Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a Proposed Rule Change, as Modified by Amendments No. 1 and No. 2, To Amend the Listing Rule Applicable to Shares of the Aware Ultra-Short Duration Enhanced Income ETF, 47024-47028 [2019-19217]
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Federal Register / Vol. 84, No. 173 / Friday, September 6, 2019 / Notices
in the Order Execution and Routing
section under Equity 7 is in the public
interest because it will provide
Exchange members with the closest
approximation of the fees and credits
that they would have been eligible for
if accurate data for August 12, 2019
were available and included in the
monthly calculation.
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 not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change would treat all
market participants on the Exchange
equally by excluding August 12, 2019
from all tier calculations described in
Equity 7. Moreover, the Exchange
believes that the proposed change
would enhance competition between
competing marketplaces by enabling the
Exchange to fairly assess its members
fees and to apply credits in light of
systems issues that occurred, which are
beyond the control of the Exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 8 and Rule 19b–
4(f)(6) thereunder.9
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 10 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 11
permits the Commission to designate a
shorter time if such action is consistent
8 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
10 17 CFR 240.19b–4(f)(6).
11 17 CFR 240.19b–4(f)(6)(iii).
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with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay. The
Exchange begins the calculation and
billing of member fees and credits in the
Order Execution and Routing section
under Equity 7 at the close of each
month, and an operative delay would
disrupt the normal billing process,
which may cause expense and potential
investor confusion. Therefore, the
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposal as operative upon filing.12
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–Phlx–2019–31 and should
be submitted on or before September 27,
2019.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Jill M. Peterson,
Assistant Secretary.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2019–31 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–Phlx–2019–31. 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
12 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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[FR Doc. 2019–19222 Filed 9–5–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–86841; File No. SR–
NYSEArca–2019–38]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by
Amendments No. 1 and No. 2, To
Amend the Listing Rule Applicable to
Shares of the Aware Ultra-Short
Duration Enhanced Income ETF
August 30, 2019.
I. Introduction
On May 15, 2019, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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change to change the listing rule
applicable to shares (‘‘Shares’’) of the
Aware Ultra-Short Duration Enhanced
Inbcome ETF (‘‘Fund’’), a series of the
Tidal ETF Trust (‘‘Trust’’). The
proposed rule change was published for
comment in the Federal Register on
June 4, 2019.3 On July 8, 2019, the
Exchange filed Amendment No. 1 to the
proposed rule change, which amended
and superseded the Notice in its
entirety.4 On July 10, 2019, the
Exchange filed Amendment No. 2 to the
proposed rule change, which amended
the proposed rule change as modified by
Amendment No. 1.5 On July 19, 2019,
pursuant to Section 19(b)(2) of the Act,6
the Commission extended the time
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change.7 The Commission has
received no comments on the proposed
rule change. This order approves the
proposed rule change, as modified by
Amendments No. 1 and No. 2.
II. Description of the Proposed Rule
Change, as Modified by Amendments
No. 1 and No. 2 8
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The Exchange states that the Shares
commenced trading on the Exchange on
January 29, 2019, pursuant to the
generic listing standards in Commentary
.01 to NYSE Arca Rule 8.600–E, which
3 See Securities Exchange Act Release No. 85955
(May 29, 2019), 84 FR 25863 (‘‘Notice’’).
4 In Amendment No. 1, the Exchange: (1)
Provided clarification regarding certain of the
Fund’s permitted investments; (2) changed certain
citations supporting its proposals; (3) expanded
upon an argument in support of one of its proposals
and deleted an argument that had been offered in
support of another proposal; (4) expanded certain
representations regarding the Exchange’s ability to
obtain trading information regarding certain of the
Fund’s permitted investments; and (5) made other
technical changes. Because Amendment No. 1 does
not materially alter the substance of the proposed
rule change or raise unique or novel regulatory
issues, Amendment No. 1 is not subject to notice
and comment. The amendments to the proposed
rule change are available at https://www.sec.gov/
comments/sr-nysearca-2019-38/
srnysearca201938.htm.
5 In Amendment No. 2, the Exchange: (1)
Modified the list of the Fund’s permitted
investments; and (2) made a technical change.
Because Amendment No. 2 does not materially alter
the substance of the proposed rule change or raise
unique or novel regulatory issues, Amendment No.
2 is not subject to notice and comment.
6 15 U.S.C. 78s(b)(2).
7 See Securities Exchange Act Release No. 86414,
84 FR 35892 (July 25, 2019) (designating September
2, 2019, as the date by which the Commission shall
approve, disapprove, or institute proceedings to
determine whether to approve or disapprove the
proposed rule change).
8 For a complete description of the Exchange’s
proposal, see Notice, Amendments No. 1 and No.
2, supra notes 3, 4, and 5 respectively.
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govern Managed Fund Shares,9 and that
the Fund’s investments comply with
those requirements.10 According to the
Registration Statement,11 the investment
objective of the Fund is to seek to
maximize current income while
maintaining a portfolio consistent with
the preservation of capital and daily
liquidity.
The Exchange filed the proposed rule
change to modify the listing rule
applicable to the Shares. The Exchange
proposes certain deviations from the
generic requirements, which it states are
necessary for the Fund to achieve its
investment objective in a manner that is
cost-effective and that maximizes
investors’ returns.12
A. The Fund’s Permitted Investments
The Fund would seek to achieve its
investment objective primarily by
investing in ‘‘Fixed Income Securities,’’
which are: U.S. government securities;
agency and non-agency asset-backed
securities (‘‘ABS’’) and mortgage-backed
securities (‘‘MBS’’) and collateralized
mortgage obligations (‘‘CMOs’’); 13
floating or variable rate securities;
collateralized bond obligations
(‘‘CBOs’’), collateralized loan
obligations (‘‘CLOs’’) and other
collateralized debt obligations (‘‘CDOs’’
and, together with CBOs and CLOs,
‘‘CDOs/CBOs/CLOs’’); 14 corporate debt
9 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.
10 See Amendment No. 1, supra note 4, at 4 n.3.
11 On December 21, 2018, the Trust, which is
registered under the 1940 Act, 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), and under the 1940 Act
relating to the Fund (File Nos. 333–227298 and
811–23377) (‘‘Registration Statement’’). The
Exchange represents that the Trust will file an
amendment to the Registration Statement as
necessary to conform to the representations in the
proposed rule change. See id., n.5.
12 See id. at 11.
13 For purposes of this filing, non-agency ABS,
non-agency MBS, and non-agency CMOs are
referred to collectively herein as ‘‘Private ABS/
MBS.’’ In the aggregate, Private ABS/MBS would
not exceed more than 20% of the total assets of the
Fund.
14 For purposes of this filing, CDOs/CBOs/CLOs
are excluded from the term Private ABS/MBS. CLOs
are securities issued by a trust or other special
purpose entity that are collateralized by a pool of
loans by U.S. banks and participations in loans by
U.S. banks that are unsecured or secured by
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47025
securities; municipal securities;
inflation-indexed bonds; inflationindexed securities issued by the U.S.
