Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the Virtus WMC Risk-Managed Alternative Equity ETF, 19141-19148 [2019-09145]
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Federal Register / Vol. 84, No. 86 / Friday, May 3, 2019 / Notices
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–
Phlx–2019–17 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.
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All submissions should refer to File
Number SR–Phlx–2019–17. 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
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Washington, DC 20549, on official
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10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
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received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
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comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–Phlx–2019–17 and should
be submitted on or before June 3, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–09019 Filed 5–2–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85751; File No. SR–
NYSEArca–2019–28]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the Virtus WMC Risk-Managed
Alternative Equity ETF
April 30, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on April 15,
2019, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the Virtus WMC RiskManaged Alternative Equity ETF under
NYSE Arca Rule 8.600–E. The proposed
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the Virtus
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
29 17
CFR 200.30–3(a)(12).
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19141
WMC Risk-Managed Alternative Equity
ETF (the ‘‘Fund’’) under NYSE Arca
Rule 8.600–E, which provides generic
criteria applicable to the listing and
trading of Managed Fund Shares on the
Exchange.4
The Fund is a series of ETFis Series
I (‘‘Trust’’). Virtus ETF Advisors LLC
(the ‘‘Adviser’’) is the investment
adviser for the Fund. Wellington
Management Company LLP is the subadviser to the Fund (the ‘‘SubAdviser’’). The Trust and the Adviser
have engaged the Sub-Adviser to
manage the Fund’s investments, subject
to the oversight and supervision of the
Adviser and the Board of Trustees of the
Trust.5 ETF Distributors LLC
(‘‘Distributor’’), a registered brokerdealer, will act as the distributor for the
Fund’s Shares. The Bank of New York
Mellon (‘‘BNY Mellon’’) will serve as
the custodian, administrator and
transfer agent (‘‘Transfer Agent’’) for the
Fund.
Commentary .06 to Rule 8.600–E
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect and maintain a ‘‘fire wall’’
between the investment adviser and the
broker-dealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. 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 non-public information
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (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.
5 The Trust is registered under the 1940 Act. On
February 28, 2019, the Trust filed with the
Commission Post-Effective Amendment No. 155 to
the Trust’s registration statement on Form N–1A
under the Securities Act of 1933 (15 U.S.C. 77a)
(‘‘Securities Act’’), and under the 1940 Act relating
to the Fund (File Nos. 333–187668 and 811–22819)
(‘‘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. 30607
(July 23, 2013) (File No. 812–14080).
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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 Sub-Adviser are
not registered as broker-dealers. The
Adviser and Sub-Adviser are affiliated
with one or more broker-dealers and
have implemented and will maintain a
‘‘fire wall’’ with respect to each 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 brokerdealer or newly affiliated with a brokerdealer, or (b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with a broker-dealer,
it will implement and maintain a ‘‘fire
wall’’ with respect to 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.
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Virtus WMC Risk-Managed Alternative
Equity ETF
Principal Investments
According to the Registration
Statement, the investment objective of
the Fund is to seek to provide superior
risk-adjusted total returns over the long
term. The Fund will seek to achieve its
investment objective, under normal
market conditions,6 by (i) investing in a
broadly diversified portfolio of global
equity securities in both developed and
emerging markets, and (ii)
implementing a beta management
strategy by shorting futures contracts
and purchasing and selling options, as
further described below. By combining
these two strategies, the Sub-Adviser
seeks to generate superior total returns
(i.e., returns in excess of the average
returns of broad global equity market
indexes) over a full market cycle with
significant downside equity market
protection (i.e., protection intended to
limit losses in a declining market),
consistent with the risk/return profile of
investments in long/short equity (also
referred to as alternative equity) hedge
6 The term ‘‘normal market conditions’’ is defined
in NYSE Arca Rule 8.600–E(c)(5).
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funds. Although the Sub-Adviser will
seek for the Fund’s risk/return profile to
be consistent with investments in long/
short equity hedge funds, the Fund itself
does not invest in hedge funds. Under
normal market conditions, the Fund
will invest at least 80% of its net assets
(plus any borrowings for investment
purposes) in equity securities (as
discussed below), in derivatives,7 cash
and cash equivalents and other
instruments (as discussed below), that
have economic characteristics similar to
such investments (together, the
‘‘Principal Investments’’).
The Fund will invest in the following
U.S. and non-U.S. exchange-listed
equity securities of U.S. and non-U.S.
issuers: Common stock; preferred stock;
convertible preferred stock; rights;
warrants; American Depositary Receipts
(‘‘ADRs’’) and Global Depositary
Receipts (‘‘GDRs’’); and real estate
investment trusts (‘‘REITs’’) of U.S. and
foreign issuers.
The Fund may hold cash and cash
equivalents.8
The Fund may hold U.S. and non-U.S.
exchange-traded futures and options on
equity securities, equity securities
indices, and interest rates. Options held
by the Fund may be either exchangelisted or traded over-the-counter
(‘‘OTC’’).
The Fund may invest in forward
foreign currency contracts and U.S. and
non-U.S. exchange-traded foreign
currency futures contracts.
The Fund may enter into short sales
of any securities and financial
instruments in which the Fund may
invest.
The Fund may use derivative
instruments described above as a
substitute for investing directly in an
underlying security or other financial
instrument, to seek to enhance returns,
to seek to manage or reduce exposure/
risk, or to seek to manage foreign
currency risk.
Non-Principal Investments
While the Fund, under normal market
conditions, will invest at least 80% in
the securities and financial instruments
described above, the Fund may invest
its remaining assets in the securities and
financial instruments described below.
The Fund may invest in exchangetraded funds (‘‘ETFs’’).9
7 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.
8 The term ‘‘cash equivalents’’ is defined in
Commentary .01(c) to NYSE Arca Rule 8.600–E.
9 For purposes of this filing, the term ‘‘ETFs’’
includes Investment Company Units (as described
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The Fund may invest in convertible
bonds.
In addition to U.S. government
securities that are cash equivalents as
defined in Commentary .01(c) to NYSE
Arca Rule 8.600–E, the Fund may invest
in other U.S. government securities,
which are U.S. government obligations
such as U.S. Treasury notes, U.S.
Treasury bonds, and U.S. Treasury bills,
obligations guaranteed by the U.S.
government.
The Fund will not invest in securities
or other financial instruments that have
not been described in this proposed rule
change.
Use of Derivatives by the Fund
Investments in derivative instruments
will be made in accordance with the
1940 Act and 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’’) and in
accordance with the 1940 Act or as
permitted by applicable Commission
guidance. These procedures have been
adopted consistent with Section 18 of
the 1940 Act and related Commission
guidance. 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.
Other Restrictions
The Fund’s investments, including
derivatives, will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage
(although certain derivatives and other
investments may result in leverage).
That is, the Fund’s investments will not
be used to seek performance that is the
multiple or inverse multiple (e.g., 2X or
–3X) of the Fund’s primary broad-based
securities benchmark index (as defined
in Form N–1A).10
in NYSE Arca Rule 5.2–E(j)(3)); Portfolio Depositary
Receipts (as described in NYSE Arca Rule 8.100–
E); and Managed Fund Shares (as described in
NYSE Arca Rule 8.600–E). All ETFs will be listed
and traded in the U.S. on a national securities
exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g.,
2X, –2X, 3X or –3X) ETFs.
