Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Amending NYSE Arca Rule 5.2-E(j)(3) To Adopt Generic Listing Standards for Investment Company Units Based on an Index of Municipal Bond Securities, 6451-6456 [2019-03331]
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Federal Register / Vol. 84, No. 39 / Wednesday, February 27, 2019 / Notices
systems, for an annual burden of 5,000
hours. The Commission estimates that,
on average, a firm initially will take
approximately 1,000 hours to prepare an
application to use appendix F. For the
one firm expected to apply, this would
result in an annual burden of 333 hours
per year amortized over three years. For
the two years after it registers, the new
registrant would spend an average of
approximately 1,000 hours each year
reporting information concerning its
VAR model and internal risk
management system, for an annual
burden of 667 hours per year amortized
over 3 years.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: February 22, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–03393 Filed 2–26–19; 8:45 am]
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85170; File No. SR–
NYSEArca-2019–04]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Amending NYSE Arca
Rule 5.2–E(j)(3) To Adopt Generic
Listing Standards for Investment
Company Units Based on an Index of
Municipal Bond Securities
February 21, 2019.
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 February
8, 2019, 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 to amend
NYSE Arca Rule 5.2–E(j)(3) (‘‘Rule 5.2–
E(j)(3)’’) to adopt generic listing
standards for Investment Company
Units (‘‘Units’’) based on an index of
municipal bond securities. 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
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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
NYSE Arca Rule 5.2–E(j)(3) permits
the Exchange to list a series of Units
based on an index or portfolio of
underlying securities. Currently, Rule
5.2–E(j)(3) includes generic listing
standards for Units based on an index
or portfolio of equity or fixed income
securities or a combination thereof. The
Exchange proposes to amend Rule 5.2–
E(j)(3) to add a new Commentary .02A
to provide generic listing standards for
Units based on an index or portfolio of
Municipal Securities.4
An index of Municipal Securities
typically does not meet the generic
listing requirements for Units based on
an index of fixed-income securities.5
Nonetheless, the Commission has
previously approved proposed rule
changes relating to listing and trading
on the Exchange of Units based on an
index of Municipal Securities.6 Given
4 The term ‘‘Municipal Securities’’ has the
definition given to it in Section 3(a)(29) of the
Securities Exchange Act of 1934.
5 See Commentary .02(a)(2) to NYSE Arca Rule
5.2–E(j)(3). Municipal Securities are typically
issued in with individual maturities of relatively
small size, although they generally are constituents
of a much larger municipal bond offering.
Therefore, an index of Municipal Securities will
typically be unable to satisfy the requirement that
component fixed income securities that, in the
aggregate, account for at least 75% of the weight of
the index each shall have a minimum principal
amount outstanding of $100 million or more.
6 See Securities Exchange Act Release Nos. 67985
(October 4, 2012), 77 FR 61804 (October 11, 2012)
(SR–NYSEArca–2012–92) (order approving
proposed rule change relating to the listing and
trading of iShares 2018 S&P AMT-Free Municipal
Series and iShares 2019 S&P AMT-Free Municipal
Series under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02); 67729 (August 24, 2012), 77 FR
52776 (August 30, 2012) (SR–NYSEArca–2012–92)
(notice of proposed rule change relating to the
listing and trading of iShares 2018 S&P AMT-Free
Municipal Series and iShares 2019 S&P AMT-Free
Municipal Series under NYSE Arca Equities Rule
5.2(j)(3), Commentary .02); 72523, (July 2, 2014), 79
FR 39016 (July 9, 2014) (SR–NYSEArca–2014–37)
(order approving proposed rule change relating to
the listing and trading of iShares 2020 S&P AMTFree Municipal Series under NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02); 72172 (May 15,
2014), 79 FR 29241 (May 21, 2014) (SR–NYSEArca–
2014–37) (notice of proposed rule change relating
to the listing and trading of iShares 2020 S&P AMTFree Municipal Series under NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02); 72464 (June 25,
2014), 79 FR 37373 (July 1, 2014) (File No. SR–
NYSEArca–2014–45) (order approving proposed
rule change governing the continued listing and
trading of shares of the PowerShares Insured
California Municipal Bond Portfolio, PowerShares
Insured National Municipal Bond Portfolio, and
PowerShares Insured New York Municipal Bond
Portfolio); 75468 (July 16, 2015), 80 FR 43500 (July
22, 2015) (SR–NYSEArca–2015–25) (order
approving proposed rule change relating to the
Continued
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the large number of prior approvals by
the Commission, the Exchange now
proposes to adopt generic listing
standards for Units based on an index
of Municipal Securities that do not meet
the generic listing standards for Units
based on an index of fixed-income
securities.
In the Exchange’s experience, indices
of Municipal Securities are able to
satisfy all of the generic listing
requirements applicable to fixed-income
indices contained in Commentary .02 to
Rule 5.2–E(j)(3) except the requirement
that component securities in an index
have a minimum original principal
amount outstanding. Specifically,
Municipal Securities are generally
issued with individual maturities of
relatively small size, although they
generally are constituents of a much
larger municipal bond offering.
Therefore, Municipal Securities are
unable to satisfy the rule’s requirement
that ‘‘at least 75% of the Fixed Income
Securities portion of the weight of the
index or portfolio each shall have a
minimum original principal amount
outstanding of $100 million or more.’’
Notwithstanding the inability of a
Municipal Securities index to meet this
aspect of the generic listing standards,
the Commission has previously
approved for listing and trading a series
of Units based on such indices where
the Exchange has demonstrated an
index is not susceptible to
manipulation.7
The Exchange would apply existing
Commentary .02 to Rule 5.2–E(j)(3) and
proposed Commentary .02A to Rule 5.2–
E(j)(3) in a ‘‘waterfall’’ manner.
Specifically, every series of Units based
on an index of fixed-income securities
and cash (including an index that
contains Municipal Securities) would
initially be evaluated against the generic
listing standards of existing
Commentary .02 to Rule 5.2–E(j)(3). If
the index underlying a series of Units
satisfied the existing criteria of
Commentary .02 to Rule 5.2–E(j)(3), the
Exchange would proceed with listing
the Units. The Exchange would apply
proposed Commentary .02A to Rule 5.2–
E(j)(3) only if (i) an index did not meet
the requirements of Commentary .02 to
Rule 5.2–E(j)(3) and (ii) such index
contained only Municipal Securities
and cash.
The Exchange believes that if an
index of fixed-income securities and
cash (including one that contains
Municipal Securities) satisfies the
Existing Requirement for Fixed-Income Securities:
Comparison of Existing Quantitative
Requirements for Fixed-Income Indices
vs. Proposed Quantitative Requirements
for Municipal Securities Indices
Below is a comparison of the existing
quantitative requirements for Units
based on an index of fixed-income
securities versus the Exchange’s
proposed alternative quantitative
requirements for Units based on an
index of Municipal Securities:
Original Principal Amount
Outstanding:
Fixed Income Security components that in aggregate account for at
least 75% of the Fixed Income Securities portion of the weight of the
index or portfolio each shall have a minimum original principal
amount outstanding of $100 million or more.
