Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the Franklin Liberty Systematic Style Premia ETF, a Series of the Franklin Templeton ETF Trust Under NYSE Arca Rule 8.600-E, 43196-43204 [2019-17854]

Download as PDF 43196 Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CboeBZX–2019–031 and should be submitted on or before September 10, 2019. U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. The subject matters of the closed meeting will consist of the following topics: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting agenda items that may consist of adjudicatory, examination, litigation, or regulatory matters. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Jill M. Peterson, Assistant Secretary. Dated: August 15, 2019. Vanessa A. Countryman, Secretary. CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. [FR Doc. 2019–17974 Filed 8–16–19; 11:15 am] BILLING CODE 8011–01–P [FR Doc. 2019–17860 Filed 8–19–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86659; File No. SR– NYSEArca–2019–57] Sunshine Act Meetings 2:00 p.m. on Thursday, August 22, 2019. PLACE: The meeting will be held at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. STATUS: This meeting will be closed to the public. MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. In the event that the time, date, or location of this meeting changes, an announcement of the change, along with the new time, date, and/or place of the meeting will be posted on the Commission’s website at https:// www.sec.gov. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 jbell on DSK3GLQ082PROD with NOTICES TIME AND DATE: Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the Franklin Liberty Systematic Style Premia ETF, a Series of the Franklin Templeton ETF Trust Under NYSE Arca Rule 8.600–E August 14, 2019. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on August 8, 2019, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 11 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 20:49 Aug 19, 2019 Jkt 247001 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 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 Franklin Liberty Systematic Style Premia ETF, a series of the Franklin Templeton ETF Trust (‘‘Trust’’), under NYSE Arca Rule 8.600– E (‘‘Managed Fund Shares’’). The proposed change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade shares (‘‘Shares’’) of the Franklin Liberty Systematic Style Premia ETF (the ‘‘Fund’’) 4 under NYSE Arca Rule 8.600–E, which governs the listing and trading of Managed Fund Shares 5 on the Exchange. 4 The Trust is registered under the 1940 Act. On July 31, 2019, the Trust filed with the Commission an amendment to its registration statement on Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’) and the 1940 Act relating to the Fund (File Nos. 333–208873 and 811–23124) (the ‘‘Registration Statement’’). 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 Franklin ETF Trust, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc. under the 1940 Act that the Trust relies on. See Investment Company Act Release No. 30350 (January 15, 2013) (‘‘Exemptive Order’’). Investments made by the Fund will comply with the conditions set forth in the Exemptive Order. 5 A Managed Fund Share is a security that represents an interest in an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1) (‘‘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 E:\FR\FM\20AUN1.SGM 20AUN1 Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices jbell on DSK3GLQ082PROD with NOTICES Franklin Advisers, Inc. (‘‘Adviser’’) will be the investment adviser to the Fund. Franklin Templeton Distributors, Inc. (‘‘Distributor’’) will be the distributor of the Fund’s Shares. State Street Bank and Trust Company will be the custodian and 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.6 In addition, Commentary .06 further requires that personnel who make decisions on the open-end fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the open-end fund’s portfolio. The Adviser is not registered as a broker-dealer but is affiliated with a broker-dealer and has implemented and will maintain a fire wall with respect to such broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio. In the event (a) the Adviser becomes registered as a broker-dealer or newly affiliated with one or more broker-dealers, or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a brokerunder NYSE Arca Rule 5.2–E(j)(3), seeks to provide investment results that correspond generally to the price and yield performance of a specific foreign or domestic stock index, fixed income securities index or combination thereof. 6 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). As a result, the Adviser and its related personnel are subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with other applicable securities laws. Accordingly, procedures designed to prevent the communication and misuse of non-public information by an investment adviser must be consistent with Rule 204A–1 under the Advisers Act. In addition, Rule 206(4)–7 under the Advisers Act makes it unlawful for an investment adviser to provide investment advice to clients unless such investment adviser has (i) adopted and implemented written policies and procedures reasonably designed to prevent violation, by the investment adviser and its supervised persons, of the Advisers Act and the Commission rules adopted thereunder; (ii) implemented, at a minimum, an annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph (i) above and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted under subparagraph (i) above. VerDate Sep<11>2014 20:49 Aug 19, 2019 Jkt 247001 dealer, it will implement and maintain a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. Franklin Liberty Systematic Style Premia ETF According to the Registration Statement, the Fund will seek to provide absolute return. The Fund will seek to achieve its investment goal by allocating its assets across two underlying ‘‘alternative’’ investment strategies, which represent top-down and bottom-up approaches to capturing factor-based risk premia.7 The strategies consist of a top-down risk premia strategy (‘‘Risk Premia Strategy’’) and a bottom-up long/short equity strategy (‘‘Long/Short Equity Strategy’’), each of which is described below. Risk Premia Strategy. The top-down risk premia strategy focuses on value, momentum and carry factors in investing across equity, fixed income, commodity and currency asset classes, as described below. Value: Value strategies favor investments that appear cheap over those that appear expensive based on fundamental measures related to price, seeking to capture the tendency for relatively cheap assets to outperform relatively expensive assets. The Adviser will seek to buy assets that are ‘‘cheap’’ and sell those that are ‘‘expensive.’’ For purposes of the Risk Premia Strategy, examples of value measures include using price to earnings, price to forward earnings, price to book value and dividend yield. Momentum: Momentum strategies favor investments that have performed relatively well over those that have underperformed over the medium-term (i.e., one year or less), seeking to capture the tendency that an asset’s recent relative performance will continue in the near future. The Adviser will seek to buy assets that recently outperformed their peers and sell those that recently underperformed. For purposes of the Risk Premia Strategy, examples of momentum measures include simple price momentum (measured over the prior twelve months with the most recent month removed) for selecting 7 According to the Registration Statement a ‘‘risk premium’’ is the economic concept that an investor should receive a premium (that is, a higher expected return) for bearing risk. In other words, risk premium refers to the return that is expected for assuming a particular market risk. PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 43197 stocks and price- and yield-based momentum for selecting bonds. Carry: An asset’s ‘‘carry’’ is its expected return assuming market conditions, including its price, stay the same. Carry strategies favor investments with higher yields over those with lower yields, seeking to capture the tendency for higher-yielding assets to provide higher returns than lower-yielding assets. The Adviser will seek to take long positions in high-yielding assets and short positions in low-yielding assets. An example of carry measures includes selecting currencies and bonds based on interest rates. Under normal market conditions,8 the Risk Premia Strategy will invest primarily in equity, interest rate/bond and commodity index futures; equity and commodity-linked total return swaps; and currency forwards (as described below). Long/Short Equity Strategy. The bottom-up Long/Short Equity Strategy focuses on quality, value and momentum factors in determining whether to hold long or short positions in individual equity securities. Quality: Quality strategies favor investments that exhibit relatively higher quality characteristics. Examples of quality measures include return on equity, earnings variability, cash return on assets and leverage. Value: For the Long/Short Equity Strategy, the value factor is used to identify cheapness by using earnings, book value, sales and cash flow ratios relative to market capitalization, and enterprise value compared against a peer group. For purposes of the Long/ Short Equity Strategy, examples of value measures include earnings yield, EBITDA to enterprise value and dividend yield. Momentum: For the Long/Short Equity Strategy, the momentum factor is used to identify investment trends by looking at historical price movements that are believed to persist and forwardlooking information from analyst estimates. For purposes of the Long/ Short Equity Strategy, examples of momentum measures include 12-month return with the most recent month removed (simple price momentum), analyst revisions and market breadth. Under normal market conditions, the Long/Short Equity Strategy will invest primarily in equity securities and equity total return swaps (as described below). Long/short equity strategies generally seek to produce returns from investments in the equity markets by taking long and short positions in stocks 8 The term ‘‘normal market conditions’’ is defined in NYSE Arca Rule 8.600–E(c)(5). E:\FR\FM\20AUN1.SGM 20AUN1 43198 Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices jbell on DSK3GLQ082PROD with NOTICES and stock indices (through the use of derivatives or through a short position in an exchange-traded fund (‘‘ETF’’)). Under normal market conditions, the Fund expects to obtain short exposures pursuant to the bottom-up long/short equity strategy primarily through the use of equity total return swaps. Under normal market conditions, the Adviser will seek to allocate assets between the two factor-based risk premia alternative investment strategies described above in approximately equal weights. However, in varying market, economic or other conditions, allocations between the two strategies may differ. Through the two strategies, the Adviser will invest the Fund’s assets based on a systematic investment process for securities selection and asset allocation (seeking to profit by utilizing quantitative models to identify investment opportunities across different asset classes and markets in order to construct a portfolio of investments). Quantitative trading models are proprietary systems that rely on mathematical computations to