Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 2 Thereto, To List and Trade Shares of the KFA Global Carbon ETF Under NYSE Arca Rule 8.600-E, 65862-65872 [2019-25835]
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65862
Federal Register / Vol. 84, No. 230 / Friday, November 29, 2019 / Notices
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501), the Securities and
Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collections of information
summarized below. The Commission
plans to submit these existing
collections of information to the Office
of Management and Budget (‘‘OMB’’) for
extension and approval.
Section 17(a) of the Investment
Company Act of 1940 (the ‘‘Act’’)
generally prohibits affiliated persons of
a registered investment company
(‘‘fund’’) from borrowing money or other
property from, or selling or buying
securities or other property to or from,
the fund or any company that the fund
controls.1 Rule 17a–6 (17 CFR 270.17a–
6) permits a fund and a ‘‘portfolio
affiliate’’ (a company that is an affiliated
person of the fund because the fund
controls the company, or holds five
percent or more of the company’s
outstanding voting securities) to engage
in principal transactions that would
otherwise be prohibited under section
17(a) of the Act under certain
conditions. A fund may not rely on the
exemption in the rule to enter into a
principal transaction with a portfolio
affiliate if certain prohibited
participants (e.g., directors, officers,
employees, or investment advisers of
the fund) have a financial interest in a
party to the transaction. Rule 17a–6
specifies certain interests that are not
‘‘financial interests,’’ including any
interest that the fund’s board of
directors (including a majority of the
directors who are not interested persons
of the fund) finds to be not material. A
board making this finding is required to
record the basis for the finding in its
meeting minutes. This recordkeeping
requirement is a collection of
information under the Paperwork
Reduction Act of 1995 (‘‘PRA’’).2
The rule is designed to permit
transactions between funds and their
portfolio affiliates in circumstances in
which it is unlikely that the affiliate
would be in a position to take advantage
of the fund. In determining whether a
financial interest is ‘‘material,’’ the
board of the fund should consider
whether the nature and extent of the
interest in the transaction is sufficiently
small that a reasonable person would
not believe that the interest affected the
determination of whether to enter into
the transaction or arrangement or the
terms of the transaction or arrangement.
The information collection requirements
in rule 17a–6 are intended to ensure that
1 15
2 44
U.S.C. 80a–17(a).
U.S.C. 3501.
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Commission staff can review, in the
course of its compliance and
examination functions, the basis for a
board of director’s finding that the
financial interest of an otherwise
prohibited participant in a party to a
transaction with a portfolio affiliate is
not material.
Based on staff discussions with fund
representatives, we estimate that funds
currently do not rely on the exemption
from the term ‘‘financial interest’’ with
respect to any interest that the fund’s
board of directors (including a majority
of the directors who are not interested
persons of the fund) finds to be not
material. Accordingly, we estimate that
annually there will be no principal
transactions under rule 17a–6 that will
result in a collection of information.
The Commission requests
authorization to maintain an inventory
of one burden hour to ease future
renewals of rule 17a–6’s collection of
information analysis should funds rely
on this exemption to the term ‘‘financial
interest’’ as defined in rule 17a–6.
The estimate of burden hours is made
solely for the purposes of the Paperwork
Reduction Act. The estimate is not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules. Complying
with this collection of information
requirement is necessary to obtain the
benefit of relying on rule 17a–6. An
agency may not conduct or sponsor, and
a person is not required to respond to,
a collection of information unless it
displays a currently valid control
number.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Cynthia
Roscoe, 100 F Street NE, Washington,
DC 20549; or send an email to: PRA_
Mailbox@sec.gov.
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Dated: November 25, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–25867 Filed 11–27–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87589; File No. SR–
NYSEArca–2019–60]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 2 and Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change, as Modified by
Amendment No. 2 Thereto, To List and
Trade Shares of the KFA Global
Carbon ETF Under NYSE Arca Rule
8.600–E
November 22, 2019.
On August 14, 2019, NYSE Arca, Inc.
(‘‘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 change to
list and trade shares (‘‘Shares’’) of the
KFA Global Carbon ETF (‘‘Fund’’) under
NYSE Arca Rule 8.600–E, which
governs the listing and trading of
Managed Fund Shares on the Exchange.
The proposed rule change was
published for comment in the Federal
Register on August 29, 2019.3 On
September 12, 2019, the Exchange filed
Amendment No. 1 to the proposed rule
change, which replaced and superseded
the proposed rule change as originally
filed.4 On October 10, 2019, pursuant to
Section 19(b)(2) of the Exchange Act,5
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.6
On October 22, 2019, the Exchange filed
Amendment No. 2 to the proposed rule
change, which replaced and superseded
the proposed rule change, as modified
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 86752
(Aug. 23, 2019), 84 FR 45557.
4 Amendment No. 1 is available on the
Commission’s website at: https://www.sec.gov/
comments/sr-nysearca-2019-60/srnysearca2019606117868-192147.pdf.
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 87277,
84 FR 55658 (Oct. 17, 2019). The Commission
designated November 27, 2019, as the date by
which the Commission shall approve or disapprove,
or institute proceedings to determine whether to
disapprove, the proposed rule change.
2 17
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Federal Register / Vol. 84, No. 230 / Friday, November 29, 2019 / Notices
by Amendment No. 1.7 The Commission
has received no comments on the
proposed rule change. The Commission
is publishing this notice and order to
solicit comments on the proposed rule
change, as modified by Amendment No.
2, from interested persons and to
institute proceedings pursuant to
Section 19(b)(2)(B) of the Act 8 to
determine whether to approve or
disapprove the proposed rule change, as
modified by Amendment No. 2.
I. The Exchange’s Description of the
Proposed Rule Change, as Modified by
Amendment No. 2
The Exchange proposes to list and
trade shares of the KFA Global Carbon
ETF under NYSE Arca Rule 8.600–E
(‘‘Managed Fund Shares’’). This
Amendment No. 2 to SR–NYSEArca–
2019–60 replaces SR–NYSEArca–2019–
60 as originally filed and Amendment 1
thereto and supersedes such filings in
their entirety. 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
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The Exchange proposes to list and
trade shares (‘‘Shares’’) of the KFA
Global Carbon ETF (‘‘Fund’’) under
NYSE Arca Rule 8.600–E, which
governs the listing and trading of
Managed Fund Shares 9 on the
7 Amendment No. 2 is available on the
Commission’s website at: https://www.sec.gov/
comments/sr-nysearca-2019-60/srnysearca2019606324054-194703.pdf.
8 15 U.S.C. 78s(b)(2)(B).
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
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Exchange. The Fund will be an actively
managed exchange-traded fund.
The Shares will be offered by
KraneShares Trust (the ‘‘Trust’’), which
was established as a Delaware statutory
trust on February 3, 2012. The Trust is
registered with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) as an open-end
management investment company.10
Krane Funds Advisors, LLC (‘‘Krane’’
or ‘‘Adviser’’) will serve as the
investment adviser to the Fund. Climate
Finance Partners LLC (‘‘Sub-Adviser’’)
will serve as the non-discretionary
investment sub-adviser to the Fund. SEI
Investments Global Funds Services
(‘‘Administrator’’) will serve as
administrator for the Fund.
SEI Investments Distribution Co.
(‘‘Distributor’’), an affiliate of the
Administrator, will serve as the Fund’s
distributor. Brown Brothers Harriman &
Co. (‘‘BBH’’) will serve as 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.11 In addition,
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 The Trust is registered under the 1940 Act. On
June 11, 2019, the Trust filed with the Commission
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–
180870 and 811–22698) (‘‘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 upon which the
Trust may rely, granting certain exemptive relief
under the 1940 Act. See Investment Company Act
Release No. 32455 (January 27, 2017) (File No. 812–
14675).
11 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 Sub-Adviser and their
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
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65863
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 and Sub-Adviser are not
registered as broker-dealers, but the
Adviser is affiliated with a brokerdealer, and has implemented and will
maintain a fire wall with respect to its
broker-dealer affiliate regarding access
to information concerning the
composition and/or changes to the
portfolio. The Sub-Adviser is not
affiliated with a broker-dealer. In the
event (a) the Adviser or Sub-Adviser
becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser is a
registered broker-dealer or becomes
affiliated with a broker-dealer, it will
implement and maintain a fire wall with
respect to its relevant personnel or 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 nonpublic information regarding such
portfolio.
KFA Global Carbon ETF
According to the Registration
Statement, the Fund will seek to
provide a total return that, before fees
and expenses, exceeds that of the IHS
Markit Global Carbon Index (the
‘‘Index’’) over a complete market cycle.
The Index is designed to track the
performance of liquid carbon credit
futures contracts (‘‘Carbon Credit
Futures’’) maturing within the next one
to two calendar years.
Principal Investments
More specifically, the Index is
designed to track, and the Fund and the
Fund’s Subsidiary (as defined below),
under normal market conditions,12
intend to invest primarily in, Carbon
Credit Futures issued under the
European Union Allowance (EUA),
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.
12 The term ‘‘normal market conditions’’ is
defined in NYSE Arca Rule 8.600–E(c)(5).
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California Carbon Allowance (CCA), and
Regional Greenhouse Gas Initiative
(RGGI) regimes, and maturing within
the next one to two calendar years. EUA
futures are currently traded principally
on ICE Futures Europe, and CCA futures
and RGGI futures are currently traded
principally on ICE Futures US. ICE
Futures Europe, ICE Futures US and
CME are members of the Intermarket
Surveillance Group (‘‘ISG’’).
According to the Registration
Statement, although the Fund will seek
to maintain exposure to Carbon Credit
Futures that are the same as or similar
to those included in the Index, the Fund
and the Subsidiary will be actively
managed and will not be required to
replicate the performance of the Index
or to invest in the specific instruments
in the Index. For example, the Fund
may hold Carbon Credit Futures with
the same maturity and weightings as the
Index, or may select Carbon Credit
Futures with a different month of
maturity, or weight such Carbon Credit
Futures differently, than the Index, or
invest in other futures contracts or
options on futures contracts that are
eligible for inclusion in the Index in
seeking to achieve its investment
objective.
As of the last annual rebalancing date,
November 30, 2018, the weighting of
Carbon Credit Futures in the Index was,
and the weighting of Carbon Credit
Futures in the Fund (including the
Subsidiary (as defined below)) would
have been, as follows:
• European Union Allowance (EUA)—
65%
• California Carbon Allowance (CCA)—
25%
• Regional Greenhouse Gas Initiative
(RGGI)—10%
Although, as described in more detail
below, the Carbon Credit Futures in the
Index are physically settled futures
contracts, the Adviser does not
anticipate that the Fund will hold the
Carbon Credit Futures until expiry or
take or make delivery of any physical
commodities. Instead, the Adviser
expects to roll each Carbon Credit
Future in the Fund’s (or Subsidiary’s (as
defined below)) portfolio approximately
two weeks prior to expiry. Thus, the
Adviser expects to sell near to expiry
Carbon Credit Futures and reinvest the
proceeds in new Carbon Credit Futures
to achieve the Fund’s investment
objective.
Other Investments
While the Fund, under normal market
conditions, will invest primarily in
Carbon Credit Futures referenced above,
the Fund may hold other securities and
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financial instruments, as described
below.
Other than investing in Carbon Credit
Futures, the Fund, in seeking to achieve
its investment objective, may invest in
futures contracts or exchange-traded
options on futures contracts that are
eligible for inclusion in the Index.
The Fund may hold cash and cash
equivalents.13
The Fund will seek to exceed the
performance of the Index through the
active management of a portfolio of debt
instruments (other than cash
equivalents). Such debt instruments in
which the Fund intends to invest are
government securities and corporate or
other non-government fixed-income
securities with maturities of up to 12
months.
The fixed income securities in which
the Fund invests will comply with the
generic listing requirements of
Commentary .01(b) to Rule 8.600–E.
The Fund may invest in exchangetraded funds (‘‘ETFs’’) 14 and exchangetraded notes (‘‘ETNs’’).15
The Fund may hold investment
company securities (other than ETFs),
consistent with the requirements of
Section 12(d) of the 1940 Act.
The Fund may invest up to 25% of its
assets in a wholly-owned subsidiary
(the ‘‘Subsidiary’’). The Fund will
utilize the Subsidiary for purposes of
investing in the Carbon Credit Futures
and other futures contracts and options
on futures contracts. The Subsidiary is
a corporation operating under Cayman
Islands law that is wholly-owned and
controlled by the Fund. The Subsidiary
is advised by the Adviser and subadvised by the Sub-Adviser. The
Subsidiary has the same investment
objective as the Fund and will follow
the same investment policies and
restrictions as the Fund. Accordingly,
the Subsidiary will only invest in the
same instruments as the Fund may
invest in, as discussed herein, including
Carbon Credit Futures, other futures
13 For purposes of this filing, cash equivalents
include the securities included in Commentary
.01(c) to NYSE Arca Rule 8.600–E.
14 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.
15 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). While the Fund may invest in
inverse ETNs, the Fund will not invest in leveraged
(e.g., 2X, –2X, 3X or –3X) ETNs.
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Fmt 4703
Sfmt 4703
contracts and options on futures
contracts, and cash and cash equivalents
as margin or collateral with respect to
its Carbon Credit Futures and other
futures contracts and options on futures
contracts investments.