10 The Fund’s broad-based securities benchmark
index will be identified in a future amendment to
the Registration Statement following the Fund’s
first full calendar year of performance.
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Impact on Arbitrage Mechanism
The Adviser and the Sub-Adviser
believe there will be minimal, if any,
impact to the arbitrage mechanism as a
result of the Fund’s use of derivatives.
The Adviser and the Sub-Adviser
understand that market makers and
participants should be able to value
derivatives as long as the positions are
disclosed with relevant information.
The Adviser and the Sub-Adviser
believe that the price at which Shares of
the Fund trade will continue to be
disciplined by arbitrage opportunities
created by the ability to purchase or
redeem Shares of the Fund at their net
asset value (‘‘NAV’’), which should
ensure that Shares of the Fund will not
trade at a material discount or premium
in relation to their NAV.
Creation of Creation Units
The Trust issues and sells Shares of
the Fund only in aggregations of 50,000
Shares (each aggregation is called a
‘‘Creation Unit’’) on a continuous basis
through the Distributor at the NAV next
determined after receipt of an order in
proper form on any Business Day.11 The
size of a Creation Unit is subject to
change.
The consideration for a purchase of
Creation Units generally will consist of
cash or an in-kind deposit of a portfolio
of securities and other investments (the
‘‘Deposit Securities’’) for each Creation
Unit constituting a substantial
replication, or a representation, of the
securities included in the Fund’s
portfolio and an amount of cash
computed as described below (the
‘‘Cash Amount’’). The Cash Amount
together with the Deposit Securities, as
applicable, are referred to as the ‘‘Fund
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 Securities,
and serves to compensate for any
differences between the NAV per
Creation Unit and the Deposit Amount.
The Fund, 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 Security to
11 A ‘‘Business Day’’ with respect to the Fund is
any day on which the Exchange is open for
business.
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be included in the current Fund Deposit
(based on information at the end of the
previous Business Day) for the Fund.
Such Fund 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
composition of the Deposit Securities is
made available.
All orders to create Creation Units
generally must be received by the
Distributor no later than 3:00 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 permit the substitution of an
amount of cash (i.e., a ‘‘cash in lieu’’
amount) to be added to the Cash
Component to replace any Deposit
Security which may, among other
reasons, not be available in sufficient
quantity for delivery, 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
the clearing process through the
Continuous Net Settlement System of
the NSCC (the ‘‘Clearing Process’’); or
(2) a Depository Trust Company
(‘‘DTC’’) Participant; which, in either
case, must have executed an agreement
with the Trust, the Distributor and the
Transfer Agent (‘‘Participant
Agreement’’). A Participating Party and
DTC Participant are collectively referred
to as an ‘‘Authorized Participant.’’
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 the
Distributor and only on a Business Day.
The Trust, through NSCC, makes
available immediately prior to the
opening of business on the Exchange
(9:30 a.m. E.T.) on each Business Day,
the Deposit Securities 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 Securities 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
Deposit Securities as announced by the
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19143
Trust 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
Deposit Securities, less the redemption
transaction fee.
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
received by the Trust not later than 3:00
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 3:00 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
portfolio for the Fund will not meet all
of the ‘‘generic’’ listing requirements of
Commentary .01 to NYSE Arca Rule
8.600–E applicable to the listing of
Managed Fund Shares. The Fund’s
portfolio will meet all such
requirements except for those set forth
in Commentary .01(e), as described
below.
The Fund will not comply with the
requirements set forth in Commentary
.01(e) to NYSE Arca Rule 8.600–E with
respect to the Fund’s investments in
OTC derivatives.12 Specifically, the
aggregate gross notional value of the
Fund’s investments in OTC derivatives
may exceed 20% of Fund assets,
calculated as the aggregate gross
notional value of such OTC
derivatives.13 The Exchange proposes
that up to 50% of the Fund’s assets
(calculated as the aggregate gross
notional value) may be invested in OTC
12 Commentary .01(e) to NYSE Arca Rule 8.600–
E provides that a portfolio may hold OTC
derivatives, including forwards, options and swaps
on commodities, currencies and financial
instruments (e.g., stocks, fixed income, interest
rates, and volatility) or a basket or index of any of
the foregoing; however, on both an initial and
continuing basis, no more than 20% of the assets
in the portfolio may be invested in OTC derivatives.
For purposes of calculating this limitation, a
portfolio’s investment in OTC derivatives will be
calculated as the aggregate gross notional value of
the OTC derivatives.
13 The Adviser and Sub-Adviser monitor
counterparty credit risk exposure (including for
OTC derivatives) and evaluate counterparty credit
quality on a continuous basis.
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derivatives, that is, forwards and OTC
options, that are used to reduce
currency, interest rate or credit risk
arising from the Fund’s investments
(that is, ‘‘hedge’’). The Fund’s
investments in OTC derivatives, other
than OTC derivatives used to hedge the
Fund’s portfolio against currency,
interest rate, or credit risk, will be
limited to 20% of the assets in the
Fund’s portfolio, calculated as the
aggregate gross notional value of such
OTC derivatives.
The Adviser and Sub-Adviser believe
that it is important to provide the Fund
with additional flexibility to manage
risk associated with its investments.
Depending on market conditions, it may
be critical that the Fund be able to
utilize available OTC derivatives for this
purpose to attempt to reduce impact of
currency, interest rate, or credit
fluctuations on Fund assets. OTC
derivatives provide the Fund with
additional flexibility as well as a more
precise means to effectively attempt to
reduce currency, interest rate, or credit
fluctuations on Fund assets. Generally,
OTC derivatives can be customized to a
greater degree than exchange-traded
derivatives and can provide a better
hedge on Fund assets, as well as allow
for more control over the duration of the
hedge which can also mitigate trading
costs. Therefore, in addition to the
Fund’s ability to invest 20% of the
assets in the Fund’s portfolio in OTC
derivatives pursuant to NYSE Arca Rule
8.600–E, Commentary .01(e), the
Exchange believes it is appropriate to
apply a limit of up to 50% of the Fund’s
assets to the Fund’s investments in OTC
derivatives (calculated as the aggregate
gross notional value of such OTC
derivatives), including forwards and
options, that are used for hedging
purposes, as described above.14
14 The Commission has previously approved an
exception from requirements set forth in
Commentary .01(e) relating to investments in OTC
derivatives similar to those proposed with respect
to the Fund in Securities Exchange Act Release Nos.