identify trading opportunities. By employing these two approaches, the Adviser seeks to provide positive absolute return over time while maintaining a relatively low correlation with traditional markets. The exposure to individual factors may vary based on the market opportunity of the individual factors. Additional factors may be identified over time. Principal Investments According to the Registration Statement, through the Long/Short Equity Strategy and the Risk Premia Strategy, the Fund may invest in a wide range of securities and other investments, as described below. For purposes of calculating the percentage of principal investments under this proposed rule change, under normal market conditions, at least 80% of the Fund’s assets will be invested in the securities and financial instruments described in this ‘‘Principal Investments’’ section. The Fund may use derivatives for both hedging and non-hedging (investment) purposes. The Fund’s derivative investments are the following: (i) Futures contracts on U.S. and foreign equity, interest rate/bond and commodity indices; (ii) U.S. and foreign equity and commodity-linked total return swaps; and (iii) currency forward contracts. These derivatives may be used to enhance Fund returns, increase liquidity, gain long or short exposure to certain instruments, markets or factors in a more efficient or less expensive way and/or hedge risks VerDate Sep<11>2014 20:49 Aug 19, 2019 Jkt 247001 associated with its other portfolio investments. The Fund may hold its commoditylinked derivative instruments indirectly through a wholly-owned subsidiary established in the Cayman Islands (Subsidiary). The Subsidiary will only invest in commodity-linked total return swaps and futures on commodity indices and will also hold any necessary cash or cash equivalents as collateral. No more than 25% of the Fund’s total assets may be invested in the Subsidiary. The Fund may hold cash and cash equivalents.9 The Fund may hold U.S. and foreign bonds (including convertible bonds), debentures and non-cash equivalent U.S. government securities (other than debt securities with variable interest rates, as referenced below). The Fund may hold U.S. and foreign exchange-traded common stock, preferred stock (including convertible preferred stock), rights and warrants of U.S. and foreign companies. The Fund may engage in short sales in securities and financial instruments in which the Fund may invest, including short sales ‘‘against the box.’’ 10 Other Investments While the Fund, under normal market conditions, will invest at least 80% of its assets in the securities and financial instruments described above, the Fund may invest its remaining assets in other assets and financial instruments, as described below. The Fund may invest in ETFs.11 The Fund may invest in U.S. and foreign corporate debt. The Fund may invest in foreign governmental and supranational debt securities. The Fund may invest in U.S. and foreign exchange-listed and nonexchange-traded ‘‘Depositary Receipts’’.12 9 The term ‘‘cash equivalents’’ is defined in Commentary .01(c) to NYSE Arca Rule 8.600–E. 10 According to the Registration Statement, short sales ‘‘against the box’’ are transactions in which the Fund sells a security short but it also owns an equal amount of the securities sold short or owns securities that are convertible or exchangeable, without payment of further consideration, into an equal amount of such security. 11 For purposes of this filing, ‘‘ETFs’’ are 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. 12 According to the Registration Statement, many securities of foreign issuers are represented by PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 The Fund may invest in the following debt securities with variable interest rates: Floating rate, adjustable rate and inverse floating rate debt securities. The Fund and the Subsidiary will not invest in securities or other financial instruments that have not been described in this proposed rule change. Creation and Redemption of Creation Units According to the Registration Statement, the Trust will issue and sell Shares of the Fund only in ‘‘Creation Units’’ (as defined below) on a continuous basis at a price based on the Fund’s net asset value (‘‘NAV’’) next determined after receipt, on any ‘‘Business Day’’ of an order received by the Distributor or its agent in proper form. A ‘‘Business Day’’ with respect to the Fund is any day on which the Exchange is open for business. The number of Shares of the Fund that constitutes a Creation Unit is 100,000. The size of a Creation Unit is subject to change. The consideration for purchase of Creation Units of the Fund generally will consist of the ‘‘Deposit Securities’’ (i.e., the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted)) and the ‘‘Cash Component’’ computed as described below. Together, the Deposit Securities and the Cash Component constitute the ‘‘Fund Deposit,’’ which will be applicable to creation requests received in proper form. The Fund Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund. The ‘‘Cash Component’’ is 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 market value of the Deposit Securities, and serves to compensate for any differences between the NAV per American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), and European Depositary Receipts (EDRs) (collectively, ‘‘Depositary Receipts’’). Generally, Depositary Receipts in registered form are designed for use in the U.S. securities market and Depositary Receipts in bearer form are designed for use in securities markets outside the U.S. ADRs evidence ownership of, and represent the right to receive, securities of foreign issuers deposited in a domestic bank or trust company or a foreign correspondent bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on exchanges or over-the-counter. EDRs and GDRs are typically issued by foreign banks or trust companies and evidence ownership of underlying securities issued by either a foreign or a U.S. corporation. EDRs and GDRs may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. No more than 10% of the equity weight of the Fund’s portfolio will be invested in nonexchange-traded ADRs. E:\FR\FM\20AUN1.SGM 20AUN1 jbell on DSK3GLQ082PROD with NOTICES Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices Creation Unit and the Deposit Amount. The Fund generally will offer Creation Units partially for cash. The Adviser will make available through the National Securities Clearing Corporation (‘‘NSCC’’) on each Business Day prior to the Exchange Core Trading Session (normally 9:30 a.m. to 4:00 p.m. Eastern Time (‘‘E.T.’’), the list of names and the required number of shares of each Deposit Security and the amount of the Cash Component (if any) to be included in the current Fund Deposit (based on information as of the end of the previous Business Day for the Fund). Such Fund Deposit is applicable, subject to any adjustments, to purchases of Creation Units of Shares of the Fund until such time as the next-announced Fund Deposit is made available. The Fund reserves the right to permit or require the substitution of a ‘‘cash in lieu’’ amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through the facilities of the Depository Trust Company (‘‘DTC’’) (DTC Facilities) or the clearing process through the Continuous Net Settlement System of the NSCC (NSCC Clearing Process), or that the ‘‘Authorized Participant’’ (as defined below) is not able to trade due to a trading restriction. When partial or full cash purchases of Creation Units are available or specified for the Fund, they will be effected in essentially the same manner as in-kind purchases thereof. In the case of a partial or full cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser. To be eligible to place orders with the Distributor and to create a Creation Unit of the Fund, an entity must be: (i) A ‘‘Participating Party,’’ i.e., a brokerdealer or other participant in the NSCC Clearing Process, or (ii) a DTC Participant, and, in either case, must have executed an agreement with the Distributor with respect to creations and redemptions of Creation Units (Authorized Participant Agreement). A Participating Party or DTC Participant who has executed an Authorized Participant Agreement is referred to as an ‘‘Authorized Participant.’’ Creation Units may be purchased only by or through an Authorized Participant that has entered into an Authorized Participant Agreement with the Distributor. An Authorized Participant must submit an irrevocable order to purchase VerDate Sep<11>2014 20:49 Aug 19, 2019 Jkt 247001 or redeem Shares of the Fund, in proper form, generally before 4:00 p.m., E.T. on any Business Day in order to receive that day’s NAV. Shares of the Fund may be redeemed by Authorized Participants only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor or its agent on a Business Day. The Adviser will make available through the NSCC, prior to the Exchange Core Trading Session on each Business Day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable to redemption requests received in proper form on that day (Fund Securities), and an amount of cash (Cash Amount) (if any). Such Fund Securities and the corresponding Cash Amount are applicable in order to effect redemptions of Creation Units of the Fund until such time as the next announced composition of the Fund Securities and Cash Amount is made available. Fund Securities received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Units under certain circumstances. Unless cash redemptions are available or specified for the Fund, the redemption proceeds for a Creation Unit generally consist of Fund Securities, plus the Cash Amount, which is an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after the receipt of a redemption request in proper form, and the value of Fund Securities, less a redemption transaction fee. The Fund may, in its sole discretion, substitute a ‘‘cash in lieu’’ amount to replace any Fund Security that may not be eligible for transfer through DTC Facilities or the NSCC Clearing Process or that the Authorized Participant is not able to trade due to a trading restriction. The Fund generally will redeem Creation Units partially for cash.13 Redemption requests for Creation Units of the Fund must be submitted to the Distributor or its agent by or through an Authorized Participant. Investment 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 13 The Adviser represents that, to the extent the Trust effects the creation or redemption of Shares wholly or partially in cash, such transactions will be effected in the same manner for all Authorized Participants. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 43199 investments may result in leverage). That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (e.g., 2Xs and 3Xs) of the Fund’s primary broad-based securities benchmark index (as defined in Form N–1A).14 The Fund’s Use of Derivatives Investments in derivative instruments will be made in accordance with the Fund’s investment objective and policies. To limit the potential risk associated with such transactions, the Fund will enter into 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. 