Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the AdvisorShares Pure US Cannabis ETF Under NYSE Arca Rule 8.600-E, 71057-71063 [2019-27732]
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Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
issues that have not already been
considered by the Commission in
connection with existing antiinternalization functionality offered by
IEX and other national securities
exchanges. Accordingly, the Exchange
has designated this rule filing as noncontroversial under Section 19(b)(3)(A)
of the Act 28 and paragraph (f)(6) of Rule
19b–4 thereunder.29
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 30 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
khammond on DSKJM1Z7X2PROD with NOTICES
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2019–14 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–IEX–2019–14. 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–IEX–2019–14 and should
be submitted on or before January 16,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–27731 Filed 12–23–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87791; File No. SR–
NYSEArca–2019–77]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the AdvisorShares Pure US
Cannabis ETF Under NYSE Arca Rule
8.600–E
December 18, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on December
13, 2019, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
31 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
28 15
U.S.C. 78s(b)(3)(A).
29 17 CFR 240.19b–4.
30 15 U.S.C. 78s(b)(2)(B).
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71057
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the AdvisorShares Pure
US Cannabis ETF under NYSE Arca
Rule 8.600–E. The proposed change is
available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the
AdvisorShares Pure US Cannabis ETF
(the ‘‘Fund’’) under NYSE Arca Rule
8.600–E, which provides generic criteria
applicable to the listing and trading of
Managed Fund Shares on the
Exchange.4
AdvisorShares Investments, LLC (the
‘‘Adviser’’) is the investment adviser for
the Fund. AdvisorShares Trust (the
‘‘Trust’’) and the Adviser manage the
Fund’s investments, subject to the
oversight and supervision by the Board
of Trustees (the ‘‘Board’’) of the Trust.5
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized
as an open-end investment company or similar
entity that invests in a portfolio of securities
selected by its investment adviser consistent with
its investment objectives and policies. In contrast,
an open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Rule 5.2–E(j)(3),
seeks to provide investment results that correspond
generally to the price and yield performance of a
specific foreign or domestic stock index, fixed
income securities index or combination thereof.
5 The Trust is registered under the 1940 Act. On
August 19, 2019, the Trust filed with the
Commission Post-Effective Amendment No. 145 to
the Trust’s registration statement on Form N–1A
under the Securities Act of 1933 (15 U.S.C. 77a)
(‘‘Securities Act’’), and under the 1940 Act relating
Continued
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Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
Foreside Fund Services, LLC
(‘‘Distributor’’), a registered brokerdealer, will act as the distributor for the
Fund’s Shares. The Bank of New York
Mellon (‘‘BNY Mellon’’) will serve as
the administrator, custodian, and
transfer agent (‘‘Transfer Agent’’) for the
Fund.
Commentary .06 to Rule 8.600–E
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect and maintain a ‘‘fire wall’’
between the investment adviser and the
broker-dealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material non-public information
regarding the open-end fund’s portfolio.
Commentary .06 to Rule 8.600–E is
similar to Commentary .03(a)(i) and (iii)
to NYSE Arca Rule 5.2–E(j)(3); however,
Commentary .06 in connection with the
establishment and maintenance of a
‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds.
The Adviser is not registered as a
broker-dealer. The Adviser is not
affiliated with any broker-dealers. In the
event (a) the Adviser becomes registered
as a broker-dealer or newly affiliated
with a broker-dealer, or (b) any new
adviser is a registered broker-dealer or
becomes affiliated with a broker-dealer,
it will implement and maintain a ‘‘fire
wall’’ with respect to its relevant
personnel or broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures, each designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
khammond on DSKJM1Z7X2PROD with NOTICES
AdvisorShares Pure US Cannabis ETF
Principal Investments
According to the Registration
Statement, the investment objective of
the Fund is to seek long-term capital
to the Fund (File Nos. 333–157876 and 811–22110)
(‘‘Registration Statement’’). The description of the
operation of the Trust and the Fund herein is based,
in part, on the Registration Statement. In addition,
the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940
Act. See Investment Company Act Release No.
29291 (May 28, 2010) (File No. 812–13677).
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appreciation. The Fund will seek to
achieve its investment objective by
investing, under normal market
conditions,6 at least 80% of its net assets
in securities of companies that derive at
least 50% of their net revenue from the
marijuana and hemp business in the
United States and in derivatives that
have economic characteristics similar to
such securities.7
In addition to its investment in
securities of companies that derive a
significant portion of their revenue from
the marijuana and hemp business, and
in derivatives providing exposure to
such securities, the Fund may invest in
securities of companies that, in the
opinion of the Advisor, may have
current or future revenues from
cannabis-related business or that are
registered with the United States Drug
Enforcement Agency (DEA) specifically
for the purpose of handling marijuana
for lawful research and development of
cannabis or cannabinoid-related
products.
According to the Registration
Statement, the Fund will not invest
directly in or hold ownership in any
companies that engage in cannabisrelated business unless permitted by
national and local laws of the relevant
jurisdiction, including U.S. federal and
state laws. The Fund has represented
that this restriction does not apply to
the Fund’s investment in derivatives
instruments. All of the Fund’s
investments, including derivatives
instruments, would be made in
accordance with all applicable laws,
including U.S. federal and state laws.
The Fund will concentrate at least 25%
of its investments in the
pharmaceuticals, biotechnology and life
sciences industry group within the
health care sector.
The Fund primarily may invest in
U.S. and foreign exchange-listed equity
securities (described below), and in
derivative instruments (described
below) intended to provide exposure to
such securities.
The Fund may invest in the following
types of U.S. and foreign exchangelisted equity securities: Common stock;
preferred stock; warrants; Real Estate
Investment Trusts (REITs); and rights.
The Fund may invest in U.S.
exchange-listed exchange-traded funds
6 The term ‘‘normal market conditions’’ is defined
in NYSE Arca Rule 8.600–E(c)(5).
7 The Fund’s investments in derivatives will
include investments in both listed derivatives and
over-the-counter (‘‘OTC’’) derivatives, as those
terms are defined in Commentary .01(d) and (e) to
NYSE Arca Rule 8.600–E.
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(‘‘ETFs’’) 8 and in U.S. exchange-listed
closed-end funds.
The Fund may hold cash and cash
equivalents.9
The Fund may hold over-the-counter
(‘‘OTC’’) total return swaps on U.S. and
foreign exchange-listed equity
securities.
Non-Principal Investments
The Fund may invest in U.S.
exchange-listed equity options and
equity index options.
The Fund may invest in Rule 144A
securities.
The Fund will not invest in securities
or other financial instruments that have
not been described in this proposed rule
change.
Use of Derivatives by the Fund
Investments in derivative instruments
will be made in accordance with the
1940 Act and consistent with the Fund’s
investment objective and policies.
To limit the potential risk associated
with such transactions, the Fund 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 and in
accordance with the 1940 Act or as
permitted by applicable Commission
guidance. These procedures have been
adopted consistent with Section 18 of
the 1940 Act and related Commission
guidance. In addition, the Fund has
included appropriate risk disclosure in
its offering documents, including
leveraging risk. Leveraging risk is the
risk that certain transactions of the
Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.
Other Restrictions
The Fund’s investments, including
derivatives, will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage
(although certain derivatives and other
investments may result in leverage).