Municipal Security components that in aggregate account for at least
90% of the Municipal Securities portion of the weight of the index or
portfolio each shall have a minimum original principal amount outstanding of at least $5 million and have been issued as part of a
transaction of at least $20 million.
Proposed Requirement for Municipal Securities:
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existing requirements of Commentary
.02 to Rule 5.2–E(j)(3) its constituent
securities are sufficiently liquid to deter
manipulation of the index. Further, the
proposed alternative listing standard,
which would only be applicable to an
index consisting entirely of Municipal
Securities and cash, includes many
requirements that are more stringent
than those applicable to an index of
fixed-income securities and cash. The
Exchange believes these heightened
requirements would deter potential
manipulation of such Municipal
Securities indices even though the
index may include securities that have
smaller original principal amounts
outstanding.
As discussed above, Municipal
Securities are typically issued with
individual maturities of relatively small
size, although they generally are
constituents of a much larger municipal
bond offering. In recognition of these
smaller offering sizes, the Exchange
proposes to reduce the minimum
original principal amount outstanding
requirement for component securities to
at least $5 million. Further, the
Exchange proposes that qualifying
securities must have been issued as part
of a transaction of at least $20 million.
Lastly, the Exchange proposes to
increase the percentage weight of an
index that must satisfy the original
principal amount outstanding
requirement from 75% to 90%.
The Exchange does not believe that
reducing the minimum original
principal amount outstanding
requirement for component securities
will make an index more susceptible to
manipulation. The Exchange believes
that the requirement that component
securities in a fixed-income index have
a minimum principal amount
outstanding, in concert with the other
requirements of Commentary .02 to Rule
5.2–E(j)(3), is to ensure that such index
is sufficiently broad-based in scope as to
minimize potential manipulation of the
index.8 However, based on empirical
analysis, the Exchange does not believe
that an index of Municipal Securities
with lower original principal amounts
outstanding is necessarily more
susceptible to manipulation.9 In 2016,
Blackrock, Inc. analyzed the potential
manipulation of Municipal Securities
and found that such manipulation ‘‘may
be uneconomical and is unsupported in
listing and trading of iShares iBonds Dec 2021
AMT-Free Muni Bond ETF and iShares iBonds Dec
2022 AMT-Free Muni Bond ETF under NYSE Arca
Equities Rule 5.2(j)(3)); 74730 (April 15, 2015), 76
FR 22234 (April 21, 2015) (notice of proposed rule
change relating to the listing and trading of iShares
iBonds Dec 2021 AMT-Free Muni Bond ETF and
iShares iBonds Dec 2022 AMT-Free Muni Bond
ETF under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02); 74730 75376 (July 7, 2015), 80 FR
40113 (July 13, 2015) (SR–NYSEArca–2015–18)
(order approving proposed rule change relating to
the listing and trading of Vanguard Tax-Exempt
Bond Index Fund under NYSE Arca Equities Rule
5.2(j)(3)).
7 See Footnote 5 [sic], supra.
8 See Securities Exchange Act Release No. 55783
(May 17, 2007), 72 FR 29194 (May 24, 2007) (SR–
NYSEArca–2007–36) (order approving the adoption
of generic listing standards for Units based on an
index of fixed-income securities) at pg. 19–20.
9 See Letter from Samara Cohen, Managing
Director, U.S. Head of iShares Capital Markets,
Joanne Medero, Managing Director, Government
Relations & Public Policy, and Deepa Damre,
Managing Director, Legal & Compliance, BlackRock,
Inc., to Brent J. Fields, Secretary, Commission,
dated October 18, 2017 in support of the Exchange’s
proposal to facilitate the listing and trading of
certain series of Units listed pursuant to NYSE Arca
Rule 5.2–E(j)(3) (SR–NYSEArca–2017–56).
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practice.’’ 10 In addition, the Exchange
believes that its proposal to require that
90% of the weight of a Municipal
Securities Index meet the original
principal amount outstanding
requirement (as opposed to 75% for
fixed-income indices) will further deter
potential manipulation by ensuring that
Existing Requirement for Fixed-Income Securities:
Proposed Requirement for Municipal Securities:
The Exchange proposes to
substantially reduce the maximum
weight that any individual Municipal
Security, or group of five Municipal
Securities, can have in a Municipal
Securities index. The current generic
listing rules for Units based on a fixedincome index permit individual
component securities to account for up
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Existing Requirement for Fixed-Income Securities:
Proposed Requirement for Municipal Securities:
a greater portion of the index meet this
minimum size requirement.
The Exchange notes that the
Commission has previously approved
the listing and trading of several series
of Units where the underlying
Municipal Securities index required
that component securities representing
to 30% of the weight of such index and
the top-five weighted component
securities to account for up to 65% of
the weight of such index. The Exchange
proposes to reduce these metrics to 10%
for individual Municipal Securities and
30% for the top-weighted Municipal
Securities in an index.
The Exchange believes that its
proposal will reduce the likelihood that
10 See Id. at 3 and accompanying Footnote 11.
Blackrock stated ‘‘Our empirical analysis indicated
that: (1) Given the over-the-counter dealer-centric
market for municipal bonds, the bid-ask spread
decreases with trade size; therefore, trading many
small lots to move matrix prices is likely to be
costly; (2) large trades move prices significantly and
this effect is incorporated into prices quickly; for
manipulation to work by affecting bond prices, the
trades must be large, implying greater dollar cost
and more likelihood of detection even if markets
were segmented; (3) while pricing agents apply
matrix pricing techniques to value non-traded
bonds, the effect is likely too small to permit price
manipulation of the corresponding index or ETF;
and (4) market participants will use all intraday
data to come up with their own valuations
independently of pricing providers; ultimately, the
price of an ETF at a point in time reflects these
estimates in a manner that balances supply and
demand.’’
11 See Securities Exchange Act Release No. 84049
(September 6, 2018), 83 FR 46228 (September 12,
2012) (SR–NYSEArca–2018–38) (order approving,
among other things, revisions to the continued
listing criteria applicable to the iShares New York
AMT-Free Muni Bond ETF).
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a Municipal Securities index underlying
a series of Units could be subject to
manipulation by ensuring that no
individual Municipal Security, or group
of five Municipal Securities, represents
an outsized weight of a Municipal
Securities index.
Diversification of Issuers:
An underlying index or portfolio (excluding one consisting entirely of exempted securities) must
include a minimum of 13 non-affiliated issuers.
An underlying index or portfolio must include a minimum of 13 non-affiliated issuers.