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. Disclosed Portfolio The Fund’s disclosure of derivative positions in the applicable Disclosed Portfolio includes information that market participants can use to value these positions intraday. On a daily basis, the Fund will disclose the information regarding the Disclosed Portfolio required under NYSE Arca Rule 8.600–E (c)(2) to the extent applicable. The Fund’s website information will be publicly available at no charge. Impact on Arbitrage Mechanism The Adviser believes there will be minimal impact to the arbitrage mechanism as a result of the use of derivatives. Market makers and participants should be able to value derivatives as long as the positions are disclosed with relevant information. The Adviser believes that the price at which Shares trade will continue to be disciplined by arbitrage opportunities created by the ability to purchase or redeem Shares at their NAV, which should ensure that Shares will not trade at a material discount or premium in relation to their NAV. The Adviser does not believe there will be any significant impacts to the 14 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. E:\FR\FM\20AUN1.SGM 20AUN1 43200 Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices settlement or operational aspects of the Fund’s arbitrage mechanism due to the use of derivatives. Application of Generic Listing Requirements jbell on DSK3GLQ082PROD with NOTICES 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 would meet all such requirements except for those set forth in Commentary .01(e) to NYSE Arca Rule 8.600–E regarding investments in OTC derivatives.15 With respect to Commentary .01(e), the aggregate gross notional value of the Fund’s investments in OTC derivatives is expected to exceed 20% of Fund assets, calculated based on the aggregate gross notional value of such OTC derivatives. The Adviser believes 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 swaps and currency forwards to efficiently gain exposure to equities, currencies and commodities, in furtherance of the Fund’s investment objective.16 15 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. 16 The Commission has previously approved an exception from requirements set forth in Commentary .01(e) relating to investments in OTC derivatives similar to those proposed with respect to the Fund in Securities Exchange Act Release No. 80657 (May 11, 2017), 82 FR 22702 (May 17, 2017) (SR–NYSEArca–2017–09) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, Regarding Investments of the Janus Short Duration Income ETF Listed Under NYSE Arca Equities Rule 8.600). See also Securities Exchange Act Release Nos. 82492 (January 12, 2018), 83 FR 2850 (January 19, 2018) (SR– NYSEArca–2017–87) (Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 6, to List and Trade Shares of the JPMorgan Long/Short ETF under NYSE Arca Rule 8.600–E); 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, stating that ‘‘there shall be no limit on the Fund’s investment in Interest Rate and Currency VerDate Sep<11>2014 20:49 Aug 19, 2019 Jkt 247001 The Adviser represents that it intends to engage in strategies that utilize foreign currency forward transactions and U.S. and foreign equity and commodity-linked total return swaps (which swaps will be traded OTC) based on its investment strategies. Depending on market conditions, the exposure due to these strategies is expected to exceed 20% of the Fund’s assets.17 The Adviser represents further that the foreign currency forward transactions and total return swaps will be traded OTC, and, as such, it is not possible to implement these strategies efficiently using listed derivatives. Swaps on 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. 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 swaps, would help protect investors and the public interest. As noted above, the Fund may use the derivative instruments described above to enhance Fund returns, increase liquidity, gain long or short exposure to certain instruments, markets or factors in a more efficient or less expensive way Derivatives, and the weight of all OTC Derivatives other than Interest Rate and Currency Derivatives shall 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, permitting up to 50% of the fund’s assets to be invested in OTC derivatives that are used to reduce currency, interest rate, credit, or duration risk arising from the fund’s investments (‘‘Hedging Derivatives’’) and up to 20% of the Fund’s assets to be invested in OTC derivatives other than Hedging Derivatives); 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 BrandywineGLOBAL—Global Total Return ETF); 79683 (December 23, 2016), 81 FR 96539 (December 30, 2016) (SR–NYSEArca–2016–82) (order approving a proposed rule change to list and trade shares of the JPMorgan Diversified Event Driven ETF under NYSE Arca Equities Rule 8.600); 77904 (May 25, 2016), 81 FR 35101 (June 1, 2016) (SR– NYSEArca–2016–17) (order approving a proposed rule change to list and trade of shares of the JPMorgan Diversified Alternatives ETF under NYSE Arca Equities Rule 8.600). 17 The Adviser and its affiliates actively monitor counterparty credit risk exposure (including for OTC derivatives) and evaluate counterparty credit quality on a continuous basis. PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 and/or hedge risks associated with its other portfolio investments. The Exchange notes that, other than Commentary .01(e) to Rule 8.600–E, the Fund will meet all other requirements of Rule 8.600–E. Availability of Information The Fund’s website (www.franklintempleton.com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The Fund’s website will include additional quantitative information updated on a daily basis, including, for the Fund, (1) daily trading volume, the prior Business Day’s reported closing price, NAV and mid-point of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/Ask Price’’),18 and a calculation of the premium and discount of the Bid/ Ask Price against the NAV, and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. On each Business Day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Adviser will disclose on the Fund’s website the Disclosed Portfolio for the Fund as defined in NYSE Arca Rule 8.600–E(c)(2) that will form the basis for the Fund’s calculation of NAV at the end of the business day.19 Investors can also obtain the Fund’s Statement of Additional Information (‘‘SAI’’), its Shareholder Reports, its Form N–CSR, filed twice a year, and its Form N–CEN, filed annually. The Fund’s SAI and Shareholder Reports are available free upon request from the Trust, and those documents and the Form N–CSR and Form N–CEN may be viewed on-screen or downloaded from the Commission’s website at www.sec.gov. Quotation and last sale information for the Shares and for securities holdings of the Fund that are U.S. exchange-listed, including common stocks, preferred stocks, rights, warrants, ETFs and Depositary Receipts 18 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. 19 Under accounting procedures to be 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. E:\FR\FM\20AUN1.SGM 20AUN1 Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices jbell on DSK3GLQ082PROD with NOTICES will be available via the CTA high speed line. Quotation and last sale information for such U.S. exchange-listed securities as well as U.S. and foreign exchangetraded futures will be available from the exchange on which they are listed and from major market data vendors. Quotation and last sale information for foreign exchange-listed common stocks, preferred stocks, rights and warrants will be available from the exchanges on which they trade and from major market data vendors, as applicable. Price information for total return swaps and currency forward contracts is available from major market data vendors. Information regarding market price and trading volume for 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 information for cash equivalents, bonds, debentures, swaps, foreign governmental and supranational debt securities, U.S. Government securities, debt securities with variable interest rates and U.S. and foreign corporate debt may be obtained from brokers and dealers who make markets in such securities or through nationally recognized pricing services through subscription agreements. The U.S. dollar value of foreign securities, instruments and currencies can be derived by using foreign currency exchange rate quotations obtained from nationally recognized pricing services. Price information for non-exchangetraded Depositary Receipts is available from major market data vendors. In addition, the 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.20 The dissemination of the PIV, together with the Disclosed Portfolio, will allow investors to determine the approximate value of the underlying portfolio of the Fund on a daily basis and will provide a close estimate of that value throughout the trading day. 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.21 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 of the Fund inadvisable. 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 (Early, Core, and Late 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. Except as described herein, 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 22 under the Act, as provided by NYSE Arca Rule 5.3–E. A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund 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 the Financial Industry Regulatory Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.23 The Exchange 22 17 20 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available PIVs taken from the CTA or other data feeds. 21 See NYSE Arca Rule 7.12–E. VerDate Sep<11>2014 20:49 Aug 19, 2019 Jkt 247001 CFR 240 10A–3. conducts cross-market surveillances on behalf of the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 23 FINRA PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 43201 represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. 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 futures, and certain exchange-traded equity securities 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 such securities and financial instruments from such markets and other entities. In addition, the Exchange may obtain information regarding trading in such securities and financial instruments from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.24 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 Trade Reporting and Compliance Engine (‘‘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 holdings or reference assets, (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 24 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. E:\FR\FM\20AUN1.SGM 20AUN1 43202 Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices 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–E(m). jbell on DSK3GLQ082PROD with NOTICES 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) 25 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 25 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 20:49 Aug 19, 2019 Jkt 247001 listing criteria in NYSE Arca Rule 8.600–E. The Adviser is not registered as a broker-dealer but is affiliated with a broker-dealer and has implemented and will maintain a fire wall with respect to such broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio. 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 applicable federal securities laws. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares, certain futures and certain exchangetraded equity securities 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 such securities and financial instruments from such markets and other entities. In addition, the Exchange may obtain information regarding trading in such securities and financial instruments from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. 