Treasury; commercial paper (in addition
to commercial paper that are cash
equivalents); 15 convertible securities;
and structured notes. In addition, the
Fund could: (1) Hold cash and cash
equivalents; 16 (2) enter into dollar rolls
and short sales of Fixed Income
Securities; (3) purchase securities and
other instruments under when-issued,
delayed delivery, to be announced or
forward commitment transactions; (4)
invest in private placements and Rule
144A securities; (5) hold U.S. and nonU.S. exchange-traded common stocks,
preferred stocks, rights, warrants,
exchange-traded notes (‘‘ETNs’’),17
exchange-traded funds (‘‘ETFs’’); 18 and
(6) hold securities of other investment
companies,19 subject to applicable
limitations under Section 12(d)(1) of the
1940 Act. Further, the Fund could hold
the following U.S. and non-U.S.
exchange-listed and over-the-counter
(‘‘OTC’’) derivative instruments: OTC
foreign currency forwards; U.S. and
non-U.S. exchange-listed futures and
options on stocks, Fixed Income
Securities, interest rates, credit,
currencies, commodities or indices on
the foregoing securities and financial
instruments; and OTC options on
stocks, Fixed Income Securities, interest
rates, credit, currencies, commodities,
collateral other than real estate. CBOs are securities
issued by a trust or other special purpose entity that
are backed by a diversified pool of fixed income
securities issued by U.S. or foreign governmental
entities or fixed income securities issued by U.S. or
corporate issuers. According to the Exchange,
CDOs/CBOs/CLOs are distinguishable from Private
ABS/MBS because they are collateralized by bank
loans or by corporate or government fixed income
securities and not by consumer and other loans
made by non-bank lenders, including student loans.
Collectively, CDOs, CBOs, and CLOs would not
exceed more than 10% of the total assets of the
Fund.
15 See infra note 16.
16 For purposes of this filing, cash equivalents are
the short-term instruments enumerated in
Commentary .01(c) to Rule 8.600–E.
17 ETNs are securities as described in NYSE Arca
Rule 5.2–E(j)(6) (Equity Index-Linked Securities,
Commodity-Linked Securities, Currency-Linked
Securities, Fixed Income Index-Linked Securities,
Futures-Linked Securities and Multifactor IndexLinked Securities).
18 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 would be listed and traded
in the U.S. on a national securities exchange.
According to the Exchange, while the Fund might
invest in inverse ETFs, the Fund would not invest
in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
19 Investments in non-exchange-traded open-end
management investment company securities would
not exceed 20% of the total assets of the Fund.
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or indices on the foregoing securities
and financial instruments.20
B. Alternative Listing and Trading
Criteria for the Shares
The Exchange represents that the
Fund’s portfolio satisfy all the generic
listing requirements of Rule 8.600–E,
except as discussed below.
The Fund proposes to invest in shares
of non-exchange listed open-end
management investment company
securities. Such investments would not
comply with the requirements of
Commentary .01(a)(1)(A) through (E) to
NYSE Arca Rule 8.600–E (U.S.
Component Stocks) 21 because,
according to the Exchange, it would be
difficult or impossible to apply certain
of the generic quantitative criteria (e.g.,
market capitalization, trading volume,
or portfolio criteria) applicable to U.S.
Component Stocks to mutual fund
shares.22 The Fund’s portfolio holdings
in such investment company securities
20 See
Amendment No. 2, supra note 5.
.01(a) to Rule 8.600–E specifies
the equity securities accommodated by the generic
criteria in Commentary .01(a). Commentary .01(a)(1)
to Rule 8.600–E provides that the component stocks
of the equity portion of a portfolio that are U.S.
Component Stocks must meet the following criteria
initially and on a continuing basis:
(A) Component stocks (excluding Derivative
Securities Products and Index-Linked Securities)
that in the aggregate account for at least 90% of the
equity weight of the portfolio (excluding such
Derivative Securities Products and Index-Linked
Securities) each shall have a minimum market
value of at least $75 million;
(B) Component stocks (excluding Derivative
Securities Products and Index-Linked Securities)
that in the aggregate account for at least 70% of the
equity weight of the portfolio (excluding such
Derivative Securities Products and Index-Linked
Securities) each shall have a minimum monthly
trading volume of 250,000 shares, or minimum
notional volume traded per month of $25,000,000,
averaged over the last six months;
(C) The most heavily weighted component stock
(excluding Derivative Securities Products and
Index-Linked Securities) shall not exceed 30% of
the equity weight of the portfolio, and, to the extent
applicable, the five most heavily weighted
component stocks (excluding Derivative Securities
Products and Index-Linked Securities) shall not
exceed 65% of the equity weight of the portfolio;
(D) Where the equity portion of the portfolio does
not include Non-U.S. Component Stocks, the equity
portion of the portfolio shall include a minimum of
13 component stocks; provided, however, that there
shall be no minimum number of component stocks
if (i) one or more series of Derivative Securities
Products or Index-Linked Securities constitute, at
least in part, components underlying a series of
Managed Fund Shares, or (ii) one or more series of
Derivative Securities Products or Index-Linked
Securities account for 100% of the equity weight of
the portfolio of a series of Managed Fund Shares;
and
(E) Except as provided herein, equity securities in
the portfolio shall be U.S. Component Stocks listed
on a national securities exchange and shall be NMS
Stocks as defined in Rule 600 of Regulation NMS
under the Securities Exchange Act of 1934.
22 See Amendment No. 1, supra note 4, at 16.
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21 Commentary
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would be limited to 20% of the total
assets of the Fund.23
The Exchange proposes that, instead
of complying with the requirement of
Commentary .01(b)(1) to NYSE Arca
Rule 8.600–E,24 the Fund’s Fixed
Income Securities—other than Private
ABS/MBS and CDOs/CBOs/CLOs—that
in the aggregate account for at least 50%
of the fixed income weight of the
portfolio each would have a minimum
original principal amount outstanding
of $50 million or more. As proposed,
Private ABS/MBS, CDOs/CBOs/CLOs
held by the Fund would not be subject
to any minimum original principal
amount outstanding requirement.
The Exchange proposes that the
Fund’s investments in Private ABS/MBS
not be required to comply with
Commentary .01(b)(4) to NYSE Arca
Rule 8.600–E.25 According to the
Exchange, all other Fixed Income
Securities, including the Fund’s CDOs/
CBOs/CLOs, would be subject to the
criteria in Commentary .01(b)(4).
Additionally, the Exchange proposes
that the Fund’s investments not be
required to comply with Commentary
.01(b)(5) t NYSE Arca Rule 8.600–E.26
As mentioned above, the Fund would
instead invest up to 20% of its total
assets in Private ABS/MBS and up to
10% of its total assets in CDOs/CBOs/
CLOs.