The Fund will conduct foreign
currency exchange transactions to the
extent necessary to purchase Carbon
Credit Futures and convert proceeds of
sales of Carbon Credit Futures into U.S.
Dollars. The Fund will conduct such
foreign currency transactions either on a
spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency
exchange market, or through forwards
and U.S. exchange-traded futures on
foreign currencies.
The Exchange submits this proposal
in order to allow the Fund to hold listed
derivatives, in particular Carbon Credit
Futures included in the Index, in a
manner that does not comply with
Commentary .01(d)(2) to Rule 8.600–E,
as described below. Otherwise, the
Fund will comply with all other listing
requirements of Commentary .01 to
NYSE Arca Rule 8.600–E on an initial
and continued listing basis.
Description of the Index
According to the Registration
Statement, the Index utilizes a rulesbased methodology and is designed to
track a portfolio of liquid, accessible
carbon credit futures contracts with
‘‘physical delivery’’ of emission
allowances issued under ‘‘cap and
trade’’ regimes.16
The Index is provided by Markit
Indices GmbH (the ‘‘Index Provider’’), a
wholly-owned subsidiary of IHS Markit
Ltd. The Index Provider is not affiliated
with the Fund or Krane.17 The Index
16 According to the Registration Statement, in a
typical ‘‘cap and trade’’ regime, a limit (or ‘‘cap’’)
is set by a regulator, such as a government entity
or supranational organization, on the total amount
of specific greenhouse gases (‘‘GHG’’), such as CO2,
that can be emitted by regulated entities, such as
manufacturers or energy producers. The regulator
then may issue or sell individual ‘‘emission
allowances’’ to regulated entities. These emission
allowances are issued by the regulator to regulated
entities, which may then buy or sell (‘‘trade’’) the
emission allowances on the open market. The
regulator may gradually reduce the market cap on
emission allowances, thereby increasing the value
of such allowances and forcing regulated entities to
reduce their GHG emissions. A cap on emission
allowances available to the market supports the
value of those allowances and is intended to
incentivize regulated entities to reduce their GHG
emissions, because they are permitted to sell
unneeded emission allowances for profit.
Commodity futures contracts linked to the value of
emission allowances are known as carbon credit
futures.
17 The Index Provider is not a broker-dealer or
affiliated with a broker-dealer and has implemented
and will maintain procedures designed to prevent
the use and dissemination of material, nonpublic
information regarding the Index.
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Provider determines the components
and the relative weightings of the
components in the Index. The Index
Provider may consult with the IHS
Markit Global Carbon Index Advisory
Committee to review potential changes
to the Index rules and methodology.
Any decision as to the eligibility or
ineligibility of a Carbon Credit Future
will be published and the Index rules
will be updated accordingly. Additional
information about the Index is available
on the Index Provider’s website,
www.ihsmarkit.com.
As of July 31, 2019, eligible
components of the Index include
emission allowances issued under the
European Union Emissions Trading
System (EUA),18 California Carbon
Allowance (CCA) 19 and Regional
Greenhouse Gas Initiative (RGGI) 20
‘‘cap and trade’’ regimes. As the global
carbon credit market grows, additional
liquid contracts may enter the Index,
and the Fund and the Subsidiary may
invest in any additional Carbon Credit
Futures that are the same as or similar
to those included in the Index.
However, the Fund and the Subsidiary,
under normal market conditions, will
invest primarily in Carbon Credit
Futures issued under EUA, CCA, and
RGGI regimes.
The Fund’s holdings in Carbon Credit
Futures and in futures contracts or
options on futures contracts other than
Carbon Credit Futures will comply with
the requirements of Commentary
.01(d)(1) to Rule 8.600–E.21
18 The EUA allowance is based on the ICE Futures
ECX CFI Carbon Financial Instrument Futures
Contract (‘‘ECX CFI Futures’’). ECX CFI Futures are
standardized contracts developed by the European
Climate Exchange (‘‘ECX’’). They are standardized
contractual instruments for futures on deliverable
carbon equivalent emissions allowances issued
under the European Union Emissions Trading
Scheme (‘‘EU ETS’’), which are listed and admitted
to trading on ICE Futures Europe and the European
Energy Exchange (EEX).
19 CCA–CBL California Carbon Allowance
Futures Contracts (‘‘California Contracts’’) are listed
and traded on ICE Futures U.S and CME Globex
(operated by CME Group, Inc. (‘‘CME’’)). The
California Contracts allow for trading of physically
delivered greenhouse gas emissions allowances.
Each California Contract is an allowance issued by
the California Air Resources Board (or a linked
program) to emit one metric ton of CO2 equivalent
under California Assembly Bill 32 ‘‘California
Global Warming Solutions Act of 2006’’ and its
associated regulations, rules and amendments
(collectively the ‘‘California Cap and Trade
Program’’).
20 RGGI-Regional Greenhouse Gas Initiative
Futures are traded on ICE Futures U.S. They are
monthly physically delivered contracts on RGGI
CO2 allowances.
21 Commentary .01(d)(1) to Rule 8.600–E provides
that, with respect to a fund’s holdings in listed
derivatives, in the aggregate, at least 90% of the
weight of such holdings invested in futures,
exchange-traded options, and listed swaps shall, on
both an initial and continuing basis, consist of
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65865
• European Union Allowance (EUA)—
65%
million for the RGGI program to a
maximum of $29.463 billion for the
EUA program. The average market
capitalization of the futures of these
programs was $10.916 billion. The
largest Regional Components in the
Index were Europe and the Americas
(EUA (65%), CCA (25%) and RGGI
(10%)).22
Regional Component—Americas
Other Restrictions
The Adviser represents that, as of
November 30, 2018, the initial universe
and weighting of Carbon Credit Futures
in the Index was as follows:
Regional Component—Europe, Middle
East and Africa
• California Carbon Allowance (CCA)—
25%
• Regional Greenhouse Gas Initiative
(RGGI)—10%
The Adviser further represents that
the Index allocated each of the EUA and
CCA allowances to two Carbon Credit
Futures with different expiration dates.
Accordingly, according to the Adviser,
the Fund’s allocations to EUA and CCA
Carbon Credit Futures, on a continuous
basis, would similarly be to at least four
different contracts (e.g., two different
contracts each with two different expiry
dates).
The Commodities Futures Trading
Commission (the ‘‘CFTC’’) has adopted
certain requirements that subject
registered investment companies and
their advisers to regulation by the CFTC
if a registered investment company
invests more than a prescribed level of
its net assets in CFTC-regulated futures,
options and swaps, or if a registered
investment company markets itself as
providing investment exposure to such
instruments. Due to the Fund’s intended
use of CFTC-regulated futures above the
prescribed levels, it will be a
‘‘commodity pool’’ under the
Commodity Exchange Act.
The Index is calculated on each full
Securities Industry and Financial
Markets Association (SIFMA)
recommended U.S. trading day and the
last calendar day of November. To
convert the value of foreign carbon
credit futures contracts to U.S. dollars,
the Index utilizes foreign exchange spot
rates from WM Reuters, using foreign
exchange rates as of 4:00 p.m. London
time for any day the Index is calculated.
The Index was launched on July 25,
2019 with a base date of July 31, 2014
and a base value of 100. As of the most
recent rebalancing date of November 30,
2018, the Index included five futures
contracts with market capitalizations
ranging from a minimum of $506
futures, options, and swaps for which the Exchange
may obtain information via the ISG from other
members or affiliates of the ISG or for which the
principal market is a market with which the
Exchange has a comprehensive surveillance sharing
agreement. (For purposes of calculating this
limitation, a portfolio’s investment in listed
derivatives will be calculated as the aggregate gross
notional value of the listed derivatives).
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The Fund’s and the Subsidiary’s
investments, including derivatives, will
be consistent with the Fund’s
investment objective and will not be
used to seek performance that is the
multiple or inverse multiple (e.g., 2X or
–3X) of the Index.
Use of Derivatives by the Fund
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 (the ‘‘Board’’). In addition, the
Fund has included appropriate risk
disclosure in its offering documents,
including leveraging risk. Leveraging
risk is the risk that certain transactions
of the Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.
Impact on Arbitrage Mechanism
The Adviser believes there will be
minimal, if any, impact to the arbitrage
mechanism as a result of the Fund’s use
of derivatives. The Adviser understands
that 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
of the Fund trade will continue to be
disciplined by arbitrage opportunities
created by the ability to purchase or
redeem Shares of the Fund at their net
asset value (‘‘NAV’’), which should
ensure that Shares of the Fund will not
trade at a material discount or premium
in relation to their NAV.
The Adviser does not believe there
will be any significant impacts to the
settlement or operational aspects of the
Fund’s arbitrage mechanism due to the
use of derivatives.
22 Sources: Intercontinental Exchange (https://
data.theice.com) and IHS Markit OPIS (https://
indices.ihsmarkit.com/Carbonindex).
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Creation and Redemption of Shares
According to the Registration
Statement, the Trust will issue and
redeem Shares of the Fund only in
‘‘Creation Units’’ on a continuous basis
through the Distributor at the NAV next
determined after receipt, on any
Business Day (as defined below), of an
order in proper form. A ‘‘Business Day’’,
as used herein, is any day on which the
New York Stock Exchange (‘‘NYSE’’) is
open for business. A Creation Unit is
50,000 Shares. The size of a Creation
Unit is subject to change. Creation Units
may be purchased and redeemed only
by or through a Depository Trust
Company (‘‘DTC’’) Participant that has
entered into an Authorized Participant
Agreement with the Distributor (an
‘‘Authorized Participant’’).
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Purchases of Creation Units
The consideration for the purchase of
Creation Units of the Fund will consist
of an in-kind deposit of a designated
portfolio of securities (or cash for all or
any portion of such securities (‘‘Deposit
Cash’’) (collectively, the ‘‘Deposit
Securities’’)) and the Cash Component,
which is an amount equal to the
difference between the aggregate NAV of
a Creation Unit and the Deposit
Securities. Together, the Deposit
Securities and the Cash Component
constitute the ‘‘Fund Deposit.’’
The Custodian or the Administrator
makes available through the National
Securities Clearing Corporation
(‘‘NSCC’’) on each Business Day, prior
to the opening of the Exchange’s Core
Trading Session (normally 9:30 a.m.,
Eastern time (‘‘E.T.’’)), the list of names
and the required number of shares of
each Deposit Security and Deposit Cash,
as applicable, and the estimated amount
of the Cash Component to be included
in the current Fund Deposit. Such Fund
Deposit is applicable, subject to any
adjustments as described below, in
order to effect purchases of Creation
Units of the Fund until such time as the
next-announced Fund Deposit is made
available.
The Trust reserves the right to permit
or require the substitution of an amount
of cash to replace any Deposit Security
under specified circumstances.
Cash purchases of Creation Units will
be effected in essentially the same
manner as in-kind purchases. The
Authorized Participant will pay the cash
equivalent of the Deposit Securities as
Deposit Cash plus or minus the same
Cash Component.
submit to the Distributor an irrevocable
order in proper form to purchase Shares
of the Fund on a Business Day generally
before the time as of which that day’s
NAV is calculated. For a purchase order
to be processed based on the NAV
calculated on a particular Business Day,
the purchase order must be received in
proper form and accepted by the Trust
prior to the time as of which the NAV
is calculated (‘‘Cutoff Time’’).
Redemptions of Creation Units
The consideration paid by the Fund
for the redemption of Creation Units
consists of an in-kind basket of a
designated portfolio of securities (or
cash for all or any portion of such
securities (‘‘Redemption Cash’’))
(collectively, the ‘‘Fund Securities’’) and
the Cash Component, which is an
amount equal to the difference between
the aggregate NAV of a Creation Unit
and the Fund Securities. Together, the
Fund Securities and the Cash
Component constitute the ‘‘Fund
Redemption.’’
The Custodian or the Administrator
will make available through NSCC on
each Business Day, prior to the opening
of the Exchange’s Core Trading Session,
the list of names and the number of
shares of each Fund Security and
Redemption Cash, as applicable, and the
estimated amount of the Cash
Component to be included in the
current Fund Redemption. Such Fund
Redemption will be applicable, subject
to any adjustments as described below,
for redemptions of Creation Units of the
Fund until such time as the nextannounced Fund Redemption is made
available. The delivery of Fund Shares
will be settled through the DTC system.
The identity and number of shares of
the Fund Securities change pursuant to,
among other matters, changes in the
composition of the Fund’s portfolio and
as rebalancing adjustments and
corporate action events are reflected
from time to time. The composition of
the Fund Securities may not be the same
as the Deposit Securities.
The Trust reserves the right to permit
or require the substitution of an amount
of cash to replace any Redemption
Security under circumstances specified
in the Registration Statement.
Cash redemptions of Creation Units
will be effected in essentially the same
manner as in-kind redemptions. The
Authorized Participant will receive the
cash equivalent of the Fund Securities
as Redemption Cash plus or minus the
same Cash Component.23
Placement of Purchase Orders
To initiate an order for a Creation
Unit, an Authorized Participant must
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23 The Adviser represents that, to the extent the
Trust effects the creation or redemption of Shares
wholly or partially in cash, such transactions will
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Placement of Redemption Orders
To initiate a redemption order for a
Creation Unit, an Authorized
Participant must submit to the
Distributor an irrevocable order in
proper form to redeem Shares of the
Fund on a Business Day generally before
the time as of which that day’s NAV is
calculated. For a redemption order to be
processed based on the NAV calculated
on a particular Business Day, the order
must be received in proper form and
accepted by the Trust prior to the time
as of which the NAV is calculated
(‘‘Cutoff Time’’). A redemption request,
if accepted by the Trust, will be
processed based on the NAV as of the
next Cutoff Time.