That is, the Fund’s investments will not
be used to seek performance that is the
multiple or inverse multiple (e.g., 2X or
8 For purposes of this filing, the term ‘‘ETFs’’
includes Investment Company Units (as described
in NYSE Arca Rule 5.2–E(j)(3)); Portfolio Depositary
Receipts (as described in NYSE Arca Rule 8.100–
E); and Managed Fund Shares (as described in
NYSE Arca Rule 8.600–E). All ETFs will be listed
and traded in the U.S. on a national securities
exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g.,
2X, ¥2X, 3X or ¥3X) ETFs.
9 For purposes of this filing, ‘‘cash equivalents’’
are the short-term instruments enumerated in
Commentary .01(c) to NYSE Arca Rule 8.600–E.
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¥3X) of the Fund’s primary broadbased securities benchmark index (as
defined in Form N–1A).10
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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.
Creation of Creation Units
The Trust issues and sells Shares of
the Fund only in aggregations of 25,000
Shares (each aggregation is called a
‘‘Creation Unit’’) on a continuous basis
through the Distributor at the NAV next
determined after receipt of an order in
proper form on any Business Day.11 The
size of a Creation Unit is subject to
change.
The consideration for a purchase of
Creation Units generally will consist of
an in-kind deposit of a portfolio of
securities and other investments (the
‘‘Deposit Securities’’) for each Creation
Unit constituting a substantial
replication, or a representation, of the
securities included in the Fund’s
portfolio and an amount of cash
computed as described below (the
‘‘Cash Component’’). The Cash
Component together with the Deposit
Securities, as applicable, are referred to
as the ‘‘Fund Deposit,’’ which
represents the minimum initial and
subsequent investment amount for a
Creation Unit of the Fund.
The Cash Component would be an
amount equal to the difference between
the NAV of the Shares (per Creation
Unit) and the ‘‘Deposit Amount,’’ which
is an amount equal to the aggregate
market value of the Deposit Securities,
and serves to compensate for any
differences between the NAV per
Creation Unit and the Deposit Amount.
The Administrator, through the
National Securities Clearing Corporation
(‘‘NSCC’’), makes available on each
10 The Fund’s broad-based securities benchmark
index will be identified in a future amendment to
the Registration Statement following the Fund’s
first full calendar year of performance.
11 A ‘‘Business Day’’ with respect to the Fund is
any day on which the Exchange is open for
business.
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Business Day, immediately prior to the
opening of business on the Exchange
(currently 9:30 a.m. E.T.), the list of the
names and the required number of
shares of each Deposit Security to be
included in the current Fund Deposit
(based on information at the end of the
previous Business Day) for the Fund.
Such Fund Deposit is applicable,
subject to any adjustments as described
below, in order to effect creations of
Creation Units of the Fund until such
time as the next-announced
composition of the Deposit Securities is
made available.
All orders to create Creation Units
generally must be received by the
Distributor no later than 3:00 p.m. E.T.
on the date such order is placed in order
for creation of Creation Units to be
effected based on the NAV of the Fund
as determined on such date.
In addition, the Trust reserves the
right to permit or require the
substitution of an amount of cash (i.e.,
a ‘‘cash in lieu’’ amount) to be added to
the Cash Component to replace any
Deposit Security which may, among
other reasons, not be available in
sufficient quantity for delivery, or
which may not be eligible for transfer
through the Clearing Process (defined
below), or which may not be eligible for
trading by a Participating Party (defined
below).
To be eligible to place orders with the
Distributor to create Creation Units of
the Fund, an entity must be (1) a
‘‘Participating Party,’’ i.e., a brokerdealer or other participant in the
clearing process through the Continuous
Net Settlement System of the NSCC (the
‘‘Clearing Process’’); or (2) a Depository
Trust Company (‘‘DTC’’) Participant;
which, in either case, must have
executed an agreement with the Trust,
the Distributor and the Transfer Agent
(‘‘Participant Agreement’’). A
Participating Party and DTC Participant
are collectively referred to as an
‘‘Authorized Participant.’’
Redemption of Creation Units
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the
Distributor and only on a Business Day.
The Administrator, through NSCC,
will make available immediately prior
to the opening of business on the
Exchange (9:30 a.m. E.T.) on each
Business Day, the securities (‘‘Fund
Securities’’) that will be applicable
(subject to possible amendment or
correction) to redemption requests
received in proper form on that day. The
Fund Securities received on redemption
may not be identical to Deposit
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71059
Securities that are applicable to
creations of Creation Units. Unless cash
redemptions are available or specified
for the Fund, the redemption proceeds
for a Creation Unit generally consist of
Fund Securities as announced by the
Administrator on the Business Day of
the request for redemption, plus cash in
an amount equal to the difference
between the NAV of the Shares being
redeemed, as next determined after a
receipt of a request in proper form, and
the value of the Fund Securities, less the
redemption transaction fee. In the event
that the Fund Securities have a value
greater than the NAV of the Shares, a
compensating cash payment equal to the
differential is required to be made by or
through an Authorized Participant by
the redeeming shareholder.
In order to redeem Creation Units of
the Fund, an Authorized Participant
must submit an order to redeem for one
or more Creation Units. An order to
redeem Creation Units of a Fund using
the Clearing Process generally must be
received by the Administrator not later
than 3:00 p.m. E.T. on the Business Day
of the request for redemption in order
for such order to be effected based on
the NAV of the Fund as next
determined. An order to redeem
Creation Units of the Fund using the
NSCC Clearing Process made in proper
form but received by the Fund after 3:00
p.m. E.T. will be deemed received on
the next Business Day immediately
following the day on which such order
request is transmitted.
Application of Generic Listing
Requirements
The Exchange is submitting this
proposed rule change because the
portfolio for the Fund will not meet all
of the ‘‘generic’’ listing requirements of
Commentary .01 to NYSE Arca Rule
8.600–E applicable to the listing of
Managed Fund Shares. The Fund’s
portfolio will meet all such
requirements except for those set forth
in Commentary .01(e), as described
below.
The Fund will not comply with the
requirements set forth in Commentary
.01(e) to NYSE Arca Rule 8.600–E with
respect to the Fund’s investments in
OTC total return swaps on U.S. and
foreign exchange-listed equity
securities.12 Specifically, the aggregate
12 Commentary .01(e) to NYSE Arca Rule 8.600–
E provides that a portfolio may hold OTC
derivatives, including forwards, options and swaps
on commodities, currencies and financial
instruments (e.g., stocks, fixed income, interest
rates, and volatility) or a basket or index of any of
the foregoing; however, on both an initial and
continuing basis, no more than 20% of the assets
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Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
gross notional value of the Fund’s
investments in such OTC derivatives
may exceed 20% of Fund assets,
calculated as the aggregate gross
notional value of such OTC
derivatives.13 The Exchange proposes
that up to 60% of the Fund’s assets
(calculated as the aggregate gross
notional value) may be invested in such
OTC derivatives. The proposed
exception would allow the Fund to gain
increased exposure to certain equity
securities that have economic
characteristics similar to securities
listed in the principal strategies, and
allow the Fund to obtain exposure,
through the use of total return swaps, to
certain equity securities that the Fund
may not be able to invest in or choose
not to invest in directly, in furtherance
of the Fund’s investment objective. As
stated above, the only OTC derivatives
that the Fund may invest in are OTC
total return swaps on U.S. and foreign
exchange-listed equity securities.