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendments No. 1 and No.
2, is consistent with the Act and the
rules and regulations thereunder
23 See
id., at 7.
24 Commentary
.01(b)(1) requires that fixed
income securities portfolio components that in the
aggregate account for at least 75% of the fixed
income weight of the portfolio each have a
minimum original principal amount outstanding of
$100 million or more.
25 Commentary .01(b)(4) provides that component
securities that in the aggregate account for at least
90% of the fixed income weight of the portfolio
must be either: (a) From issuers that are required
to file reports pursuant to Sections 13 and 15(d) of
the Act; (b) from issuers that have a worldwide
market value of its outstanding common equity held
by non-affiliates of $700 million or more; (c) from
issuers that have outstanding securities that are
notes, bonds debentures, or evidence of
indebtedness having a total remaining principal
amount of at least $1 billion; (d) exempted
securities as defined in Section 3(a)(12) of the Act;
or (e) from issuers that are a government of a foreign
country or a political subdivision of a foreign
country. Unlike the Fund’s Private ABS/MBS, the
Fund’s CDOs, CBOs, and CLOs would be subject to
the criteria in Commentary .01(b)(4).
26 Commentary .01(b)(5) requires that investments
in non-agency, non-government sponsored entity
and privately issued mortgage-related and other
asset-backed securities not account, in the
aggregate, for more than 20% of the weight of the
portfolio.
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applicable to a national securities
exchange.27 In particular, the
Commission finds that the proposed
rule change, as modified by
Amendments No. 1 and No. 2, is
consistent with Section 6(b)(5) of the
Act,28 which requires, among other
things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
According to the Exchange, the Shares
would continue to satisfy the initial and
continued listing criteria for Managed
Fund Shares pursuant to NYSE Arca
Rule 8.600–E, except for the
requirements of Commentary .01(a)(1),
(b)(1), (b)(4), and (b)(5).
As discussed above, the Fund will not
meet the requirement in Commentary
.01(b)(1) of NYSE Arca Rule 8.600–E
that components that in the aggregate
account for at least 75% of the fixed
income weight of the portfolio shall
each have a minimum original principal
amount outstanding of $100 million or
more. Instead, the Exchange proposes
that components that, in the aggregate,
account for at least 50% of the fixed
income weight of the portfolio each
shall have a minimum original principal
amount outstanding of $50 million or
more. Private ABS/MBS and CDOs/
CBOs/CLOs would be excluded from
this requirement and would not be
subject to a requirement for a minimum
original principal amount outstanding.
The Exchange represents that at least
50% of the fixed income weight of the
Fund’s portfolio would still be required
to have a substantial minimum original
principal amount outstanding.29 The
Exchange asserts that not subjecting
Private ABS/MBS and CDOs/CBOs/
CLOs to a standard for minimum
original principal amount outstanding
would allow the Fund to invest in a
larger variety of Private ABS/MBS and
CDOs/CBOs/CLOs, which would help
the Fund meet its investment objectives
and diversify its holdings in such
securities.30
Also as discussed above, the Fund,
with respect to its investments in
Private ABS/MBS, will not comply with
the generic listing requirement that
27 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
28 15 U.S.C. 78f(b)(5).
29 See Amendment No. 1, supra note 4, at 11.
30 See id. at 11–12.
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securities comprising at least 90% of the
fixed income weight of the Fund’s
portfolio meet one of the criteria in
Commentary .01(b)(4) to NYSE Arca
Rule 8.600–E.31 The Exchange
represents that, Fixed Income
Securities, including CDOs/CBOs/CLOs,
held by the Fund other than Private
ABS/MBS, will continue to meet this
requirement. The Exchange also
represents that it will not invest more
than 20% of the Fund’s total assets in
Private ABS/MBS. CDOs/CBOs/CLOs,
which will meet the requirements of
Commentary .01(b)(4), will be limited to
10% of the portfolio. The Exchange
believes that this limitation will help
the Fund maintain portfolio
diversification and reduce manipulation
risk.32 The Commission notes that it has
previously approved the listing of
Managed Fund Shares that exclude
Private ABS/MBS from the provisions of
rules comparable to Commentary
.01(b)(4) to NYSE Arca Rule 8.600–E.33
The Commission notes that CDOs/
CBOs/CLOs will not be included in the
definition of Private ABS/MBS and, as
a result, will not be subject to the
restriction on aggregate holdings of
Private ABS/MBS set forth in
Commentary .01(b)(5) to NYSE Arca
Rule 8.600–E, which limits investments
in Private ABS/MBS to 20% of the
weight of the portfolio. Instead, the
Fund may invest up to 20% of the Fund
in Private ABS/MBS and up to 10% of
the fund’s total assets in CDOs/CBOs/
CLOs such that, in the aggregate, they
may account for up to 30% of the
weight of the Fund’s portfolio. The
Commission notes that it has previously
approved similar limitations for Private
ABS/MBS and CDOs/CBOs/CLOs.34
Finally, the Fund will not comply
with the requirements of Commentary
.01(a)(1)(A) through (E) to NYSE Arca
Rule 8.600–E 35 in connection with the
Fund’s investments in non-exchange
traded open-end investment company
securities. The Exchange represents that
investments in other non-exchangetraded open-end management
investment company securities will not
exceed 20% of the total assets of the
Fund. The Exchange asserts that the
criteria of Commentary .01(a)(1) does
not need to apply to such securities
because the securities must satisfy
applicable 1940 Act diversification
supra note 25.
Amendment No. 1, supra note 4, at 13.
33 See Securities Exchange Act Release Nos.
84047 (September 6, 2018), 83 FR 46200 (September
12, 2018) (SR–NASDAQ–2017–128); 85022 (January
31, 2019), 84 FR 2265 (February 6, 2019) (SR–
NASDAQ–2018–080).
34 See id.
35 See supra note 21.
requirements, and the net asset value of
the securities is based on the value of
securities and financial assets the
investment company holds.36 The
Commission notes that it has previously
approved a similar proposal to invest in
non-exchange-traded open-end
management investment company
securities.37
Other than as described above, the
Fund’s portfolio will continue to meet
all the requirements of NYSE Arca Rule
8.600–E. The Commission believes that
the proposed initial and continued
listing requirements are designed to
mitigate the potential for manipulation
of the Shares, do not raise any novel
issues, and are consistent with listing
requirements of other Managed Fund
Shares.38
The Commission finds that the
proposal is consistent with Section
11A(a)(1)(C)(iii) of the Act,39 which sets
forth Congress’ finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. According to
the Exchange, quotation and last-sale
information for the Shares will be
available via the Consolidated Tape
Association high-speed line. Further,
the Portfolio Indicative Value, 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 (defined in NYSE
Arca Rule 7.34–E(a)(2)). Information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services.