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. Specifically, the
Fund’s portfolio will meet all such
requirements except for those set forth
in Commentary .01(a)(1) with respect to
the Fund’s investments in nonexchange-traded investment company
securities and Commentary .01(d)(2)
with respect to the Fund’s and the
Subsidiary’s investments in listed
derivatives.24
In order to achieve its investment
objective, under normal market
conditions, the aggregate gross notional
value of Carbon Credit Futures may, in
certain circumstances, approach 100%
of the Fund (including gross notional
values). As noted above, Commentary
.01(d)(2) to Rule 8.600–E prohibits the
Fund from holding listed derivatives
based on any five or fewer underlying
reference assets in excess of 65% of the
weight of the portfolio (including gross
notional exposures), and the aggregate
gross notional value of listed derivatives
based on any single underlying
reference asset shall not exceed 30% of
the weight of the portfolio (including
gross notional exposures). The Exchange
is proposing to allow the Fund to hold
up to 100% of the weight of its portfolio
(including gross notional exposures) in
be effected in the same manner for all Authorized
Participants.
24 Commentary .01(d)(2) to Rule 8.600–E provides
that, with respect to a fund’s portfolio, the aggregate
gross notional value of listed derivatives based on
any five or fewer underlying reference assets shall
not exceed 65% of the weight of the portfolio
(including gross notional exposures), and the
aggregate gross notional value of listed derivatives
based on any single underlying reference asset shall
not exceed 30% of the weight of the portfolio
(including gross notional exposures).
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listed derivatives based on three
underlying reference assets (EUA, CCA
and RGGI) through its investment in
Carbon Credit Futures, and futures
contracts or exchange-traded options on
futures contracts that are eligible for
inclusion in the Index.
As discussed below, although the
Fund will concentrate its holdings in
listed derivatives that are based on a
smaller number of reference assets than
allowed under Commentary .01(d)(2),
the Exchange believes that sufficient
protections are in place to protect
against market manipulation of the
Shares and Carbon Credit Futures and
otherwise satisfy the purposes of Rule
8.600–E. The Exchange believes that
Carbon Credit Futures are not subject to
the concentration risk that the rule is
intended to address because of the
liquidity of such futures.25 The
Exchange notes that the exchange
markets for Carbon Credit Futures are
highly liquid, and therefore believes
that trading in such futures is not
readily susceptible to manipulation. In
addition, at least 90% of the weight of
listed derivatives utilized by the Fund
would be traded on exchanges that are
members of the ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement, and
Carbon Credit Futures are currently
traded on ISG markets.26
25 The Adviser represents that these are currently
the largest and most liquid futures markets on
carbon offset credits: (1) Carbon Credit Futures on
EUA: 1,269,401,000 contracts with open interest at
a price of $23.21 as of November 30, 2018
translating to a $29.463 billion market
capitalization. In addition, the average annual
trading volume as of that date was $98.856 billion
(with approximately $89 billion consisting of
Carbon Credit Futures with December expirations);
(2) Carbon Credit Futures on CCA: 178,800,000
contracts with open interest at a price of $15.55 as
of November 30, 2018 translates to a $2.780 billion
market capitalization. In addition, the average
annual trading volume as of that date was $2.39
billion (with approximately $1.25 billion consisting
of Carbon Credit Futures with December
expirations); and (3) Carbon Credit Futures on
RGGIs: 94,000,000 contracts with open interest at a
price of $5.38 as of November 30, 2018 translates
to a $506 million market capitalization. In addition,
the average annual trading volume as of that date
was $250 million (with approximately $182.9
million consisting of Carbon Credit Futures with
December expirations). Source: (https://
www.theice.com/microsite/usenvironmental
monthlymarketreport).
26 The Exchange notes that the Commission has
approved proposed rule changes by a national
securities exchange to list and trade series of
Managed Fund Shares that may hold listed
derivatives on underlying reference assets that may
not comply with provisions similar to those in
Commentary .01(d)(2) to Rule 8.600–E. See, e.g.,
Securities Exchange Act Release Nos. 80529 (April
26, 2017), 82 FR 20506 (May 2, 2017) (SR–
BatsBZX–2017–14) (Order Granting Approval of a
Proposed Rule Change to List and Trade Shares of
the Amplify YieldShares Oil Hedged MLP Fund
under BZX Rule 14.11(i)); 82906 (March 20, 2018),
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16:49 Nov 27, 2019
Jkt 250001
The Exchange notes that the
Commission has previously approved
listing and trading on the Exchange
under NYSE Arca Rule 8.204–E
(Commodity Futures Trust Shares) of a
trust with the investment objective of
providing investment results that
correspond generally to the performance
of a basket of exchange-traded futures
contracts for carbon equivalent
emissions allowances issued under the
European Union Emissions Trading
Scheme (‘‘EU ETS’’).27
The Fund may invest in shares of
investment company securities (other
than ETFs), which are equity securities.
Therefore, to the extent the Fund invests
in shares of other non-exchange-traded
open-end management investment
company securities, the Fund will not
comply with the requirements of
Commentary .01(a)(1)(A) through (E) to
NYSE Arca Rule 8.600–E (U.S.
Component Stocks) with respect to its
equity securities holdings.28
83 FR 12992 (March 26, 2018) (SR–CboeBZX–2017–
012) (Order Approving a Proposed Rule Change, as
Modified by Amendment No. 2, to List and Trade
Shares of the LHA Market State® Tactical U.S.
Equity ETF under Rule 14.11(i)); 83014 (April 9,
2018), 83 FR 16150 (April 13, 2018) (SR–CboeBZX–
2017–023) (Notice of Filing of Amendment No. 2
and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment
No. 2, to List and Trade Shares of the iShares Gold
Strategy ETF Under Exchange Rule 14.11(i)); 83146
(May 1, 2018), 83 FR 20103 (May 7, 2018) (SR–
CboeBZX–2018–029) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
to Allow the Horizons Cadence Hedged US
Dividend Yield ETF, a Series of the Horizons ETF
Trust I, to Hold Listed Options Contracts in a
Manner that Does Not Comply with Rule 14.11(i),
Managed Fund Shares). See also, Securities
Exchange Act Release No. 85701 (April 22, 2019),
84 FR 17902 (April 26, 2019) (SR–CboeBZX–2019–
016) (Notice of Filing of Amendment No. 1 and
Order Granting Accelerated Approval of a Proposed
Rule Change, as Modified by Amendment No. 1, to
Allow the JPMorgan Core Plus Bond ETF of the J.P.
Morgan Exchange-Traded Fund Trust to Hold
Certain Instruments in a Manner that May Not
Comply with Rule 14.11(i), Managed Fund Shares).
27 See Securities Exchange Act Release No. 57838,
(May 20, 2008), 73 FR 30649 (May 28, 2008) (SR–
NYSEArca–2008–09) (Order Granting Approval of
Proposed Rule Change, as Modified by Amendment
Nos. 1 and 2 Thereto, Relating to the Listing and
Trading of Shares of the AirShares EU Carbon
Allowances Fund) (‘‘AirShares Order’’). The EU
ETS is a ‘‘cap and trade’’ emissions trading program
instituted by the European Union, in furtherance of
the joint commitment of its member states under
the Kyoto Protocol to achieve certain reductions in
their emissions of greenhouse gases. The net assets
of the AirShares EU Carbon Allowances Fund were
to consist of long positions in ICE Futures ECX
Carbon Financial Instrument Futures Contracts
consisting of standardized contractual instruments
for futures on deliverable EUAs issued under the
EU ETS and developed by the European Climate
Exchange. The Adviser represents that the
European Union Emissions Trading System (EUA)
referenced above is the same as the EU ETS
referenced in the AirShares Order.
28 Commentary .01(a) to Rule 8.600–E specifies
the equity securities accommodated by the generic
criteria in Commentary .01(a), namely, U.S.
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65867
However, it is appropriate and in the
public interest to approve listing and
trading of Shares of the Fund
notwithstanding that the Fund’s
holdings in such securities would not
meet the requirements of Commentary
.01(a)(1)(A) through (E) to Rule 8.600–E.
Investments in other non-exchangetraded open-end management
investment company securities will not
exceed 20% of the total assets of the
Fund. Such investments, which may
include mutual funds that invest, for
example, principally in fixed income
securities, would be utilized to help the
Fund meet its investment objective and
to equitize cash in the short term. The
Fund will invest in such securities only
to the extent that those investments
would be consistent with the
requirements of Section 12(d)(1) of the
1940 Act and the rules thereunder.29
Component Stocks (as described in Rule 5.2–E(j)(3))
and Non-U.S. Component Stocks (as described in
Rule 5.2–E(j)(3)). Commentary .01(a)(1) to Rule
8.600–E (U.S. Component Stocks) provides that the
component stocks of the equity portion of a
portfolio that are U.S. Component Stocks shall meet
the following criteria initially and on a continuing
basis:
(A) Component stocks (excluding Derivative
Securities Products and Index-Linked Securities)
that in the aggregate account for at least 90% of the
equity weight of the portfolio (excluding such
Derivative Securities Products and Index-Linked
Securities) each shall have a minimum market
value of at least $75 million;
(B) Component stocks (excluding Derivative
Securities Products and Index-Linked Securities)
that in the aggregate account for at least 70% of the
equity weight of the portfolio (excluding such
Derivative Securities Products and Index-Linked
Securities) each shall have a minimum monthly
trading volume of 250,000 shares, or minimum
notional volume traded per month of $25,000,000,
averaged over the last six months;
(C) The most heavily weighted component stock
(excluding Derivative Securities Products and
Index-Linked Securities) shall not exceed 30% of
the equity weight of the portfolio, and, to the extent
applicable, the five most heavily weighted
component stocks (excluding Derivative Securities
Products and Index-Linked Securities) shall not
exceed 65% of the equity weight of the portfolio;
(D) Where the equity portion of the portfolio does
not include Non-U.S. Component Stocks, the equity
portion of the portfolio shall include a minimum of
13 component stocks; provided, however, that there
shall be no minimum number of component stocks
if (i) one or more series of Derivative Securities
Products or Index-Linked Securities constitute, at
least in part, components underlying a series of
Managed Fund Shares, or (ii) one or more series of
Derivative Securities Products or Index-Linked
Securities account for 100% of the equity weight of
the portfolio of a series of Managed Fund Shares;
(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; and
(F) American Depositary Receipts (‘‘ADRs’’) in a
portfolio may be exchange-traded or nonexchangetraded. However, no more than 10% of the equity
weight of a portfolio shall consist of non-exchangetraded ADRs.
29 The Commission has previously approved
proposed rule changes under Section 19(b) of the
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Because such securities must satisfy
applicable 1940 Act diversification
requirements, and have a net asset value
based on the value of securities and
financial assets the investment company
holds, it is both unnecessary and
inappropriate to apply to such
investment company securities the
criteria in Commentary .01(a)(1).
The Exchange notes that Commentary
.01(a)(1)(A) through (D) to Rule 8.600–
E exclude certain ‘‘Derivative Securities
Products’’ that are exchange-traded
investment company securities,
including Investment Company Units
(as described in NYSE Arca Rule 5.2–
E(j)(3)), Portfolio Depositary Receipts (as
described in NYSE Arca Rule 8.100–E))
and Managed Fund Shares (as described
in NYSE Arca Rule 8.600–E)).30 In its
2008 Approval Order approving
amendments to Commentary .01(a) to
Rule 5.2(j)(3) to exclude Derivative
Securities Products from certain
provisions of Commentary .01(a) (which
exclusions are similar to those in
Commentary .01(a)(1) to Rule 8.600–E),
the Commission stated that ‘‘based on
the trading characteristics of Derivative
Securities Products, it may be difficult
for component Derivative Securities
Act for series of Managed Fund Shares that may
invest in non-exchange traded investment company
securities to the extent permitted by Section
12(d)(1) of the 1940 Act and the rules thereunder.
See, e.g., Securities Exchange Act Release No.
86362 (July 12, 2019), 84 FR 34457 (July 18, 2019)
(SR–NYSEArca–2019–36 (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
JPMorgan Income Builder Blend ETF under NYSE
Arca Rule 8.600–E).
30 The Commission initially approved the
Exchange’s proposed rule change to exclude
‘‘Derivative Securities Products’’ (i.e., Investment
Company Units and securities described in Section
2 of Rule 8) and ‘‘Index-Linked Securities (as
described in Rule 5.2–E(j)(6)) from Commentary
.01(a)(A)(1) through (4) to Rule 5.2–E(j)(3) in
Securities Exchange Act Release No. 57751 (May 1,
2008), 73 FR 25818 (May 7, 2008) (SR–NYSEArca–
2008–29) (Order Granting Approval of a Proposed
Rule Change, as Modified by Amendment No. 1
Thereto, to Amend the Eligibility Criteria for
Components of an Index Underlying Investment
Company Units) (‘‘2008 Approval Order’’). See also
Securities Exchange Act Release No. 57561 (March
26, 2008), 73 FR 17390 (April 1, 2008) (Notice of
Filing of Proposed Rule Change and Amendment
No. 1 Thereto to Amend the Eligibility Criteria for
Components of an Index Underlying Investment
Company Units). The Commission subsequently
approved generic criteria applicable to listing and
trading of Managed Fund Shares, including
exclusions for Derivative Securities Products and
Index-Linked Securities in Commentary .01(a)(1)(A)
through (D), in Securities Exchange Act Release No.