The current generic listing rules for
Units based on an index of fixed-income
securities do not have an explicit
requirement that an index contain a
minimum number of securities.
However, given that such rules require
an index to contain securities from at
least thirteen non-affiliated issuers,
there is a de facto requirement that an
17:07 Feb 26, 2019
at least 90% of the weight of the index
have a minimum original principal
amount outstanding of at least $5
million and have been issued as part of
a transaction of at least $20 million.11
Maximum Weight of Component
Securities:
No component fixed-income security (excluding Treasury Securities and GSE Securities) shall
represent more than 30% of the Fixed Income Securities portion of the weight of the index
or portfolio, and the five most heavily weighted component fixed-income securities in the
index or portfolio shall not in the aggregate account for more than 65% of the Fixed Income
Securities portion of the weight of the index or portfolio.
No component Municipal Security shall represent more than 10% of the Municipal Securities
portion of the weight of the index or portfolio, and the five most heavily weighted component
Municipal Securities in the index or portfolio shall not in the aggregate account for more
than 30% of the Municipal Securities portion of the weight of the index or portfolio.
The current generic listing rules for
Units based on an index of fixed-income
securities require that such index must
include securities from at least thirteen
non-affiliated 12 issuers. Notably, the
current rules exempt indices consisting
entirely of exempted securities from
complying with this diversification
requirement. Municipal Securities are
included in the definition of exempted
securities.13 Therefore, an index of
Municipal Securities that otherwise met
the requirements of Commentary .02 to
Rule 5.2–E(j)(3) would not be required
to satisfy any minimum issuer
diversification requirement.
Nonetheless, the Exchange proposes
that a Municipal Securities Index be
required to include securities from at
least 13 non-affiliated issuers. The
Exchange believes that requiring such
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6453
diversification will reduce the
likelihood that an index can be
manipulated by ensuring that securities
from a variety of issuers are represented
in an index of Municipal Securities.
Number of Components:
Existing Requirement for
Fixed-Income Securities:
Proposed Requirement for
Municipal Securities:
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Thirteen.
Five Hundred.
Sfmt 4703
index of fixed-income securities contain
at least thirteen component securities.
As described above, a fixed-income
index comprised entirely of exempted
securities (including Municipal
Securities) is not required to satisfy the
issuer diversification test, thereby
allowing it to have no minimum number
of component securities.
The Exchange proposes to require that
a Municipal Securities Index contain at
least 500 component securities. The
Exchange believes that such
requirement will ensure that a
Municipal Securities index is
sufficiently broad-based and diversified
to make it less susceptible to
manipulation.
The Exchange proposes that the
quantitative requirements described
above would apply to a Municipal
12 Rule 405 under the Securities Act of 1933
defines an affiliate as a person that directly, or
indirectly through one or more intermediaries,
controls or is controlled by, or is under common
control with such person. Control, for this purpose,
is the possession, direct or indirect, of the power
to direct or cause the direction of the management
and policies of a person, whether through the
ownership of voting securities, by contract, or
otherwise.
13 See Section 3(a)(12) of the Securities Exchange
Act of 1934.
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Securities index underlying a series of
Units on both an initial and continued
basis.
The Exchange proposes to amend
Commentary .03 to NYSE Arca Rule
5.2–E(j)(3) to specify that the Exchange
may approve a series of Units for listing
based on a combination of indexes,
including an index of Municipal
Securities. To the extent that an index
of Municipal Securities is included in a
combination, proposed Commentary .03
will specify that the Municipal
Securities index must meet all
requirements of Commentary .02A. In
addition, Commentary .03 will be
amended to specify that requirements
related to index dissemination and
related continued listing standards will
apply to indexes of Municipal
Securities. The Exchange notes that a
combination index that includes an
index of Municipal Securities will not
be permitted to seek to provide
investment results in a multiple of the
direct or inverse performance of such
combination index.
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Additional Requirements
In addition to the quantitative
requirements described above, the
Exchange proposes to adopt additional
rules related to (i) index methodology
and calculation, (ii) dissemination of
information, (iii) initial shares
outstanding, (iv) hours of trading, (v)
surveillance procedures, and (vi)
disclosures. Such additional
requirements are consistent with the
requirements applicable to Units based
on an index of U.S. equity securities,
global equity securities and fixedincome securities.
The Exchange proposes to adopt
Commentary .02A(b) to Rule 5.2–E(j)(3)
which will require that (i) if a Municipal
Securities index is maintained by a
broker-dealer or fund advisor, the
broker-dealer or fund advisor shall erect
and maintain a ‘‘firewall’’ around the
personnel who have access to
information concerning changes and
adjustments to the index; (ii) the current
index value for Units listed pursuant to
proposed Commentary .02A(a) will be
widely disseminated by one or more
major market data vendors at least once
per day and if the index value does not
change during some or all of the period
when trading is occurring on the NYSE
Arca Marketplace, the last official
calculated index value must remain
available throughout NYSE Arca
Marketplace trading hours; and (iii) any
advisory committee, supervisory board,
or similar entity that advises a Reporting
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17:07 Feb 26, 2019
Jkt 247001
Authority 14 or that makes decisions on
the index composition, methodology
and related matters, must implement
and maintain, or be subject to,
procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
applicable Municipal Securities index.
The Exchange proposes to adopt
Commentary .02A(c) which will require
that one or more major market data
vendors shall disseminate for each
series of Units based on an index or
portfolio of Municipal Securities an
estimate, updated at least every 15
seconds during the Core Trading
Session, of the value of a share of each
series (the ‘‘Intraday Indicative Value’’).
The Intraday Indicative Value may be
based, for example, upon current
information regarding the required
deposit of securities and cash amount to
permit creation of new shares of the
series or upon the index value. The
Intraday Indicative Value may be
calculated by the Exchange or by an
independent third party throughout the
day using prices obtained from
independent market data providers or
other independent pricing sources such
as a broker-dealer or price evaluation
services. If the Intraday Indicative Value
does not change during some or all of
the period when trading is occurring on
the Exchange, then the last official
calculated Intraday Indicative Value
must remain available throughout
Exchange trading hours.
The Exchange proposes to adopt
Commentary .02A(d) stating that a
minimum of 100,000 shares of a series
of Units will be required to be
outstanding at commencement of
trading.
The Exchange proposes to adopt
Commentary .02A(e) stating that the
hours of trading for the Units will be as
specified in NYSE Arca Rule 7.34–E(a).
The Exchange proposes to adopt
Commentary .02A(f) specifying that
Units that are listed or traded pursuant
to unlisted trading privileges will be
subject to the Exchange’s written
surveillance procedures.
Pursuant to NYSE Arca Rule 5.2–
E(j)(3)(A)(v), the Exchange will obtain a
representation from an issuer of Units
based on an index of Municipal
Securities that the net asset value per
share of the series will be calculated
daily and will be made available to all
market participants at the same time.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
14 The term ‘‘Reporting Authority’’ has the
meaning given to it in NYSE Arca Rule 5.1–E(b)(16).