80657 (May 11, 2017), 82 FR 22702 (May 17, 2017)
(SR–NYSEArca–2017–09) (Notice of Filing of
Amendment No. 2 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 2, Regarding Investments of the
Janus Short Duration Income ETF Listed Under
NYSE Arca Equities Rule 8.600). See also,
Securities Exchange Act Release Nos. 84047
(September 6, 2018), 83 FR 46200 (September 12,
2018) (SR–NASDAQ–2017–128) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, to List and Trade Shares of
the Western Asset Total Return ETF), in which the
Nasdaq Stock Market LLC proposed that there
would be no limit on the fund’s investments in
Interest Rate and Currency Derivatives, and that the
aggregate weight of all OTC Derivatives other than
Interest Rate and Currency Derivatives will not
exceed 10% of the fund’s assets); 84818 (December
13, 2018), 83 FR 65189 (December 19, 2018) (SR–
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The Adviser and Sub-Adviser
represent that deviations from the
generic requirements are necessary for
the Fund to achieve its investment
objective in a manner that is costeffective and that maximizes investors’
returns because OTC derivatives
generally provide the Fund with more
flexibility to negotiate the exact
exposure that the Fund requires, and
minimize trading costs because OTC
derivatives are not subject to costs of
rolling that are associated with listed
derivatives.
The Adviser and Sub-Adviser
represent that they intend to engage in
strategies that utilize foreign currency
forward transactions (which may be
traded OTC) and OTC options, as
described above, based on its
investment strategies. Depending on
market conditions, the exposure due to
these strategies may exceed 20% of the
Fund’s assets. The Adviser represents
further that the foreign exchange
forward market is OTC, and, as such, it
is not possible to implement these
strategies efficiently using listed
derivatives. In addition, use of OTC
options on U.S. and non-U.S. exchangelisted equity securities may be an
important means to reduce risk in the
Fund’s equity investments, or,
depending on market conditions, to
enhance returns of such investments. If
the Fund were limited to investing up
to 20% of assets in OTC derivatives, the
Fund would have to exclude or
underweight these strategies and would
be less diversified, concentrating risk in
the other strategies it will utilize.
In addition, by applying the 20%
limitation in Commentary .01(e) to Rule
8.600–E, the Fund would be less able to
protect its holdings from more than one
risk simultaneously. For example, if the
Fund’s assets (on a gross notional basis)
were $100 million and the Fund held
$20 million in Principal Investments
with two types of risks (e.g., currency
and credit risk) which could not be
hedged using listed derivatives, the
Fund would be faced with the choice of
either holding $20 million aggregate
gross notional value in OTC derivatives
to mitigate one of the risks while
passing the other risk to its
shareholders, or, for example, holding
$10 million aggregate gross notional
value in OTC derivatives on each of the
NYSEArca–2018–75) (Order Approving a Proposed
Rule Change, as Modified by Amendment No. 1
Thereto, Regarding the Listing and Trading of
Shares of the PGIM Ultra Short Bond ETF), note 13;
85022 (January 31, 2019), 84 FR 2265 (February 6,
2019) (SR–Nasdaq–2018–080) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change to List and
Trade Shares of the Brandywine GLOBAL-Global
Total Return ETF).
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risks while passing the remaining
portion of each risk to the Fund’s
shareholders.
The Exchange notes that, other than
Commentary .01(e), the Shares of the
Fund will conform to the initial and
continued listing criteria under NYSE
Arca Rule 8.600–E and will meet all
other requirements of NYSE Arca Rule
8.600–E.
The Adviser and Sub-Adviser
represent that the proposed exception
described above is consistent with the
Fund’s investment objective, and will
further assist the Adviser and SubAdviser to achieve such investment
objective.
Availability of Information
The Fund’s website
(www.virtusetfs.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) the prior
Business Day’s NAV; (ii) the reported
midpoint of the bid-ask spread at the
time of NAV calculation (the ‘‘Bid-Ask
Price’’); 15 (iii) a calculation of the
premium or discount of the Bid-Ask
Price against such NAV; and (iv) data in
chart format displaying the frequency
distribution of discounts and premiums
of the Bid-Ask Price against the NAV,
within appropriate ranges, for each of
the four previous calendar quarters. On
each Business Day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund will disclose on its
website the Disclosed Portfolio as
defined in NYSE Arca Rule 8.600–
E(c)(2) that forms the basis for the
Fund’s calculation of NAV at the end of
the Business Day.16
On a daily basis, the Fund will
disclose the information required under
NYSE Arca Rule 8.600–E(c)(2) to the
extent applicable. The website
information will be publicly available at
no charge.
In addition, a basket composition file,
which includes the security names and
share quantities, if applicable, required
to be delivered in exchange for the
Fund’s Shares, together with estimates
15 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.
16 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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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 any security,
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 U.S. and non-U.S.
exchange-traded options and futures
will be available from the exchange on
which such instruments are traded.
Price information relating to OTC
options will be available from major
market data vendors. Intra-day price
information for U.S. and non-U.S.
exchange-traded options on futures will
be available from the applicable
exchange and from major market data
vendors. For U.S. and non-U.S.
exchange-listed equity securities,
intraday price quotations will generally
be available from broker-dealers and
trading platforms (as applicable). Price
information for cash equivalents and
convertible bonds will be available from
major market data vendors. Price
information regarding U.S. government
securities generally may be obtained
from brokers and dealers who make
markets in such securities or through
nationally recognized pricing services
through subscription agreements.
Additionally, the Trade Reporting and
Compliance Engine (‘‘TRACE’’) of the
Financial Industry Regulatory Authority
(‘‘FINRA’’) will be a source of price
information for certain fixed income
securities to the extent transactions in
such securities are reported to TRACE.17
Information regarding market price
and trading volume of the Shares will be
17 Broker-dealers that are FINRA member firms
have an obligation to report transactions in
specified debt securities to TRACE to the extent
required under applicable FINRA rules. Generally,
such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income
securities that are not reported to TRACE, (i)
intraday price quotations will generally be available
from broker-dealers and trading platforms (as
applicable) and (ii) price information will be
available from feeds from market data vendors,
published or other public sources, or online
information services, as described above.
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16:41 May 02, 2019
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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, ETFs, and other U.S.
exchange-traded equity securities will
be available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line.
Exchange-traded options quotation and
last sale information for options cleared
via the Options Clearing Corporation
(‘‘OCC’’) are available via the Options
Price Reporting Authority (‘‘OPRA’’). In
addition, the Portfolio Indicative Value
(‘‘PIV’’), as defined in NYSE Arca Rule
8.600–E(c)(3), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Core Trading
Session.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund. 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,
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19145
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(e) 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
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, certain exchangetraded equity securities (including
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, certain exchangetraded equity securities (including
ETFs), certain exchange-traded options
and certain futures from such markets
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and other entities. In addition, the
Exchange may obtain information
regarding trading in the Shares, certain
exchange-traded equity securities
(including ETFs), certain exchangetraded 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’’). In addition, FINRA, on behalf
of the Exchange, is able to access, as
needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s TRACE.
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.