78397 (July 22, 2016), 81 FR 49320 (July 27, 2016)
(Order Granting Approval of Proposed Rule Change,
as Modified by Amendment No. 7 Thereto,
Amending NYSE Arca Rule 8.600–E To Adopt
Generic Listing Standards for Managed Fund
Shares). See also Amendment No. 7 to SR–
NYSEArca–2015–110, available at https://
www.sec.gov/comments/sr-nysearca-2015-110/
nysearca2015110-9.pdf.
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Products to satisfy certain quantitative
index criteria, such as the minimum
market value and trading volume
limitations.’’ The Exchange notes that it
would be difficult or impossible to
apply to mutual fund shares certain of
the generic quantitative criteria (e.g.,
market capitalization, trading volume,
or portfolio criteria) in Commentary
.01(a)(1) (A) through (D) applicable to
U.S. Component Stocks. For example,
the requirements for U.S. Component
Stocks in Commentary .01(a)(1)(B) that
there be minimum monthly trading
volume of 250,000 shares, or minimum
notional volume traded per month of
$25,000,000, averaged over the last six
months are tailored to exchange-traded
securities (i.e., U.S. Component Stocks)
and not to mutual fund shares, which
do not trade in the secondary market
and for which no such volume
information is reported. In addition,
Commentary .01(a)(1)(A) relating to
minimum market value of portfolio
component stocks, Commentary
.01(a)(1)(C) relating to weighting of
portfolio component stocks, and
Commentary .01(a)(1)(D) relating to
minimum number of portfolio
components are not appropriately
applied to open-end management
investment company securities; openend investment companies hold
multiple individual securities as
disclosed publicly in accordance with
the 1940 Act, and application of
Commentary .01(a)(1)(A) through (D)
would not serve the purposes served
with respect to U.S. Component Stocks,
namely, to establish minimum liquidity
and diversification criteria for U.S.
Component Stocks held by series of
Managed Fund Shares.
Other than Commentary .01(a)(1) and
(d)(2) to Rule 8.600–E, as described
above, the Fund’s portfolio will meet all
other requirements of Rule 8.600–E.
Availability of Information
The Fund’s website
(www.kraneshares.com) will include the
prospectus for the Fund that may be
downloaded. The Fund’s website will
include additional quantitative
information updated on a daily basis
including, for the Fund, (1) daily trading
volume, the prior business day’s
reported closing price, NAV and
midpoint of the bid/ask spread at the
time of calculation of such NAV (the
‘‘Bid/Ask Price’’),31 and a calculation of
the premium and discount of the Bid/
31 The
Bid/Ask Price of the Fund’s Shares will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
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Ask Price against the NAV, and (2) data
in chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund will disclose on its
website the Disclosed Portfolio as
defined in NYSE Arca Rule 8.600–
E(c)(2) that forms the basis for the
Fund’s calculation of NAV at the end of
the business day.32
On a daily basis, the Fund will
disclose the information required under
NYSE Arca Rule 8.600–E(c)(2) to the
extent applicable. The website
information will be publicly available at
no charge.
In addition, a basket composition file,
which includes the security names and
share quantities, if applicable, required
to be delivered in exchange for the
Fund’s Shares, together with estimates
and actual cash components, will be
publicly disseminated daily prior to the
opening of the Exchange via the NSCC.
The basket represents one Creation Unit
of the Fund. Authorized Participants
may refer to the basket composition file
for information regarding financial
instruments that may comprise the
Fund’s basket on a given day.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and the Fund’s Forms N–CSR
and N–CEN and Forms N–PORT, filed
twice a year. The Fund’s SAI and
Shareholder Reports will be available
free upon request from the Trust, and
those documents and the Form N–PX,
Form N–CEN and Form N–PORT
(formerly Forms N–Q and N–SAR) may
be viewed on-screen or downloaded
from the Commission’s website at
www.sec.gov.
Intra-day and the closing settlement
price information regarding Carbon
Credit Futures and U.S. exchange-traded
futures on currencies will be available
from the exchange on which such
instruments are traded and from major
market data vendors. Spot currency
prices and price information regarding
currency forwards, debt instruments
(other than cash equivalents) and cash
equivalents also will be available from
major market data vendors.
Additionally, the Trade Reporting and
32 Under accounting procedures followed by the
Fund, trades made on the prior business day (‘‘T’’)
will be booked and reflected in NAV on the current
business day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the business
day the portfolio that will form the basis for the
NAV calculation at the end of the business day.
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Compliance Engine (‘‘TRACE’’) of the
Financial Industry Regulatory Authority
(‘‘FINRA’’) will be a source of price
information for certain fixed income
securities to the extent transactions in
such securities are reported to TRACE.33
Price information regarding U.S.
government securities and other 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
Index price is available via Bloomberg
and Reuters. The Index methodology
and constituent list is available via IHS
Markit’s website (https://
indices.ihsmarkit.com).
Quote and last-sale information for
ECX CFI Futures, California Futures and
RGGI-Regional Greenhouse Gas
Initiative Futures, other futures
contracts and options on futures are
widely disseminated through major
market data vendors. ICE Futures US,
ICE Futures Europe and CME also
provide delayed futures information on
current and past trading sessions and
market news on their respective
websites.
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. Price
information regarding non-exchangetraded investment company securities is
available from major market data
vendors.
Quotation and last sale information
for the Shares, ETFs and ETNs will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line. In
addition, the Portfolio Indicative Value
(‘‘PIV’’), as defined in NYSE Arca Rule
8.600–E(c)(3), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Core Trading
Session.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
33 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 Fund.34 Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12–E
have been reached. Trading also may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. Trading in the Fund’s
Shares also will be subject to Rule
8.600–E(d)(2)(D) (‘‘Trading Halts’’).
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.
With the exception of the
requirements of Commentary .01(a)(1)
with respect to the Fund’s investments
in non-exchange-traded investment
company securities and Commentary
.01(d)(2) (with respect to listed
derivatives) to Rule 8.600–E as
described above in ‘‘Application of
Generic Listing Requirements,’’ the
Shares of the Fund will conform to the
initial and continued listing criteria
under NYSE Arca Rule 8.600–E.
Consistent with NYSE Arca Rule 8.600–
E(d)(2)(B)(ii), the Adviser will
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 Fund’s portfolio. The
Exchange represents that, for initial and
continued listing, the Fund will be in
compliance with Rule 10A–3 35 under
the Act, as provided by NYSE Arca Rule
5.3–E. A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time. The Fund’s investments
will be consistent with its investment
goal and will not be used to provide
34 See
35 17
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CFR 240.10A–3.
Frm 00094
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65869
multiple returns of a benchmark or to
produce leveraged returns.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by FINRA on behalf of the
Exchange, or by regulatory staff of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.36
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, ETFs, ETNs,
certain futures and options on futures
with other markets and other entities
that are members of the ISG, and the
Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading
information regarding trading in such
securities and financial instruments
from such markets and other entities.37
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. In
addition, FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s TRACE.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
All statements and representations
made in this filing regarding (a) the
36 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.
37 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that certain
Index components and holdings of the Fund may
not be listed or traded on ISG exchanges.
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description of the portfolio 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 of
the Fund on the Exchange.
The issuer must notify 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–
E(m).
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Rule 9.2–E(a), which
imposes a duty of due diligence on its
Equity Trading Permit 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
Equity Trading Permit 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 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) 38 that an
exchange have rules that are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Rule
8.600–E notwithstanding that the Fund
will not comply with the requirement in
Commentary .01(a)(1) and Commentary
.01(d)(2) to Rule 8.600–E, as described
herein.
The Exchange believes that sufficient
protections are in place to protect
against market manipulation of the
Shares and Carbon Credit Futures
included in the Index due to, among
other matters (a) the liquidity and
market capitalization of EUA futures,
CCA futures and RGGI futures,39 and (b)
surveillance by the Exchange and
FINRA of the Shares and futures
designed to detect violations of the
federal securities laws and selfregulatory organization rules. The
Carbon Credit Futures included in the
Index—i.e., EUA futures, CCA futures,
RGGI futures—and, as applicable,
futures contracts or options on futures
contracts other than Carbon Credit
Futures in the Index trade in
competitive auction markets with price,
quote transparency and arbitrage
opportunities. Further, the Exchange
believes that because the assets in the
Fund’s portfolio will be acquired in
extremely liquid and highly regulated
markets, the Shares are less readily
susceptible to manipulation. EUA
futures, CCA futures and RGGI futures
are traded on ISG markets.
The Exchange believes that these
factors, coupled with the highly
regulated EUA, CCA and RGGI markets,
are sufficiently great to deter fraudulent
and market manipulation. The Exchange
also believes that such liquidity is
sufficient to support the creation and
redemption mechanism.
The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws. The Exchange or FINRA, on behalf
of the Exchange, or both, will
communicate as needed regarding
trading in the Shares, ETFs, ETNs, U.S.
exchange-traded futures on foreign
currency and Carbon Credit Futures
with other markets and other entities
that are members of the ISG, and the
Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading
information regarding trading in 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. In
addition, FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to FINRA’s TRACE. The
Adviser and Sub-Adviser are not
registered as broker-dealers, but the
Adviser is affiliated with a brokerdealer, and has implemented and will
maintain a fire wall with respect to its
broker-dealer affiliate regarding access
to information concerning the
composition and/or changes to the
portfolio. The Sub-Adviser is not
affiliated with a broker-dealer.
The Exchange notes that the
Commission has previously approved
listing and trading on the Exchange
under NYSE Arca Rule 8.204–E
(Commodity Futures Trust Shares) of a
trust with the investment objective of
providing investment results that
correspond generally to the performance
of Carbon Credit Futures on EUAs.40
Other than cash and cash equivalents,
the AirShares Trust sought investment
exposure exclusively to Carbon Credit
Futures on EUAs. Thus, the
Commission has already considered and
approved for listing a product with the
same types of assets in which the Fund
will invest.
The Exchange notes that the
Commission has approved proposed
rule changes by a national securities
exchange to list and trade series of
Managed Fund Shares that may hold
listed derivatives on underlying
reference assets that may not comply
with provisions similar to those in
Commentary .01(d)(2) to Rule 8.600–
E.41 In addition, the Exchange believes
that the listing and trading of Shares of
the Fund would further an interest in
the U.S. maintaining a competitive
position in the global securities markets,
which requires that U.S. participants
respond to new developments and
encourage the development of new
products. Innovative financial vehicles
such as the Fund will provide investors
40 See
38 15
U.S.C. 78f(b)(5).
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39 See
Jkt 250001
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note 25, supra.
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41 See
Sfmt 4703
E:\FR\FM\29NON1.SGM
note 27, supra.
note 26, supra.
29NON1
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greater access to U.S. markets. By
providing a wide range of investors with
a U.S. exchange-traded security that
invests in Carbon Credit Futures, the
Exchange believes that the listing of the
Fund will benefit both investors and the
markets.
As noted above, the Fund may invest
in shares of non-exchange-traded
investment company securities, which
are equity securities. Therefore, to the
extent the Fund invests in shares of
non-exchange-traded open-end
management investment company
securities, the Fund will not comply
with the requirements of Commentary
.01(a)(1)(A) through (E) to NYSE Arca
Rule 8.600–E (U.S. Component Stocks)
with respect to its equity securities
holdings.42 The Exchange believes it is
appropriate and in the public interest to
approve listing and trading of Shares of
the Fund notwithstanding that the
Fund’s holdings in such securities
would not meet the requirements of
Commentary .01(a)(1)(A) through (E) to
Rule 8.600–E. Investments in nonexchange-traded open-end management
investment company securities will not
exceed 20% of the total assets of the
Fund. Such investments, which may
include mutual funds that invest, for
example, principally in fixed income
securities, would be utilized to help the
Fund meet its investment objective and
to equitize cash in the short term. The
Fund will invest in such securities only
to the extent that those investments
would be consistent with the
requirements of Section 12(d)(1) of the
1940 Act and the rules thereunder.
Because such securities must satisfy
applicable 1940 Act diversification
requirements, and have a net asset value
based on the value of securities and
financial assets the investment company
holds, it is both unnecessary and
inappropriate to apply to such
investment company securities the
criteria in Commentary .01(a)(1). The
Commission has previously approved
proposed rule changes under Section
19(b) of the Act for series of Managed
Fund Shares that may invest in nonexchange traded investment company
securities to the extent permitted by
Section 12(d)(1) of the 1940 Act and the
rules thereunder.43
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
42 See
43 See
note 28, supra.
note 29, supra.