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Fmt 4703
Sfmt 4703
under Section 6(b)(5) 15 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 Units listed
pursuant to proposed NYSE Arca Rule
5.2–E(j)(3), Commentary .02A will be
subject to the existing trading
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
applicable federal securities laws.
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in the Shares with other markets
that are members of the ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. FINRA also can access data
obtained from the MSRB relating to
municipal bond trading activity for
surveillance purposes in connection
with trading in the Shares. FINRA, on
behalf of the Exchange, is able to access,
as needed, trade information for certain
fixed income securities held by a Fund
reported to FINRA’s TRACE.
Pursuant to proposed Commentary
.02A(b), if the index is maintained by a
broker-dealer or fund advisor, the
broker-dealer or fund advisor shall erect
and maintain a ‘‘firewall’’ around the
personnel who have access to
information concerning changes and
adjustments to the index. Further, any
advisory committee, supervisory board,
or similar entity that advises a Reporting
Authority or that makes decisions on
the index composition, methodology
and related matters, must implement
and maintain, or be subject to,
procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
applicable index.
The index value of a series of Units
listed pursuant to proposed
Commentary .02A will be widely
disseminated by one or more major
market data vendors at least once per
day and if the index value does not
change during some or all of the period
15 15
E:\FR\FM\27FEN1.SGM
U.S.C. 78f(b)(5).
27FEN1
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Federal Register / Vol. 84, No. 39 / Wednesday, February 27, 2019 / Notices
when trading is occurring on the
Exchange, the last official calculated
index value must remain available
throughout Exchange trading hours. In
addition, the IIV for the Units will be
disseminated by one or more major
market data vendors, updated at least
every 15 seconds during the Exchange’s
Core Trading Session.
The Exchange believes that the
proposed listing standard will ensure
that indices underlying a series of Units
are sufficiently well-diversified to
protect against index manipulation. On
an initial and continuous basis, each
index will contain at least 500
component securities. In addition, on an
initial and continued basis, at least 90%
of the Municipal Securities portion of
the weight of the index or portfolio each
shall have a minimum original principal
amount outstanding of at least $5
million and have been issued as part of
a transaction of at least $20 million.
Further, on an initial and continued
basis, no component Municipal Security
shall represent more than 10% of the
Municipal Securities portion of the
weight of the index or portfolio, and the
five most heavily weighted component
Municipal Securities in an index or
portfolio shall not in the aggregate
account for more than 30% of the
Municipal Securities portion of the
weight of such index or portfolio.
Lastly, on an initial and continued
basis, an underlying index or portfolio
must include a minimum of 13 nonaffiliated issuers. The Exchange believes
that this significant diversification and
the lack of concentration among
constituent securities provides a strong
degree of protection against index
manipulation.
In addition, the Exchange represents
that Units listed to the proposed generic
listing rule will comply with all other
requirements applicable to Units
including, but not limited to, the
applicable rules governing the trading of
equity securities, trading hours, trading
halts, surveillance, information barriers
and the Information Bulletin to ETP
Holders, as set forth in Exchange rules
applicable to Units.
The Exchange believes that its
proposed amendments to Commentary
.03 are consistent with the Act because
any index of Municipal Securities
included in a combination index will be
required to meet the requirements of
proposed Commentary .02A. In
addition, such index will be required to
meet the index dissemination and
continued listing requirements of
Commentary .03. Lastly, a combination
index that includes an index of
Municipal Securities will not be
permitted to seek to provide investment
VerDate Sep<11>2014
17:07 Feb 26, 2019
Jkt 247001
results in a multiple of the direct or
inverse performance of such
combination index.
In support of its proposed rule
change, the Exchange notes that the
Commission has previously approved
the listing and trading of several series
of Units where the underlying
Municipal Securities index required
that component securities representing
at least 90% of the weight of the index
have a minimum original principal
amount outstanding of at least $5
million and have been issued as part of
a transaction of at least $20 million.16
Further, the Exchange notes that the
other elements of the proposed rule are
each the same or more restrictive than
the generic listing rules applicable to
Units based on an index of fixed-income
securities. The Exchange, therefore,
believes that indices underlying a series
of Units listed pursuant to the proposed
generic rules will be sufficiently broadbased to deter potential manipulation.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest. The Exchange believes
that a large amount of information will
be publicly available regarding Units
listed pursuant to the proposed rule,
thereby promoting market transparency.
As described above, the IIV will be
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Exchange’s Core
Trading Session. The current value of an
index underlying a series of Units will
be disseminated by one or more major
market data vendors at least once per
day. Information regarding market price
and trading volume of the Units will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services, and quotation and last sale
information will be available via the
CTA high-speed line. Prior to the
commencement of trading, the Exchange
will inform its ETP Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Units. If the Exchange
becomes aware that the NAV is not
being disseminated to all market
participants at the same time, it will halt
trading in the Units until such time as
the NAV is available to all market
participants. With respect to trading
halts, the Exchange may consider all
relevant factors in exercising its
discretion to halt or suspend trading in
the Units. Trading also may be halted
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Units
16 See
PO 00000
note 10[sic], infra [sic].
Frm 00102
Fmt 4703
Sfmt 4703
6455
inadvisable. If the IIV or the index
values are not being disseminated as
required, the Exchange may halt trading
during the day in which the
interruption to the dissemination of the
applicable IIV or an index value occurs.
If the interruption to the dissemination
of the applicable IIV or an index value
persists past the trading day in which it
occurred, the Exchange will halt
trading. Trading in Shares of the Funds
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 Units inadvisable. In addition,
investors will have ready access to
information regarding the IIV, and
quotation and last sale information for
the Units.
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 additional types of exchange-traded
products based on municipal bond
indexes that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
The Exchange has in place surveillance
procedures relating to trading in the
Units and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, investors will
have ready access to information
regarding the IIV and quotation and last
sale information for the Units. Trade
price and other information relating to
municipal bonds is available through
the MSRB’s EMMA system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that its
proposal would impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. The Exchange notes
that the proposed rule change will
facilitate the listing and trading of Units
based on an index of Municipal
Securities which 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.
E:\FR\FM\27FEN1.SGM
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Federal Register / Vol. 84, No. 39 / Wednesday, February 27, 2019 / Notices
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 up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2019–04 on the subject line.
amozie on DSK3GDR082PROD with NOTICES1
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–2019–04. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
VerDate Sep<11>2014
17:07 Feb 26, 2019
Jkt 247001
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–2019–04 and
should be submitted on or before March
20, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–03331 Filed 2–26–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–363, OMB Control No.