The Adviser believes that it is
important to provide the Fund with
additional flexibility to manage its
investments. OTC derivatives provide
the Fund with flexibility as well as a
precise means to effectively gain
exposure to U.S. and foreign exchangelisted equities that the Fund otherwise
would not be able to invest in or choose
not to invest in directly. Generally, OTC
derivatives can be customized to a
greater degree and can provide equity
exposure with Fund assets, as well as
allow for control over the duration of
the exposure which can also mitigate
trading costs. Therefore, while the Fund
is able to invest 20% of the assets in the
Fund’s portfolio in OTC derivatives
pursuant to NYSE Arca Rule 8.600–E,
Commentary .01(e), the Exchange
believes it is appropriate to apply a limit
of up to 60% of the Fund’s assets to the
Fund’s investments in OTC total return
swaps on U.S. and foreign exchangelisted equity securities (calculated as the
aggregate gross notional value of such
OTC derivatives), that are used for
equity investment exposure purposes, as
described above.14
in the portfolio may be invested in OTC derivatives.
For purposes of calculating this limitation, a
portfolio’s investment in OTC derivatives will be
calculated as the aggregate gross notional value of
the OTC derivatives.
13 The Adviser monitors counterparty credit risk
exposure (including for OTC derivatives) and
evaluates counterparty credit quality on a
continuous basis.
14 The Commission has previously approved an
exception from requirements set forth in
Commentary .01(e) relating to investments in OTC
derivatives. See e.g., Securities Exchange Act
Release Nos. 86636 (August 12, 2019), 84 FR 42030
(August 16, 2019) (SR–NYSEArca–2018–98) (Notice
of Filing of Amendment No. 4 and Order Granting
Accelerated Approval of a Proposed Rule Change,
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The Adviser represents that
deviations from the generic
requirements are necessary for the Fund
to achieve its investment objective in a
manner that is cost-effective and that
maximizes investors’ returns because
OTC derivatives generally provide the
Fund with more flexibility to negotiate
the exact exposure that the Fund
requires, and minimize trading costs
because OTC derivatives are not subject
to costs of rolling that are associated
with listed derivatives.
The Adviser represents that it intends
to engage in strategies that utilize total
return swaps (which are traded OTC), as
described above, based on its
investment strategies. Depending on
market conditions, the exposure due to
these strategies may exceed 20% of the
Fund’s assets. The Adviser represents
further that the swaps market is OTC,
and, as such, it is not possible to
implement these strategies efficiently
using listed derivatives. In addition, use
of OTC swaps may be an important
means to reduce risk in the Fund’s
equity investments, or, depending on
market conditions, to enhance returns of
such investments. If the Fund were
limited to investing up to 20% of assets
in OTC derivatives, the Fund would
have to exclude or underweight these
strategies and would be less diversified,
concentrating risk in the other strategies
it will utilize.
The Exchange notes that, other than
Commentary .01(e), the Shares of the
Fund will conform to the initial and
continued listing criteria under NYSE
Arca Rule 8.600–E and will meet all
other requirements of NYSE Arca Rule
8.600–E and Commentary .01 thereto.
The Adviser represents that the
proposed exception described above is
consistent with the Fund’s investment
objective, and will further assist the
Adviser to achieve such investment
objective.
Availability of Information
The Fund’s website
(www.advisorshares.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, closing price and closing NAV
for the Fund; (ii) the reported midpoint
as Modified by Amendment No. 4, To List and
Trade Shares of the iShares Commodity MultiStrategy ETF Under NYSE Arca Rule 8.600–E); and
87190 (October 1, 2019), 84 FR 53522 (October 7,
2019) (SR–NYSEArca–2019–57) (Order Granting
Approval of Proposed Rule Change To List and
Trade Shares of the Franklin Liberty Systematic
Style Premia ETF, a Series of the Franklin
Templeton ETF Trust Under NYSE Arca Rule
8.600–E).
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Fmt 4703
Sfmt 4703
of the bid-ask spread at the time of NAV
calculation (the ‘‘Bid-Ask Price’’); 15 (iii)
a calculation of the premium or
discount of the Bid-Ask Price against
such NAV; and (iv) data in chart format
displaying the frequency distribution of
discounts and premiums of the Bid-Ask
Price against the NAV, within
appropriate ranges, for each of the four
previous calendar quarters. On each
Business Day, before commencement of
trading in Shares in the Core Trading
Session on the Exchange, the Fund will
disclose on its website the Disclosed
Portfolio as defined in NYSE Arca Rule
8.600–E(c)(2) that forms the basis for the
Fund’s calculation of NAV at the end of
the Business Day.16
On a daily basis, the Fund will
disclose the information required under
NYSE Arca Rule 8.600–E(c)(2) to the
extent applicable. The website
information will be publicly available at
no charge.
In addition, a basket composition file,
which includes the security names and
share quantities, if applicable, required
to be delivered in exchange for the
Fund’s Shares, together with estimates
and actual cash components, will be
publicly disseminated daily prior to the
opening of the Exchange via the NSCC.
The basket represents one Creation Unit
of the Fund. Authorized Participants
may refer to the basket composition file
for information regarding any security,
and any other instrument that may
comprise the Fund’s basket on a given
day.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and the Fund’s Forms N–CSR
and Forms N–SAR, filed twice a year.
The Fund’s SAI and Shareholder
Reports will be available free upon
request from the Trust, and those
documents and the Form N–CSR, Form
N–PX and Form N–SAR may be viewed
on-screen or downloaded from the
Commission’s website at www.sec.gov.
Intra-day and closing price
information regarding U.S. exchangelisted equity options and equity index
options will be available from the
exchange on which such instruments
are traded. Price information relating to
15 The Bid-Ask Price of the Fund’s Shares will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid-Ask Prices will be retained by the
Fund and its service providers.
16 Under accounting procedures followed by the
Fund, trades made on the prior Business Day (‘‘T’’)
will be booked and reflected in NAV on the current
Business Day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the Business
Day the portfolio that will form the basis for the
NAV calculation at the end of the Business Day.
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OTC swaps will be available from major
market data vendors. For U.S. and
foreign exchange-listed equity
securities, intraday price quotations will
generally be available from brokerdealers and trading platforms (as
applicable). Price information for 144A
securities will be available from major
market data vendors. Price information
for cash equivalents will be available
from major market data vendors. Price
information regarding U.S. government
securities generally may be obtained
from brokers and dealers who make
markets in such securities or through
nationally recognized pricing services
through subscription agreements.
Additionally, the Trade Reporting and
Compliance Engine (‘‘TRACE’’) of the
Financial Industry Regulatory Authority
(‘‘FINRA’’) will be a source of price
information for certain cash equivalents
to the extent transactions in such
securities are reported to TRACE.17
Information regarding market price
and trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume information for the Shares will
be published daily in the financial
section of newspapers.
Quotation and last sale information
for the Shares, ETFs, closed-end funds
and other U.S. exchange-traded equity
securities will be available via the
Consolidated Tape Association (‘‘CTA’’)
high-speed line. Exchange-traded
options quotation and last sale
information for options cleared via the
Options Clearing Corporation (‘‘OCC’’)
are available via the Options Price
Reporting Authority (‘‘OPRA’’). In
addition, the Portfolio Indicative Value
(‘‘PIV’’), as defined in NYSE Arca Rule
8.600–E(c)(3), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Core Trading
Session.
khammond on DSKJM1Z7X2PROD with NOTICES
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
17 Broker-dealers that are FINRA member firms
have an obligation to report transactions in
specified debt securities to TRACE to the extent
required under applicable FINRA rules. Generally,
such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income
securities that are not reported to TRACE, (i)
intraday price quotations will generally be available
from broker-dealers and trading platforms (as
applicable) and (ii) price information will be
available from feeds from market data vendors,
published or other public sources, or online
information services, as described above.