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Jkt 250001
made available to all market
participants at the same time. In
addition, a large amount of information
will be publicly available regarding the
Fund and the Shares, thereby promoting
market transparency. Intra-day and the
closing settlement price information
regarding Carbon Credit Futures and
U.S. exchange-traded futures on
currencies will be available from the
exchange on which such instruments
are traded and from major market data
vendors. Spot currency prices and price
information regarding currency
forwards, debt instruments (other than
cash equivalents) and cash equivalents
also will be available from major market
data vendors. Additionally, FINRA’s
TRACE will be a source of price
information for certain fixed income
securities to the extent transactions in
such securities are reported to TRACE.
Price information regarding U.S.
government securities and other 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
Index price is available via Bloomberg
and Reuters. The Index methodology
and constituent list is available via IHS
Markit’s website.
Quote and last-sale information for
ECX CFI Futures, California Futures and
RGGI-Regional Greenhouse Gas
Initiative Futures, other futures
contracts and options on futures are
widely disseminated through major
market data vendors. ICE Futures US,
ICE Futures Europe and CME also
provide delayed futures information on
current and past trading sessions and
market news on their respective
websites.
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. Price
information regarding non-exchangetraded investment company securities is
available from major market data
vendors.
Quotation and last sale information
for the Shares, ETFs and ETNs will be
available via the CTA. 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.
PO 00000
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65871
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. 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. 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, NAV, the PIV, the
Disclosed Portfolio, and quotation and
last sale information for the Shares.
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 listed derivatives
above that currently permitted by the
generic listing requirements of
Commentary .01(d)(2) to NYSE Arca
Rule 8.600–E, and through investment
in non-exchange-traded investment
company securities (notwithstanding
the requirements of Commentary
.01(a)(1) 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, 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 will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
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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.
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III. Proceedings To Determine Whether
To Approve or Disapprove SR–
NYSEArca–2019–60, as Modified by
Amendment No. 2, and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 44 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,45 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act, 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,’’ and ‘‘to protect investors and the
public interest.’’ 46
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposed rule change, as modified by
Amendment No. 2, is consistent with
Section 6(b)(5) or any other provision of
the Act, or the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval that would be
facilitated by an oral presentation of
44 15
U.S.C. 78s(b)(2)(B).
45 Id.
46 15
U.S.C. 78f(b)(5).
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views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.47
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change, as modified by
Amendment No. 2, should be approved
or disapproved by December 20, 2019.
Any person who wishes to file a rebuttal
to any other person’s submission must
file that rebuttal by January 3, 2020.
The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, which are set forth in
Amendment No. 2,48 in addition to any
other comments they may wish to
submit about the proposed rule change.
In particular, the Commission seeks
commenters’ views regarding whether
the Exchange has adequately described
and provided clear information relating
to the Fund’s proposed investments in
derivatives for the Commission to make
a determination under Section 6(b)(5) of
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–2019–60 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–2019–60. 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
47 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
48 See supra note 7.
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change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2019–60 and
should be submitted by December 20,
2019. Rebuttal comments should be
submitted by January 3, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.49
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–25835 Filed 11–27–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87600; File No. SR–
CboeBZX–2019–098]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend
Paragraph (a) of Rule 11.1 To Allow the
Exchange To Accept Stop Orders
Entered Between 6:00 and 7:00 a.m.
Eastern Time
November 22, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
19, 2019, Cboe BZX Exchange, Inc.
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
49 17 CFR 200.30–3(a)(12) & 17 CFR 200.30–
3(a)(57).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
E:\FR\FM\29NON1.SGM
29NON1
]]>Agencies
[Federal Register Volume 84, Number 230 (Friday, November 29, 2019)]
[Notices]
[Pages 65862-65872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25835]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87589; File No. SR-NYSEArca-2019-60]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 2 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 2 Thereto, To List and Trade Shares of the KFA Global
Carbon ETF Under NYSE Arca Rule 8.600-E
November 22, 2019.
On August 14, 2019, NYSE Arca, Inc. (``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 change to list and trade
shares (``Shares'') of the KFA Global Carbon ETF (``Fund'') under NYSE
Arca Rule 8.600-E, which governs the listing and trading of Managed
Fund Shares on the Exchange. The proposed rule change was published for
comment in the Federal Register on August 29, 2019.\3\ On September 12,
2019, the Exchange filed Amendment No. 1 to the proposed rule change,
which replaced and superseded the proposed rule change as originally
filed.\4\ On October 10, 2019, pursuant to Section 19(b)(2) of the
Exchange Act,\5\ the Commission designated a longer period within which
to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ On October 22, 2019, the Exchange filed
Amendment No. 2 to the proposed rule change, which replaced and
superseded the proposed rule change, as modified
[[Page 65863]]
by Amendment No. 1.\7\ The Commission has received no comments on the
proposed rule change. The Commission is publishing this notice and
order to solicit comments on the proposed rule change, as modified by
Amendment No. 2, from interested persons and to institute proceedings
pursuant to Section 19(b)(2)(B) of the Act \8\ to determine whether to
approve or disapprove the proposed rule change, as modified by
Amendment No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 86752 (Aug. 23,
2019), 84 FR 45557.
\4\ Amendment No. 1 is available on the Commission's website at:
https://www.sec.gov/comments/sr-nysearca-2019-60/srnysearca201960-6117868-192147.pdf.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 87277, 84 FR 55658
(Oct. 17, 2019). The Commission designated November 27, 2019, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\7\ Amendment No. 2 is available on the Commission's website at:
https://www.sec.gov/comments/sr-nysearca-2019-60/srnysearca201960-6324054-194703.pdf.
\8\ 15 U.S.C. 78s(b)(2)(B).
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I. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 2
The Exchange proposes to list and trade shares of the KFA Global
Carbon ETF under NYSE Arca Rule 8.600-E (``Managed Fund Shares''). This
Amendment No. 2 to SR-NYSEArca-2019-60 replaces SR-NYSEArca-2019-60 as
originally filed and Amendment 1 thereto and supersedes such filings in
their entirety. 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
KFA Global Carbon ETF (``Fund'') under NYSE Arca Rule 8.600-E, which
governs the listing and trading of Managed Fund Shares \9\ on the
Exchange. The Fund will be an actively managed exchange-traded fund.
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\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.
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The Shares will be offered by KraneShares Trust (the ``Trust''),
which was established as a Delaware statutory trust on February 3,
2012. The Trust is registered with the Securities and Exchange
Commission (``SEC'' or ``Commission'') as an open-end management
investment company.\10\
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\10\ The Trust is registered under the 1940 Act. On June 11,
2019, the Trust filed with the Commission 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. 333-180870 and
811-22698) (``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 upon which the Trust may rely, granting certain exemptive
relief under the 1940 Act. See Investment Company Act Release No.
32455 (January 27, 2017) (File No. 812-14675).
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Krane Funds Advisors, LLC (``Krane'' or ``Adviser'') will serve as
the investment adviser to the Fund. Climate Finance Partners LLC
(``Sub-Adviser'') will serve as the non-discretionary investment sub-
adviser to the Fund. SEI Investments Global Funds Services
(``Administrator'') will serve as administrator for the Fund.
SEI Investments Distribution Co. (``Distributor''), an affiliate of
the Administrator, will serve as the Fund's distributor. Brown Brothers
Harriman & Co. (``BBH'') will serve as 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.\11\ 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 and Sub-Adviser are not registered as broker-dealers, but the
Adviser is affiliated with a broker-dealer, and has implemented and
will maintain a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio. The Sub-Adviser is not affiliated with a
broker-dealer. In the event (a) the Adviser or Sub-Adviser becomes
registered as a broker-dealer or newly affiliated with a broker-dealer,
or (b) any new adviser or sub-adviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, it will implement and maintain
a fire wall with respect to its relevant personnel or 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.
---------------------------------------------------------------------------
\11\ 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 Sub-Adviser and their 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.
---------------------------------------------------------------------------
KFA Global Carbon ETF
According to the Registration Statement, the Fund will seek to
provide a total return that, before fees and expenses, exceeds that of
the IHS Markit Global Carbon Index (the ``Index'') over a complete
market cycle. The Index is designed to track the performance of liquid
carbon credit futures contracts (``Carbon Credit Futures'') maturing
within the next one to two calendar years.
Principal Investments
More specifically, the Index is designed to track, and the Fund and
the Fund's Subsidiary (as defined below), under normal market
conditions,\12\ intend to invest primarily in, Carbon Credit Futures
issued under the European Union Allowance (EUA),
[[Page 65864]]
California Carbon Allowance (CCA), and Regional Greenhouse Gas
Initiative (RGGI) regimes, and maturing within the next one to two
calendar years. EUA futures are currently traded principally on ICE
Futures Europe, and CCA futures and RGGI futures are currently traded
principally on ICE Futures US. ICE Futures Europe, ICE Futures US and
CME are members of the Intermarket Surveillance Group (``ISG'').
---------------------------------------------------------------------------
\12\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5).
---------------------------------------------------------------------------
According to the Registration Statement, although the Fund will
seek to maintain exposure to Carbon Credit Futures that are the same as
or similar to those included in the Index, the Fund and the Subsidiary
will be actively managed and will not be required to replicate the
performance of the Index or to invest in the specific instruments in
the Index. For example, the Fund may hold Carbon Credit Futures with
the same maturity and weightings as the Index, or may select Carbon
Credit Futures with a different month of maturity, or weight such
Carbon Credit Futures differently, than the Index, or invest in other
futures contracts or options on futures contracts that are eligible for
inclusion in the Index in seeking to achieve its investment objective.
As of the last annual rebalancing date, November 30, 2018, the
weighting of Carbon Credit Futures in the Index was, and the weighting
of Carbon Credit Futures in the Fund (including the Subsidiary (as
defined below)) would have been, as follows:
European Union Allowance (EUA)--65%
California Carbon Allowance (CCA)--25%
Regional Greenhouse Gas Initiative (RGGI)--10%
Although, as described in more detail below, the Carbon Credit
Futures in the Index are physically settled futures contracts, the
Adviser does not anticipate that the Fund will hold the Carbon Credit
Futures until expiry or take or make delivery of any physical
commodities. Instead, the Adviser expects to roll each Carbon Credit
Future in the Fund's (or Subsidiary's (as defined below)) portfolio
approximately two weeks prior to expiry. Thus, the Adviser expects to
sell near to expiry Carbon Credit Futures and reinvest the proceeds in
new Carbon Credit Futures to achieve the Fund's investment objective.
Other Investments
While the Fund, under normal market conditions, will invest
primarily in Carbon Credit Futures referenced above, the Fund may hold
other securities and financial instruments, as described below.
Other than investing in Carbon Credit Futures, the Fund, in seeking
to achieve its investment objective, may invest in futures contracts or
exchange-traded options on futures contracts that are eligible for
inclusion in the Index.
The Fund may hold cash and cash equivalents.\13\
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\13\ For purposes of this filing, cash equivalents include the
securities included in Commentary .01(c) to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------
The Fund will seek to exceed the performance of the Index through
the active management of a portfolio of debt instruments (other than
cash equivalents). Such debt instruments in which the Fund intends to
invest are government securities and corporate or other non-government
fixed-income securities with maturities of up to 12 months.
The fixed income securities in which the Fund invests will comply
with the generic listing requirements of Commentary .01(b) to Rule
8.600-E.
The Fund may invest in exchange-traded funds (``ETFs'') \14\ and
exchange-traded notes (``ETNs'').\15\
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\14\ 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.
\15\ 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). While the Fund may invest in inverse ETNs, the Fund
will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETNs.
---------------------------------------------------------------------------
The Fund may hold investment company securities (other than ETFs),
consistent with the requirements of Section 12(d) of the 1940 Act.
The Fund may invest up to 25% of its assets in a wholly-owned
subsidiary (the ``Subsidiary''). The Fund will utilize the Subsidiary
for purposes of investing in the Carbon Credit Futures and other
futures contracts and options on futures contracts. The Subsidiary is a
corporation operating under Cayman Islands law that is wholly-owned and
controlled by the Fund. The Subsidiary is advised by the Adviser and
sub-advised by the Sub-Adviser. The Subsidiary has the same investment
objective as the Fund and will follow the same investment policies and
restrictions as the Fund. Accordingly, the Subsidiary will only invest
in the same instruments as the Fund may invest in, as discussed herein,
including Carbon Credit Futures, other futures contracts and options on
futures contracts, and cash and cash equivalents as margin or
collateral with respect to its Carbon Credit Futures and other futures
contracts and options on futures contracts investments.
The Fund will conduct foreign currency exchange transactions to the
extent necessary to purchase Carbon Credit Futures and convert proceeds
of sales of Carbon Credit Futures into U.S. Dollars. The Fund will
conduct such foreign currency transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through forwards and U.S. exchange-traded futures
on foreign currencies.
The Exchange submits this proposal in order to allow the Fund to
hold listed derivatives, in particular Carbon Credit Futures included
in the Index, in a manner that does not comply with Commentary
.01(d)(2) to Rule 8.600-E, as described below. Otherwise, the Fund will
comply with all other listing requirements of Commentary .01 to NYSE
Arca Rule 8.600-E on an initial and continued listing basis.