3235–0413]
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Extension:
Rule 17Ad–16
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) (‘‘PRA’’), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 17Ad–16 (17 CFR
240.17Ad–16) under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.). The Commission plans to submit
this existing collection of information to
the Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 17Ad–16 requires a registered
transfer agent to provide written notice
to the appropriate qualified registered
securities depository when assuming or
terminating transfer agent services on
behalf of an issuer or when changing its
name or address. In addition, transfer
agents that provide such notice shall
maintain such notice for a period of at
least two years in an easily accessible
place. This rule addresses the problem
of certificate transfer delays caused by
transfer requests that are directed to the
wrong transfer agent or the wrong
address.
17 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00103
Fmt 4703
Sfmt 4703
We estimate that the transfer agent
industry submits 11,006 Rule 17Ad–16
notices per year to appropriate qualified
registered securities depositories. The
staff estimates that the average amount
of time necessary to create and submit
each notice is approximately 15 minutes
per notice. Accordingly, the estimated
total industry burden is 2,752 hours per
year (15 minutes multiplied by 11,006
notices filed annually rounded up from
2,751.5 to 2,752).
Because the information needed by
transfer agents to properly notify the
appropriate registered securities
depository is readily available to them
and the report is simple and
straightforward, the cost is relatively
minimal. The average internal
compliance cost to prepare and send a
notice is approximately $70.75 (15
minutes at $283 per hour).1 This yields
an industry-wide internal compliance
cost estimate of $778,675 (11,006
notices multiplied by $70.75 per notice
rounded up from $778,674.5 to
$778,675).
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: Charles Riddle, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
1 The estimated hourly wages used in this
analysis were derived from reports prepared by the
Securities Industry and Financial Markets
Association. See Securities Industry and Financial
Markets Association, Office Salaries in the
Securities Industry—2013 (2013), modified to
account for an 1800-hour work year and multiplied
by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
E:\FR\FM\27FEN1.SGM
27FEN1
]]>Agencies
[Federal Register Volume 84, Number 39 (Wednesday, February 27, 2019)]
[Notices]
[Pages 6451-6456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03331]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85170; File No. SR-NYSEArca-2019-04]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Amending NYSE Arca Rule 5.2-E(j)(3) To Adopt
Generic Listing Standards for Investment Company Units Based on an
Index of Municipal Bond Securities
February 21, 2019.
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 February 8, 2019, 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 to amend NYSE Arca Rule 5.2-E(j)(3) (``Rule
5.2-E(j)(3)'') to adopt generic listing standards for Investment
Company Units (``Units'') based on an index of municipal bond
securities. 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
NYSE Arca Rule 5.2-E(j)(3) permits the Exchange to list a series of
Units based on an index or portfolio of underlying securities.
Currently, Rule 5.2-E(j)(3) includes generic listing standards for
Units based on an index or portfolio of equity or fixed income
securities or a combination thereof. The Exchange proposes to amend
Rule 5.2-E(j)(3) to add a new Commentary .02A to provide generic
listing standards for Units based on an index or portfolio of Municipal
Securities.\4\
---------------------------------------------------------------------------
\4\ The term ``Municipal Securities'' has the definition given
to it in Section 3(a)(29) of the Securities Exchange Act of 1934.
---------------------------------------------------------------------------
An index of Municipal Securities typically does not meet the
generic listing requirements for Units based on an index of fixed-
income securities.\5\ Nonetheless, the Commission has previously
approved proposed rule changes relating to listing and trading on the
Exchange of Units based on an index of Municipal Securities.\6\ Given
[[Page 6452]]
the large number of prior approvals by the Commission, the Exchange now
proposes to adopt generic listing standards for Units based on an index
of Municipal Securities that do not meet the generic listing standards
for Units based on an index of fixed-income securities.
---------------------------------------------------------------------------
\5\ See Commentary .02(a)(2) to NYSE Arca Rule 5.2-E(j)(3).
Municipal Securities are typically issued in with individual
maturities of relatively small size, although they generally are
constituents of a much larger municipal bond offering. Therefore, an
index of Municipal Securities will typically be unable to satisfy
the requirement that component fixed income securities that, in the
aggregate, account for at least 75% of the weight of the index each
shall have a minimum principal amount outstanding of $100 million or
more.
\6\ See Securities Exchange Act Release Nos. 67985 (October 4,
2012), 77 FR 61804 (October 11, 2012) (SR-NYSEArca-2012-92) (order
approving proposed rule change relating to the listing and trading
of iShares 2018 S&P AMT-Free Municipal Series and iShares 2019 S&P
AMT-Free Municipal Series under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02); 67729 (August 24, 2012), 77 FR 52776 (August 30,
2012) (SR-NYSEArca-2012-92) (notice of proposed rule change relating
to the listing and trading of iShares 2018 S&P AMT-Free Municipal
Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE
Arca Equities Rule 5.2(j)(3), Commentary .02); 72523, (July 2,
2014), 79 FR 39016 (July 9, 2014) (SR-NYSEArca-2014-37) (order
approving proposed rule change relating to the listing and trading
of iShares 2020 S&P AMT-Free Municipal Series under NYSE Arca
Equities Rule 5.2(j)(3), Commentary .02); 72172 (May 15, 2014), 79
FR 29241 (May 21, 2014) (SR-NYSEArca-2014-37) (notice of proposed
rule change relating to the listing and trading of iShares 2020 S&P
AMT-Free Municipal Series under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02); 72464 (June 25, 2014), 79 FR 37373 (July 1, 2014)
(File No. SR-NYSEArca-2014-45) (order approving proposed rule change
governing the continued listing and trading of shares of the
PowerShares Insured California Municipal Bond Portfolio, PowerShares
Insured National Municipal Bond Portfolio, and PowerShares Insured
New York Municipal Bond Portfolio); 75468 (July 16, 2015), 80 FR
43500 (July 22, 2015) (SR-NYSEArca-2015-25) (order approving
proposed rule change relating to the listing and trading of iShares
iBonds Dec 2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022
AMT-Free Muni Bond ETF under NYSE Arca Equities Rule 5.2(j)(3));
74730 (April 15, 2015), 76 FR 22234 (April 21, 2015) (notice of
proposed rule change relating to the listing and trading of iShares
iBonds Dec 2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022
AMT-Free Muni Bond ETF under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02); 74730 75376 (July 7, 2015), 80 FR 40113 (July 13,
2015) (SR-NYSEArca-2015-18) (order approving proposed rule change
relating to the listing and trading of Vanguard Tax-Exempt Bond
Index Fund under NYSE Arca Equities Rule 5.2(j)(3)).
