will not exceed 25%
of the total assets of the Fund. Investments in other non-exchange-
traded open-end management investment company securities will not
exceed 10% of the total assets of the Fund. The Fund's investment in
shares of affiliated short-term bond funds will be utilized in order to
obtain income on short-term cash balances while awaiting attractive
investment opportunities, to provide liquidity in preparation for
anticipated redemptions or for defensive purposes, which will allow the
Fund to obtain the benefits of a more diversified portfolio available
in the shares of affiliated short-term bond funds than might otherwise
be available through direct investments in Money Market Funds.
Moreover, such investments, which may include mutual funds that invest,
for example, principally in fixed income securities, would be utilized
to help the Fund meet its investment objective and to equitize cash in
the short term. The Fund will invest in such securities only to the
extent that those investments would be consistent with the requirements
of Section 12(d)(1) of the 1940 Act and the rules thereunder. Because
such securities must satisfy applicable 1940 Act diversification
requirements, and have a net asset value based on the value of
securities and financial assets the investment company holds, it is
both unnecessary and inappropriate to apply to such investment company
securities the criteria in Commentary .01(a)(1).
The Exchange notes that it would be difficult or impossible to
apply to mutual fund shares certain of the generic quantitative
criteria (e.g., market capitalization, trading volume, or portfolio
criteria) in Commentary .01 (A) through (D) applicable to U.S.
Component Stocks. For example, the requirements for U.S. Component
Stocks in Commentary .01(a)(1)(B) that there be minimum monthly trading
volume of 250,000 shares, or minimum notional volume traded per month
of $25,000,000, averaged over the last six months are tailored to
exchange-traded securities (i.e., U.S. Component Stocks) and not to
mutual fund shares, which do not trade in the secondary market and for
which no such volume information is reported. In addition, Commentary
.01(a)(1)(A) relating to minimum market value of portfolio component
stocks, Commentary .01(a)(1)(C) relating to weighting of portfolio
component stocks, and Commentary .01(a)(1)(D) relating to minimum
number of portfolio components are not appropriately applied to open-
end management investment company securities; open-end investment
companies hold multiple individual securities as disclosed publicly in
accordance with the 1940 Act, and application of Commentary
.01(a)(1)(A) through (D) would not serve the purposes served with
respect to U.S. Component Stocks, namely, to establish minimum
liquidity and diversification criteria for U.S. Component Stocks held
by series of Managed Fund Shares.
To the extent the Fund invests in convertible and non-convertible
preferred stocks, warrants and Work Out Securities, the Fund will not
comply with the requirements of Commentary .01(a)(1) to NYSE Arca Rule
8.600-E (U.S. Component Stocks) and/or Commentary .01(a)(2) to NYSE
Arca Rule 8.600-E (Non-U.S. Component Stocks) with respect to its
equity securities holdings. The Exchange believes this is appropriate
in that the Adviser represents that the Fund will not actively invest
in such securities but may, at times, receive a distribution of such
securities in connection with the Fund's holdings in certain Principal
Investment Instruments. Therefore, the Fund's holdings in such
securities would not be utilized to further the Fund's investment
objective and generally would not be acquired as the result of the
Fund's voluntary investment decisions. In addition, the Exchange
proposes that not more than 10% of the Fund's assets in the aggregate
will be held in convertible and
[[Page 62924]]
non-convertible preferred stocks, warrants and Work Out Securities.
The Exchange accordingly 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)(2), (b)(4) and (b)(5) to Rule
8.600-E. The Exchange notes that, other than Commentary .01(a)(1),
(a)(2), (b)(4) and (b)(5) to Rule 8.600-E, the Fund's portfolio will
meet all other requirements of Rule 8.600-E.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively managed ETF that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a CSSA. In addition, as noted above,
investors have ready access to information regarding the Fund's
holdings, the PIV, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively managed ETF 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.
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-2018-82 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-2018-82. 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 filng 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-2018-82, and should be
submitted on or before December 27, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority. \32\
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\32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26514 Filed 12-4-18; 8:45 am]
BILLING CODE 8011-01-P