Description of the Index
According to the Registration Statement, the Index utilizes a
rules-based methodology and is designed to track a portfolio of liquid,
accessible carbon credit futures contracts with ``physical delivery''
of emission allowances issued under ``cap and trade'' regimes.\16\
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\16\ According to the Registration Statement, in a typical ``cap
and trade'' regime, a limit (or ``cap'') is set by a regulator, such
as a government entity or supranational organization, on the total
amount of specific greenhouse gases (``GHG''), such as
CO2, that can be emitted by regulated entities, such as
manufacturers or energy producers. The regulator then may issue or
sell individual ``emission allowances'' to regulated entities. These
emission allowances are issued by the regulator to regulated
entities, which may then buy or sell (``trade'') the emission
allowances on the open market. The regulator may gradually reduce
the market cap on emission allowances, thereby increasing the value
of such allowances and forcing regulated entities to reduce their
GHG emissions. A cap on emission allowances available to the market
supports the value of those allowances and is intended to
incentivize regulated entities to reduce their GHG emissions,
because they are permitted to sell unneeded emission allowances for
profit. Commodity futures contracts linked to the value of emission
allowances are known as carbon credit futures.
---------------------------------------------------------------------------
The Index is provided by Markit Indices GmbH (the ``Index
Provider''), a wholly-owned subsidiary of IHS Markit Ltd. The Index
Provider is not affiliated with the Fund or Krane.\17\ The Index
[[Page 65865]]
Provider determines the components and the relative weightings of the
components in the Index. The Index Provider may consult with the IHS
Markit Global Carbon Index Advisory Committee to review potential
changes to the Index rules and methodology. Any decision as to the
eligibility or ineligibility of a Carbon Credit Future will be
published and the Index rules will be updated accordingly. Additional
information about the Index is available on the Index Provider's
website, www.ihsmarkit.com.
---------------------------------------------------------------------------
\17\ The Index Provider is not a broker-dealer or affiliated
with a broker-dealer and has implemented and will maintain
procedures designed to prevent the use and dissemination of
material, nonpublic information regarding the Index.
---------------------------------------------------------------------------
As of July 31, 2019, eligible components of the Index include
emission allowances issued under the European Union Emissions Trading
System (EUA),\18\ California Carbon Allowance (CCA) \19\ and Regional
Greenhouse Gas Initiative (RGGI) \20\ ``cap and trade'' regimes. As the
global carbon credit market grows, additional liquid contracts may
enter the Index, and the Fund and the Subsidiary may invest in any
additional Carbon Credit Futures that are the same as or similar to
those included in the Index. However, the Fund and the Subsidiary,
under normal market conditions, will invest primarily in Carbon Credit
Futures issued under EUA, CCA, and RGGI regimes.
---------------------------------------------------------------------------
\18\ The EUA allowance is based on the ICE Futures ECX CFI
Carbon Financial Instrument Futures Contract (``ECX CFI Futures'').
ECX CFI Futures are standardized contracts developed by the European
Climate Exchange (``ECX''). They are standardized contractual
instruments for futures on deliverable carbon equivalent emissions
allowances issued under the European Union Emissions Trading Scheme
(``EU ETS''), which are listed and admitted to trading on ICE
Futures Europe and the European Energy Exchange (EEX).
\19\ CCA-CBL California Carbon Allowance Futures Contracts
(``California Contracts'') are listed and traded on ICE Futures U.S
and CME Globex (operated by CME Group, Inc. (``CME'')). The
California Contracts allow for trading of physically delivered
greenhouse gas emissions allowances. Each California Contract is an
allowance issued by the California Air Resources Board (or a linked
program) to emit one metric ton of CO2 equivalent under
California Assembly Bill 32 ``California Global Warming Solutions
Act of 2006'' and its associated regulations, rules and amendments
(collectively the ``California Cap and Trade Program'').
\20\ RGGI-Regional Greenhouse Gas Initiative Futures are traded
on ICE Futures U.S. They are monthly physically delivered contracts
on RGGI CO2 allowances.
---------------------------------------------------------------------------
The Fund's holdings in Carbon Credit Futures and in futures
contracts or options on futures contracts other than Carbon Credit
Futures will comply with the requirements of Commentary .01(d)(1) to
Rule 8.600-E.\21\
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\21\ Commentary .01(d)(1) to Rule 8.600-E provides that, with
respect to a fund's holdings in listed derivatives, in the
aggregate, at least 90% of the weight of such holdings invested in
futures, exchange-traded options, and listed swaps shall, on both an
initial and continuing basis, consist of futures, options, and swaps
for which the Exchange may obtain information via the ISG from other
members or affiliates of the ISG or for which the principal market
is a market with which the Exchange has a comprehensive surveillance
sharing agreement. (For purposes of calculating this limitation, a
portfolio's investment in listed derivatives will be calculated as
the aggregate gross notional value of the listed derivatives).
---------------------------------------------------------------------------
The Adviser represents that, as of November 30, 2018, the initial
universe and weighting of Carbon Credit Futures in the Index was as
follows:
Regional Component--Europe, Middle East and Africa
European Union Allowance (EUA)--65%
Regional Component--Americas
California Carbon Allowance (CCA)--25%
Regional Greenhouse Gas Initiative (RGGI)--10%
The Adviser further represents that the Index allocated each of the
EUA and CCA allowances to two Carbon Credit Futures with different
expiration dates. Accordingly, according to the Adviser, the Fund's
allocations to EUA and CCA Carbon Credit Futures, on a continuous
basis, would similarly be to at least four different contracts (e.g.,
two different contracts each with two different expiry dates).
The Commodities Futures Trading Commission (the ``CFTC'') has
adopted certain requirements that subject registered investment
companies and their advisers to regulation by the CFTC if a registered
investment company invests more than a prescribed level of its net
assets in CFTC-regulated futures, options and swaps, or if a registered
investment company markets itself as providing investment exposure to
such instruments. Due to the Fund's intended use of CFTC-regulated
futures above the prescribed levels, it will be a ``commodity pool''
under the Commodity Exchange Act.
The Index is calculated on each full Securities Industry and
Financial Markets Association (SIFMA) recommended U.S. trading day and
the last calendar day of November. To convert the value of foreign
carbon credit futures contracts to U.S. dollars, the Index utilizes
foreign exchange spot rates from WM Reuters, using foreign exchange
rates as of 4:00 p.m. London time for any day the Index is calculated.
The Index was launched on July 25, 2019 with a base date of July 31,
2014 and a base value of 100. As of the most recent rebalancing date of
November 30, 2018, the Index included five futures contracts with
market capitalizations ranging from a minimum of $506 million for the
RGGI program to a maximum of $29.463 billion for the EUA program. The
average market capitalization of the futures of these programs was
$10.916 billion. The largest Regional Components in the Index were
Europe and the Americas (EUA (65%), CCA (25%) and RGGI (10%)).\22\
---------------------------------------------------------------------------
\22\ Sources: Intercontinental Exchange (https://data.theice.com) and IHS Markit OPIS (https://indices.ihsmarkit.com/Carbonindex).
---------------------------------------------------------------------------
Other Restrictions
The Fund's and the Subsidiary's investments, including derivatives,
will be consistent with the Fund's investment objective and will not be
used to seek performance that is the multiple or inverse multiple
(e.g., 2X or -3X) of the Index.
Use of Derivatives by the Fund
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 (the
``Board''). In addition, the Fund has included appropriate risk
disclosure in its offering documents, including leveraging risk.
Leveraging risk is the risk that certain transactions of the Fund,
including the Fund's use of derivatives, may give rise to leverage,
causing the Fund to be more volatile than if it had not been leveraged.
Impact on Arbitrage Mechanism
The Adviser believes there will be minimal, if any, impact to the
arbitrage mechanism as a result of the Fund's use of derivatives. The
Adviser understands that 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 of the Fund trade will continue to be disciplined by arbitrage
opportunities created by the ability to purchase or redeem Shares of
the Fund at their net asset value (``NAV''), which should ensure that
Shares of the Fund will not trade at a material discount or premium in
relation to their NAV.
The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of the Fund's arbitrage
mechanism due to the use of derivatives.
[[Page 65866]]
Creation and Redemption of Shares
According to the Registration Statement, the Trust will issue and
redeem Shares of the Fund only in ``Creation Units'' on a continuous
basis through the Distributor at the NAV next determined after receipt,
on any Business Day (as defined below), of an order in proper form. A
``Business Day'', as used herein, is any day on which the New York
Stock Exchange (``NYSE'') is open for business. A Creation Unit is
50,000 Shares. The size of a Creation Unit is subject to change.
Creation Units may be purchased and redeemed only by or through a
Depository Trust Company (``DTC'') Participant that has entered into an
Authorized Participant Agreement with the Distributor (an ``Authorized
Participant'').
Purchases of Creation Units
The consideration for the purchase of Creation Units of the Fund
will consist of an in-kind deposit of a designated portfolio of
securities (or cash for all or any portion of such securities
(``Deposit Cash'') (collectively, the ``Deposit Securities'')) and the
Cash Component, which is an amount equal to the difference between the
aggregate NAV of a Creation Unit and the Deposit Securities. Together,
the Deposit Securities and the Cash Component constitute the ``Fund
Deposit.''
The Custodian or the Administrator makes available through the
National Securities Clearing Corporation (``NSCC'') on each Business
Day, prior to the opening of the Exchange's Core Trading Session
(normally 9:30 a.m., Eastern time (``E.T.'')), the list of names and
the required number of shares of each Deposit Security and Deposit
Cash, as applicable, and the estimated amount of the Cash Component to
be included in the current Fund Deposit. Such Fund Deposit is
applicable, subject to any adjustments as described below, in order to
effect purchases of Creation Units of the Fund until such time as the
next-announced Fund Deposit is made available.
The Trust reserves the right to permit or require the substitution
of an amount of cash to replace any Deposit Security under specified
circumstances.
Cash purchases of Creation Units will be effected in essentially
the same manner as in-kind purchases. The Authorized Participant will
pay the cash equivalent of the Deposit Securities as Deposit Cash plus
or minus the same Cash Component.
Placement of Purchase Orders
To initiate an order for a Creation Unit, an Authorized Participant
must submit to the Distributor an irrevocable order in proper form to
purchase Shares of the Fund on a Business Day generally before the time
as of which that day's NAV is calculated. For a purchase order to be
processed based on the NAV calculated on a particular Business Day, the
purchase order must be received in proper form and accepted by the
Trust prior to the time as of which the NAV is calculated (``Cutoff
Time'').
Redemptions of Creation Units
The consideration paid by the Fund for the redemption of Creation
Units consists of an in-kind basket of a designated portfolio of
securities (or cash for all or any portion of such securities
(``Redemption Cash'')) (collectively, the ``Fund Securities'') and the
Cash Component, which is an amount equal to the difference between the
aggregate NAV of a Creation Unit and the Fund Securities. Together, the
Fund Securities and the Cash Component constitute the ``Fund
Redemption.''
The Custodian or the Administrator will make available through NSCC
on each Business Day, prior to the opening of the Exchange's Core
Trading Session, the list of names and the number of shares of each
Fund Security and Redemption Cash, as applicable, and the estimated
amount of the Cash Component to be included in the current Fund
Redemption. Such Fund Redemption will be applicable, subject to any
adjustments as described below, for redemptions of Creation Units of
the Fund until such time as the next-announced Fund Redemption is made
available. The delivery of Fund Shares will be settled through the DTC
system.
The identity and number of shares of the Fund Securities change
pursuant to, among other matters, changes in the composition of the
Fund's portfolio and as rebalancing adjustments and corporate action
events are reflected from time to time. The composition of the Fund
Securities may not be the same as the Deposit Securities.
The Trust reserves the right to permit or require the substitution
of an amount of cash to replace any Redemption Security under
circumstances specified in the Registration Statement.
Cash redemptions of Creation Units will be effected in essentially
the same manner as in-kind redemptions. The Authorized Participant will
receive the cash equivalent of the Fund Securities as Redemption Cash
plus or minus the same Cash Component.\23\
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\23\ 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.
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Placement of Redemption Orders
To initiate a redemption order for a Creation Unit, an Authorized
Participant must submit to the Distributor an irrevocable order in
proper form to redeem Shares of the Fund on a Business Day generally
before the time as of which that day's NAV is calculated. For a
redemption order to be processed based on the NAV calculated on a
particular Business Day, the order must be received in proper form and
accepted by the Trust prior to the time as of which the NAV is
calculated (``Cutoff Time''). A redemption request, if accepted by the
Trust, will be processed based on the NAV as of the next Cutoff Time.
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. Specifically, the Fund's portfolio
will meet all such requirements except for those set forth in
Commentary .01(a)(1) with respect to the Fund's investments in non-
exchange-traded investment company securities and Commentary .01(d)(2)
with respect to the Fund's and the Subsidiary's investments in listed
derivatives.\24\
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\24\ Commentary .01(d)(2) to Rule 8.600-E provides that, with
respect to a fund's portfolio, the aggregate gross notional value of
listed derivatives based on any five or fewer underlying reference
assets shall not exceed 65% of the weight of the portfolio
(including gross notional exposures), and the aggregate gross
notional value of listed derivatives based on any single underlying
reference asset shall not exceed 30% of the weight of the portfolio
(including gross notional exposures).