---------------------------------------------------------------------------
In the Exchange's experience, indices of Municipal Securities are
able to satisfy all of the generic listing requirements applicable to
fixed-income indices contained in Commentary .02 to Rule 5.2-E(j)(3)
except the requirement that component securities in an index have a
minimum original principal amount outstanding. Specifically, Municipal
Securities are generally issued with individual maturities of
relatively small size, although they generally are constituents of a
much larger municipal bond offering. Therefore, Municipal Securities
are unable to satisfy the rule's requirement that ``at least 75% of the
Fixed Income Securities portion of the weight of the index or portfolio
each shall have a minimum original principal amount outstanding of $100
million or more.'' Notwithstanding the inability of a Municipal
Securities index to meet this aspect of the generic listing standards,
the Commission has previously approved for listing and trading a series
of Units based on such indices where the Exchange has demonstrated an
index is not susceptible to manipulation.\7\
---------------------------------------------------------------------------
\7\ See Footnote 5 [sic], supra.
---------------------------------------------------------------------------
The Exchange would apply existing Commentary .02 to Rule 5.2-
E(j)(3) and proposed Commentary .02A to Rule 5.2-E(j)(3) in a
``waterfall'' manner. Specifically, every series of Units based on an
index of fixed-income securities and cash (including an index that
contains Municipal Securities) would initially be evaluated against the
generic listing standards of existing Commentary .02 to Rule 5.2-
E(j)(3). If the index underlying a series of Units satisfied the
existing criteria of Commentary .02 to Rule 5.2-E(j)(3), the Exchange
would proceed with listing the Units. The Exchange would apply proposed
Commentary .02A to Rule 5.2-E(j)(3) only if (i) an index did not meet
the requirements of Commentary .02 to Rule 5.2-E(j)(3) and (ii) such
index contained only Municipal Securities and cash.
The Exchange believes that if an index of fixed-income securities
and cash (including one that contains Municipal Securities) satisfies
the existing requirements of Commentary .02 to Rule 5.2-E(j)(3) its
constituent securities are sufficiently liquid to deter manipulation of
the index. Further, the proposed alternative listing standard, which
would only be applicable to an index consisting entirely of Municipal
Securities and cash, includes many requirements that are more stringent
than those applicable to an index of fixed-income securities and cash.
The Exchange believes these heightened requirements would deter
potential manipulation of such Municipal Securities indices even though
the index may include securities that have smaller original principal
amounts outstanding.
Comparison of Existing Quantitative Requirements for Fixed-Income
Indices vs. Proposed Quantitative Requirements for Municipal Securities
Indices
Below is a comparison of the existing quantitative requirements for
Units based on an index of fixed-income securities versus the
Exchange's proposed alternative quantitative requirements for Units
based on an index of Municipal Securities:
Original Principal Amount Outstanding:
------------------------------------------------------------------------
------------------------------------------------------------------------
Existing Requirement for Fixed-Income Fixed Income Security
Securities: components that in
aggregate account for at
least 75% of the Fixed
Income Securities portion
of the weight of the index
or portfolio each shall
have a minimum original
principal amount
outstanding of $100 million
or more.
Proposed Requirement for Municipal Municipal Security
Securities: components that in
aggregate account for at
least 90% of the Municipal
Securities portion of the
weight of the index or
portfolio each shall have a
minimum original principal
amount outstanding of at
least $5 million and have
been issued as part of a
transaction of at least $20
million.
------------------------------------------------------------------------
As discussed above, Municipal Securities are typically issued with
individual maturities of relatively small size, although they generally
are constituents of a much larger municipal bond offering. In
recognition of these smaller offering sizes, the Exchange proposes to
reduce the minimum original principal amount outstanding requirement
for component securities to at least $5 million. Further, the Exchange
proposes that qualifying securities must have been issued as part of a
transaction of at least $20 million. Lastly, the Exchange proposes to
increase the percentage weight of an index that must satisfy the
original principal amount outstanding requirement from 75% to 90%.
The Exchange does not believe that reducing the minimum original
principal amount outstanding requirement for component securities will
make an index more susceptible to manipulation. The Exchange believes
that the requirement that component securities in a fixed-income index
have a minimum principal amount outstanding, in concert with the other
requirements of Commentary .02 to Rule 5.2-E(j)(3), is to ensure that
such index is sufficiently broad-based in scope as to minimize
potential manipulation of the index.\8\ However, based on empirical
analysis, the Exchange does not believe that an index of Municipal
Securities with lower original principal amounts outstanding is
necessarily more susceptible to manipulation.\9\ In 2016, Blackrock,
Inc. analyzed the potential manipulation of Municipal Securities and
found that such manipulation ``may be uneconomical and is unsupported
in
[[Page 6453]]
practice.'' \10\ In addition, the Exchange believes that its proposal
to require that 90% of the weight of a Municipal Securities Index meet
the original principal amount outstanding requirement (as opposed to
75% for fixed-income indices) will further deter potential manipulation
by ensuring that a greater portion of the index meet this minimum size
requirement.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 55783 (May 17,
2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order
approving the adoption of generic listing standards for Units based
on an index of fixed-income securities) at pg. 19-20.
\9\ See Letter from Samara Cohen, Managing Director, U.S. Head
of iShares Capital Markets, Joanne Medero, Managing Director,
Government Relations & Public Policy, and Deepa Damre, Managing
Director, Legal & Compliance, BlackRock, Inc., to Brent J. Fields,
Secretary, Commission, dated October 18, 2017 in support of the
Exchange's proposal to facilitate the listing and trading of certain
series of Units listed pursuant to NYSE Arca Rule 5.2-E(j)(3) (SR-
NYSEArca-2017-56).
\10\ See Id. at 3 and accompanying Footnote 11. Blackrock stated
``Our empirical analysis indicated that: (1) Given the over-the-
counter dealer-centric market for municipal bonds, the bid-ask
spread decreases with trade size; therefore, trading many small lots
to move matrix prices is likely to be costly; (2) large trades move
prices significantly and this effect is incorporated into prices
quickly; for manipulation to work by affecting bond prices, the
trades must be large, implying greater dollar cost and more
likelihood of detection even if markets were segmented; (3) while
pricing agents apply matrix pricing techniques to value non-traded
bonds, the effect is likely too small to permit price manipulation
of the corresponding index or ETF; and (4) market participants will
use all intraday data to come up with their own valuations
independently of pricing providers; ultimately, the price of an ETF
at a point in time reflects these estimates in a manner that
balances supply and demand.''
---------------------------------------------------------------------------
The Exchange notes that the Commission has previously approved the
listing and trading of several series of Units where the underlying
Municipal Securities index required that component securities
representing at least 90% of the weight of the index have a minimum
original principal amount outstanding of at least $5 million and have
been issued as part of a transaction of at least $20 million.\11\
---------------------------------------------------------------------------
\11\ See Securities Exchange Act Release No. 84049 (September 6,
2018), 83 FR 46228 (September 12, 2012) (SR-NYSEArca-2018-38) (order
approving, among other things, revisions to the continued listing
criteria applicable to the iShares New York AMT-Free Muni Bond ETF).