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 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. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), deemed illiquid by the Adviser, consistent with Commission guidance. Except as described herein, 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 of the Fund will be outstanding at the commencement of trading on the PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund 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 Fund’s portfolio holdings will be disclosed on its website daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. On a daily basis, the Fund will disclose the information regarding the Disclosed Portfolio required under NYSE Arca Rule 8.600– E (c)(2) to the extent applicable. The Fund’s website information will be publicly available at no charge. Investors can also obtain the Fund’s Statement of Additional Information (‘‘SAI’’), its Shareholder Reports, its Form N–CSR, filed twice a year, and its Form N–CEN, filed annually. The Fund’s SAI and Shareholder Reports are available free upon request from the Trust, and those documents and the Form N–CSR and Form N–CEN may be viewed on-screen or downloaded from the Commission’s website at www.sec.gov. Quotation and last sale information for the Shares and for portfolio securities of the Fund that are U.S. exchange listed, including common stocks, preferred stocks, rights, warrants, ETFs, and U.S. exchangetraded Depositary Receipts will be available via the CTA high speed line. With respect to Commentary .01(e), the aggregate gross notional value of the Fund’s investments in OTC derivatives is expected to exceed 20% of Fund assets, calculated based on the aggregate gross notional value of such OTC derivatives. The Adviser believes 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 swaps and currency forwards to efficiently gain exposure to equities, currencies and commodities, in furtherance of the Fund’s investment objective.26 The Adviser represents that it intends to engage in strategies that utilize foreign currency forward transactions 26 As noted above, 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. See, note 16, supra. E:\FR\FM\20AUN1.SGM 20AUN1 jbell on DSK3GLQ082PROD with NOTICES Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices and total return swaps (which swaps will be traded OTC) based on its investment strategies. Depending on market conditions, the exposure due to these strategies is expected to exceed 20% of the Fund’s assets.27 The Adviser represents further that the foreign currency forward transactions and total return swaps will be traded OTC, and, as such, it is not possible to implement these strategies efficiently using listed derivatives. Swaps on 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. 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 swaps, would help protect investors and the public interest. As noted above, the Fund may use the derivative instruments described above to enhance Fund returns, increase liquidity, gain long or short exposure to certain instruments, markets or factors in a more efficient or less expensive way and/or hedge risks associated with its other portfolio investments. The Exchange notes that, other than Commentary .01(e) to Rule 8.600–E, the Fund will meet all other requirements of Rule 8.600–E. The website for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the 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 or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable, and trading in the Shares will be subject to NYSE Arca Rule 8.600–E(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. In addition, as noted above, investors will 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 Fund’s 27 See note 16, supra. VerDate Sep<11>2014 20:49 Aug 19, 2019 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, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (e.g., 2Xs and 3Xs) of the Fund’s primary broad-based securities benchmark index (as defined in Form N–1A).28 The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an actively-managed exchange-traded product that, through permitted use of an increased level of OTC derivatives above that currently permitted by the generic listing requirements of Commentary .01 to NYSE Arca Rule 8.600–E, will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, as noted above, investors have ready access to information regarding the Fund’s holdings, the PIV, the Disclosed Portfolio for the Fund, and quotation and last sale information for the Shares. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of an additional type of actively-managed exchange-traded product that holds fixed income securities, equity securities and derivatives and that will enhance competition among market participants, to the benefit of investors and the marketplace. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. 28 See Jkt 247001 PO 00000 note 14, supra. Frm 00105 Fmt 4703 Sfmt 4703 43203 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–2019–57 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-2019–57. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for E:\FR\FM\20AUN1.SGM 20AUN1 43204 Federal Register / Vol. 84, No. 161 / Tuesday, August 20, 2019 / Notices inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2019–57 and should be submitted on or before September10, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–17854 Filed 8–19–19; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86679; File No. SR–MIAX– 2019–36] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, Complex Orders August 14, 2019. jbell on DSK3GLQ082PROD with NOTICES Pursuant to the provisions of 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 August 12, 2019, Miami International Securities Exchange, LLC (‘‘MIAX Options’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a 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 is filing a proposal to amend Exchange Rule 518, Complex Orders, to amend subsection (d)(7) and to make a minor non-substantive change to correct a typographical error in subsection (f)(1) of Interpretation and Policy .05. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/ at MIAX Options’ principal 1. Purpose The Exchange proposes to amend Exchange Rule 518, Complex Orders, to amend subsection (d)(7), Allocation at the Conclusion of a Complex Auction, to adopt a new parenthetical to existing rule text to state that orders and quotes executed in a Complex Auction 3 will be allocated first in price priority based on their original limit price (or protected price, as described in Interpretation and Policy .05, if price protection is engaged). Currently, subsection (d)(7) of the Rule provides that orders and quotes executed in a Complex Auction will be allocated first in price priority based on their original limit price, and thereafter as follows, and the Rule lists six different scenarios which influence allocation. The Exchange is proposing to adopt the parenthetical, ‘‘or protected price if price protection, as described in Interpretation and Policy .05, is engaged’’ after the term ‘‘original limit price’’ to improve the fairness and consistency of allocations among participants at the end of a Complex Auction. Under the proposal, allocations will continue to be calculated based on original limit price, with the exception that if price protection is engaged, allocation will then be based on the order’s protected price as opposed to the order’s original limit price. The following examples using the MPC Protection better illustrate this scenario.4 3 See Exchange Rule 518(d). Exchange notes that the System provides a number of price protections as described in Policy .05 of Interpretations and Policies to this Rule. Price protections include a Vertical Spread Variance 4 The 29 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 20:49 Aug 19, 2019 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 BILLING CODE 8011–01–P VerDate Sep<11>2014 office, and at the Commission’s Public Reference Room. Jkt 247001 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 Example #1A End of Complex Auction Allocation Using Current Allocation Methodology icMBBO 5/dcMBBO 6 1.75 × 2.00 cNBBO 7 1.85 × 1.95 MPC 0.05 MPC Protection: cNBB 8¥MPC (1.85¥0.05 = 1.80) cNBO 9 + MPC (1.95 + 0.05 = 2.00) Complex Order 1 (CO1) Buy 10 @ 2.00 (Auction on Arrival) 10 CO1 marked AOA initiates an auction upon receipt. Market Maker (‘‘MM’’) 11 Complex Order 2 (CO2) Sell 10 @ 1.80 (MPC = 1.80) MM Complex AOC eQuote 12 3 (CO3) Sell 10 @ 1.00 (MPC = 1.80) price protection (.05(a)); a Calendar Spread Variance price protection (.05(b)); an Implied Away Best Bid or Offer (‘‘ixABBO’’) price protection. The ixABBO price protection feature is a price protection mechanism under which, when in operation as requested by the submitting Member, a buy order will not be executed at a price that is higher than each other single exchange’s best displayed offer for the complex strategy, and under which a sell order will not be executed at a price that is lower than each other single exchange’s best displayed bid for the complex strategy (.05(d)); and a Complex MIAX Options Price Collar (‘‘MPC’’) price protection (.05(f)). 5 Implied Complex MIAX Best Bid or offer (‘‘icMBBO’’). The icMBBO is a calculation that uses the best price from the Simple Order Book for each component of a complex strategy including displayed and non-displayed trading interest. For stock-option orders, the icMBBO for a complex strategy will be calculated using the best price (whether displayed or non-displayed) on the Simple Order Book in the individual option component(s), and the NBBO in the stock component. See Exchange Rule 518(a)(11). 6 Displayed Complex MIAX Best Bid or Offer (‘‘dcMBBO’’). The dcMBBO is calculated using the best displayed price for each component of a complex strategy from the Simple Order Book. For stock-option orders, the dcMBBO for a complex strategy will be calculated using the Exchange’s best displayed bid or offer in the individual option component(s) and the NBBO in the stock component. See Exchange Rule 518(a)(8). 7 The Complex National Best Bid or Offer (‘‘cNBBO’’) is calculated using the NBBO for each component of a complex strategy to establish the best net bid and offer for a complex strategy. See Exchange Rule 100. 8 NBB means the National Best Bid. 9 NBO means the National Best Offer. 10 A ‘‘Complex Auction-on-Arrival’’ or ‘‘cAOA’’ order is a complex order designated to be placed into a Complex Auction upon receipt or upon evaluation. Complex orders that are not designated as cAOA will, by default, not initiate a Complex Auction upon arrival, but except as described herein will be eligible to participate in a Complex Auction that is in progress when such complex order arrives or if placed on the Strategy Book may participate in or may initiate a Complex Auction, following evaluation conducted by the System. See Exchange Rule 518(b)(2)(i). 11 The term ‘‘Market Makers’’ refers to ‘‘Lead Market Makers’’, ‘‘Primary Lead Market Makers’’ and ‘‘Registered Market Makers’’ collectively. See Exchange Rule 100. 12 A ‘‘Complex Auction-or-Cancel eQuote’’ or ‘‘cAOC eQuote,’’ which is an eQuote submitted by a Market Maker that is used to provide liquidity during a specific Complex Auction with a time in force that corresponds with the duration of the E:\FR\FM\20AUN1.SGM 20AUN1