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In order to achieve its investment objective, under normal market
conditions, the aggregate gross notional value of Carbon Credit Futures
may, in certain circumstances, approach 100% of the Fund (including
gross notional values). As noted above, Commentary .01(d)(2) to Rule
8.600-E prohibits the Fund from holding listed derivatives based on any
five or fewer underlying reference assets in excess of 65% of the
weight of the portfolio (including gross notional exposures), and the
aggregate gross notional value of listed derivatives based on any
single underlying reference asset shall not exceed 30% of the weight of
the portfolio (including gross notional exposures). The Exchange is
proposing to allow the Fund to hold up to 100% of the weight of its
portfolio (including gross notional exposures) in
[[Page 65867]]
listed derivatives based on three underlying reference assets (EUA, CCA
and RGGI) through its investment in Carbon Credit Futures, and futures
contracts or exchange-traded options on futures contracts that are
eligible for inclusion in the Index.
As discussed below, although the Fund will concentrate its holdings
in listed derivatives that are based on a smaller number of reference
assets than allowed under Commentary .01(d)(2), the Exchange believes
that sufficient protections are in place to protect against market
manipulation of the Shares and Carbon Credit Futures and otherwise
satisfy the purposes of Rule 8.600-E. The Exchange believes that Carbon
Credit Futures are not subject to the concentration risk that the rule
is intended to address because of the liquidity of such futures.\25\
The Exchange notes that the exchange markets for Carbon Credit Futures
are highly liquid, and therefore believes that trading in such futures
is not readily susceptible to manipulation. In addition, at least 90%
of the weight of listed derivatives utilized by the Fund would be
traded on exchanges that are members of the ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement,
and Carbon Credit Futures are currently traded on ISG markets.\26\
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\25\ The Adviser represents that these are currently the largest
and most liquid futures markets on carbon offset credits: (1) Carbon
Credit Futures on EUA: 1,269,401,000 contracts with open interest at
a price of $23.21 as of November 30, 2018 translating to a $29.463
billion market capitalization. In addition, the average annual
trading volume as of that date was $98.856 billion (with
approximately $89 billion consisting of Carbon Credit Futures with
December expirations); (2) Carbon Credit Futures on CCA: 178,800,000
contracts with open interest at a price of $15.55 as of November 30,
2018 translates to a $2.780 billion market capitalization. In
addition, the average annual trading volume as of that date was
$2.39 billion (with approximately $1.25 billion consisting of Carbon
Credit Futures with December expirations); and (3) Carbon Credit
Futures on RGGIs: 94,000,000 contracts with open interest at a price
of $5.38 as of November 30, 2018 translates to a $506 million market
capitalization. In addition, the average annual trading volume as of
that date was $250 million (with approximately $182.9 million
consisting of Carbon Credit Futures with December expirations).
Source: (https://www.theice.com/microsite/usenvironmentalmonthlymarketreport).
\26\ The Exchange notes that the Commission has approved
proposed rule changes by a national securities exchange to list and
trade series of Managed Fund Shares that may hold listed derivatives
on underlying reference assets that may not comply with provisions
similar to those in Commentary .01(d)(2) to Rule 8.600-E. See, e.g.,
Securities Exchange Act Release Nos. 80529 (April 26, 2017), 82 FR
20506 (May 2, 2017) (SR-BatsBZX-2017-14) (Order Granting Approval of
a Proposed Rule Change to List and Trade Shares of the Amplify
YieldShares Oil Hedged MLP Fund under BZX Rule 14.11(i)); 82906
(March 20, 2018), 83 FR 12992 (March 26, 2018) (SR-CboeBZX-2017-012)
(Order Approving a Proposed Rule Change, as Modified by Amendment
No. 2, to List and Trade Shares of the LHA Market State[supreg]
Tactical U.S. Equity ETF under Rule 14.11(i)); 83014 (April 9,
2018), 83 FR 16150 (April 13, 2018) (SR-CboeBZX-2017-023) (Notice of
Filing of Amendment No. 2 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 2, to List and
Trade Shares of the iShares Gold Strategy ETF Under Exchange Rule
14.11(i)); 83146 (May 1, 2018), 83 FR 20103 (May 7, 2018) (SR-
CboeBZX-2018-029) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Allow the Horizons Cadence Hedged US
Dividend Yield ETF, a Series of the Horizons ETF Trust I, to Hold
Listed Options Contracts in a Manner that Does Not Comply with Rule
14.11(i), Managed Fund Shares). See also, Securities Exchange Act
Release No. 85701 (April 22, 2019), 84 FR 17902 (April 26, 2019)
(SR-CboeBZX-2019-016) (Notice of Filing of Amendment No. 1 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 1, to Allow the JPMorgan Core Plus Bond ETF of the
J.P. Morgan Exchange-Traded Fund Trust to Hold Certain Instruments
in a Manner that May Not Comply with Rule 14.11(i), Managed Fund
Shares).
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The Exchange notes that the Commission has previously approved
listing and trading on the Exchange under NYSE Arca Rule 8.204-E
(Commodity Futures Trust Shares) of a trust with the investment
objective of providing investment results that correspond generally to
the performance of a basket of exchange-traded futures contracts for
carbon equivalent emissions allowances issued under the European Union
Emissions Trading Scheme (``EU ETS'').\27\
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\27\ See Securities Exchange Act Release No. 57838, (May 20,
2008), 73 FR 30649 (May 28, 2008) (SR-NYSEArca-2008-09) (Order
Granting Approval of Proposed Rule Change, as Modified by Amendment
Nos. 1 and 2 Thereto, Relating to the Listing and Trading of Shares
of the AirShares EU Carbon Allowances Fund) (``AirShares Order'').
The EU ETS is a ``cap and trade'' emissions trading program
instituted by the European Union, in furtherance of the joint
commitment of its member states under the Kyoto Protocol to achieve
certain reductions in their emissions of greenhouse gases. The net
assets of the AirShares EU Carbon Allowances Fund were to consist of
long positions in ICE Futures ECX Carbon Financial Instrument
Futures Contracts consisting of standardized contractual instruments
for futures on deliverable EUAs issued under the EU ETS and
developed by the European Climate Exchange. The Adviser represents
that the European Union Emissions Trading System (EUA) referenced
above is the same as the EU ETS referenced in the AirShares Order.
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The Fund may invest in shares of investment company securities
(other than ETFs), which are equity securities. Therefore, to the
extent the Fund invests in shares of other non-exchange-traded open-end
management investment company securities, the Fund will not comply with
the requirements of Commentary .01(a)(1)(A) through (E) to NYSE Arca
Rule 8.600-E (U.S. Component Stocks) with respect to its equity
securities holdings.\28\
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\28\ Commentary .01(a) to Rule 8.600-E specifies the equity
securities accommodated by the generic criteria in Commentary
.01(a), namely, U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)) and Non-U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)). Commentary .01(a)(1) to Rule 8.600-E (U.S. Component
Stocks) provides that the component stocks of the equity portion of
a portfolio that are U.S. Component Stocks shall meet the following
criteria initially and on a continuing basis:
(A) Component stocks (excluding Derivative Securities Products
and Index-Linked Securities) that in the aggregate account for at
least 90% of the equity weight of the portfolio (excluding such
Derivative Securities Products and Index-Linked Securities) each
shall have a minimum market value of at least $75 million;
(B) Component stocks (excluding Derivative Securities Products
and Index-Linked Securities) that in the aggregate account for at
least 70% of the equity weight of the portfolio (excluding such
Derivative Securities Products and Index-Linked Securities) each
shall have a minimum monthly trading volume of 250,000 shares, or
minimum notional volume traded per month of $25,000,000, averaged
over the last six months;
(C) The most heavily weighted component stock (excluding
Derivative Securities Products and Index-Linked Securities) shall
not exceed 30% of the equity weight of the portfolio, and, to the
extent applicable, the five most heavily weighted component stocks
(excluding Derivative Securities Products and Index-Linked
Securities) shall not exceed 65% of the equity weight of the
portfolio;
(D) Where the equity portion of the portfolio does not include
Non-U.S. Component Stocks, the equity portion of the portfolio shall
include a minimum of 13 component stocks; provided, however, that
there shall be no minimum number of component stocks if (i) one or
more series of Derivative Securities Products or Index-Linked
Securities constitute, at least in part, components underlying a
series of Managed Fund Shares, or (ii) one or more series of
Derivative Securities Products or Index-Linked Securities account
for 100% of the equity weight of the portfolio of a series of
Managed Fund Shares;
(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; and
(F) American Depositary Receipts (``ADRs'') in a portfolio may
be exchange-traded or nonexchange-traded. However, no more than 10%
of the equity weight of a portfolio shall consist of non-exchange-
traded ADRs.
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However, it is appropriate and in the public interest to approve
listing and trading of Shares of the Fund notwithstanding that the
Fund's holdings in such securities would not meet the requirements of
Commentary .01(a)(1)(A) through (E) to Rule 8.600-E. Investments in
other non-exchange-traded open-end management investment company
securities will not exceed 20% of the total assets of the Fund. Such
investments, which may include mutual funds that invest, for example,
principally in fixed income securities, would be utilized to help the
Fund meet its investment objective and to equitize cash in the short
term. The Fund will invest in such securities only to the extent that
those investments would be consistent with the requirements of Section
12(d)(1) of the 1940 Act and the rules thereunder.\29\
[[Page 65868]]
Because such securities must satisfy applicable 1940 Act
diversification requirements, and have a net asset value based on the
value of securities and financial assets the investment company holds,
it is both unnecessary and inappropriate to apply to such investment
company securities the criteria in Commentary .01(a)(1).
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\29\ The Commission has previously approved proposed rule
changes under Section 19(b) of the Act for series of Managed Fund
Shares that may invest in non-exchange traded investment company
securities to the extent permitted by Section 12(d)(1) of the 1940
Act and the rules thereunder. See, e.g., Securities Exchange Act
Release No. 86362 (July 12, 2019), 84 FR 34457 (July 18, 2019) (SR-
NYSEArca-2019-36 (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 JPMorgan Income
Builder Blend ETF under NYSE Arca Rule 8.600-E).
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The Exchange notes that Commentary .01(a)(1)(A) through (D) to Rule
8.600-E exclude certain ``Derivative Securities Products'' that are
exchange-traded investment company securities, including Investment
Company Units (as described in NYSE Arca Rule 5.2-E(j)(3)), Portfolio
Depositary Receipts (as described in NYSE Arca Rule 8.100-E)) and
Managed Fund Shares (as described in NYSE Arca Rule 8.600-E)).\30\ In
its 2008 Approval Order approving amendments to Commentary .01(a) to
Rule 5.2(j)(3) to exclude Derivative Securities Products from certain
provisions of Commentary .01(a) (which exclusions are similar to those
in Commentary .01(a)(1) to Rule 8.600-E), the Commission stated that
``based on the trading characteristics of Derivative Securities
Products, it may be difficult for component Derivative Securities
Products to satisfy certain quantitative index criteria, such as the
minimum market value and trading volume limitations.'' The Exchange
notes that it would be difficult or impossible to apply to mutual fund
shares certain of the generic quantitative criteria (e.g., market
capitalization, trading volume, or portfolio criteria) in Commentary
.01(a)(1) (A) through (D) applicable to U.S. Component Stocks. For
example, the requirements for U.S. Component Stocks in Commentary
.01(a)(1)(B) that there be minimum monthly trading volume of 250,000
shares, or minimum notional volume traded per month of $25,000,000,
averaged over the last six months are tailored to exchange-traded
securities (i.e., U.S. Component Stocks) and not to mutual fund shares,
which do not trade in the secondary market and for which no such volume
information is reported. In addition, Commentary .01(a)(1)(A) relating
to minimum market value of portfolio component stocks, Commentary
.01(a)(1)(C) relating to weighting of portfolio component stocks, and
Commentary .01(a)(1)(D) relating to minimum number of portfolio
components are not appropriately applied to open-end management
investment company securities; open-end investment companies hold
multiple individual securities as disclosed publicly in accordance with
the 1940 Act, and application of Commentary .01(a)(1)(A) through (D)
would not serve the purposes served with respect to U.S. Component
Stocks, namely, to establish minimum liquidity and diversification
criteria for U.S. Component Stocks held by series of Managed Fund
Shares.
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\30\ The Commission initially approved the Exchange's proposed
rule change to exclude ``Derivative Securities Products'' (i.e.,
Investment Company Units and securities described in Section 2 of
Rule 8) and ``Index-Linked Securities (as described in Rule 5.2-
E(j)(6)) from Commentary .01(a)(A)(1) through (4) to Rule 5.2-
E(j)(3) in Securities Exchange Act Release No. 57751 (May 1, 2008),
73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29) (Order Granting
Approval of a Proposed Rule Change, as Modified by Amendment No. 1
Thereto, to Amend the Eligibility Criteria for Components of an
Index Underlying Investment Company Units) (``2008 Approval
Order''). See also Securities Exchange Act Release No. 57561 (March
26, 2008), 73 FR 17390 (April 1, 2008) (Notice of Filing of Proposed
Rule Change and Amendment No. 1 Thereto to Amend the Eligibility
Criteria for Components of an Index Underlying Investment Company
Units). The Commission subsequently approved generic criteria
applicable to listing and trading of Managed Fund Shares, including
exclusions for Derivative Securities Products and Index-Linked
Securities in Commentary .01(a)(1)(A) through (D), in Securities
Exchange Act Release No. 78397 (July 22, 2016), 81 FR 49320 (July
27, 2016) (Order Granting Approval of Proposed Rule Change, as
Modified by Amendment No. 7 Thereto, Amending NYSE Arca Rule 8.600-E
To Adopt Generic Listing Standards for Managed Fund Shares). See
also Amendment No. 7 to SR-NYSEArca-2015-110, available at https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-9.pdf.