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit (‘‘ETP’’) Holders
in an Information Bulletin (‘‘Bulletin’’)
of the special characteristics and risks
associated with trading the Shares of the
Fund. Specifically, the Bulletin will
discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) NYSE Arca 9.2–E(a),
which imposes a duty of due diligence
on its ETP Holders to learn the essential
facts relating to every customer prior to
trading the Shares; (3) the risks involved
in trading the Shares during the Early
and Late Trading Sessions when an
updated PIV will not be calculated or
publicly disseminated; (4) how
information regarding the PIV and the
Disclosed Portfolio is disseminated; (5)
the requirement that ETP Holders
deliver a prospectus to investors
purchasing newly issued Shares prior to
or concurrently with the confirmation of
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16:41 May 02, 2019
Jkt 247001
a transaction; and (6) trading
information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Act. The Bulletin will also disclose that
the NAV for the Shares of the Fund will
be calculated after 4:00 p.m. E.T. each
trading day.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 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 Equities
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 the Sub-Adviser are
not registered as a broker-dealer but
both the Adviser and the Sub-Adviser
are affiliated with a broker-dealer and
have implemented and will maintain a
‘‘fire wall’’ with respect to such brokerdealer 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
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, 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. In addition, FINRA, on
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Frm 00117
Fmt 4703
Sfmt 4703
behalf of the Exchange, is able to access,
as needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s TRACE.
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 Equities 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
Equities 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.
The Exchange believes that it is
appropriate and in the public interest to
allow the Fund, for hedging purposes
only, to exceed the 20% limit in
Commentary .01(e) to Rule 8.600–E of
portfolio assets that may be invested in
OTC derivatives to a maximum of 50%
of Fund assets (calculated as the gross
notional value). As noted above, the
Adviser and Sub-Adviser believe that it
is in the best interests of the Fund’s
shareholders for the Fund to be allowed
to reduce the currency, interest rate, or
credit risk arising from the Fund’s
investments using the most efficient
financial instruments. The proposed
alternative requirements are narrowly
tailored to allow the Fund to achieve its
investment objective. In addition, the
Fund’s investments in OTC derivatives,
other than OTC derivatives used to
hedge the Fund’s portfolio against
currency, interest rate, or credit risk will
be limited to 20% of the assets in the
Fund’s portfolio, calculated as the
aggregate gross notional value of such
OTC derivatives. While certain risks can
be hedged via listed derivatives, OTC
derivatives (such as forwards and
options) can be customized to hedge
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against precise risks. Accordingly, the
Adviser and Sub-Adviser believe that
OTC derivatives may frequently be a
more efficient hedging vehicle than
listed derivatives. Depending on market
conditions, it may be critical that the
Fund be able to utilize available OTC
derivatives for this purpose to attempt
to reduce impact of currency, interest
rate, or credit fluctuations on Fund
assets. Therefore, the Exchange believes
that increasing the percentage limit in
Commentary .01(e), as described above,
to the Fund’s investments in OTC
derivatives, including forwards and
options, that are used specifically for
hedging purposes would permit the
Fund to satisfy its investment objective
and reduce investment risks in a more
cost-effective manner and, therefore,
would help protect investors and the
public interest.18
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the continued listing
and trading of an actively-managed
exchange-traded product that, through
permitted use of an increased level of
OTC derivatives above than currently
permitted by the generic listing
requirements of Commentary .01 to
NYSE Arca Rule 8.600–E, will enhance
competition among market participants,
to the benefit of investors and the
marketplace.
The Exchange believes that it is
appropriate and in the public interest to
allow the Fund, for hedging purposes
only, to exceed the 20% limit in
Commentary .01(e) to Rule 8.600–E of
portfolio assets that may be invested in
OTC derivatives. Under Commentary
.01(e), a series of Managed Fund Shares
listed under the ‘‘generic’’ standards
may invest up to 20% of its assets
(calculated as the aggregate gross
notional value) in OTC derivatives.
Because the Fund, in furtherance of its
investment objective, may invest a
substantial percentage of its investments
in Principal Investments, the 20% limit
in Commentary .01(e) to Rule 8.600–E
could result in the Fund being unable to
fully pursue its investment objective
while attempting to sufficiently mitigate
investment risks. The inability of the
Fund to adequately hedge its holdings
would effectively limit the Fund’s
ability to invest in certain instruments,
18 The Exchange notes that the Commission has
previously approved listing and trading of Managed
Fund Shares the investments of which are similar
to those proposed herein for the Fund. See, e.g.,
Securities Exchange Act Release No. 82492 (January
12, 2018) 83 FR 2850 (January 19, 2018) (SR–
NYSEArca–2017–87) (approving listing of shares of
the JP Morgan Long/Short ETF).
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16:41 May 02, 2019
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19147
or could expose the Fund to additional
investment risk. For example, if the
Fund’s assets (on a gross notional value
basis) were $100 million and no listed
derivative were suitable to hedge the
Fund’s risk, under the generic standards
the Fund would be limited to holding
up to $20 million gross notional value
in OTC derivatives ($100 million *
20%). Accordingly, the maximum
amount the Fund would be able to
invest in Principal Investments while
remaining adequately hedged would be
$20 million. The Fund then would hold
$60 million in assets that could not be
hedged, other than with listed
derivatives, which, as noted above,
might not be sufficiently tailored to the
specific instruments to be hedged.19
In addition, by applying the 20%
limitation in Commentary .01(e) to Rule
8.600–E, the Fund would be less able to
protect its holdings from more than one
risk simultaneously. For example, if the
Fund’s assets (on a gross notional basis)
were $100 million and the Fund held
$20 million in Principal Investments
and Non-Principal Investments with
two types of risks (e.g., currency and
credit risk) which could not be hedged
using listed derivatives, the Fund would
be faced with the choice of either
holding $20 million aggregate gross
notional value in OTC derivatives to
mitigate one of the risks while passing
the other risk to its shareholders, or, for
example, holding $10 million aggregate
gross notional value in OTC derivatives
on each of the risks while passing the
remaining portion of each risk to the
Fund’s shareholders.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
B. Self-Regulatory Organization’s
Statement on Burden on Competition
• 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–2019–28. 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
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
issue of Managed Fund Shares that,
through permitted use of an increased
level of OTC derivatives above that
currently permitted by the generic
listing requirements of Commentary .01
to NYSE Arca Equities Rule 8.600–E
will enhance competition among market
participants, to the benefit of investors
and the marketplace.
19 Implicit in expanding the ability of the Fund
to enter into OTC derivatives solely for hedging
purposes is that OTC derivatives will never be
100% of the Fund’s portfolio because there will
always be an underlying asset that is being hedged.
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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 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–2019–28 on the subject line.
Paper Comments
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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–2019–28 and
should be submitted on or before May
24, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–09145 Filed 5–2–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85743; File No. SR–
NASDAQ–2019–031]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
5702 Concerning an Issuer’s
Obligation To Disclose Material
Information About the Issuer’s Listed
Non-Convertible Bonds
April 29, 2019.