Agencies

[Federal Register Volume 84, Number 161 (Tuesday, August 20, 2019)]
[Notices]
[Pages 43196-43204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17854]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86659; File No. SR-NYSEArca-2019-57]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the Franklin 
Liberty Systematic Style Premia ETF, a Series of the Franklin Templeton 
ETF Trust Under NYSE Arca Rule 8.600-E

August 14, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 8, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the Franklin 
Liberty Systematic Style Premia ETF, a series of the Franklin Templeton 
ETF Trust (``Trust''), under NYSE Arca Rule 8.600-E (``Managed Fund 
Shares''). The proposed change is available on the Exchange's website 
at www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
Franklin Liberty Systematic Style Premia ETF (the ``Fund'') \4\ under 
NYSE Arca Rule 8.600-E, which governs the listing and trading of 
Managed Fund Shares \5\ on the Exchange.
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    \4\ The Trust is registered under the 1940 Act. On July 31, 
2019, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to 
the Fund (File Nos. 333-208873 and 811-23124) (the ``Registration 
Statement''). 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 Franklin ETF Trust, Franklin Advisers, Inc. and 
Franklin Templeton Distributors, Inc. under the 1940 Act that the 
Trust relies on. See Investment Company Act Release No. 30350 
(January 15, 2013) (``Exemptive Order''). Investments made by the 
Fund will comply with the conditions set forth in the Exemptive 
Order.
    \5\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``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.

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[[Page 43197]]

    Franklin Advisers, Inc. (``Adviser'') will be the investment 
adviser to the Fund. Franklin Templeton Distributors, Inc. 
(``Distributor'') will be the distributor of the Fund's Shares. State 
Street Bank and Trust Company will be the custodian and 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.\6\ In 
addition, Commentary .06 further requires that personnel who make 
decisions on the open-end fund's portfolio composition must be subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the open-end fund's portfolio. The 
Adviser is not registered as a broker-dealer but is affiliated with a 
broker-dealer and has implemented and will maintain a fire wall with 
respect to such broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the portfolio. In the 
event (a) the Adviser becomes registered as a broker-dealer or newly 
affiliated with one or more broker-dealers, 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 its broker-dealer affiliate regarding 
access to information concerning the composition and/or changes to the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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Franklin Liberty Systematic Style Premia ETF
    According to the Registration Statement, the Fund will seek to 
provide absolute return. The Fund will seek to achieve its investment 
goal by allocating its assets across two underlying ``alternative'' 
investment strategies, which represent top-down and bottom-up 
approaches to capturing factor-based risk premia.\7\ The strategies 
consist of a top-down risk premia strategy (``Risk Premia Strategy'') 
and a bottom-up long/short equity strategy (``Long/Short Equity 
Strategy''), each of which is described below.
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    \7\ According to the Registration Statement a ``risk premium'' 
is the economic concept that an investor should receive a premium 
(that is, a higher expected return) for bearing risk. In other 
words, risk premium refers to the return that is expected for 
assuming a particular market risk.
---------------------------------------------------------------------------

    Risk Premia Strategy. The top-down risk premia strategy focuses on 
value, momentum and carry factors in investing across equity, fixed 
income, commodity and currency asset classes, as described below.
    Value: Value strategies favor investments that appear cheap over 
those that appear expensive based on fundamental measures related to 
price, seeking to capture the tendency for relatively cheap assets to 
outperform relatively expensive assets. The Adviser will seek to buy 
assets that are ``cheap'' and sell those that are ``expensive.'' For 
purposes of the Risk Premia Strategy, examples of value measures 
include using price to earnings, price to forward earnings, price to 
book value and dividend yield.
    Momentum: Momentum strategies favor investments that have performed 
relatively well over those that have underperformed over the medium-
term (i.e., one year or less), seeking to capture the tendency that an 
asset's recent relative performance will continue in the near future. 
The Adviser will seek to buy assets that recently outperformed their 
peers and sell those that recently underperformed. For purposes of the 
Risk Premia Strategy, examples of momentum measures include simple 
price momentum (measured over the prior twelve months with the most 
recent month removed) for selecting stocks and price- and yield-based 
momentum for selecting bonds.
    Carry: An asset's ``carry'' is its expected return assuming market 
conditions, including its price, stay the same. Carry strategies favor 
investments with higher yields over those with lower yields, seeking to 
capture the tendency for higher-yielding assets to provide higher 
returns than lower-yielding assets. The Adviser will seek to take long 
positions in high-yielding assets and short positions in low-yielding 
assets. An example of carry measures includes selecting currencies and 
bonds based on interest rates.
    Under normal market conditions,\8\ the Risk Premia Strategy will 
invest primarily in equity, interest rate/bond and commodity index 
futures; equity and commodity-linked total return swaps; and currency 
forwards (as described below).
---------------------------------------------------------------------------

    \8\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
---------------------------------------------------------------------------

    Long/Short Equity Strategy. The bottom-up Long/Short Equity 
Strategy focuses on quality, value and momentum factors in determining 
whether to hold long or short positions in individual equity 
securities.
    Quality: Quality strategies favor investments that exhibit 
relatively higher quality characteristics. Examples of quality measures 
include return on equity, earnings variability, cash return on assets 
and leverage.
    Value: For the Long/Short Equity Strategy, the value factor is used 
to identify cheapness by using earnings, book value, sales and cash 
flow ratios relative to market capitalization, and enterprise value 
compared against a peer group. For purposes of the Long/Short Equity 
Strategy, examples of value measures include earnings yield, EBITDA to 
enterprise value and dividend yield.
    Momentum: For the Long/Short Equity Strategy, the momentum factor 
is used to identify investment trends by looking at historical price 
movements that are believed to persist and forward-looking information 
from analyst estimates. For purposes of the Long/Short Equity Strategy, 
examples of momentum measures include 12-month return with the most 
recent month removed (simple price momentum), analyst revisions and 
market breadth.
    Under normal market conditions, the Long/Short Equity Strategy will 
invest primarily in equity securities and equity total return swaps (as 
described below). Long/short equity strategies generally seek to 
produce returns from investments in the equity markets by taking long 
and short positions in stocks