---------------------------------------------------------------------------
Maximum Weight of Component Securities:
------------------------------------------------------------------------
------------------------------------------------------------------------
Existing Requirement for No component fixed-income security
Fixed-Income Securities: (excluding Treasury Securities and GSE
Securities) shall represent more than
30% of the Fixed Income Securities
portion of the weight of the index or
portfolio, and the five most heavily
weighted component fixed-income
securities in the index or portfolio
shall not in the aggregate account for
more than 65% of the Fixed Income
Securities portion of the weight of the
index or portfolio.
Proposed Requirement for No component Municipal Security shall
Municipal Securities: represent more than 10% of the Municipal
Securities portion of the weight of the
index or portfolio, and the five most
heavily weighted component Municipal
Securities in the index or portfolio
shall not in the aggregate account for
more than 30% of the Municipal
Securities portion of the weight of the
index or portfolio.
------------------------------------------------------------------------
The Exchange proposes to substantially reduce the maximum weight
that any individual Municipal Security, or group of five Municipal
Securities, can have in a Municipal Securities index. The current
generic listing rules for Units based on a fixed-income index permit
individual component securities to account for up to 30% of the weight
of such index and the top-five weighted component securities to account
for up to 65% of the weight of such index. The Exchange proposes to
reduce these metrics to 10% for individual Municipal Securities and 30%
for the top-weighted Municipal Securities in an index.
The Exchange believes that its proposal will reduce the likelihood
that a Municipal Securities index underlying a series of Units could be
subject to manipulation by ensuring that no individual Municipal
Security, or group of five Municipal Securities, represents an outsized
weight of a Municipal Securities index.
Diversification of Issuers:
------------------------------------------------------------------------
------------------------------------------------------------------------
Existing Requirement for An underlying index or portfolio
Fixed-Income Securities: (excluding one consisting entirely of
exempted securities) must include a
minimum of 13 non-affiliated issuers.
Proposed Requirement for An underlying index or portfolio must
Municipal Securities: include a minimum of 13 non-affiliated
issuers.
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The current generic listing rules for Units based on an index of
fixed-income securities require that such index must include securities
from at least thirteen non-affiliated \12\ issuers. Notably, the
current rules exempt indices consisting entirely of exempted securities
from complying with this diversification requirement. Municipal
Securities are included in the definition of exempted securities.\13\
Therefore, an index of Municipal Securities that otherwise met the
requirements of Commentary .02 to Rule 5.2-E(j)(3) would not be
required to satisfy any minimum issuer diversification requirement.
Nonetheless, the Exchange proposes that a Municipal Securities Index be
required to include securities from at least 13 non-affiliated issuers.
The Exchange believes that requiring such diversification will reduce
the likelihood that an index can be manipulated by ensuring that
securities from a variety of issuers are represented in an index of
Municipal Securities.
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\12\ Rule 405 under the Securities Act of 1933 defines an
affiliate as a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under
common control with such person. Control, for this purpose, is the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or
otherwise.
\13\ See Section 3(a)(12) of the Securities Exchange Act of
1934.
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Number of Components:
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Existing Requirement for Fixed-Income Thirteen.
Securities:
Proposed Requirement for Municipal Five Hundred.
Securities:
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The current generic listing rules for Units based on an index of
fixed-income securities do not have an explicit requirement that an
index contain a minimum number of securities. However, given that such
rules require an index to contain securities from at least thirteen
non-affiliated issuers, there is a de facto requirement that an index
of fixed-income securities contain at least thirteen component
securities. As described above, a fixed-income index comprised entirely
of exempted securities (including Municipal Securities) is not required
to satisfy the issuer diversification test, thereby allowing it to have
no minimum number of component securities.
The Exchange proposes to require that a Municipal Securities Index
contain at least 500 component securities. The Exchange believes that
such requirement will ensure that a Municipal Securities index is
sufficiently broad-based and diversified to make it less susceptible to
manipulation.
The Exchange proposes that the quantitative requirements described
above would apply to a Municipal
[[Page 6454]]
Securities index underlying a series of Units on both an initial and
continued basis.
The Exchange proposes to amend Commentary .03 to NYSE Arca Rule
5.2-E(j)(3) to specify that the Exchange may approve a series of Units
for listing based on a combination of indexes, including an index of
Municipal Securities. To the extent that an index of Municipal
Securities is included in a combination, proposed Commentary .03 will
specify that the Municipal Securities index must meet all requirements
of Commentary .02A. In addition, Commentary .03 will be amended to
specify that requirements related to index dissemination and related
continued listing standards will apply to indexes of Municipal
Securities. The Exchange notes that a combination index that includes
an index of Municipal Securities will not be permitted to seek to
provide investment results in a multiple of the direct or inverse
performance of such combination index.
Additional Requirements
In addition to the quantitative requirements described above, the
Exchange proposes to adopt additional rules related to (i) index
methodology and calculation, (ii) dissemination of information, (iii)
initial shares outstanding, (iv) hours of trading, (v) surveillance
procedures, and (vi) disclosures. Such additional requirements are
consistent with the requirements applicable to Units based on an index
of U.S. equity securities, global equity securities and fixed-income
securities.
The Exchange proposes to adopt Commentary .02A(b) to Rule 5.2-
E(j)(3) which will require that (i) if a Municipal Securities index is
maintained by a broker-dealer or fund advisor, the broker-dealer or
fund advisor shall erect and maintain a ``firewall'' around the
personnel who have access to information concerning changes and
adjustments to the index; (ii) the current index value for Units listed
pursuant to proposed Commentary .02A(a) will be widely disseminated by
one or more major market data vendors at least once per day and if the
index value does not change during some or all of the period when
trading is occurring on the NYSE Arca Marketplace, the last official
calculated index value must remain available throughout NYSE Arca
Marketplace trading hours; and (iii) any advisory committee,
supervisory board, or similar entity that advises a Reporting Authority
\14\ or that makes decisions on the index composition, methodology and
related matters, must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material
non-public information regarding the applicable Municipal Securities
index.
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\14\ The term ``Reporting Authority'' has the meaning given to
it in NYSE Arca Rule 5.1-E(b)(16).
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The Exchange proposes to adopt Commentary .02A(c) which will
require that one or more major market data vendors shall disseminate
for each series of Units based on an index or portfolio of Municipal
Securities an estimate, updated at least every 15 seconds during the
Core Trading Session, of the value of a share of each series (the
``Intraday Indicative Value''). The Intraday Indicative Value may be
based, for example, upon current information regarding the required
deposit of securities and cash amount to permit creation of new shares
of the series or upon the index value. The Intraday Indicative Value
may be calculated by the Exchange or by an independent third party
throughout the day using prices obtained from independent market data
providers or other independent pricing sources such as a broker-dealer
or price evaluation services. If the Intraday Indicative Value does not
change during some or all of the period when trading is occurring on
the Exchange, then the last official calculated Intraday Indicative
Value must remain available throughout Exchange trading hours.