VerDate Sep<11>2014
16:53 Dec 23, 2019
Jkt 250001
halt or suspend trading in the Shares of
the Fund. Trading in Shares of the Fund
will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12–E
have been reached. Trading also may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. These may include: (1) The
extent to which trading is not occurring
in the securities and/or the financial
instruments comprising the Disclosed
Portfolio of the Fund; or (2) whether
other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares will be subject to NYSE Arca
Rule 8.600–E(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00
a.m. to 8:00 p.m. E.T. in accordance
with NYSE Arca Rule 7.34–E (Trading
Sessions). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Rule 7.6–E, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
the NYSE Arca Marketplace is $0.01,
with the exception of securities that are
priced less than $1.00 for which the
MPV for order entry is $0.0001.
With the exception of the
requirements of Commentary .01(e) as
described above under ‘‘Application of
Generic Listing Requirements,’’ the
Shares of the Fund will conform to the
initial and continued listing criteria
under NYSE Arca Rule 8.600–E. The
Exchange represents that for initial and
continued listing, the Fund will be in
compliance with Rule 10A–3 under the
Act, as provided by NYSE Arca Rule
5.3–E. A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange. The Exchange has obtained a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange, as well
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Frm 00134
Fmt 4703
Sfmt 4703
71061
as cross-market surveillances
administered by FINRA on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, certain exchangetraded equity securities (including
ETFs) and certain exchange-traded
options with other markets and other
entities that are members of the
Intermarket Surveillance Group (‘‘ISG’’),
and the Exchange or FINRA, on behalf
of the Exchange, or both, may obtain
trading information regarding trading in
the Shares, certain exchange-traded
equity securities (including ETFs) and
certain exchange-traded options from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, certain exchange-traded equity
securities (including ETFs) and certain
exchange-traded options from markets
and other entities that are members of
ISG or with which the Exchange has in
place a comprehensive surveillance
sharing agreement (‘‘CSSA’’). In
addition, FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain cash
equivalents held by the Fund reported
to FINRA’s TRACE.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
All statements and representations
made in this filing regarding (a) the
description of the portfolio or reference
asset, (b) limitations on portfolio
holdings or reference assets, or (c) the
applicability of Exchange listing rules
specified in this rule filing shall
constitute continued listing
requirements for listing the Shares on
the Exchange.
The issuer has represented to the
Exchange that it will advise the
E:\FR\FM\26DEN1.SGM
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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).
khammond on DSKJM1Z7X2PROD with NOTICES
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit (‘‘ETP’’) Holders
in an Information Bulletin (‘‘Bulletin’’)
of the special characteristics and risks
associated with trading the Shares of the
Fund. Specifically, the Bulletin will
discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) NYSE Arca Rule 9.2–
E(a), which imposes a duty of due
diligence on its ETP Holders to learn the
essential facts relating to every customer
prior to trading the Shares; (3) the risks
involved in trading the Shares during
the Early and Late Trading Sessions
when an updated PIV will not be
calculated or publicly disseminated; (4)
how information regarding the PIV and
the Disclosed Portfolio is disseminated;
(5) the requirement that ETP Holders
deliver a prospectus to investors
purchasing newly issued Shares prior to
or concurrently with the confirmation of
a transaction; and (6) trading
information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Act. The Bulletin will also disclose that
the NAV for the Shares of the Fund will
be calculated after 4:00 p.m. E.T. each
trading day.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) of the Act that an
exchange have rules that are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
VerDate Sep<11>2014
16:53 Dec 23, 2019
Jkt 250001
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Rule
8.600–E. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and federal securities laws
applicable to trading on the Exchange.
The Adviser is not registered as a
broker-dealer nor is the Adviser
affiliated with a broker-dealer. The
Exchange or FINRA, on behalf of the
Exchange, or both, will communicate as
needed regarding trading in the Shares,
certain exchange-traded equity
securities (including ETFs) and certain
exchange-traded options with other
markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading in the Shares, certain
exchange-traded equity securities
(including ETFs) and certain exchangetraded options from such markets and
other entities. In addition, the Exchange
may obtain information regarding
trading in the Shares, certain exchangetraded equity securities (including
ETFs) and certain exchange-traded
options 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
cash equivalents held by the Fund
reported to FINRA’s TRACE.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. The website for
the Fund includes a form of the
prospectus for the Fund and additional
data relating to NAV and other
applicable quantitative information.
Trading in Shares of the Fund will be
halted if the circuit breaker parameters
in NYSE Arca Rule 7.12–E have been
reached or because of market conditions
or for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable, and trading in the Shares
will be subject to NYSE Arca Rule
8.600–E(d)(2)(D), which sets forth
PO 00000
Frm 00135
Fmt 4703
Sfmt 4703
circumstances under which trading in
the Shares of the Fund may be halted.
In addition, as noted above, investors
have ready access to information
regarding the Fund’s holdings, the PIV,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
The Exchange believes that while the
Fund is able to invest 20% of the assets
in the Fund’s portfolio in OTC
derivatives pursuant to Commentary
.01(e) to NYSE Arca Rule 8.600–E, it is
appropriate to apply a limit of up to
60% of the Fund’s assets to the Fund’s
investments in OTC total return swaps
on U.S. and foreign exchange-listed
equity securities (calculated as the
aggregate gross notional value of such
OTC derivatives) that are used for equity
investment exposure purposes, as
described above. While the Fund will
not invest directly in or hold ownership
in any companies that engage in
cannabis-related business unless
permitted by national and local laws of
the relevant jurisdiction, including U.S.
federal and state laws, the Adviser
believes that it is in the best interests of
the Fund’s shareholders for the Fund to
gain increased exposure to certain
equity securities that have economic
characteristics similar to securities
listed in the principal strategies. The
proposed exception would allow the
Fund to gain increased exposure,
through the use of total return swaps, to
certain equity securities that the Fund
may not be able to invest in or choose
not to invest in directly, in furtherance
of the Fund’s investment objective. All
Fund investments, including derivative
instruments (i.e., OTC total return
swaps on U.S. and foreign exchangelisted equity securities), would be made
in accordance with all applicable laws,
including U.S. federal and state laws.
In addition, the Fund’s investments in
OTC derivatives used to gain increased
exposure in furtherance of the Fund’s
investment objective, will be limited to
60% of the assets in the Fund’s
portfolio, calculated as the aggregate
gross notional value of such OTC
derivatives. While certain derivatives
can be traded on exchanges, total return
swaps (which can be customized) are
only available for trading on the OTC
market. Accordingly, the Adviser
believes that OTC derivatives may
frequently be a more efficient
investment vehicle than listed
derivatives. Therefore, the Exchange
believes that increasing the percentage
limit in Commentary .01(e), as described
above, applicable to the Fund’s
investments in OTC total return swaps
on U.S. and foreign exchange-listed
equity securities would permit the Fund
to satisfy its investment objective and
E:\FR\FM\26DEN1.SGM
26DEN1
Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
reduce investment risks in a more costeffective manner and, therefore, would
help protect investors and the public
interest.