[[Page 43198]]

and stock indices (through the use of derivatives or through a short 
position in an exchange-traded fund (``ETF'')). Under normal market 
conditions, the Fund expects to obtain short exposures pursuant to the 
bottom-up long/short equity strategy primarily through the use of 
equity total return swaps.
    Under normal market conditions, the Adviser will seek to allocate 
assets between the two factor-based risk premia alternative investment 
strategies described above in approximately equal weights. However, in 
varying market, economic or other conditions, allocations between the 
two strategies may differ. Through the two strategies, the Adviser will 
invest the Fund's assets based on a systematic investment process for 
securities selection and asset allocation (seeking to profit by 
utilizing quantitative models to identify investment opportunities 
across different asset classes and markets in order to construct a 
portfolio of investments). Quantitative trading models are proprietary 
systems that rely on mathematical computations to identify trading 
opportunities. By employing these two approaches, the Adviser seeks to 
provide positive absolute return over time while maintaining a 
relatively low correlation with traditional markets. The exposure to 
individual factors may vary based on the market opportunity of the 
individual factors. Additional factors may be identified over time.
Principal Investments
    According to the Registration Statement, through the Long/Short 
Equity Strategy and the Risk Premia Strategy, the Fund may invest in a 
wide range of securities and other investments, as described below. For 
purposes of calculating the percentage of principal investments under 
this proposed rule change, under normal market conditions, at least 80% 
of the Fund's assets will be invested in the securities and financial 
instruments described in this ``Principal Investments'' section.
    The Fund may use derivatives for both hedging and non-hedging 
(investment) purposes. The Fund's derivative investments are the 
following: (i) Futures contracts on U.S. and foreign equity, interest 
rate/bond and commodity indices; (ii) U.S. and foreign equity and 
commodity-linked total return swaps; and (iii) currency forward 
contracts. These derivatives may be used to enhance Fund returns, 
increase liquidity, gain long or short exposure to certain instruments, 
markets or factors in a more efficient or less expensive way and/or 
hedge risks associated with its other portfolio investments.
    The Fund may hold its commodity-linked derivative instruments 
indirectly through a wholly-owned subsidiary established in the Cayman 
Islands (Subsidiary). The Subsidiary will only invest in commodity-
linked total return swaps and futures on commodity indices and will 
also hold any necessary cash or cash equivalents as collateral. No more 
than 25% of the Fund's total assets may be invested in the Subsidiary.
    The Fund may hold cash and cash equivalents.\9\
---------------------------------------------------------------------------

    \9\ The term ``cash equivalents'' is defined in Commentary 
.01(c) to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------

    The Fund may hold U.S. and foreign bonds (including convertible 
bonds), debentures and non-cash equivalent U.S. government securities 
(other than debt securities with variable interest rates, as referenced 
below).
    The Fund may hold U.S. and foreign exchange-traded common stock, 
preferred stock (including convertible preferred stock), rights and 
warrants of U.S. and foreign companies.
    The Fund may engage in short sales in securities and financial 
instruments in which the Fund may invest, including short sales 
``against the box.'' \10\
---------------------------------------------------------------------------

    \10\ According to the Registration Statement, short sales 
``against the box'' are transactions in which the Fund sells a 
security short but it also owns an equal amount of the securities 
sold short or owns securities that are convertible or exchangeable, 
without payment of further consideration, into an equal amount of 
such security.
---------------------------------------------------------------------------

Other Investments
    While the Fund, under normal market conditions, will invest at 
least 80% of its assets in the securities and financial instruments 
described above, the Fund may invest its remaining assets in other 
assets and financial instruments, as described below. The Fund may 
invest in ETFs.\11\
---------------------------------------------------------------------------

    \11\ For purposes of this filing, ``ETFs'' are 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 U.S. and foreign corporate debt.
    The Fund may invest in foreign governmental and supranational debt 
securities.
    The Fund may invest in U.S. and foreign exchange-listed and non-
exchange-traded ``Depositary Receipts''.\12\
---------------------------------------------------------------------------

    \12\ According to the Registration Statement, many securities of 
foreign issuers are represented by American Depositary Receipts 
(ADRs), Global Depositary Receipts (GDRs), and European Depositary 
Receipts (EDRs) (collectively, ``Depositary Receipts''). Generally, 
Depositary Receipts in registered form are designed for use in the 
U.S. securities market and Depositary Receipts in bearer form are 
designed for use in securities markets outside the U.S. ADRs 
evidence ownership of, and represent the right to receive, 
securities of foreign issuers deposited in a domestic bank or trust 
company or a foreign correspondent bank. Prices of ADRs are quoted 
in U.S. dollars, and ADRs are traded in the U.S. on exchanges or 
over-the-counter. EDRs and GDRs are typically issued by foreign 
banks or trust companies and evidence ownership of underlying 
securities issued by either a foreign or a U.S. corporation. EDRs 
and GDRs may not necessarily be denominated in the same currency as 
the underlying securities into which they may be converted. No more 
than 10% of the equity weight of the Fund's portfolio will be 
invested in non-exchange-traded ADRs.
---------------------------------------------------------------------------

    The Fund may invest in the following debt securities with variable 
interest rates: Floating rate, adjustable rate and inverse floating 
rate debt securities.
    The Fund and the Subsidiary will not invest in securities or other 
financial instruments that have not been described in this proposed 
rule change.
Creation and Redemption of Creation Units
    According to the Registration Statement, the Trust will issue and 
sell Shares of the Fund only in ``Creation Units'' (as defined below) 
on a continuous basis at a price based on the Fund's net asset value 
(``NAV'') next determined after receipt, on any ``Business Day'' of an 
order received by the Distributor or its agent in proper form. A 
``Business Day'' with respect to the Fund is any day on which the 
Exchange is open for business. The number of Shares of the Fund that 
constitutes a Creation Unit is 100,000. The size of a Creation Unit is 
subject to change.
    The consideration for purchase of Creation Units of the Fund 
generally will consist of the ``Deposit Securities'' (i.e., the in-kind 
deposit of a designated portfolio of securities (including any portion 
of such securities for which cash may be substituted)) and the ``Cash 
Component'' computed as described below. Together, the Deposit 
Securities and the Cash Component constitute the ``Fund Deposit,'' 
which will be applicable to creation requests received in proper form. 
The Fund Deposit represents the minimum initial and subsequent 
investment amount for a Creation Unit of the Fund.
    The ``Cash Component'' is 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 market value of the Deposit Securities, 
and serves to compensate for any differences between the NAV per

[[Page 43199]]

Creation Unit and the Deposit Amount. The Fund generally will offer 
Creation Units partially for cash.
    The Adviser will make available through the National Securities 
Clearing Corporation (``NSCC'') on each Business Day prior to the 
Exchange Core Trading Session (normally 9:30 a.m. to 4:00 p.m. Eastern 
Time (``E.T.''), the list of names and the required number of shares of 
each Deposit Security and the amount of the Cash Component (if any) to 
be included in the current Fund Deposit (based on information as of the 
end of the previous Business Day for the Fund). Such Fund Deposit is 
applicable, subject to any adjustments, to purchases of Creation Units 
of Shares of the Fund until such time as the next-announced Fund 
Deposit is made available.
    The Fund reserves the right to permit or require the substitution 
of a ``cash in lieu'' amount to be added to the Cash Component to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the facilities of the Depository Trust Company (``DTC'') (DTC 
Facilities) or the clearing process through the Continuous Net 
Settlement System of the NSCC (NSCC Clearing Process), or that the 
``Authorized Participant'' (as defined below) is not able to trade due 
to a trading restriction.
    When partial or full cash purchases of Creation Units are available 
or specified for the Fund, they will be effected in essentially the 
same manner as in-kind purchases thereof. In the case of a partial or 
full cash purchase, the Authorized Participant must pay the cash 
equivalent of the Deposit Securities it would otherwise be required to 
provide through an in-kind purchase, plus the same Cash Component 
required to be paid by an in-kind purchaser.
    To be eligible to place orders with the Distributor and to create a 
Creation Unit of the Fund, an entity must be: (i) A ``Participating 
Party,'' i.e., a broker-dealer or other participant in the NSCC 
Clearing Process, or (ii) a DTC Participant, and, in either case, must 
have executed an agreement with the Distributor with respect to 
creations and redemptions of Creation Units (Authorized Participant 
Agreement). A Participating Party or DTC Participant who has executed 
an Authorized Participant Agreement is referred to as an ``Authorized 
Participant.''
    Creation Units may be purchased only by or through an Authorized 
Participant that has entered into an Authorized Participant Agreement 
with the Distributor.
    An Authorized Participant must submit an irrevocable order to 
purchase or redeem Shares of the Fund, in proper form, generally before 
4:00 p.m., E.T. on any Business Day in order to receive that day's NAV.
    Shares of the Fund may be redeemed by Authorized Participants only 
in Creation Units at their NAV next determined after receipt of a 
redemption request in proper form by the Distributor or its agent on a 
Business Day.
    The Adviser will make available through the NSCC, prior to the 
Exchange Core Trading Session on each Business Day, the designated 
portfolio of securities (including any portion of such securities for 
which cash may be substituted) that will be applicable to redemption 
requests received in proper form on that day (Fund Securities), and an 
amount of cash (Cash Amount) (if any). Such Fund Securities and the 
corresponding Cash Amount are applicable in order to effect redemptions 
of Creation Units of the Fund until such time as the next announced 
composition of the Fund Securities and Cash Amount is made available. 
Fund Securities received on redemption may not be identical to Deposit 
Securities that are applicable to creations of Creation Units under 
certain circumstances.
    Unless cash redemptions are available or specified for the Fund, 
the redemption proceeds for a Creation Unit generally consist of Fund 
Securities, plus the Cash Amount, which is an amount equal to the 
difference between the NAV of the Shares being redeemed, as next 
determined after the receipt of a redemption request in proper form, 
and the value of Fund Securities, less a redemption transaction fee.
    The Fund may, in its sole discretion, substitute a ``cash in lieu'' 
amount to replace any Fund Security that may not be eligible for 
transfer through DTC Facilities or the NSCC Clearing Process or that 
the Authorized Participant is not able to trade due to a trading 
restriction. The Fund generally will redeem Creation Units partially 
for cash.\13\
---------------------------------------------------------------------------