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 15,
2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The 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
Rule 5702 to clarify the fact that Rule
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
5250(b)(1) and IM–5250–1, which
presently obligate issuers of nonconvertible bonds listed on the Nasdaq
Bond Exchange to promptly disclose to
Nasdaq any material information that
would reasonably be expected to affect
the value of their listed bonds or
influence decisions to invest in such
bonds, includes an obligation to
disclose to Nasdaq material information
about the company’s equity securities,
even if those securities are listed on a
national securities exchange other than
Nasdaq (including, for example, the
New York Stock Exchange (‘‘NYSE’’) or
the NYSE American market), to the
extent that information about such
equity securities also would reasonably
be expected to affect the value of or
influence decisions to invest in the
listed bonds.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In November 2018, the Commission
approved amendments to the
Exchange’s rules that permit the
Exchange to list and trade nonconvertible corporate debt securities
(referred to herein as ‘‘bonds’’ or ‘‘nonconvertible bonds’’) on the Nasdaq Bond
Exchange.3 Under the Exchange’s listing
rules, at Rule 5702(a)(2), a nonconvertible bond is eligible for listing on
the Exchange only if its issuer
concurrently lists at least one class of an
equity security on Nasdaq, NYSE, or
NYSE American. The Exchange noted in
its proposal for the Nasdaq Bond
Exchange that upon the effective date of
20 17
1 15
VerDate Sep<11>2014
16:41 May 02, 2019
3 See Securities Exchange Act Release No. 34–
84575 (Nov. 13, 2018), 83 FR 58309 (Nov. 19, 2018).
Jkt 247001
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
its proposal, the Exchange would be
capable of listing and trading nonconvertible bonds only of issuers that
list equity securities on Nasdaq.4 The
Exchange stated that it expected to be
ready to list and trade bonds of issuers
with equity securities listed on NYSE or
NYSE American by the Second Quarter
of 2019.5
As the Exchange prepares to begin
listing and trading bonds of issuers of
NYSE and NYSE American listed equity
securities, it proposes to further amend
its Rules to ensure that it will have
access to all of the information it needs
to evaluate whether and when to
suspend, delist, or halt trading in such
bonds. Specifically, the proposed
amendment would highlight to issuers
that their obligation, under Rule
5250(b)(1) and IM–5250–1, to promptly
disclose to Nasdaq material information
that could reasonably be expected to
affect the value of or influence decisions
to invest in their Nasdaq-listed bonds,
includes an obligation to promptly
notify the Exchange of material news
about their NYSE or NYSE American
listed equity securities, to the extent
that such information about such NYSE
or NYSE American listed securities
could also reasonably be expected to
affect the value of or influence decisions
to invest in the Nasdaq-listed bonds.
Rule 4000B(i)(1) provides that the
Exchange may halt or suspend trading
in non-convertible bonds listed on the
Nasdaq Bond Exchange when: (1) In the
Exchange’s regulatory capacity, it is
necessary or appropriate to maintain a
fair and orderly market, to protect
investors, or is in the public interest,
due to extraordinary circumstances or
unusual market conditions; (2) a class of
equity that is issued by the same issuer
as the non-convertible bond has been
halted or suspended by, or de-listed
from, the Exchange or by its primary
listing market (NYSE or NYSE
American), as applicable; (3) news
reports have a material impact on a nonconvertible bond, its issuer, or related
stock of its issuer; or (4) the nonconvertible bond is to be called for
redemption or will mature or become
subject to retirement, and thereafter it
will be subject to de-listing.
To assist the Exchange in determining
when to halt or suspend trading in nonconvertible bonds, Rule 5250(b)(1) and
IM–5250–1 require that, except in
unusual circumstances,6 Nasdaq listed
4 See SR–NASDAQ–2018–070 (as modified by
Amendment Nos. 1–3).
5 See id.
6 As set forth in IM–5250–1, companies in
unusual circumstances may not be required to make
public disclosure of material events including, for
example, where it is possible to maintain
E:\FR\FM\03MYN1.SGM
03MYN1
]]>Agencies
[Federal Register Volume 84, Number 86 (Friday, May 3, 2019)]
[Notices]
[Pages 19141-19148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09145]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85751; File No. SR-NYSEArca-2019-28]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the Virtus WMC
Risk-Managed Alternative Equity ETF
April 30, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on April 15, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the Virtus WMC
Risk-Managed Alternative Equity ETF under NYSE Arca Rule 8.600-E. The
proposed change is available on the Exchange's website at www.nyse.com,
at the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
Virtus WMC Risk-Managed Alternative Equity ETF (the ``Fund'') under
NYSE Arca Rule 8.600-E, which provides generic criteria applicable to
the listing and trading of Managed Fund Shares on the Exchange.\4\
---------------------------------------------------------------------------
\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (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.
---------------------------------------------------------------------------
The Fund is a series of ETFis Series I (``Trust''). Virtus ETF
Advisors LLC (the ``Adviser'') is the investment adviser for the Fund.
Wellington Management Company LLP is the sub-adviser to the Fund (the
``Sub-Adviser''). The Trust and the Adviser have engaged the Sub-
Adviser to manage the Fund's investments, subject to the oversight and
supervision of the Adviser and the Board of Trustees of the Trust.\5\
ETF Distributors LLC (``Distributor''), a registered broker-dealer,
will act as the distributor for the Fund's Shares. The Bank of New York
Mellon (``BNY Mellon'') will serve as the custodian, administrator and
transfer agent (``Transfer Agent'') for the Fund.
---------------------------------------------------------------------------
\5\ The Trust is registered under the 1940 Act. On February 28,
2019, the Trust filed with the Commission Post-Effective Amendment
No. 155 to the Trust's registration statement on Form N-1A under the
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act''), and
under the 1940 Act relating to the Fund (File Nos. 333-187668 and
811-22819) (``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. 30607 (July 23, 2013)
(File No. 812-14080).
---------------------------------------------------------------------------
Commentary .06 to Rule 8.600-E provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect
and maintain a ``fire wall'' between the investment adviser and the
broker-dealer with respect to access to information concerning the
composition and/or changes to such investment company portfolio. 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
non-public information
[[Page 19142]]
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 Sub-Adviser are not registered as broker-
dealers. The Adviser and Sub-Adviser are affiliated with one or more
broker-dealers and have implemented and will maintain a ``fire wall''
with respect to each 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 Sub-Adviser becomes registered as a
broker-dealer or newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement and maintain a
``fire wall'' with respect to 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.
Virtus WMC Risk-Managed Alternative Equity ETF
Principal Investments
According to the Registration Statement, the investment objective
of the Fund is to seek to provide superior risk-adjusted total returns
over the long term. The Fund will seek to achieve its investment
objective, under normal market conditions,\6\ by (i) investing in a
broadly diversified portfolio of global equity securities in both
developed and emerging markets, and (ii) implementing a beta management
strategy by shorting futures contracts and purchasing and selling
options, as further described below. By combining these two strategies,
the Sub-Adviser seeks to generate superior total returns (i.e., returns
in excess of the average returns of broad global equity market indexes)
over a full market cycle with significant downside equity market
protection (i.e., protection intended to limit losses in a declining
market), consistent with the risk/return profile of investments in
long/short equity (also referred to as alternative equity) hedge funds.
Although the Sub-Adviser will seek for the Fund's risk/return profile
to be consistent with investments in long/short equity hedge funds, the
Fund itself does not invest in hedge funds. Under normal market
conditions, the Fund will invest at least 80% of its net assets (plus
any borrowings for investment purposes) in equity securities (as
discussed below), in derivatives,\7\ cash and cash equivalents and
other instruments (as discussed below), that have economic
characteristics similar to such investments (together, the ``Principal
Investments'').
---------------------------------------------------------------------------
\6\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5).