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 permit the listing and trading of
an actively-managed exchange-traded
product that, through permitted use of
an increased level of OTC derivatives
above that currently permitted by the
generic listing requirements of
Commentary .01 to NYSE Arca Rule
8.600–E, will enhance competition
among market participants, to the
benefit of investors and the marketplace.
The Exchange believes that it is
appropriate and in the public interest to
allow the Fund to exceed the 20% limit
in Commentary .01(e) to Rule 8.600–E of
portfolio assets that may be invested in
OTC derivatives. Under Commentary
.01(e), a series of Managed Fund Shares
listed under the ‘‘generic’’ standards
may invest up to 20% of its assets
(calculated as the aggregate gross
notional value) in OTC derivatives.
Because the Fund, in furtherance of its
investment objective, may invest a
substantial percentage of its investments
in OTC total return swaps on U.S. and
foreign exchange-listed equity
securities, the 20% limit in Commentary
.01(e) to Rule 8.600–E could result in
the Fund being unable to fully pursue
its investment objective while
attempting to sufficiently mitigate
investment risks. The inability of the
Fund to adequately increase its
exposure would effectively limit the
Fund’s ability to invest in certain
instruments, or could expose the Fund
to additional investment risk.
khammond on DSKJM1Z7X2PROD with NOTICES
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
permit the listing and trading of an issue
of Managed Fund Shares that, through
permitted use of an increased level of
OTC derivatives above that currently
permitted by the generic listing
requirements of Commentary .01 to
NYSE Arca Rule 8.600–E will enhance
competition among market participants,
to the benefit of investors and the
marketplace.
VerDate Sep<11>2014
16:53 Dec 23, 2019
Jkt 250001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2019–77 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–NYSEArc–2019–77. 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
PO 00000
Frm 00136
Fmt 4703
Sfmt 4703
71063
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–2019–77 and
should be submitted on or before
January 16, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–27732 Filed 12–23–19; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #16222 and #16223;
TENNESSEE Disaster Number TN–00116]
Administrative Declaration of a
Disaster for the State of Tennessee
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a notice of an
Administrative declaration of a disaster
for the State of Tennessee Dated 12/17/
2019.
Incident: Severe Storms associated
with the remnants of Tropical Storm
Olga.
Incident Period: 10/26/2019.
DATES: Issued on 12/17/2019.
Physical Loan Application Deadline
Date: 02/18/2020.
Economic Injury (EIDL) Loan
Application Deadline Date: 09/17/2020.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
SUMMARY:
18 17
E:\FR\FM\26DEN1.SGM
CFR 200.30–3(a)(12).
26DEN1
]]>Agencies
[Federal Register Volume 84, Number 247 (Thursday, December 26, 2019)]
[Notices]
[Pages 71057-71063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27732]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87791; File No. SR-NYSEArca-2019-77]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the AdvisorShares
Pure US Cannabis ETF Under NYSE Arca Rule 8.600-E
December 18, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on December 13, 2019, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the AdvisorShares
Pure US Cannabis ETF under NYSE Arca Rule 8.600-E. The proposed change
is available on the Exchange's website at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
AdvisorShares Pure US Cannabis ETF (the ``Fund'') under NYSE Arca Rule
8.600-E, which provides generic criteria applicable to the listing and
trading of Managed Fund Shares on the Exchange.\4\
---------------------------------------------------------------------------
\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3),
seeks to provide investment results that correspond generally to the
price and yield performance of a specific foreign or domestic stock
index, fixed income securities index or combination thereof.
---------------------------------------------------------------------------
AdvisorShares Investments, LLC (the ``Adviser'') is the investment
adviser for the Fund. AdvisorShares Trust (the ``Trust'') and the
Adviser manage the Fund's investments, subject to the oversight and
supervision by the Board of Trustees (the ``Board'') of the Trust.\5\
[[Page 71058]]
Foreside Fund Services, LLC (``Distributor''), a registered broker-
dealer, will act as the distributor for the Fund's Shares. The Bank of
New York Mellon (``BNY Mellon'') will serve as the administrator,
custodian, and transfer agent (``Transfer Agent'') for the Fund.
---------------------------------------------------------------------------
\5\ The Trust is registered under the 1940 Act. On August 19,
2019, the Trust filed with the Commission Post-Effective Amendment
No. 145 to the Trust's registration statement on Form N-1A under the
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act''), and
under the 1940 Act relating to the Fund (File Nos. 333-157876 and
811-22110) (``Registration Statement''). The description of the
operation of the Trust and the Fund herein is based, in part, on the
Registration Statement. In addition, the Commission has issued an
order granting certain exemptive relief to the Trust under the 1940
Act. See Investment Company Act Release No. 29291 (May 28, 2010)
(File No. 812-13677).
---------------------------------------------------------------------------
Commentary .06 to Rule 8.600-E provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect
and maintain a ``fire wall'' between the investment adviser and the
broker-dealer with respect to access to information concerning the
composition and/or changes to such investment company portfolio. In
addition, Commentary .06 further requires that personnel who make
decisions on the open-end fund's portfolio composition must be subject
to procedures designed to prevent the use and dissemination of material
non-public information regarding the open-end fund's portfolio.
Commentary .06 to Rule 8.600-E is similar to Commentary .03(a)(i) and
(iii) to NYSE Arca Rule 5.2-E(j)(3); however, Commentary .06 in
connection with the establishment and maintenance of a ``fire wall''
between the investment adviser and the broker-dealer reflects the
applicable open-end fund's portfolio, not an underlying benchmark
index, as is the case with index-based funds.
The Adviser is not registered as a broker-dealer. The Adviser is
not affiliated with any broker-dealers. In the event (a) the Adviser
becomes registered as a broker-dealer or newly affiliated with a
broker-dealer, or (b) any new adviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, it will implement and maintain
a ``fire wall'' with respect to its relevant personnel or broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio, and will be subject to procedures,
each designed to prevent the use and dissemination of material non-
public information regarding such portfolio.
AdvisorShares Pure US Cannabis ETF
Principal Investments
According to the Registration Statement, the investment objective
of the Fund is to seek long-term capital appreciation. The Fund will
seek to achieve its investment objective by investing, under normal
market conditions,\6\ at least 80% of its net assets in securities of
companies that derive at least 50% of their net revenue from the
marijuana and hemp business in the United States and in derivatives
that have economic characteristics similar to such securities.\7\
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\6\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5).
\7\ The Fund's investments in derivatives will include
investments in both listed derivatives and over-the-counter
(``OTC'') derivatives, as those terms are defined in Commentary
.01(d) and (e) to NYSE Arca Rule 8.600-E.
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In addition to its investment in securities of companies that
derive a significant portion of their revenue from the marijuana and
hemp business, and in derivatives providing exposure to such
securities, the Fund may invest in securities of companies that, in the
opinion of the Advisor, may have current or future revenues from
cannabis-related business or that are registered with the United States
Drug Enforcement Agency (DEA) specifically for the purpose of handling
marijuana for lawful research and development of cannabis or
cannabinoid-related products.
According to the Registration Statement, the Fund will not invest
directly in or hold ownership in any companies that engage in cannabis-
related business unless permitted by national and local laws of the
relevant jurisdiction, including U.S. federal and state laws. The Fund
has represented that this restriction does not apply to the Fund's
investment in derivatives instruments. All of the Fund's investments,
including derivatives instruments, would be made in accordance with all
applicable laws, including U.S. federal and state laws. The Fund will
concentrate at least 25% of its investments in the pharmaceuticals,
biotechnology and life sciences industry group within the health care
sector.