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Other than Commentary .01(a)(1) and (d)(2) to Rule 8.600-E, as
described above, the Fund's portfolio will meet all other requirements
of Rule 8.600-E.
Availability of Information
The Fund's website (www.kraneshares.com) will include the
prospectus for the Fund that may be downloaded. The Fund's website will
include additional quantitative information updated on a daily basis
including, for the Fund, (1) daily trading volume, the prior business
day's reported closing price, NAV and midpoint of the bid/ask spread at
the time of calculation of such NAV (the ``Bid/Ask Price''),\31\ and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV, and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund will disclose on its website the Disclosed Portfolio as defined in
NYSE Arca Rule 8.600-E(c)(2) that forms the basis for the Fund's
calculation of NAV at the end of the business day.\32\
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\31\ 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.
\32\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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On a daily basis, the Fund will disclose the information required
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The
website information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of
the Fund. Authorized Participants may refer to the basket composition
file for information regarding financial instruments that may comprise
the Fund's basket on a given day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's
Forms N-CSR and N-CEN and Forms N-PORT, filed twice a year. The Fund's
SAI and Shareholder Reports will be available free upon request from
the Trust, and those documents and the Form N-PX, Form N-CEN and Form
N-PORT (formerly Forms N-Q and N-SAR) may be viewed on-screen or
downloaded from the Commission's website at www.sec.gov.
Intra-day and the closing settlement price information regarding
Carbon Credit Futures and U.S. exchange-traded futures on currencies
will be available from the exchange on which such instruments are
traded and from major market data vendors. Spot currency prices and
price information regarding currency forwards, debt instruments (other
than cash equivalents) and cash equivalents also will be available from
major market data vendors. Additionally, the Trade Reporting and
[[Page 65869]]
Compliance Engine (``TRACE'') of the Financial Industry Regulatory
Authority (``FINRA'') will be a source of price information for certain
fixed income securities to the extent transactions in such securities
are reported to TRACE.\33\ Price information regarding U.S. government
securities and other 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 Index price is available via Bloomberg and Reuters. The Index
methodology and constituent list is available via IHS Markit's website
(https://indices.ihsmarkit.com).
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\33\ 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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Quote and last-sale information for ECX CFI Futures, California
Futures and RGGI-Regional Greenhouse Gas Initiative Futures, other
futures contracts and options on futures are widely disseminated
through major market data vendors. ICE Futures US, ICE Futures Europe
and CME also provide delayed futures information on current and past
trading sessions and market news on their respective websites.
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. Price information regarding non-exchange-traded
investment company securities is available from major market data
vendors.
Quotation and last sale information for the Shares, ETFs and ETNs
will be available via the Consolidated Tape Association (``CTA'') high-
speed line. In addition, the Portfolio Indicative Value (``PIV''), as
defined in NYSE Arca Rule 8.600-E(c)(3), will be widely disseminated by
one or more major market data vendors at least every 15 seconds during
the Core Trading Session.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\34\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. Trading in the Fund's Shares also
will be subject to Rule 8.600-E(d)(2)(D) (``Trading Halts'').
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\34\ See NYSE Arca Rule 7.12-E.
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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.
With the exception of the requirements of Commentary .01(a)(1) with
respect to the Fund's investments in non-exchange-traded investment
company securities and Commentary .01(d)(2) (with respect to listed
derivatives) to Rule 8.600-E as described above in ``Application of
Generic Listing Requirements,'' the Shares of the Fund will conform to
the initial and continued listing criteria under NYSE Arca Rule 8.600-
E. Consistent with NYSE Arca Rule 8.600-E(d)(2)(B)(ii), the Adviser
will 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 Fund's portfolio. The Exchange
represents that, for initial and continued listing, the Fund will be in
compliance with Rule 10A-3 \35\ under the Act, as provided by NYSE Arca
Rule 5.3-E. A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time. The
Fund's investments will be consistent with its investment goal and will
not be used to provide multiple returns of a benchmark or to produce
leveraged returns.
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\35\ 17 CFR 240.10A-3.
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Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by FINRA on behalf
of the Exchange, or by regulatory staff of the Exchange, which are
designed to detect violations of Exchange rules and applicable federal
securities laws. The Exchange represents that these procedures are
adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and federal securities laws applicable to trading on the Exchange.\36\
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\36\ 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.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, ETFs, ETNs,
certain futures and options on futures with other markets and other
entities that are members of the ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading in such securities and financial instruments from
such markets and other entities.\37\ 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. In addition, FINRA, on behalf of the Exchange, is
able to access, as needed, trade information for certain fixed income
securities held by the Fund reported to FINRA's TRACE.
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\37\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that certain Index components
and holdings of the Fund may not be listed or traded on ISG
exchanges.
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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
[[Page 65870]]
description of the portfolio 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 of the Fund on
the Exchange.
The issuer must notify 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-
E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'')
of the special characteristics and risks associated with trading the
Shares. Specifically, the Bulletin will discuss the following: (1) The
procedures for purchases and redemptions of Shares in Creation Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Rule 9.2-E(a), which imposes a duty of due diligence on its
Equity Trading Permit 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 Equity Trading Permit 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 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) \38\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\38\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that 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
notwithstanding that the Fund will not comply with the requirement in
Commentary .01(a)(1) and Commentary .01(d)(2) to Rule 8.600-E, as
described herein.
The Exchange believes that sufficient protections are in place to
protect against market manipulation of the Shares and Carbon Credit
Futures included in the Index due to, among other matters (a) the
liquidity and market capitalization of EUA futures, CCA futures and
RGGI futures,\39\ and (b) surveillance by the Exchange and FINRA of the
Shares and futures designed to detect violations of the federal
securities laws and self-regulatory organization rules. The Carbon
Credit Futures included in the Index--i.e., EUA futures, CCA futures,
RGGI futures--and, as applicable, futures contracts or options on
futures contracts other than Carbon Credit Futures in the Index trade
in competitive auction markets with price, quote transparency and
arbitrage opportunities. Further, the Exchange believes that because
the assets in the Fund's portfolio will be acquired in extremely liquid
and highly regulated markets, the Shares are less readily susceptible
to manipulation. EUA futures, CCA futures and RGGI futures are traded
on ISG markets.
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\39\ See note 25, supra.
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The Exchange believes that these factors, coupled with the highly
regulated EUA, CCA and RGGI markets, are sufficiently great to deter
fraudulent and market manipulation. The Exchange also believes that
such liquidity is sufficient to support the creation and redemption
mechanism.
The Exchange has in place surveillance procedures that are adequate
to properly monitor trading in the Shares in all trading sessions and
to deter and detect violations of Exchange rules and applicable federal
securities laws. The Exchange or FINRA, on behalf of the Exchange, or
both, will communicate as needed regarding trading in the Shares, ETFs,
ETNs, U.S. exchange-traded futures on foreign currency and Carbon
Credit Futures with other markets and other entities that are members
of the ISG, and the Exchange or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading in 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. In addition,
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's TRACE. The Adviser and Sub-Adviser are not
registered as broker-dealers, but the Adviser is affiliated with a
broker-dealer, and has implemented and will maintain a fire wall with
respect to its broker-dealer affiliate regarding access to information
concerning the composition and/or changes to the portfolio. The Sub-
Adviser is not affiliated with a broker-dealer.
The Exchange notes that the Commission has previously approved
listing and trading on the Exchange under NYSE Arca Rule 8.204-E
(Commodity Futures Trust Shares) of a trust with the investment
objective of providing investment results that correspond generally to
the performance of Carbon Credit Futures on EUAs.\40\ Other than cash
and cash equivalents, the AirShares Trust sought investment exposure
exclusively to Carbon Credit Futures on EUAs. Thus, the Commission has
already considered and approved for listing a product with the same
types of assets in which the Fund will invest.
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\40\ See note 27, supra.
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The Exchange notes that the Commission has approved proposed rule
changes by a national securities exchange to list and trade series of
Managed Fund Shares that may hold listed derivatives on underlying
reference assets that may not comply with provisions similar to those
in Commentary .01(d)(2) to Rule 8.600-E.\41\ In addition, the Exchange
believes that the listing and trading of Shares of the Fund would
further an interest in the U.S. maintaining a competitive position in
the global securities markets, which requires that U.S. participants
respond to new developments and encourage the development of new
products. Innovative financial vehicles such as the Fund will provide
investors
[[Page 65871]]
greater access to U.S. markets. By providing a wide range of investors
with a U.S. exchange-traded security that invests in Carbon Credit
Futures, the Exchange believes that the listing of the Fund will
benefit both investors and the markets.
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\41\ See note 26, supra.
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As noted above, the Fund may invest in shares of non-exchange-
traded investment company securities, which are equity securities.
Therefore, to the extent the Fund invests in shares of non-exchange-
traded open-end management investment company securities, the Fund will
not comply with the requirements of Commentary .01(a)(1)(A) through (E)
to NYSE Arca Rule 8.600-E (U.S. Component Stocks) with respect to its
equity securities holdings.\42\ The Exchange believes it is appropriate
and in the public interest to approve listing and trading of Shares of
the Fund notwithstanding that the Fund's holdings in such securities
would not meet the requirements of Commentary .01(a)(1)(A) through (E)
to Rule 8.600-E. Investments in non-exchange-traded open-end management
investment company securities will not exceed 20% of the total assets
of the Fund. Such investments, which may include mutual funds that
invest, for example, principally in fixed income securities, would be
utilized to help the Fund meet its investment objective and to equitize
cash in the short term. The Fund will invest in such securities only to
the extent that those investments would be consistent with the
requirements of Section 12(d)(1) of the 1940 Act and the rules
thereunder. Because such securities must satisfy applicable 1940 Act
diversification requirements, and have a net asset value based on the
value of securities and financial assets the investment company holds,
it is both unnecessary and inappropriate to apply to such investment
company securities the criteria in Commentary .01(a)(1). The Commission
has previously approved proposed rule changes under Section 19(b) of
the Act for series of Managed Fund Shares that may invest in non-
exchange traded investment company securities to the extent permitted
by Section 12(d)(1) of the 1940 Act and the rules thereunder.\43\
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\42\ See note 28, supra.
\43\ See note 29, supra.
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The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. Intra-day and the
closing settlement price information regarding Carbon Credit Futures
and U.S. exchange-traded futures on currencies will be available from
the exchange on which such instruments are traded and from major market
data vendors. Spot currency prices and price information regarding
currency forwards, debt instruments (other than cash equivalents) and
cash equivalents also will be available from major market data vendors.
Additionally, FINRA's TRACE will be a source of price information for
certain fixed income securities to the extent transactions in such
securities are reported to TRACE. Price information regarding U.S.
government securities and other 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 Index price is available via Bloomberg and Reuters. The
Index methodology and constituent list is available via IHS Markit's
website.
Quote and last-sale information for ECX CFI Futures, California
Futures and RGGI-Regional Greenhouse Gas Initiative Futures, other
futures contracts and options on futures are widely disseminated
through major market data vendors. ICE Futures US, ICE Futures Europe
and CME also provide delayed futures information on current and past
trading sessions and market news on their respective websites.
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. Price information regarding non-exchange-traded
investment company securities is available from major market data
vendors.
Quotation and last sale information for the Shares, ETFs and ETNs
will be available via the CTA. 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.
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares. 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. 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, NAV, the PIV, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
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 listed derivatives above that currently
permitted by the generic listing requirements of Commentary .01(d)(2)
to NYSE Arca Rule 8.600-E, and through investment in non-exchange-
traded investment company securities (notwithstanding the requirements
of Commentary .01(a)(1) 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, 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 will
enhance competition among market participants, to the benefit of
investors and the marketplace.
[[Page 65872]]
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. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2019-60, as Modified by Amendment No. 2, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \44\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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\44\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\45\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act, 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,'' and ``to protect investors and the public
interest.'' \46\
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\45\ Id.
\46\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, as modified by Amendment No. 2, is consistent with Section
6(b)(5) or any other provision of the Act, or the rules and regulations
thereunder. Although there do not appear to be any issues relevant to
approval or disapproval that would be facilitated by an oral
presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4, any request for an opportunity to
make an oral presentation.\47\
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\47\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 2, should be approved or disapproved by December 20,
2019. Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by January 3, 2020.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in Amendment No. 2,\48\ in addition to any other comments they may wish
to submit about the proposed rule change. In particular, the Commission
seeks commenters' views regarding whether the Exchange has adequately
described and provided clear information relating to the Fund's
proposed investments in derivatives for the Commission to make a
determination under Section 6(b)(5) of the Act.
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\48\ See supra note 7.
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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-2019-60 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-2019-60. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2019-60 and should be submitted
by December 20, 2019. Rebuttal comments should be submitted by January
3, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
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\49\ 17 CFR 200.30-3(a)(12) & 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-25835 Filed 11-27-19; 8:45 am]
BILLING CODE 8011-01-P