    \13\ The Adviser represents that, to the extent the Trust 
effects the creation or redemption of Shares wholly or partially in 
cash, such transactions will be effected in the same manner for all 
Authorized Participants.
---------------------------------------------------------------------------

    Redemption requests for Creation Units of the Fund must be 
submitted to the Distributor or its agent by or through an Authorized 
Participant.
Investment 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, while the Fund will be permitted to borrow as 
permitted under the 1940 Act, the Fund's investments will not be used 
to seek performance that is the multiple or inverse multiple (e.g., 2Xs 
and 3Xs) of the Fund's primary broad-based securities benchmark index 
(as defined in Form N-1A).\14\
---------------------------------------------------------------------------

    \14\ 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.
---------------------------------------------------------------------------

The Fund's Use of Derivatives
    Investments in derivative instruments will be made in accordance 
with the Fund's investment objective and policies.
    To limit the potential risk associated with such transactions, the 
Fund will enter into 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. 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.
Disclosed Portfolio
    The Fund's disclosure of derivative positions in the applicable 
Disclosed Portfolio includes information that market participants can 
use to value these positions intraday. On a daily basis, the Fund will 
disclose the information regarding the Disclosed Portfolio required 
under NYSE Arca Rule 8.600-E (c)(2) to the extent applicable. The 
Fund's website information will be publicly available at no charge.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal impact to the arbitrage 
mechanism as a result of the use of derivatives. Market makers and 
participants should be able to value derivatives as long as the 
positions are disclosed with relevant information. The Adviser believes 
that the price at which Shares trade will continue to be disciplined by 
arbitrage opportunities created by the ability to purchase or redeem 
Shares at their NAV, which should ensure that Shares will not trade at 
a material discount or premium in relation to their NAV.
    The Adviser does not believe there will be any significant impacts 
to the

[[Page 43200]]

settlement or operational aspects of the Fund's arbitrage mechanism due 
to the use of derivatives.
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 would meet all 
such requirements except for those set forth in Commentary .01(e) to 
NYSE Arca Rule 8.600-E regarding investments in OTC derivatives.\15\
---------------------------------------------------------------------------

    \15\ 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.
---------------------------------------------------------------------------

    With respect to Commentary .01(e), the aggregate gross notional 
value of the Fund's investments in OTC derivatives is expected to 
exceed 20% of Fund assets, calculated based on the aggregate gross 
notional value of such OTC derivatives.
    The Adviser believes 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 swaps and currency forwards to 
efficiently gain exposure to equities, currencies and commodities, in 
furtherance of the Fund's investment objective.\16\
---------------------------------------------------------------------------

    \16\ The Commission has previously approved an exception from 
requirements set forth in Commentary .01(e) relating to investments 
in OTC derivatives similar to those proposed with respect to the 
Fund in Securities Exchange Act Release No. 80657 (May 11, 2017), 82 
FR 22702 (May 17, 2017) (SR-NYSEArca-2017-09) (Notice of Filing of 
Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, Regarding 
Investments of the Janus Short Duration Income ETF Listed Under NYSE 
Arca Equities Rule 8.600). See also Securities Exchange Act Release 
Nos. 82492 (January 12, 2018), 83 FR 2850 (January 19, 2018) (SR-
NYSEArca-2017-87) (Order Granting Approval of a Proposed Rule 
Change, as Modified by Amendment No. 6, to List and Trade Shares of 
the JPMorgan Long/Short ETF under NYSE Arca Rule 8.600-E); 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, stating that ``there shall be no limit on the Fund's 
investment in Interest Rate and Currency Derivatives, and the weight 
of all OTC Derivatives other than Interest Rate and Currency 
Derivatives shall 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, permitting up to 50% of the fund's 
assets to be invested in OTC derivatives that are used to reduce 
currency, interest rate, credit, or duration risk arising from the 
fund's investments (``Hedging Derivatives'') and up to 20% of the 
Fund's assets to be invested in OTC derivatives other than Hedging 
Derivatives); 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 BrandywineGLOBAL--Global Total Return 
ETF); 79683 (December 23, 2016), 81 FR 96539 (December 30, 2016) 
(SR-NYSEArca-2016-82) (order approving a proposed rule change to 
list and trade shares of the JPMorgan Diversified Event Driven ETF 
under NYSE Arca Equities Rule 8.600); 77904 (May 25, 2016), 81 FR 
35101 (June 1, 2016) (SR-NYSEArca-2016-17) (order approving a 
proposed rule change to list and trade of shares of the JPMorgan 
Diversified Alternatives ETF under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    The Adviser represents that it intends to engage in strategies that 
utilize foreign currency forward transactions and U.S. and foreign 
equity and commodity-linked total return swaps (which swaps will be 
traded OTC) based on its investment strategies. Depending on market 
conditions, the exposure due to these strategies is expected to exceed 
20% of the Fund's assets.\17\ The Adviser represents further that the 
foreign currency forward transactions and total return swaps will be 
traded OTC, and, as such, it is not possible to implement these 
strategies efficiently using listed derivatives. Swaps on 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. 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 swaps, would help protect investors 
and the public interest.
---------------------------------------------------------------------------

    \17\ The Adviser and its affiliates actively monitor 
counterparty credit risk exposure (including for OTC derivatives) 
and evaluate counterparty credit quality on a continuous basis.
---------------------------------------------------------------------------

    As noted above, the Fund may use the derivative instruments 
described above to enhance Fund returns, increase liquidity, gain long 
or short exposure to certain instruments, markets or factors in a more 
efficient or less expensive way and/or hedge risks associated with its 
other portfolio investments.
    The Exchange notes that, other than Commentary .01(e) to Rule 
8.600-E, the Fund will meet all other requirements of Rule 8.600-E.
Availability of Information
    The Fund's website (www.franklintempleton.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for the Fund that may be downloaded. The 
Fund's website will include additional quantitative information updated 
on a daily basis, including, for the Fund, (1) daily trading volume, 
the prior Business Day's reported closing price, NAV and mid-point of 
the bid/ask spread at the time of calculation of such NAV (the ``Bid/
Ask Price''),\18\ and a calculation of the premium and discount of the 
Bid/Ask Price against the NAV, and (2) data in chart format displaying 
the frequency distribution of discounts and premiums of the daily Bid/
Ask Price against the NAV, within appropriate ranges, for each of the 
four previous calendar quarters. On each Business Day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Adviser will disclose on the Fund's website the Disclosed 
Portfolio for the Fund as defined in NYSE Arca Rule 8.600-E(c)(2) that 
will form the basis for the Fund's calculation of NAV at the end of the 
business day.\19\
---------------------------------------------------------------------------