\7\ 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.
---------------------------------------------------------------------------
The Fund will invest in the following U.S. and non-U.S. exchange-
listed equity securities of U.S. and non-U.S. issuers: Common stock;
preferred stock; convertible preferred stock; rights; warrants;
American Depositary Receipts (``ADRs'') and Global Depositary Receipts
(``GDRs''); and real estate investment trusts (``REITs'') of U.S. and
foreign issuers.
The Fund may hold cash and cash equivalents.\8\
---------------------------------------------------------------------------
\8\ The term ``cash equivalents'' is defined in Commentary
.01(c) to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------
The Fund may hold U.S. and non-U.S. exchange-traded futures and
options on equity securities, equity securities indices, and interest
rates. Options held by the Fund may be either exchange-listed or traded
over-the-counter (``OTC'').
The Fund may invest in forward foreign currency contracts and U.S.
and non-U.S. exchange-traded foreign currency futures contracts.
The Fund may enter into short sales of any securities and financial
instruments in which the Fund may invest.
The Fund may use derivative instruments described above as a
substitute for investing directly in an underlying security or other
financial instrument, to seek to enhance returns, to seek to manage or
reduce exposure/risk, or to seek to manage foreign currency risk.
Non-Principal Investments
While the Fund, under normal market conditions, will invest at
least 80% in the securities and financial instruments described above,
the Fund may invest its remaining assets in the securities and
financial instruments described below.
The Fund may invest in exchange-traded funds (``ETFs'').\9\
---------------------------------------------------------------------------
\9\ For purposes of this filing, the term ``ETFs'' includes
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a
national securities exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
---------------------------------------------------------------------------
The Fund may invest in convertible bonds.
In addition to U.S. government securities that are cash equivalents
as defined in Commentary .01(c) to NYSE Arca Rule 8.600-E, the Fund may
invest in other U.S. government securities, which are U.S. government
obligations such as U.S. Treasury notes, U.S. Treasury bonds, and U.S.
Treasury bills, obligations guaranteed by the U.S. government.
The Fund will not invest in securities or other financial
instruments that have not been described in this proposed rule change.
Use of Derivatives by the Fund
Investments in derivative instruments will be made in accordance
with the 1940 Act and 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'')
and in accordance with the 1940 Act or as permitted by applicable
Commission guidance. These procedures have been adopted consistent with
Section 18 of the 1940 Act and related Commission guidance. 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.
Other Restrictions
The Fund's investments, including derivatives, will be consistent
with the Fund's investment objective and will not be used to enhance
leverage (although certain derivatives and other investments may result
in leverage). That is, the Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (e.g., 2X or -3X)
of the Fund's primary broad-based securities benchmark index (as
defined in Form N-1A).\10\
---------------------------------------------------------------------------
\10\ The Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------
[[Page 19143]]
Impact on Arbitrage Mechanism
The Adviser and the Sub-Adviser believe there will be minimal, if
any, impact to the arbitrage mechanism as a result of the Fund's use of
derivatives. The Adviser and the Sub-Adviser understand that market
makers and participants should be able to value derivatives as long as
the positions are disclosed with relevant information. The Adviser and
the Sub-Adviser believe that the price at which Shares of the Fund
trade will continue to be disciplined by arbitrage opportunities
created by the ability to purchase or redeem Shares of the Fund at
their net asset value (``NAV''), which should ensure that Shares of the
Fund will not trade at a material discount or premium in relation to
their NAV.
Creation of Creation Units
The Trust issues and sells Shares of the Fund only in aggregations
of 50,000 Shares (each aggregation is called a ``Creation Unit'') on a
continuous basis through the Distributor at the NAV next determined
after receipt of an order in proper form on any Business Day.\11\ The
size of a Creation Unit is subject to change.
---------------------------------------------------------------------------
\11\ 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 cash or an in-kind deposit of a portfolio of securities and
other investments (the ``Deposit Securities'') for each Creation Unit
constituting a substantial replication, or a representation, of the
securities included in the Fund's portfolio and an amount of cash
computed as described below (the ``Cash Amount''). The Cash Amount
together with the Deposit Securities, as applicable, are referred to as
the ``Fund 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
Securities, and serves to compensate for any differences between the
NAV per Creation Unit and the Deposit Amount.
The Fund, 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 Security to be included in the current Fund Deposit (based on
information at the end of the previous Business Day) for the Fund. Such
Fund 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 composition of the Deposit Securities
is made available.
All orders to create Creation Units generally must be received by
the Distributor no later than 3:00 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 permit the
substitution of an amount of cash (i.e., a ``cash in lieu'' amount) to
be added to the Cash Component to replace any Deposit Security which
may, among other reasons, not be available in sufficient quantity for
delivery, 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
the clearing process through the Continuous Net Settlement System of
the NSCC (the ``Clearing Process''); or (2) a Depository Trust Company
(``DTC'') Participant; which, in either case, must have executed an
agreement with the Trust, the Distributor and the Transfer Agent
(``Participant Agreement''). A Participating Party and DTC Participant
are collectively referred to as an ``Authorized Participant.''
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 the
Distributor and only on a Business Day.
The Trust, through NSCC, makes available immediately prior to the
opening of business on the Exchange (9:30 a.m. E.T.) on each Business
Day, the Deposit Securities 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 Securities
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 Deposit Securities as
announced by the Trust 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 Deposit Securities, less
the redemption transaction fee.
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 received by the Trust not later than 3:00
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 3:00 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
portfolio for the Fund will not meet all of the ``generic'' listing
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to
the listing of Managed Fund Shares. The Fund's portfolio will meet all
such requirements except for those set forth in Commentary .01(e), as
described below.
The Fund will not comply with the requirements set forth in
Commentary .01(e) to NYSE Arca Rule 8.600-E with respect to the Fund's
investments in OTC derivatives.\12\ Specifically, the aggregate gross
notional value of the Fund's investments in OTC derivatives may exceed
20% of Fund assets, calculated as the aggregate gross notional value of
such OTC derivatives.\13\ The Exchange proposes that up to 50% of the
Fund's assets (calculated as the aggregate gross notional value) may be
invested in OTC
[[Page 19144]]
derivatives, that is, forwards and OTC options, that are used to reduce
currency, interest rate or credit risk arising from the Fund's
investments (that is, ``hedge''). The Fund's investments in OTC
derivatives, other than OTC derivatives used to hedge the Fund's
portfolio against currency, interest rate, or credit risk, will be
limited to 20% of the assets in the Fund's portfolio, calculated as the
aggregate gross notional value of such OTC derivatives.
---------------------------------------------------------------------------
\12\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that a
portfolio may hold OTC derivatives, including forwards, options and
swaps on commodities, currencies and financial instruments (e.g.,
stocks, fixed income, interest rates, and volatility) or a basket or
index of any of the foregoing; however, on both an initial and
continuing basis, no more than 20% of the assets in the portfolio
may be invested in OTC derivatives. For purposes of calculating this
limitation, a portfolio's investment in OTC derivatives will be
calculated as the aggregate gross notional value of the OTC
derivatives.