Information regarding the previous
day’s closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers. In addition, the Fund’s
website will include a form of
prospectus for the Fund and additional
data relating to the net asset value
(‘‘NAV’’) and other applicable
quantitative information.
Exchange-traded options quotation
and last-sale information for options
cleared via the Options Clearing
Corporation are available via the
31 See
32 See
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16:53 Sep 05, 2019
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36 See
Amendment No. 1, supra note 4, at 23–24.
e.g., Securities Exchange Act Release No.
78414 (July 26, 2016), 81 FR 50576 (August 1, 2016)
(SR–NYSEArca–2016–79) (order approving listing
and trading of shares of the Virtus Japan Alpha ETF
under NYSE Arca Rule 8.600–E).
38 See supra notes 33, 34, and 37.
39 15 U.S.C. 78k–1(a)(1)(C)(iii).
37 See,
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
47027
Options Price Reporting Authority.
Intra-day and closing price information
regarding exchange-traded options will
be available from the exchange on
which such instruments are traded.
Price information relating to OTC
options and swaps will be available
from major market data vendors. Intraday price information for exchangetraded derivative instruments will be
available from the applicable exchange
and from major market data vendors.
For exchange-traded common stocks,
preferred stocks, rights, warrants, ETNs
and ETFs, intraday price quotations will
generally be available from brokerdealers and trading platforms (as
applicable). Intraday and other price
information for the Fixed Income
Securities in which the Fund invests
will be available through subscription
services, which can be accessed by
authorized participants and other
market participants. Additionally, the
Trade Reporting and Compliance Engine
(‘‘TRACE’’) of the Financial Industry
Regulatory Authority (‘‘FINRA’’) will be
a source of price information for
corporate bonds, privately-issued
securities, MBS and ABS, to the extent
transactions in such securities are
reported to TRACE.40 Shares of money
market funds are typically priced once
each business day and their prices will
be available through the applicable
fund’s website or from major market
data vendors. Price information
regarding U.S. government securities,
repurchase agreements, reverse
repurchase agreements and cash
equivalents generally may be obtained
from brokers and dealers who make
markets in such securities or through
nationally recognized pricing services
through subscription agreements.
The Commission also believes that the
proposal is reasonably designed to
promote fair disclosure of information
that may be necessary to price the
Shares appropriately and to prevent
trading when a reasonable degree of
transparency cannot be assured. The
Exchange states that it has obtained a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio (as defined in
40 Broker-dealers that are FINRA member firms
have an obligation to report transactions in
specified debt securities to TRACE to the extent
required under applicable FINRA rules. Generally,
such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income
securities that are not reported to TRACE, (i)
intraday price quotations will generally be available
from broker-dealers and trading platforms (as
applicable) and (ii) price information will be
available from feeds from market data vendors,
published or other public sources, or online
information services, as described above.
E:\FR\FM\06SEN1.SGM
06SEN1
47028
Federal Register / Vol. 84, No. 173 / Friday, September 6, 2019 / Notices
NYSE Rule 8.600–E(c)(2)) will be made
available to all market participants at
the same time.41 In addition, the
Exchange states that on a daily basis, the
Fund discloses on its website the
Disclosed Portfolio of the Fund that
forms the basis for the Fund’s NAV
calculation.42 Trading in the Shares also
will be subject to NYSE Arca Rule
8.600–E(d)(2)(D), which sets forth
circumstances under which Shares of a
fund may be halted. Further, trading in
the Shares may be halted if the circuit
breaker parameters in NYSE Arca Rule
7.12–E have been reached, because of
market conditions, or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable.43
The Exchange states that it has a
general policy prohibiting the
distribution of material, non-public
information by its employees.44
Additionally, the Commission notes that
the Reporting Authority that provides
the Disclosed Portfolio must implement
and maintain, or be subject to,
procedures designed to prevent the use
and dissemination of material, nonpublic information regarding the actual
components of the portfolio.45
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.46 In support of its
proposal, the Exchange has made the
following representations:
(1) A minimum of 100,000 Shares will
be outstanding at the commencement of
trading on the Exchange.47
(2) 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.48
(3) The Exchange or FINRA, on behalf
of the Exchange, or both, (1) will
communicate as needed regarding
trading in the Shares, ETFs, certain
exchange-traded options and certain
41 See
Amendment No. 1, supra note 4, at 20.
id. at 18.
43 These may include: (1) The extent to which
trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed
Portfolio of the Fund; or (2) whether other unusual
conditions or circumstances detrimental to the
maintenance of a fair and orderly market are
present. See id.
44 See id. at 20.
45 See NYSE Arca Rule 8.600(d)(2)(B)(ii). The
term ‘‘Reporting Authority’’ is defined in NYSE
Arca Rule 8.600(c)(4).
46 See Amendment No. 1, supra note 4, at 20.
47 See id.
48 See id.
jspears on DSK3GMQ082PROD with NOTICES
42 See
VerDate Sep<11>2014
16:53 Sep 05, 2019
Jkt 247001
futures with other markets and other
entities that are members of the
Intermarket Surveillance Group (‘‘ISG’’);
and (2) may obtain trading information
regarding trading in the Shares, ETFs,
certain exchange-traded options and
certain futures from such markets and
other entities.49 The Exchange is able to
access from FINRA, as needed, trade
information for certain Fixed Income
Securities held by the Fund reported to
TRACE. FINRA also can access data
obtained from the Municipal Securities
Rulemaking Board relating to certain
municipal bond trading activity for
surveillance purposes in connection
with trading in the Shares.50
(4) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.51
(5) The Fund will be in compliance
with Rule 10A–3 under the Act,52 as
provided by NYSE Arca Rule 5.3–E for
initial and continued listing of shares.53
(6) All statements and representations
made in the proposed rule change
regarding the description of the
portfolio, limitations on portfolio
holdings or reference assets, or the
applicability of Exchange listing rules
specified in this rule filing shall
constitute continued listing
requirements for listing the Shares on
the Exchange. In addition, the issuer has
represented to the Exchange that it will
advise the Exchange of any failure by
the Fund to comply with the continued
listing requirements, and, pursuant to
its obligations under Section 19(g)(1) of
the Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Rule 5.5(m)–E.54
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
Amendments No. 1 and No. 2.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by
Amendments No. 1 and No. 2, is
consistent with Section 6(b)(5) of the
Act 55 the rules and regulations
49 In
addition, the Exchange may obtain
information regarding trading in the Shares, ETFs,
certain exchange-traded options and certain futures
from such markets and other entities that are
members of the ISG, or with which the Exchange
has in place a comprehensive surveillance sharing
agreement. See Amendment No. 2, supra note 5.
50 See id. at 22.
51 See id. at 20.
52 17 CFR 240.10A–3.