The Fund primarily may invest in U.S. and foreign exchange-listed
equity securities (described below), and in derivative instruments
(described below) intended to provide exposure to such securities.
The Fund may invest in the following types of U.S. and foreign
exchange-listed equity securities: Common stock; preferred stock;
warrants; Real Estate Investment Trusts (REITs); and rights.
The Fund may invest in U.S. exchange-listed exchange-traded funds
(``ETFs'') \8\ and in U.S. exchange-listed closed-end funds.
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\8\ For purposes of this filing, the term ``ETFs'' includes
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a
national securities exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
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The Fund may hold cash and cash equivalents.\9\
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\9\ For purposes of this filing, ``cash equivalents'' are the
short-term instruments enumerated in Commentary .01(c) to NYSE Arca
Rule 8.600-E.
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The Fund may hold over-the-counter (``OTC'') total return swaps on
U.S. and foreign exchange-listed equity securities.
Non-Principal Investments
The Fund may invest in U.S. exchange-listed equity options and
equity index options.
The Fund may invest in Rule 144A securities.
The Fund will not invest in securities or other financial
instruments that have not been described in this proposed rule change.
Use of Derivatives by the Fund
Investments in derivative instruments will be made in accordance
with the 1940 Act and consistent with the Fund's investment objective
and policies.
To limit the potential risk associated with such transactions, the
Fund 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 and in accordance with
the 1940 Act or as permitted by applicable Commission guidance. These
procedures have been adopted consistent with Section 18 of the 1940 Act
and related Commission guidance. In addition, the Fund has included
appropriate risk disclosure in its offering documents, including
leveraging risk. Leveraging risk is the risk that certain transactions
of the Fund, including the Fund's use of derivatives, may give rise to
leverage, causing the Fund to be more volatile than if it had not been
leveraged.
Other Restrictions
The Fund's investments, including derivatives, will be consistent
with the Fund's investment objective and will not be used to enhance
leverage (although certain derivatives and other investments may result
in leverage). That is, the Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (e.g., 2X or
[[Page 71059]]
-3X) of the Fund's primary broad-based securities benchmark index (as
defined in Form N-1A).\10\
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\10\ The Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
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Impact on Arbitrage Mechanism
The Adviser 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.
Creation of Creation Units
The Trust issues and sells Shares of the Fund only in aggregations
of 25,000 Shares (each aggregation is called a ``Creation Unit'') on a
continuous basis through the Distributor at the NAV next determined
after receipt of an order in proper form on any Business Day.\11\ The
size of a Creation Unit is subject to change.
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\11\ A ``Business Day'' with respect to the Fund is any day on
which the Exchange is open for business.
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The consideration for a purchase of Creation Units generally will
consist of an in-kind deposit of a portfolio of securities and other
investments (the ``Deposit Securities'') for each Creation Unit
constituting a substantial replication, or a representation, of the
securities included in the Fund's portfolio and an amount of cash
computed as described below (the ``Cash Component''). The Cash
Component together with the Deposit Securities, as applicable, are
referred to as the ``Fund Deposit,'' which represents the minimum
initial and subsequent investment amount for a Creation Unit of the
Fund.
The Cash Component would be an amount equal to the difference
between the NAV of the Shares (per Creation Unit) and the ``Deposit
Amount,'' which is an amount equal to the aggregate market value of the
Deposit Securities, and serves to compensate for any differences
between the NAV per Creation Unit and the Deposit Amount.
The Administrator, through the National Securities Clearing
Corporation (``NSCC''), makes available on each Business Day,
immediately prior to the opening of business on the Exchange (currently
9:30 a.m. E.T.), the list of the names and the required number of
shares of each Deposit Security to be included in the current Fund
Deposit (based on information at the end of the previous Business Day)
for the Fund. Such Fund Deposit is applicable, subject to any
adjustments as described below, in order to effect creations of
Creation Units of the Fund until such time as the next-announced
composition of the Deposit Securities is made available.
All orders to create Creation Units generally must be received by
the Distributor no later than 3:00 p.m. E.T. on the date such order is
placed in order for creation of Creation Units to be effected based on
the NAV of the Fund as determined on such date.
In addition, the Trust reserves the right to permit or require the
substitution of an amount of cash (i.e., a ``cash in lieu'' amount) to
be added to the Cash Component to replace any Deposit Security which
may, among other reasons, not be available in sufficient quantity for
delivery, or which may not be eligible for transfer through the
Clearing Process (defined below), or which may not be eligible for
trading by a Participating Party (defined below).
To be eligible to place orders with the Distributor to create
Creation Units of the Fund, an entity must be (1) a ``Participating
Party,'' i.e., a broker-dealer or other participant in the clearing
process through the Continuous Net Settlement System of the NSCC (the
``Clearing Process''); or (2) a Depository Trust Company (``DTC'')
Participant; which, in either case, must have executed an agreement
with the Trust, the Distributor and the Transfer Agent (``Participant
Agreement''). A Participating Party and DTC Participant are
collectively referred to as an ``Authorized Participant.''
Redemption of Creation Units
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Distributor and only on a Business Day.
The Administrator, through NSCC, will make available immediately
prior to the opening of business on the Exchange (9:30 a.m. E.T.) on
each Business Day, the securities (``Fund Securities'') that will be
applicable (subject to possible amendment or correction) to redemption
requests received in proper form on that day. The Fund Securities
received on redemption may not be identical to Deposit Securities that
are applicable to creations of Creation Units. Unless cash redemptions
are available or specified for the Fund, the redemption proceeds for a
Creation Unit generally consist of Fund Securities as announced by the
Administrator on the Business Day of the request for redemption, plus
cash in an amount equal to the difference between the NAV of the Shares
being redeemed, as next determined after a receipt of a request in
proper form, and the value of the Fund Securities, less the redemption
transaction fee. In the event that the Fund Securities have a value
greater than the NAV of the Shares, a compensating cash payment equal
to the differential is required to be made by or through an Authorized
Participant by the redeeming shareholder.
In order to redeem Creation Units of the Fund, an Authorized
Participant must submit an order to redeem for one or more Creation
Units. An order to redeem Creation Units of a Fund using the Clearing
Process generally must be received by the Administrator not later than
3:00 p.m. E.T. on the Business Day of the request for redemption in
order for such order to be effected based on the NAV of the Fund as
next determined. An order to redeem Creation Units of the Fund using
the NSCC Clearing Process made in proper form but received by the Fund
after 3:00 p.m. E.T. will be deemed received on the next Business Day
immediately following the day on which such order request is
transmitted.
Application of Generic Listing Requirements
The Exchange is submitting this proposed rule change because the
portfolio for the Fund will not meet all of the ``generic'' listing
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to
the listing of Managed Fund Shares. The Fund's portfolio will meet all
such requirements except for those set forth in Commentary .01(e), as
described below.