\13\ The Adviser and Sub-Adviser monitor counterparty credit
risk exposure (including for OTC derivatives) and evaluate
counterparty credit quality on a continuous basis.
---------------------------------------------------------------------------
The Adviser and Sub-Adviser believe that it is important to provide
the Fund with additional flexibility to manage risk associated with its
investments. Depending on market conditions, it may be critical that
the Fund be able to utilize available OTC derivatives for this purpose
to attempt to reduce impact of currency, interest rate, or credit
fluctuations on Fund assets. OTC derivatives provide the Fund with
additional flexibility as well as a more precise means to effectively
attempt to reduce currency, interest rate, or credit fluctuations on
Fund assets. Generally, OTC derivatives can be customized to a greater
degree than exchange-traded derivatives and can provide a better hedge
on Fund assets, as well as allow for more control over the duration of
the hedge which can also mitigate trading costs. Therefore, in addition
to the Fund's ability to invest 20% of the assets in the Fund's
portfolio in OTC derivatives pursuant to NYSE Arca Rule 8.600-E,
Commentary .01(e), the Exchange believes it is appropriate to apply a
limit of up to 50% of the Fund's assets to the Fund's investments in
OTC derivatives (calculated as the aggregate gross notional value of
such OTC derivatives), including forwards and options, that are used
for hedging purposes, as described above.\14\
---------------------------------------------------------------------------
\14\ The Commission has previously approved an exception from
requirements set forth in Commentary .01(e) relating to investments
in OTC derivatives similar to those proposed with respect to the
Fund in Securities Exchange Act Release Nos. 80657 (May 11, 2017),
82 FR 22702 (May 17, 2017) (SR-NYSEArca-2017-09) (Notice of Filing
of Amendment No. 2 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 2, Regarding
Investments of the Janus Short Duration Income ETF Listed Under NYSE
Arca Equities Rule 8.600). See also, Securities Exchange Act Release
Nos. 84047 (September 6, 2018), 83 FR 46200 (September 12, 2018)
(SR-NASDAQ-2017-128) (Notice of Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, to List and Trade Shares of the Western Asset
Total Return ETF), in which the Nasdaq Stock Market LLC proposed
that there would be no limit on the fund's investments in Interest
Rate and Currency Derivatives, and that the aggregate weight of all
OTC Derivatives other than Interest Rate and Currency Derivatives
will not exceed 10% of the fund's assets); 84818 (December 13,
2018), 83 FR 65189 (December 19, 2018) (SR-NYSEArca-2018-75) (Order
Approving a Proposed Rule Change, as Modified by Amendment No. 1
Thereto, Regarding the Listing and Trading of Shares of the PGIM
Ultra Short Bond ETF), note 13; 85022 (January 31, 2019), 84 FR 2265
(February 6, 2019) (SR-Nasdaq-2018-080) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated Approval of a
Proposed Rule Change to List and Trade Shares of the Brandywine
GLOBAL-Global Total Return ETF).
---------------------------------------------------------------------------
The Adviser and Sub-Adviser represent that deviations from the
generic requirements are necessary for the Fund to achieve its
investment objective in a manner that is cost-effective and that
maximizes investors' returns because OTC derivatives generally provide
the Fund with more flexibility to negotiate the exact exposure that the
Fund requires, and minimize trading costs because OTC derivatives are
not subject to costs of rolling that are associated with listed
derivatives.
The Adviser and Sub-Adviser represent that they intend to engage in
strategies that utilize foreign currency forward transactions (which
may be traded OTC) and OTC options, as described above, based on its
investment strategies. Depending on market conditions, the exposure due
to these strategies may exceed 20% of the Fund's assets. The Adviser
represents further that the foreign exchange forward market is OTC,
and, as such, it is not possible to implement these strategies
efficiently using listed derivatives. In addition, use of OTC options
on U.S. and non-U.S. exchange-listed equity securities may be an
important means to reduce risk in the Fund's equity investments, or,
depending on market conditions, to enhance returns of such investments.
If the Fund were limited to investing up to 20% of assets in OTC
derivatives, the Fund would have to exclude or underweight these
strategies and would be less diversified, concentrating risk in the
other strategies it will utilize.
In addition, by applying the 20% limitation in Commentary .01(e) to
Rule 8.600-E, the Fund would be less able to protect its holdings from
more than one risk simultaneously. For example, if the Fund's assets
(on a gross notional basis) were $100 million and the Fund held $20
million in Principal Investments with two types of risks (e.g.,
currency and credit risk) which could not be hedged using listed
derivatives, the Fund would be faced with the choice of either holding
$20 million aggregate gross notional value in OTC derivatives to
mitigate one of the risks while passing the other risk to its
shareholders, or, for example, holding $10 million aggregate gross
notional value in OTC derivatives on each of the risks while passing
the remaining portion of each risk to the Fund's shareholders.
The Exchange notes that, other than Commentary .01(e), the Shares
of the Fund will conform to the initial and continued listing criteria
under NYSE Arca Rule 8.600-E and will meet all other requirements of
NYSE Arca Rule 8.600-E.
The Adviser and Sub-Adviser represent that the proposed exception
described above is consistent with the Fund's investment objective, and
will further assist the Adviser and Sub-Adviser to achieve such
investment objective.
Availability of Information
The Fund's website (www.virtusetfs.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) the prior Business Day's NAV; (ii) the reported
midpoint of the bid-ask spread at the time of NAV calculation (the
``Bid-Ask Price''); \15\ (iii) a calculation of the premium or discount
of the Bid-Ask Price against such NAV; and (iv) data in chart format
displaying the frequency distribution of discounts and premiums of the
Bid-Ask Price against the NAV, within appropriate ranges, for each of
the four previous calendar quarters. On each Business Day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Fund will disclose on its website the Disclosed Portfolio
as defined in NYSE Arca Rule 8.600-E(c)(2) that forms the basis for the
Fund's calculation of NAV at the end of the Business Day.\16\
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\15\ 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.
\16\ Under accounting procedures followed by the Fund, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
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On a daily basis, the Fund will disclose the information required
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The
website information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates
[[Page 19145]]
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 any security, 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 U.S. and non-U.S.
exchange-traded options and futures will be available from the exchange
on which such instruments are traded. Price information relating to OTC
options will be available from major market data vendors. Intra-day
price information for U.S. and non-U.S. exchange-traded options on
futures will be available from the applicable exchange and from major
market data vendors. For U.S. and non-U.S. exchange-listed equity
securities, intraday price quotations will generally be available from
broker-dealers and trading platforms (as applicable). Price information
for cash equivalents and convertible bonds will be available from major
market data vendors. Price information regarding U.S. government
securities generally may be obtained from brokers and dealers who make
markets in such securities or through nationally recognized pricing
services through subscription agreements. Additionally, the Trade
Reporting and Compliance Engine (``TRACE'') of the Financial Industry
Regulatory Authority (``FINRA'') will be a source of price information
for certain fixed income securities to the extent transactions in such
securities are reported to TRACE.\17\
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\17\ Broker-dealers that are FINRA member firms have an
obligation to report transactions in specified debt securities to
TRACE to the extent required under applicable FINRA rules.