53 See Amendment No. 1, supra note 4, at 20.
54 See id. at 21.
55 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
thereunder applicable to a national
securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,56 that the
proposed rule change (SR–NYSEArca2019–38), as modified by Amendments
No. 1 and No. 2, be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.57
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–19217 Filed 9–5–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Extension:
Rule 302, SEC File No. 270–453, OMB
Control No. 3235–0510.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for approval of
extension of the previously approved
collection of information provided for in
Rule 302 (17 CFR 242.302) of Regulation
ATS (17 CFR 242.300 et seq.) under the
Securities and Exchange Act of 1934
(‘‘Act’’) (15 U.S.C. 78a et seq.).
Regulation ATS sets forth a regulatory
regime for ‘‘alternative trading systems’’
(‘‘ATSs’’). An entity that meets the
definition of an exchange must register,
pursuant to Section 5 of the Exchange
Act, as a national securities exchange
under Section 6 of the Exchange Act 1 or
operate pursuant to an appropriate
exemption.2 One of the available
exemptions is for ATSs.3 Exchange Act
56 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 See 15 U.S.C. 78e and 78f. A ‘‘national securities
exchange’’ is an exchange registered as such under
Section 6 of the Exchange Act.
2 15 U.S.C. 78a et seq.
3 Rule 300(a) of Regulation ATS provides that an
ATS is ‘‘any organization, association, person,
group of persons, or system: (1) [t]hat constitutes,
maintains, or provides a market place or facilities
for bringing together purchasers and sellers of
securities or for otherwise performing with respect
to securities the functions commonly performed by
a stock exchange within the meaning of [Exchange
57 17
E:\FR\FM\06SEN1.SGM
06SEN1
]]>Agencies
[Federal Register Volume 84, Number 173 (Friday, September 6, 2019)]
[Notices]
[Pages 47024-47028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19217]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86841; File No. SR-NYSEArca-2019-38]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by Amendments No. 1 and No. 2, To
Amend the Listing Rule Applicable to Shares of the Aware Ultra-Short
Duration Enhanced Income ETF
August 30, 2019.
I. Introduction
On May 15, 2019, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
[[Page 47025]]
change to change the listing rule applicable to shares (``Shares'') of
the Aware Ultra-Short Duration Enhanced In[square]come ETF (``Fund''),
a series of the Tidal ETF Trust (``Trust''). The proposed rule change
was published for comment in the Federal Register on June 4, 2019.\3\
On July 8, 2019, the Exchange filed Amendment No. 1 to the proposed
rule change, which amended and superseded the Notice in its
entirety.\4\ On July 10, 2019, the Exchange filed Amendment No. 2 to
the proposed rule change, which amended the proposed rule change as
modified by Amendment No. 1.\5\ On July 19, 2019, pursuant to Section
19(b)(2) of the Act,\6\ the Commission extended the time period within
which to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to approve or
disapprove the proposed rule change.\7\ The Commission has received no
comments on the proposed rule change. This order approves the proposed
rule change, as modified by Amendments No. 1 and No. 2.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 85955 (May 29,
2019), 84 FR 25863 (``Notice'').
\4\ In Amendment No. 1, the Exchange: (1) Provided clarification
regarding certain of the Fund's permitted investments; (2) changed
certain citations supporting its proposals; (3) expanded upon an
argument in support of one of its proposals and deleted an argument
that had been offered in support of another proposal; (4) expanded
certain representations regarding the Exchange's ability to obtain
trading information regarding certain of the Fund's permitted
investments; and (5) made other technical changes. Because Amendment
No. 1 does not materially alter the substance of the proposed rule
change or raise unique or novel regulatory issues, Amendment No. 1
is not subject to notice and comment. The amendments to the proposed
rule change are available at https://www.sec.gov/comments/sr-nysearca-2019-38/srnysearca201938.htm.
\5\ In Amendment No. 2, the Exchange: (1) Modified the list of
the Fund's permitted investments; and (2) made a technical change.
Because Amendment No. 2 does not materially alter the substance of
the proposed rule change or raise unique or novel regulatory issues,
Amendment No. 2 is not subject to notice and comment.
\6\ 15 U.S.C. 78s(b)(2).
\7\ See Securities Exchange Act Release No. 86414, 84 FR 35892
(July 25, 2019) (designating September 2, 2019, as the date by which
the Commission shall approve, disapprove, or institute proceedings
to determine whether to approve or disapprove the proposed rule
change).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change, as Modified by Amendments
No. 1 and No. 2 8
---------------------------------------------------------------------------
\8\ For a complete description of the Exchange's proposal, see
Notice, Amendments No. 1 and No. 2, supra notes 3, 4, and 5
respectively.
---------------------------------------------------------------------------
The Exchange states that the Shares commenced trading on the
Exchange on January 29, 2019, pursuant to the generic listing standards
in Commentary .01 to NYSE Arca Rule 8.600-E, which govern Managed Fund
Shares,\9\ and that the Fund's investments comply with those
requirements.\10\ According to the Registration Statement,\11\ the
investment objective of the Fund is to seek to maximize current income
while maintaining a portfolio consistent with the preservation of
capital and daily liquidity.
---------------------------------------------------------------------------
\9\ 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.
\10\ See Amendment No. 1, supra note 4, at 4 n.3.
\11\ On December 21, 2018, the Trust, which is registered under
the 1940 Act, 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), and under the 1940 Act relating to the Fund (File
Nos. 333-227298 and 811-23377) (``Registration Statement''). The
Exchange represents that the Trust will file an amendment to the
Registration Statement as necessary to conform to the
representations in the proposed rule change. See id., n.5.
---------------------------------------------------------------------------
The Exchange filed the proposed rule change to modify the listing
rule applicable to the Shares. The Exchange proposes certain deviations
from the generic requirements, which it states are necessary for the
Fund to achieve its investment objective in a manner that is cost-
effective and that maximizes investors' returns.\12\
---------------------------------------------------------------------------
\12\ See id. at 11.
---------------------------------------------------------------------------
A. The Fund's Permitted Investments
The Fund would seek to achieve its investment objective primarily
by investing in ``Fixed Income Securities,'' which are: U.S. government
securities; agency and non-agency asset-backed securities (``ABS'') and
mortgage-backed securities (``MBS'') and collateralized mortgage
obligations (``CMOs''); \13\ floating or variable rate securities;
collateralized bond obligations (``CBOs''), collateralized loan
obligations (``CLOs'') and other collateralized debt obligations
(``CDOs'' and, together with CBOs and CLOs, ``CDOs/CBOs/CLOs''); \14\
corporate debt securities; municipal securities; inflation-indexed
bonds; inflation-indexed securities issued by the U.S. Treasury;
commercial paper (in addition to commercial paper that are cash
equivalents); \15\ convertible securities; and structured notes. In
addition, the Fund could: (1) Hold cash and cash equivalents; \16\ (2)
enter into dollar rolls and short sales of Fixed Income Securities; (3)
purchase securities and other instruments under when-issued, delayed
delivery, to be announced or forward commitment transactions; (4)
invest in private placements and Rule 144A securities; (5) hold U.S.