The Fund will not comply with the requirements set forth in
Commentary .01(e) to NYSE Arca Rule 8.600-E with respect to the Fund's
investments in OTC total return swaps on U.S. and foreign exchange-
listed equity securities.\12\ Specifically, the aggregate
[[Page 71060]]
gross notional value of the Fund's investments in such OTC derivatives
may exceed 20% of Fund assets, calculated as the aggregate gross
notional value of such OTC derivatives.\13\ The Exchange proposes that
up to 60% of the Fund's assets (calculated as the aggregate gross
notional value) may be invested in such OTC derivatives. The proposed
exception would allow the Fund to gain increased exposure to certain
equity securities that have economic characteristics similar to
securities listed in the principal strategies, and allow the Fund to
obtain exposure, through the use of total return swaps, to certain
equity securities that the Fund may not be able to invest in or choose
not to invest in directly, in furtherance of the Fund's investment
objective. As stated above, the only OTC derivatives that the Fund may
invest in are OTC total return swaps on U.S. and foreign exchange-
listed equity securities.
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\12\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that a
portfolio may hold OTC derivatives, including forwards, options and
swaps on commodities, currencies and financial instruments (e.g.,
stocks, fixed income, interest rates, and volatility) or a basket or
index of any of the foregoing; however, on both an initial and
continuing basis, no more than 20% of the assets in the portfolio
may be invested in OTC derivatives. For purposes of calculating this
limitation, a portfolio's investment in OTC derivatives will be
calculated as the aggregate gross notional value of the OTC
derivatives.
\13\ The Adviser monitors counterparty credit risk exposure
(including for OTC derivatives) and evaluates counterparty credit
quality on a continuous basis.
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The Adviser believes that it is important to provide the Fund with
additional flexibility to manage its investments. OTC derivatives
provide the Fund with flexibility as well as a precise means to
effectively gain exposure to U.S. and foreign exchange-listed equities
that the Fund otherwise would not be able to invest in or choose not to
invest in directly. Generally, OTC derivatives can be customized to a
greater degree and can provide equity exposure with Fund assets, as
well as allow for control over the duration of the exposure which can
also mitigate trading costs. Therefore, while the Fund is able to
invest 20% of the assets in the Fund's portfolio in OTC derivatives
pursuant to NYSE Arca Rule 8.600-E, Commentary .01(e), the Exchange
believes it is appropriate to apply a limit of up to 60% of the Fund's
assets to the Fund's investments in OTC total return swaps on U.S. and
foreign exchange-listed equity securities (calculated as the aggregate
gross notional value of such OTC derivatives), that are used for equity
investment exposure purposes, as described above.\14\
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\14\ The Commission has previously approved an exception from
requirements set forth in Commentary .01(e) relating to investments
in OTC derivatives. See e.g., Securities Exchange Act Release Nos.
86636 (August 12, 2019), 84 FR 42030 (August 16, 2019) (SR-NYSEArca-
2018-98) (Notice of Filing of Amendment No. 4 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 4, To List and Trade Shares of the iShares Commodity
Multi-Strategy ETF Under NYSE Arca Rule 8.600-E); and 87190 (October
1, 2019), 84 FR 53522 (October 7, 2019) (SR-NYSEArca-2019-57) (Order
Granting Approval of Proposed Rule Change To List and Trade Shares
of the Franklin Liberty Systematic Style Premia ETF, a Series of the
Franklin Templeton ETF Trust Under NYSE Arca Rule 8.600-E).
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The Adviser represents that deviations from the generic
requirements are necessary for the Fund to achieve its investment
objective in a manner that is cost-effective and that maximizes
investors' returns because OTC derivatives generally provide the Fund
with more flexibility to negotiate the exact exposure that the Fund
requires, and minimize trading costs because OTC derivatives are not
subject to costs of rolling that are associated with listed
derivatives.
The Adviser represents that it intends to engage in strategies that
utilize total return swaps (which are traded OTC), as described above,
based on its investment strategies. Depending on market conditions, the
exposure due to these strategies may exceed 20% of the Fund's assets.
The Adviser represents further that the swaps market is OTC, and, as
such, it is not possible to implement these strategies efficiently
using listed derivatives. In addition, use of OTC swaps may be an
important means to reduce risk in the Fund's equity investments, or,
depending on market conditions, to enhance returns of such investments.
If the Fund were limited to investing up to 20% of assets in OTC
derivatives, the Fund would have to exclude or underweight these
strategies and would be less diversified, concentrating risk in the
other strategies it will utilize.
The Exchange notes that, other than Commentary .01(e), the Shares
of the Fund will conform to the initial and continued listing criteria
under NYSE Arca Rule 8.600-E and will meet all other requirements of
NYSE Arca Rule 8.600-E and Commentary .01 thereto.
The Adviser represents that the proposed exception described above
is consistent with the Fund's investment objective, and will further
assist the Adviser to achieve such investment objective.
Availability of Information
The Fund's website (www.advisorshares.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, closing price and
closing NAV for the Fund; (ii) the reported midpoint of the bid-ask
spread at the time of NAV calculation (the ``Bid-Ask Price''); \15\
(iii) a calculation of the premium or discount of the Bid-Ask Price
against such NAV; and (iv) data in chart format displaying the
frequency distribution of discounts and premiums of the Bid-Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each Business Day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund will disclose on its website the Disclosed Portfolio as defined in
NYSE Arca Rule 8.600-E(c)(2) that forms the basis for the Fund's
calculation of NAV at the end of the Business Day.\16\
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\15\ The Bid-Ask Price of the Fund's Shares will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid-Ask Prices will be retained by the Fund and
its service providers.
\16\ Under accounting procedures followed by the Fund, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
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On a daily basis, the Fund will disclose the information required
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The
website information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of
the Fund. Authorized Participants may refer to the basket composition
file for information regarding any security, and any other instrument
that may comprise the Fund's basket on a given day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's
Forms N-CSR and Forms N-SAR, filed twice a year. The Fund's SAI and
Shareholder Reports will be available free upon request from the Trust,
and those documents and the Form N-CSR, Form N-PX and Form N-SAR may be
viewed on-screen or downloaded from the Commission's website at
www.sec.gov.
Intra-day and closing price information regarding U.S. exchange-
listed equity options and equity index options will be available from
the exchange on which such instruments are traded. Price information
relating to
[[Page 71061]]
OTC swaps will be available from major market data vendors. For U.S.
and foreign exchange-listed equity securities, intraday price
quotations will generally be available from broker-dealers and trading
platforms (as applicable). Price information for 144A securities will
be available from major market data vendors. Price information for cash
equivalents will be available from major market data vendors. Price
information regarding U.S. government securities generally may be
obtained from brokers and dealers who make markets in such securities
or through nationally recognized pricing services through subscription
agreements. Additionally, the Trade Reporting and Compliance Engine
(``TRACE'') of the Financial Industry Regulatory Authority (``FINRA'')
will be a source of price information for certain cash equivalents to
the extent transactions in such securities are reported to TRACE.\17\
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\17\ Broker-dealers that are FINRA member firms have an
obligation to report transactions in specified debt securities to
TRACE to the extent required under applicable FINRA rules.
Generally, such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income securities that are
not reported to TRACE, (i) intraday price quotations will generally
be available from broker-dealers and trading platforms (as
applicable) and (ii) price information will be available from feeds
from market data vendors, published or other public sources, or
online information services, as described above.
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Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers.