The Exchange proposes to adopt Commentary .02A(d) stating that a
minimum of 100,000 shares of a series of Units will be required to be
outstanding at commencement of trading.
The Exchange proposes to adopt Commentary .02A(e) stating that the
hours of trading for the Units will be as specified in NYSE Arca Rule
7.34-E(a).
The Exchange proposes to adopt Commentary .02A(f) specifying that
Units that are listed or traded pursuant to unlisted trading privileges
will be subject to the Exchange's written surveillance procedures.
Pursuant to NYSE Arca Rule 5.2-E(j)(3)(A)(v), the Exchange will
obtain a representation from an issuer of Units based on an index of
Municipal Securities that the net asset value per share of the series
will be calculated daily and will be made available to all market
participants at the same time.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \15\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\15\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that Units
listed pursuant to proposed NYSE Arca Rule 5.2-E(j)(3), Commentary .02A
will be subject to the existing trading 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 applicable federal
securities laws. FINRA, on behalf of the Exchange, will communicate as
needed regarding trading in the Shares with other markets that are
members of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. FINRA also can access
data obtained from the MSRB relating to municipal bond trading activity
for surveillance purposes in connection with trading in the Shares.
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by a Fund reported
to FINRA's TRACE.
Pursuant to proposed Commentary .02A(b), if the index is maintained
by a broker-dealer or fund advisor, the broker-dealer or fund advisor
shall erect and maintain a ``firewall'' around the personnel who have
access to information concerning changes and adjustments to the index.
Further, any advisory committee, supervisory board, or similar entity
that advises a Reporting Authority or that makes decisions on the index
composition, methodology and related matters, must implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the
applicable index.
The index value of a series of Units listed pursuant to proposed
Commentary .02A will be widely disseminated by one or more major market
data vendors at least once per day and if the index value does not
change during some or all of the period
[[Page 6455]]
when trading is occurring on the Exchange, the last official calculated
index value must remain available throughout Exchange trading hours. In
addition, the IIV for the Units will be disseminated by one or more
major market data vendors, updated at least every 15 seconds during the
Exchange's Core Trading Session.
The Exchange believes that the proposed listing standard will
ensure that indices underlying a series of Units are sufficiently well-
diversified to protect against index manipulation. On an initial and
continuous basis, each index will contain at least 500 component
securities. In addition, on an initial and continued basis, at least
90% of the Municipal Securities portion of the weight of the index or
portfolio each shall have a minimum original principal amount
outstanding of at least $5 million and have been issued as part of a
transaction of at least $20 million. Further, on an initial and
continued basis, no component Municipal Security shall represent more
than 10% of the Municipal Securities portion of the weight of the index
or portfolio, and the five most heavily weighted component Municipal
Securities in an index or portfolio shall not in the aggregate account
for more than 30% of the Municipal Securities portion of the weight of
such index or portfolio. Lastly, on an initial and continued basis, an
underlying index or portfolio must include a minimum of 13 non-
affiliated issuers. The Exchange believes that this significant
diversification and the lack of concentration among constituent
securities provides a strong degree of protection against index
manipulation.
In addition, the Exchange represents that Units listed to the
proposed generic listing rule will comply with all other requirements
applicable to Units including, but not limited to, the applicable rules
governing the trading of equity securities, trading hours, trading
halts, surveillance, information barriers and the Information Bulletin
to ETP Holders, as set forth in Exchange rules applicable to Units.
The Exchange believes that its proposed amendments to Commentary
.03 are consistent with the Act because any index of Municipal
Securities included in a combination index will be required to meet the
requirements of proposed Commentary .02A. In addition, such index will
be required to meet the index dissemination and continued listing
requirements of Commentary .03. Lastly, a combination index that
includes an index of Municipal Securities will not be permitted to seek
to provide investment results in a multiple of the direct or inverse
performance of such combination index.
In support of its proposed rule change, the Exchange notes that the
Commission has previously approved the listing and trading of several
series of Units where the underlying Municipal Securities index
required that component securities representing at least 90% of the
weight of the index have a minimum original principal amount
outstanding of at least $5 million and have been issued as part of a
transaction of at least $20 million.\16\ Further, the Exchange notes
that the other elements of the proposed rule are each the same or more
restrictive than the generic listing rules applicable to Units based on
an index of fixed-income securities. The Exchange, therefore, believes
that indices underlying a series of Units listed pursuant to the
proposed generic rules will be sufficiently broad-based to deter
potential manipulation.
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\16\ See note 10[sic], infra [sic].
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The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest.
The Exchange believes that a large amount of information will be
publicly available regarding Units listed pursuant to the proposed
rule, thereby promoting market transparency. As described above, the
IIV will be widely disseminated by one or more major market data
vendors at least every 15 seconds during the Exchange's Core Trading
Session. The current value of an index underlying a series of Units
will be disseminated by one or more major market data vendors at least
once per day. Information regarding market price and trading volume of
the Units will be continually available on a real-time basis throughout
the day on brokers' computer screens and other electronic services, and
quotation and last sale information will be available via the CTA high-
speed line. Prior to the commencement of trading, the Exchange will
inform its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Units. If the
Exchange becomes aware that the NAV is not being disseminated to all
market participants at the same time, it will halt trading in the Units
until such time as the NAV is available to all market participants.
With respect to trading halts, the Exchange may consider all relevant
factors in exercising its discretion to halt or suspend trading in the
Units. Trading also may be halted because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Units
inadvisable. If the IIV or the index values are not being disseminated
as required, the Exchange may halt trading during the day in which the
interruption to the dissemination of the applicable IIV or an index
value occurs. If the interruption to the dissemination of the
applicable IIV or an index value persists past the trading day in which
it occurred, the Exchange will halt trading. Trading in Shares of the
Funds 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 Units
inadvisable. In addition, investors will have ready access to
information regarding the IIV, and quotation and last sale information
for the Units.
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
additional types of exchange-traded products based on municipal bond
indexes that will enhance competition among market participants, to the
benefit of investors and the marketplace. The Exchange has in place
surveillance procedures relating to trading in the Units and may obtain
information via ISG from other exchanges that are members of ISG or
with which the Exchange has entered into a comprehensive surveillance
sharing agreement. In addition, investors will have ready access to
information regarding the IIV and quotation and last sale information
for the Units. Trade price and other information relating to municipal
bonds is available through the MSRB's EMMA system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that its proposal would impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of Units
based on an index of Municipal Securities which 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.
[[Page 6456]]
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 up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2019-04 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-2019-04. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2019-04 and should be submitted
on or before March 20, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03331 Filed 2-26-19; 8:45 am]
BILLING CODE 8011-01-P