and non-U.S. exchange-traded common stocks, preferred stocks, rights,
warrants, exchange-traded notes (``ETNs''),\17\ exchange-traded funds
(``ETFs''); \18\ and (6) hold securities of other investment
companies,\19\ subject to applicable limitations under Section 12(d)(1)
of the 1940 Act. Further, the Fund could hold the following U.S. and
non-U.S. exchange-listed and over-the-counter (``OTC'') derivative
instruments: OTC foreign currency forwards; U.S. and non-U.S. exchange-
listed futures and options on stocks, Fixed Income Securities, interest
rates, credit, currencies, commodities or indices on the foregoing
securities and financial instruments; and OTC options on stocks, Fixed
Income Securities, interest rates, credit, currencies, commodities,
[[Page 47026]]
or indices on the foregoing securities and financial instruments.\20\
---------------------------------------------------------------------------
\13\ For purposes of this filing, non-agency ABS, non-agency
MBS, and non-agency CMOs are referred to collectively herein as
``Private ABS/MBS.'' In the aggregate, Private ABS/MBS would not
exceed more than 20% of the total assets of the Fund.
\14\ For purposes of this filing, CDOs/CBOs/CLOs are excluded
from the term Private ABS/MBS. CLOs are securities issued by a trust
or other special purpose entity that are collateralized by a pool of
loans by U.S. banks and participations in loans by U.S. banks that
are unsecured or secured by collateral other than real estate. CBOs
are securities issued by a trust or other special purpose entity
that are backed by a diversified pool of fixed income securities
issued by U.S. or foreign governmental entities or fixed income
securities issued by U.S. or corporate issuers. According to the
Exchange, CDOs/CBOs/CLOs are distinguishable from Private ABS/MBS
because they are collateralized by bank loans or by corporate or
government fixed income securities and not by consumer and other
loans made by non-bank lenders, including student loans.
Collectively, CDOs, CBOs, and CLOs would not exceed more than 10% of
the total assets of the Fund.
\15\ See infra note 16.
\16\ For purposes of this filing, cash equivalents are the
short-term instruments enumerated in Commentary .01(c) to Rule
8.600-E.
\17\ ETNs are securities as described in NYSE Arca Rule 5.2-
E(j)(6) (Equity Index-Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Fixed Income Index-Linked
Securities, Futures-Linked Securities and Multifactor Index-Linked
Securities).
\18\ 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 would be listed and traded in the U.S. on a national
securities exchange. According to the Exchange, while the Fund might
invest in inverse ETFs, the Fund would not invest in leveraged
(e.g., 2X, -2X, 3X or -3X) ETFs.
\19\ Investments in non-exchange-traded open-end management
investment company securities would not exceed 20% of the total
assets of the Fund.
\20\ See Amendment No. 2, supra note 5.
---------------------------------------------------------------------------
B. Alternative Listing and Trading Criteria for the Shares
The Exchange represents that the Fund's portfolio satisfy all the
generic listing requirements of Rule 8.600-E, except as discussed
below.
The Fund proposes to invest in shares of non-exchange listed open-
end management investment company securities. Such investments would
not comply with the requirements of Commentary .01(a)(1)(A) through (E)
to NYSE Arca Rule 8.600-E (U.S. Component Stocks) \21\ because,
according to the Exchange, it would be difficult or impossible to apply
certain of the generic quantitative criteria (e.g., market
capitalization, trading volume, or portfolio criteria) applicable to
U.S. Component Stocks to mutual fund shares.\22\ The Fund's portfolio
holdings in such investment company securities would be limited to 20%
of the total assets of the Fund.\23\
---------------------------------------------------------------------------
\21\ Commentary .01(a) to Rule 8.600-E specifies the equity
securities accommodated by the generic criteria in Commentary
.01(a). Commentary .01(a)(1) to Rule 8.600-E provides that the
component stocks of the equity portion of a portfolio that are U.S.
Component Stocks must meet the following criteria initially and on a
continuing basis:
(A) Component stocks (excluding Derivative Securities Products
and Index-Linked Securities) that in the aggregate account for at
least 90% of the equity weight of the portfolio (excluding such
Derivative Securities Products and Index-Linked Securities) each
shall have a minimum market value of at least $75 million;
(B) Component stocks (excluding Derivative Securities Products
and Index-Linked Securities) that in the aggregate account for at
least 70% of the equity weight of the portfolio (excluding such
Derivative Securities Products and Index-Linked Securities) each
shall have a minimum monthly trading volume of 250,000 shares, or
minimum notional volume traded per month of $25,000,000, averaged
over the last six months;
(C) The most heavily weighted component stock (excluding
Derivative Securities Products and Index-Linked Securities) shall
not exceed 30% of the equity weight of the portfolio, and, to the
extent applicable, the five most heavily weighted component stocks
(excluding Derivative Securities Products and Index-Linked
Securities) shall not exceed 65% of the equity weight of the
portfolio;
(D) Where the equity portion of the portfolio does not include
Non-U.S. Component Stocks, the equity portion of the portfolio shall
include a minimum of 13 component stocks; provided, however, that
there shall be no minimum number of component stocks if (i) one or
more series of Derivative Securities Products or Index-Linked
Securities constitute, at least in part, components underlying a
series of Managed Fund Shares, or (ii) one or more series of
Derivative Securities Products or Index-Linked Securities account
for 100% of the equity weight of the portfolio of a series of
Managed Fund Shares; and
(E) Except as provided herein, equity securities in the
portfolio shall be U.S. Component Stocks listed on a national
securities exchange and shall be NMS Stocks as defined in Rule 600
of Regulation NMS under the Securities Exchange Act of 1934.
\22\ See Amendment No. 1, supra note 4, at 16.
\23\ See id., at 7.
---------------------------------------------------------------------------
The Exchange proposes that, instead of complying with the
requirement of Commentary .01(b)(1) to NYSE Arca Rule 8.600-E,\24\ the
Fund's Fixed Income Securities--other than Private ABS/MBS and CDOs/
CBOs/CLOs--that in the aggregate account for at least 50% of the fixed
income weight of the portfolio each would have a minimum original
principal amount outstanding of $50 million or more. As proposed,
Private ABS/MBS, CDOs/CBOs/CLOs held by the Fund would not be subject
to any minimum original principal amount outstanding requirement.
---------------------------------------------------------------------------
\24\ Commentary .01(b)(1) requires that fixed income securities
portfolio components that in the aggregate account for at least 75%
of the fixed income weight of the portfolio each have a minimum
original principal amount outstanding of $100 million or more.
---------------------------------------------------------------------------
The Exchange proposes that the Fund's investments in Private ABS/
MBS not be required to comply with Commentary .01(b)(4) to NYSE Arca
Rule 8.600-E.\25\ According to the Exchange, all other Fixed Income
Securities, including the Fund's CDOs/CBOs/CLOs, would be subject to
the criteria in Commentary .01(b)(4).