Generally, such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income securities that are
not reported to TRACE, (i) intraday price quotations will generally
be available from broker-dealers and trading platforms (as
applicable) and (ii) price information will be available from feeds
from market data vendors, published or other public sources, or
online information services, as described above.
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Information regarding market price and trading volume of the Shares
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, ETFs, and other
U.S. exchange-traded equity securities will be available via the
Consolidated Tape Association (``CTA'') high-speed line. Exchange-
traded options quotation and last sale information for options cleared
via the Options Clearing Corporation (``OCC'') are available via the
Options Price Reporting Authority (``OPRA''). In addition, the
Portfolio Indicative Value (``PIV''), as defined in NYSE Arca Rule
8.600-E(c)(3), will be widely disseminated by one or more major market
data vendors at least every 15 seconds during the Core Trading Session.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. 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(e) 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 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, certain
exchange-traded equity securities (including 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,
certain exchange-traded equity securities (including ETFs), certain
exchange-traded options and certain futures from such markets
[[Page 19146]]
and other entities. In addition, the Exchange may obtain information
regarding trading in the Shares, certain exchange-traded equity
securities (including 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''). In addition, FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Fund reported to FINRA's TRACE.
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.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares of the Fund. Specifically, the Bulletin will discuss
the following: (1) The procedures for purchases and redemptions of
Shares in Creation Units (and that Shares are not individually
redeemable); (2) NYSE Arca 9.2-E(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (3) the risks involved in
trading the Shares during the Early and Late Trading Sessions when an
updated PIV will not be calculated or publicly disseminated; (4) how
information regarding the PIV and the Disclosed Portfolio is
disseminated; (5) the requirement that ETP Holders deliver a prospectus
to investors purchasing newly issued Shares prior to or concurrently
with the confirmation of a transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares of the Fund
will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) 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 Equities 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 the Sub-Adviser are not registered as a broker-dealer but
both the Adviser and the Sub-Adviser 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 from markets and other entities that are
members of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. In addition, FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Fund reported to FINRA's TRACE.
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 Equities 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 Equities 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.
The Exchange believes that it is appropriate and in the public
interest to allow the Fund, for hedging purposes only, to exceed the
20% limit in Commentary .01(e) to Rule 8.600-E of portfolio assets that
may be invested in OTC derivatives to a maximum of 50% of Fund assets
(calculated as the gross notional value). As noted above, the Adviser
and Sub-Adviser believe that it is in the best interests of the Fund's
shareholders for the Fund to be allowed to reduce the currency,
interest rate, or credit risk arising from the Fund's investments using
the most efficient financial instruments. The proposed alternative
requirements are narrowly tailored to allow the Fund to achieve its
investment objective. In addition, the Fund's investments in OTC
derivatives, other than OTC derivatives used to hedge the Fund's
portfolio against currency, interest rate, or credit risk will be
limited to 20% of the assets in the Fund's portfolio, calculated as the
aggregate gross notional value of such OTC derivatives. While certain
risks can be hedged via listed derivatives, OTC derivatives (such as
forwards and options) can be customized to hedge
[[Page 19147]]
against precise risks. Accordingly, the Adviser and Sub-Adviser believe
that OTC derivatives may frequently be a more efficient hedging vehicle
than listed derivatives. Depending on market conditions, it may be
critical that the Fund be able to utilize available OTC derivatives for
this purpose to attempt to reduce impact of currency, interest rate, or
credit fluctuations on Fund assets. Therefore, the Exchange believes
that increasing the percentage limit in Commentary .01(e), as described
above, to the Fund's investments in OTC derivatives, including forwards
and options, that are used specifically for hedging purposes would
permit the Fund to satisfy its investment objective and reduce
investment risks in a more cost-effective manner and, therefore, would
help protect investors and the public interest.\18\
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\18\ The Exchange notes that the Commission has previously
approved listing and trading of Managed Fund Shares the investments
of which are similar to those proposed herein for the Fund. See,
e.g., Securities Exchange Act Release No. 82492 (January 12, 2018)
83 FR 2850 (January 19, 2018) (SR-NYSEArca-2017-87) (approving
listing of shares of the JP Morgan Long/Short ETF).
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The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the continued listing and
trading of an actively-managed exchange-traded product that, through
permitted use of an increased level of OTC derivatives above than
currently permitted by the generic listing requirements of Commentary
.01 to NYSE Arca Rule 8.600-E, will enhance competition among market
participants, to the benefit of investors and the marketplace.
The Exchange believes that it is appropriate and in the public
interest to allow the Fund, for hedging purposes only, to exceed the
20% limit in Commentary .01(e) to Rule 8.600-E of portfolio assets that
may be invested in OTC derivatives. Under Commentary .01(e), a series
of Managed Fund Shares listed under the ``generic'' standards may
invest up to 20% of its assets (calculated as the aggregate gross
notional value) in OTC derivatives. Because the Fund, in furtherance of
its investment objective, may invest a substantial percentage of its
investments in Principal Investments, the 20% limit in Commentary
.01(e) to Rule 8.600-E could result in the Fund being unable to fully
pursue its investment objective while attempting to sufficiently
mitigate investment risks. The inability of the Fund to adequately
hedge its holdings would effectively limit the Fund's ability to invest
in certain instruments, or could expose the Fund to additional
investment risk. For example, if the Fund's assets (on a gross notional
value basis) were $100 million and no listed derivative were suitable
to hedge the Fund's risk, under the generic standards the Fund would be
limited to holding up to $20 million gross notional value in OTC
derivatives ($100 million * 20%). Accordingly, the maximum amount the
Fund would be able to invest in Principal Investments while remaining
adequately hedged would be $20 million. The Fund then would hold $60
million in assets that could not be hedged, other than with listed
derivatives, which, as noted above, might not be sufficiently tailored
to the specific instruments to be hedged.\19\
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\19\ Implicit in expanding the ability of the Fund to enter into
OTC derivatives solely for hedging purposes is that OTC derivatives
will never be 100% of the Fund's portfolio because there will always
be an underlying asset that is being hedged.
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In addition, by applying the 20% limitation in Commentary .01(e) to
Rule 8.600-E, the Fund would be less able to protect its holdings from
more than one risk simultaneously. For example, if the Fund's assets
(on a gross notional basis) were $100 million and the Fund held $20
million in Principal Investments and Non-Principal Investments with two
types of risks (e.g., currency and credit risk) which could not be
hedged using listed derivatives, the Fund would be faced with the
choice of either holding $20 million aggregate gross notional value in
OTC derivatives to mitigate one of the risks while passing the other
risk to its shareholders, or, for example, holding $10 million
aggregate gross notional value in OTC derivatives on each of the risks
while passing the remaining portion of each risk to the Fund's
shareholders.
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
issue of Managed Fund Shares that, through permitted use of an
increased level of OTC derivatives above that currently permitted by
the generic listing requirements of Commentary .01 to NYSE Arca
Equities Rule 8.600-E 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 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-2019-28 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-2019-28. 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
[[Page 19148]]
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-2019-28 and should
be submitted on or before May 24, 2019.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09145 Filed 5-2-19; 8:45 am]
BILLING CODE 8011-01-P