Quotation and last sale information for the Shares, ETFs, closed-
end funds and other U.S. exchange-traded equity securities will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. Exchange-traded options quotation and last sale information for
options cleared via the Options Clearing Corporation (``OCC'') are
available via the Options Price Reporting Authority (``OPRA''). In
addition, the Portfolio Indicative Value (``PIV''), as defined in NYSE
Arca Rule 8.600-E(c)(3), will be widely disseminated by one or more
major market data vendors at least every 15 seconds during the Core
Trading Session.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E
have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) The extent to
which trading is not occurring in the securities and/or the financial
instruments comprising the Disclosed Portfolio of the Fund; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Trading in the
Shares will be subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets
forth circumstances under which Shares of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Rule 7.34-E (Trading Sessions). The Exchange
has appropriate rules to facilitate transactions in the Shares during
all trading sessions. As provided in NYSE Arca Rule 7.6-E, the minimum
price variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
With the exception of the requirements of Commentary .01(e) as
described above under ``Application of Generic Listing Requirements,''
the Shares of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Rule 8.600-E. The Exchange represents
that for initial and continued listing, the Fund will be in compliance
with Rule 10A-3 under the Act, as provided by NYSE Arca Rule 5.3-E. A
minimum of 100,000 Shares will be outstanding at the commencement of
trading on the Exchange. The Exchange has obtained a representation
from the issuer of the Shares that the NAV per Share will be calculated
daily and that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by FINRA on behalf of
the Exchange, which are designed to detect violations of Exchange rules
and applicable federal securities laws. The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, certain
exchange-traded equity securities (including ETFs) and certain
exchange-traded options with other markets and other entities that are
members of the Intermarket Surveillance Group (``ISG''), and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares, certain exchange-
traded equity securities (including ETFs) and certain exchange-traded
options from such markets and other entities. In addition, the Exchange
may obtain information regarding trading in the Shares, certain
exchange-traded equity securities (including ETFs) and certain
exchange-traded options from markets and other entities that are
members of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement (``CSSA''). In addition, FINRA, on
behalf of the Exchange, is able to access, as needed, trade information
for certain cash equivalents held by the Fund reported to FINRA's
TRACE.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio or reference asset, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules specified in this rule filing
shall constitute continued listing requirements for listing the Shares
on the Exchange.
The issuer has represented to the Exchange that it will advise the
[[Page 71062]]
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 (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares of the Fund. Specifically, the Bulletin will discuss
the following: (1) The procedures for purchases and redemptions of
Shares in Creation Units (and that Shares are not individually
redeemable); (2) NYSE Arca Rule 9.2-E(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (3) the risks involved in
trading the Shares during the Early and Late Trading Sessions when an
updated PIV will not be calculated or publicly disseminated; (4) how
information regarding the PIV and the Disclosed Portfolio is
disseminated; (5) the requirement that ETP Holders deliver a prospectus
to investors purchasing newly issued Shares prior to or concurrently
with the confirmation of a transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares of the Fund
will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) of the Act that an exchange have
rules that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.600-E. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Shares in all trading sessions and to
deter and detect violations of Exchange rules and federal securities
laws applicable to trading on the Exchange. The Adviser is not
registered as a broker-dealer nor is the Adviser affiliated with a
broker-dealer. The Exchange or FINRA, on behalf of the Exchange, or
both, will communicate as needed regarding trading in the Shares,
certain exchange-traded equity securities (including ETFs) and certain
exchange-traded options with other markets and other entities that are
members of the ISG, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading in
the Shares, certain exchange-traded equity securities (including ETFs)
and certain exchange-traded options from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares, certain exchange-traded equity securities
(including ETFs) and certain exchange-traded options 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 cash equivalents held by the Fund reported to
FINRA's TRACE.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. The website for the Fund
includes a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information. Trading
in Shares of the Fund will be halted if the circuit breaker parameters
in NYSE Arca Rule 7.12-E have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable, and trading in the Shares will be
subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets forth
circumstances under which trading in the Shares of the Fund may be
halted. In addition, as noted above, investors have ready access to
information regarding the Fund's holdings, the PIV, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
The Exchange believes that while the Fund is able to invest 20% of
the assets in the Fund's portfolio in OTC derivatives pursuant to
Commentary .01(e) to NYSE Arca Rule 8.600-E, it is appropriate to apply
a limit of up to 60% of the Fund's assets to the Fund's investments in
OTC total return swaps on U.S. and foreign exchange-listed equity
securities (calculated as the aggregate gross notional value of such
OTC derivatives) that are used for equity investment exposure purposes,
as described above. While the Fund will not invest directly in or hold
ownership in any companies that engage in cannabis-related business
unless permitted by national and local laws of the relevant
jurisdiction, including U.S. federal and state laws, the Adviser
believes that it is in the best interests of the Fund's shareholders
for the Fund to gain increased exposure to certain equity securities
that have economic characteristics similar to securities listed in the
principal strategies. The proposed exception would allow the Fund to
gain increased exposure, through the use of total return swaps, to
certain equity securities that the Fund may not be able to invest in or
choose not to invest in directly, in furtherance of the Fund's
investment objective. All Fund investments, including derivative
instruments (i.e., OTC total return swaps on U.S. and foreign exchange-
listed equity securities), would be made in accordance with all
applicable laws, including U.S. federal and state laws.
In addition, the Fund's investments in OTC derivatives used to gain
increased exposure in furtherance of the Fund's investment objective,
will be limited to 60% of the assets in the Fund's portfolio,
calculated as the aggregate gross notional value of such OTC
derivatives. While certain derivatives can be traded on exchanges,
total return swaps (which can be customized) are only available for
trading on the OTC market. Accordingly, the Adviser believes that OTC
derivatives may frequently be a more efficient investment vehicle than
listed derivatives. Therefore, the Exchange believes that increasing
the percentage limit in Commentary .01(e), as described above,
applicable to the Fund's investments in OTC total return swaps on U.S.
and foreign exchange-listed equity securities would permit the Fund to
satisfy its investment objective and
[[Page 71063]]
reduce investment risks in a more cost-effective manner and, therefore,
would help protect investors and the public interest.
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 permit the listing and trading of an
actively-managed exchange-traded product that, through permitted use of
an increased level of OTC derivatives above that currently permitted by
the generic listing requirements of Commentary .01 to NYSE Arca Rule
8.600-E, will enhance competition among market participants, to the
benefit of investors and the marketplace.
The Exchange believes that it is appropriate and in the public
interest to allow the Fund to exceed the 20% limit in Commentary .01(e)
to Rule 8.600-E of portfolio assets that may be invested in OTC
derivatives. Under Commentary .01(e), a series of Managed Fund Shares
listed under the ``generic'' standards may invest up to 20% of its
assets (calculated as the aggregate gross notional value) in OTC
derivatives. Because the Fund, in furtherance of its investment
objective, may invest a substantial percentage of its investments in
OTC total return swaps on U.S. and foreign exchange-listed equity
securities, the 20% limit in Commentary .01(e) to Rule 8.600-E could
result in the Fund being unable to fully pursue its investment
objective while attempting to sufficiently mitigate investment risks.
The inability of the Fund to adequately increase its exposure would
effectively limit the Fund's ability to invest in certain instruments,
or could expose the Fund to additional investment risk.
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 permit the listing and trading of an issue of
Managed Fund Shares that, through permitted use of an increased level
of OTC derivatives above that currently permitted by the generic
listing requirements of Commentary .01 to NYSE Arca Rule 8.600-E will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2019-77 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-NYSEArc-2019-77. 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-2019-77 and should be submitted
on or before January 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27732 Filed 12-23-19; 8:45 am]
BILLING CODE 8011-01-P