---------------------------------------------------------------------------
\25\ Commentary .01(b)(4) provides that component securities
that in the aggregate account for at least 90% of the fixed income
weight of the portfolio must be either: (a) From issuers that are
required to file reports pursuant to Sections 13 and 15(d) of the
Act; (b) from issuers that have a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more; (c) from issuers that have outstanding securities that are
notes, bonds debentures, or evidence of indebtedness having a total
remaining principal amount of at least $1 billion; (d) exempted
securities as defined in Section 3(a)(12) of the Act; or (e) from
issuers that are a government of a foreign country or a political
subdivision of a foreign country. Unlike the Fund's Private ABS/MBS,
the Fund's CDOs, CBOs, and CLOs would be subject to the criteria in
Commentary .01(b)(4).
---------------------------------------------------------------------------
Additionally, the Exchange proposes that the Fund's investments not
be required to comply with Commentary .01(b)(5) t NYSE Arca Rule 8.600-
E.\26\ As mentioned above, the Fund would instead invest up to 20% of
its total assets in Private ABS/MBS and up to 10% of its total assets
in CDOs/CBOs/CLOs.
---------------------------------------------------------------------------
\26\ Commentary .01(b)(5) requires that investments in non-
agency, non-government sponsored entity and privately issued
mortgage-related and other asset-backed securities not account, in
the aggregate, for more than 20% of the weight of the portfolio.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendments No. 1 and No. 2, is consistent with
the Act and the rules and regulations thereunder applicable to a
national securities exchange.\27\ In particular, the Commission finds
that the proposed rule change, as modified by Amendments No. 1 and No.
2, is consistent with Section 6(b)(5) of the Act,\28\ which requires,
among other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.
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\27\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\28\ 15 U.S.C. 78f(b)(5).
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According to the Exchange, the Shares would continue to satisfy the
initial and continued listing criteria for Managed Fund Shares pursuant
to NYSE Arca Rule 8.600-E, except for the requirements of Commentary
.01(a)(1), (b)(1), (b)(4), and (b)(5).
As discussed above, the Fund will not meet the requirement in
Commentary .01(b)(1) of NYSE Arca Rule 8.600-E that components that in
the aggregate account for at least 75% of the fixed income weight of
the portfolio shall each have a minimum original principal amount
outstanding of $100 million or more. Instead, the Exchange proposes
that components that, in the aggregate, account for at least 50% of the
fixed income weight of the portfolio each shall have a minimum original
principal amount outstanding of $50 million or more. Private ABS/MBS
and CDOs/CBOs/CLOs would be excluded from this requirement and would
not be subject to a requirement for a minimum original principal amount
outstanding. The Exchange represents that at least 50% of the fixed
income weight of the Fund's portfolio would still be required to have a
substantial minimum original principal amount outstanding.\29\ The
Exchange asserts that not subjecting Private ABS/MBS and CDOs/CBOs/CLOs
to a standard for minimum original principal amount outstanding would
allow the Fund to invest in a larger variety of Private ABS/MBS and
CDOs/CBOs/CLOs, which would help the Fund meet its investment
objectives and diversify its holdings in such securities.\30\
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\29\ See Amendment No. 1, supra note 4, at 11.
\30\ See id. at 11-12.
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Also as discussed above, the Fund, with respect to its investments
in Private ABS/MBS, will not comply with the generic listing
requirement that
[[Page 47027]]
securities comprising at least 90% of the fixed income weight of the
Fund's portfolio meet one of the criteria in Commentary .01(b)(4) to
NYSE Arca Rule 8.600-E.\31\ The Exchange represents that, Fixed Income
Securities, including CDOs/CBOs/CLOs, held by the Fund other than
Private ABS/MBS, will continue to meet this requirement. The Exchange
also represents that it will not invest more than 20% of the Fund's
total assets in Private ABS/MBS. CDOs/CBOs/CLOs, which will meet the
requirements of Commentary .01(b)(4), will be limited to 10% of the
portfolio. The Exchange believes that this limitation will help the
Fund maintain portfolio diversification and reduce manipulation
risk.\32\ The Commission notes that it has previously approved the
listing of Managed Fund Shares that exclude Private ABS/MBS from the
provisions of rules comparable to Commentary .01(b)(4) to NYSE Arca
Rule 8.600-E.\33\
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\31\ See supra note 25.
\32\ See Amendment No. 1, supra note 4, at 13.
\33\ See Securities Exchange Act Release Nos. 84047 (September
6, 2018), 83 FR 46200 (September 12, 2018) (SR-NASDAQ-2017-128);
85022 (January 31, 2019), 84 FR 2265 (February 6, 2019) (SR-NASDAQ-
2018-080).
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The Commission notes that CDOs/CBOs/CLOs will not be included in
the definition of Private ABS/MBS and, as a result, will not be subject
to the restriction on aggregate holdings of Private ABS/MBS set forth
in Commentary .01(b)(5) to NYSE Arca Rule 8.600-E, which limits
investments in Private ABS/MBS to 20% of the weight of the portfolio.
Instead, the Fund may invest up to 20% of the Fund in Private ABS/MBS
and up to 10% of the fund's total assets in CDOs/CBOs/CLOs such that,
in the aggregate, they may account for up to 30% of the weight of the
Fund's portfolio. The Commission notes that it has previously approved
similar limitations for Private ABS/MBS and CDOs/CBOs/CLOs.\34\
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\34\ See id.
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Finally, the Fund will not comply with the requirements of
Commentary .01(a)(1)(A) through (E) to NYSE Arca Rule 8.600-E \35\ in
connection with the Fund's investments in non-exchange traded open-end
investment company securities. The Exchange represents that investments
in other non-exchange-traded open-end management investment company
securities will not exceed 20% of the total assets of the Fund. The
Exchange asserts that the criteria of Commentary .01(a)(1) does not
need to apply to such securities because the securities must satisfy
applicable 1940 Act diversification requirements, and the net asset
value of the securities is based on the value of securities and
financial assets the investment company holds.\36\ The Commission notes
that it has previously approved a similar proposal to invest in non-
exchange-traded open-end management investment company securities.\37\
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\35\ See supra note 21.
\36\ See Amendment No. 1, supra note 4, at 23-24.
\37\ See, e.g., Securities Exchange Act Release No. 78414 (July
26, 2016), 81 FR 50576 (August 1, 2016) (SR-NYSEArca-2016-79) (order
approving listing and trading of shares of the Virtus Japan Alpha
ETF under NYSE Arca Rule 8.600-E).
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Other than as described above, the Fund's portfolio will continue
to meet all the requirements of NYSE Arca Rule 8.600-E. The Commission
believes that the proposed initial and continued listing requirements
are designed to mitigate the potential for manipulation of the Shares,
do not raise any novel issues, and are consistent with listing
requirements of other Managed Fund Shares.\38\
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\38\ See supra notes 33, 34, and 37.