    \18\ 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.
    \19\ Under accounting procedures to be 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.
---------------------------------------------------------------------------

    Investors can also obtain the Fund's Statement of Additional 
Information (``SAI''), its Shareholder Reports, its Form N-CSR, filed 
twice a year, and its Form N-CEN, filed annually. The Fund's SAI and 
Shareholder Reports are available free upon request from the Trust, and 
those documents and the Form N-CSR and Form N-CEN may be viewed on-
screen or downloaded from the Commission's website at www.sec.gov.
    Quotation and last sale information for the Shares and for 
securities holdings of the Fund that are U.S. exchange-listed, 
including common stocks, preferred stocks, rights, warrants, ETFs and 
Depositary Receipts

[[Page 43201]]

will be available via the CTA high speed line. Quotation and last sale 
information for such U.S. exchange-listed securities as well as U.S. 
and foreign exchange-traded futures will be available from the exchange 
on which they are listed and from major market data vendors. Quotation 
and last sale information for foreign exchange-listed common stocks, 
preferred stocks, rights and warrants will be available from the 
exchanges on which they trade and from major market data vendors, as 
applicable. Price information for total return swaps and currency 
forward contracts is available from major market data vendors. 
Information regarding market price and trading volume for 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 information for cash equivalents, bonds, debentures, 
swaps, foreign governmental and supranational debt securities, U.S. 
Government securities, debt securities with variable interest rates and 
U.S. and foreign corporate debt may be obtained from brokers and 
dealers who make markets in such securities or through nationally 
recognized pricing services through subscription agreements. The U.S. 
dollar value of foreign securities, instruments and currencies can be 
derived by using foreign currency exchange rate quotations obtained 
from nationally recognized pricing services. Price information for non-
exchange-traded Depositary Receipts is available from major market data 
vendors.
    In addition, the 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.\20\ The 
dissemination of the PIV, together with the Disclosed Portfolio, will 
allow investors to determine the approximate value of the underlying 
portfolio of the Fund on a daily basis and will provide a close 
estimate of that value throughout the trading day.
---------------------------------------------------------------------------

    \20\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available PIVs 
taken from the CTA or other data feeds.
---------------------------------------------------------------------------

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.\21\ 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 of the Fund inadvisable.
---------------------------------------------------------------------------

    \21\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    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 (Early, Core, and Late 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.
    Except as described herein, 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 \22\ under the Act, as 
provided by NYSE Arca Rule 5.3-E. A minimum of 100,000 Shares of the 
Fund will be outstanding at the commencement of trading on the 
Exchange. The Exchange will obtain a representation from the issuer of 
the Shares of the Fund that the NAV and the Disclosed Portfolio will be 
made available to all market participants at the same time.
---------------------------------------------------------------------------

    \22\ 17 CFR 240 10A-3.
---------------------------------------------------------------------------

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 the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\23\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and applicable federal securities laws.
---------------------------------------------------------------------------

    \23\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    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 futures, 
and certain exchange-traded equity securities 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 such securities 
and financial instruments from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in such 
securities and financial instruments from markets and other entities 
that are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\24\ 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 
Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \24\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    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 holdings or reference assets, (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

[[Page 43202]]

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-E(m).
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) \25\ 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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.600-E. The 
Adviser is not registered as a broker-dealer but is affiliated with a 
broker-dealer and has implemented and will maintain a fire wall with 
respect to such broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the portfolio. 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 applicable federal securities laws. The Exchange or 
FINRA, on behalf of the Exchange, or both, will communicate as needed 
regarding trading in the Shares, certain futures and certain exchange-
traded equity securities 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 
such securities and financial instruments from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in such securities and financial instruments from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement. 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 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. The Fund may hold up 
to an aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment), deemed illiquid by the Adviser, 
consistent with Commission guidance.
    Except as described herein, 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 of the 
Fund will be outstanding at the commencement of trading on the 
Exchange. The Exchange will obtain a representation from the issuer of 
the Shares of the Fund 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 Fund's portfolio holdings 
will be disclosed on its website daily after the close of trading on 
the Exchange and prior to the opening of trading on the Exchange the 
following day. On a daily basis, the Fund will disclose the information 
regarding the Disclosed Portfolio required under NYSE Arca Rule 8.600-E 
(c)(2) to the extent applicable. The Fund's website information will be 
publicly available at no charge.
    Investors can also obtain the Fund's Statement of Additional 
Information (``SAI''), its Shareholder Reports, its Form N-CSR, filed 
twice a year, and its Form N-CEN, filed annually. The Fund's SAI and 
Shareholder Reports are available free upon request from the Trust, and 
those documents and the Form N-CSR and Form N-CEN may be viewed on-
screen or downloaded from the Commission's website at www.sec.gov.
    Quotation and last sale information for the Shares and for 
portfolio securities of the Fund that are U.S. exchange listed, 
including common stocks, preferred stocks, rights, warrants, ETFs, and 
U.S. exchange-traded Depositary Receipts will be available via the CTA 
high speed line.
    With respect to Commentary .01(e), the aggregate gross notional 
value of the Fund's investments in OTC derivatives is expected to 
exceed 20% of Fund assets, calculated based on the aggregate gross 
notional value of such OTC derivatives.
    The Adviser believes 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 swaps and currency forwards to 
efficiently gain exposure to equities, currencies and commodities, in 
furtherance of the Fund's investment objective.\26\
---------------------------------------------------------------------------

    \26\ As noted above, 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. See, note 16, supra.
---------------------------------------------------------------------------

    The Adviser represents that it intends to engage in strategies that 
utilize foreign currency forward transactions

[[Page 43203]]

and total return swaps (which swaps will be traded OTC) based on its 
investment strategies. Depending on market conditions, the exposure due 
to these strategies is expected to exceed 20% of the Fund's assets.\27\ 
The Adviser represents further that the foreign currency forward 
transactions and total return swaps will be traded OTC, and, as such, 
it is not possible to implement these strategies efficiently using 
listed derivatives. Swaps on 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. 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 swaps, 
would help protect investors and the public interest.
---------------------------------------------------------------------------

    \27\ See note 16, supra.
---------------------------------------------------------------------------

    As noted above, the Fund may use the derivative instruments 
described above to enhance Fund returns, increase liquidity, gain long 
or short exposure to certain instruments, markets or factors in a more 
efficient or less expensive way and/or hedge risks associated with its 
other portfolio investments.
    The Exchange notes that, other than Commentary .01(e) to Rule 
8.600-E, the Fund will meet all other requirements of Rule 8.600-E.
    The website for the Fund will include a form of the prospectus for 
the Fund and additional data relating to NAV and other applicable 
quantitative information. Moreover, prior to the commencement of 
trading, the Exchange will inform its ETP Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the 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 or because of market conditions or for reasons that, in 
the view of the Exchange, make trading in the Shares inadvisable, and 
trading in the Shares will be subject to NYSE Arca Rule 8.600-
E(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted. In addition, as noted above, investors will 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 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, while the Fund will be permitted to 
borrow as permitted under the 1940 Act, the Fund's investments will not 
be used to seek performance that is the multiple or inverse multiple 
(e.g., 2Xs and 3Xs) of the Fund's primary broad-based securities 
benchmark index (as defined in Form N-1A).\28\
---------------------------------------------------------------------------

    \28\ See note 14, supra.
---------------------------------------------------------------------------

    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an actively-managed exchange-traded product that, through permitted use 
of an increased level of OTC derivatives above that currently permitted 
by the generic listing requirements of Commentary .01 to NYSE Arca Rule 
8.600-E, will enhance competition among market participants, to the 
benefit of investors and the marketplace. As noted above, the Exchange 
has in place surveillance procedures relating to trading in the Shares 
and may obtain information via ISG from other exchanges that are 
members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. In addition, as noted 
above, investors have ready access to information regarding the Fund's 
holdings, the PIV, the Disclosed Portfolio for the Fund, and quotation 
and last sale information for the Shares.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded product that holds 
fixed income securities, equity securities and derivatives and that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or 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-2019-57 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-2019-57. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for

[[Page 43204]]

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-2019-57 and should 
be submitted on or before September 10, 2019.
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17854 Filed 8-19-19; 8:45 am]
 BILLING CODE 8011-01-P
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