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The Commission finds that the proposal is consistent with Section
11A(a)(1)(C)(iii) of the Act,\39\ which sets forth Congress' finding
that it is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure the
availability to brokers, dealers, and investors of information with
respect to quotations for, and transactions in, securities. According
to the Exchange, quotation and last-sale information for the Shares
will be available via the Consolidated Tape Association high-speed
line. Further, the Portfolio Indicative Value, 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 (defined in NYSE Arca Rule 7.34-E(a)(2)). Information regarding
market price and trading volume of the Shares will be continually
available on a real-time basis throughout the day on brokers' computer
screens and other electronic services. Information regarding the
previous day's closing price and trading volume information for the
Shares will be published daily in the financial section of newspapers.
In addition, the Fund's website will include a form of prospectus for
the Fund and additional data relating to the net asset value (``NAV'')
and other applicable quantitative information.
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\39\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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Exchange-traded options quotation and last-sale information for
options cleared via the Options Clearing Corporation are available via
the Options Price Reporting Authority. Intra-day and closing price
information regarding exchange-traded options will be available from
the exchange on which such instruments are traded. Price information
relating to OTC options and swaps will be available from major market
data vendors. Intra-day price information for exchange-traded
derivative instruments will be available from the applicable exchange
and from major market data vendors. For exchange-traded common stocks,
preferred stocks, rights, warrants, ETNs and ETFs, intraday price
quotations will generally be available from broker-dealers and trading
platforms (as applicable). Intraday and other price information for the
Fixed Income Securities in which the Fund invests will be available
through subscription services, which can be accessed by authorized
participants and other market participants. Additionally, the Trade
Reporting and Compliance Engine (``TRACE'') of the Financial Industry
Regulatory Authority (``FINRA'') will be a source of price information
for corporate bonds, privately-issued securities, MBS and ABS, to the
extent transactions in such securities are reported to TRACE.\40\
Shares of money market funds are typically priced once each business
day and their prices will be available through the applicable fund's
website or from major market data vendors. Price information regarding
U.S. government securities, repurchase agreements, reverse repurchase
agreements and cash equivalents generally may be obtained from brokers
and dealers who make markets in such securities or through nationally
recognized pricing services through subscription agreements.
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\40\ Broker-dealers that are FINRA member firms have an
obligation to report transactions in specified debt securities to
TRACE to the extent required under applicable FINRA rules.
Generally, such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income securities that are
not reported to TRACE, (i) intraday price quotations will generally
be available from broker-dealers and trading platforms (as
applicable) and (ii) price information will be available from feeds
from market data vendors, published or other public sources, or
online information services, as described above.
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The Commission also believes that the proposal is reasonably
designed to promote fair disclosure of information that may be
necessary to price the Shares appropriately and to prevent trading when
a reasonable degree of transparency cannot be assured. The Exchange
states that it has obtained a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio (as defined in
[[Page 47028]]
NYSE Rule 8.600-E(c)(2)) will be made available to all market
participants at the same time.\41\ In addition, the Exchange states
that on a daily basis, the Fund discloses on its website the Disclosed
Portfolio of the Fund that forms the basis for the Fund's NAV
calculation.\42\ Trading in the Shares also will be subject to NYSE
Arca Rule 8.600-E(d)(2)(D), which sets forth circumstances under which
Shares of a fund may be halted. Further, trading in the Shares may be
halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E have
been reached, because of market conditions, or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable.\43\
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\41\ See Amendment No. 1, supra note 4, at 20.
\42\ See id. at 18.
\43\ These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments
comprising the Disclosed Portfolio of the Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance
of a fair and orderly market are present. See id.
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The Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its employees.\44\
Additionally, the Commission notes that the Reporting Authority that
provides the Disclosed Portfolio must implement and maintain, or be
subject to, procedures designed to prevent the use and dissemination of
material, non-public information regarding the actual components of the
portfolio.\45\
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\44\ See id. at 20.
\45\ See NYSE Arca Rule 8.600(d)(2)(B)(ii). The term ``Reporting
Authority'' is defined in NYSE Arca Rule 8.600(c)(4).
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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.\46\ In support of its
proposal, the Exchange has made the following representations:
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\46\ See Amendment No. 1, supra note 4, at 20.
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(1) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.\47\
---------------------------------------------------------------------------
\47\ See id.
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(2) 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.\48\
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\48\ See id.
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(3) The Exchange or FINRA, on behalf of the Exchange, or both, (1)
will communicate as needed regarding trading in the Shares, ETFs,
certain exchange-traded options and certain futures with other markets
and other entities that are members of the Intermarket Surveillance
Group (``ISG''); and (2) may obtain trading information regarding
trading in the Shares, ETFs, certain exchange-traded options and
certain futures from such markets and other entities.\49\ The Exchange
is able to access from FINRA, as needed, trade information for certain
Fixed Income Securities held by the Fund reported to TRACE. FINRA also
can access data obtained from the Municipal Securities Rulemaking Board
relating to certain municipal bond trading activity for surveillance
purposes in connection with trading in the Shares.\50\
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\49\ In addition, the Exchange may obtain information regarding
trading in the Shares, ETFs, certain exchange-traded options and
certain futures from such markets and other entities that are
members of the ISG, or with which the Exchange has in place a
comprehensive surveillance sharing agreement. See Amendment No. 2,
supra note 5.
\50\ See id. at 22.
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(4) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.\51\
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\51\ See id. at 20.
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(5) The Fund will be in compliance with Rule 10A-3 under the
Act,\52\ as provided by NYSE Arca Rule 5.3-E for initial and continued
listing of shares.\53\
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\52\ 17 CFR 240.10A-3.
\53\ See Amendment No. 1, supra note 4, at 20.
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(6) All statements and representations made in the proposed rule
change regarding the description of the portfolio, limitations on
portfolio holdings or reference assets, or the applicability of
Exchange listing rules specified in this rule filing shall constitute
continued listing requirements for listing the Shares on the Exchange.
In addition, the issuer has represented to the Exchange that it will
advise the Exchange of any failure by the Fund to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange will monitor for compliance
with the continued listing requirements. If the Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under NYSE Arca Rule 5.5(m)-E.\54\
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\54\ See id. at 21.
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This approval order is based on all of the Exchange's
representations, including those set forth above and in Amendments No.
1 and No. 2.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendments No. 1 and No. 2, is consistent
with Section 6(b)(5) of the Act \55\ the rules and regulations
thereunder applicable to a national securities exchange.
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\55\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\56\ that the proposed rule change (SR-NYSEArca-2019-38), as
modified by Amendments No. 1 and No. 2, be, and hereby is, approved.
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\56\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
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\57\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19217 Filed 9-5-19; 8:45 am]
BILLING CODE 8011-01-P
