Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Adopt NYSE Arca Rule 8.602-E To Permit the Listing and Trading of Actively Managed Solution Shares and To List and Trade Two Series of Actively Managed Solution Shares Issued by the American Century ETF Trust Under Proposed NYSE Arca Rule 8.602-E, 394-403 [2019-28415]
Download as PDF
<![CDATA[
394
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
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–NASDAQ–2019–095 and
should be submitted on or before
January 24, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–28414 Filed 1–2–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87867; File No. SR–
NYSEArca–2019–96]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To Adopt NYSE Arca
Rule 8.602–E To Permit the Listing and
Trading of Actively Managed Solution
Shares and To List and Trade Two
Series of Actively Managed Solution
Shares Issued by the American
Century ETF Trust Under Proposed
NYSE Arca Rule 8.602–E
December 30, 2019.
jbell on DSKJLSW7X2PROD with NOTICES
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
23, 2019, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt a
new NYSE Arca Rule 8.602–E to permit
it to list and trade Actively Managed
20 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.
1 15
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
Solution Shares, which are shares of
actively managed exchange-traded
funds for which the portfolio is
disclosed in accordance with standard
mutual fund disclosure rules. In
addition, the Exchange proposes to list
and trade shares of the following under
proposed NYSE Arca Rule 8.602–E:
American Century Mid Cap Growth
Impact ETF and American Century
Sustainable Equity ETF. 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 add new
NYSE Arca Rule 8.602–E for the
purpose of permitting the listing and
trading, or trading pursuant to unlisted
trading privileges (‘‘UTP’’), of Actively
Managed Solution Shares, which are
securities issued by an actively managed
open-end investment management
company. The Exchange also proposes
to list and trade shares (‘‘Shares’’) of the
following under proposed NYSE Arca
Rule 8.602–E: American Century Mid
Cap Growth Impact ETF and American
Century Sustainable Equity ETF (each a
‘‘Fund’’ and, collectively, the ‘‘Funds’’).
Proposed Listing Rules
Proposed Rule 8.602–E (a) provides
that the Exchange will consider for
trading, whether by listing or pursuant
to UTP, Actively Managed Solution
Shares that meet the criteria of Rule
8.602–E.
Proposed Rule 8.602–E (b) provides
that Rule 8.602–E is applicable only to
Actively Managed Solution Shares and
that, except to the extent inconsistent
with Rule 8.602–E, or unless the context
otherwise requires, the rules and
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
procedures of the Exchange’s Board of
Directors shall be applicable to the
trading on the Exchange of such
securities. Proposed Rule 8.602–E (b)
provides further that Actively Managed
Solution Shares are included within the
definition of ‘‘security’’ or ‘‘securities’’
as such terms are used in the Rules of
the Exchange.
Proposed Rule 8.602–E(c)(1) defines
the term ‘‘Actively Managed Solution
Shares’’ as a security that (a) represents
an interest in a registered investment
company (‘‘Investment Company’’)
organized as an open-end management
investment company that invests in a
portfolio of securities selected by the
Investment Company’s investment
adviser consistent with the Investment
Company’s investment objectives and
policies; (b) is issued in a specified
aggregate minimum number of shares
equal to a Creation Unit, or multiples
thereof, in return for a designated
portfolio of securities (and/or an amount
of cash) with a value equal to the next
determined net asset value; and (c)
when aggregated in the same specified
aggregate number of shares, or multiples
thereof, may be redeemed at the request
of an Authorized Participant (as defined
in the applicable Investment Company
prospectus), which Authorized
Participant will be paid a portfolio of
securities and/or cash with a value
equal to the next determined net asset
value (‘‘NAV’’).
Proposed Rule 8.602–E(c)(2) defines
the term ‘‘Actual Portfolio’’ as the
aggregation of securities held by a series
of Actively Managed Solution Shares,
which aggregation is periodically
disclosed in accordance with
requirements applicable to open-end
management investment companies
registered under the Investment
Company Act of 1940 (‘‘1940 Act’’).
Proposed Rule 8.602–E(c)(3) defines
the term ‘‘Proxy Portfolio’’ as a basket of
cash and securities that differs from the
Actual Portfolio of a series of Actively
Managed Solution Shares and that is
intended to closely track the daily
performance of the Actual Portfolio on
any trading day. The Proxy Portfolio
will be disseminated each business day
on the website for each series of
Actively Managed Solution Shares.
Proposed Rule 8.602–E(c)(4) defines
the term ‘‘Creation Unit’’ as a specified
minimum number of Actively Managed
Solution Shares issued by an Investment
Company at the request of an
Authorized Participant in return for a
designated portfolio of securities (and/
or an amount of cash) specified each
day and a specified minimum number
of Actively Managed Solution Shares
that may be redeemed to an Investment
E:\FR\FM\03JAN1.SGM
03JAN1
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
Company at the request of an
Authorized Participant in return for a
portfolio of securities and/or cash,
consistent with the Investment
Company’s investment objectives and
policies.
Proposed Rule 8.602–E(c)(5) defines
the term ‘‘Reporting Authority’’ in
respect of a particular series of Actively
Managed Solution Shares means the
Exchange, the exchange that lists a
particular series of Actively Managed
Solution Shares (if the Exchange is
trading such series pursuant to unlisted
trading privileges), an institution, or a
reporting service designated by the
issuer of a series of Actively Managed
Solution Shares as the official source for
calculating and reporting information
relating to such series, including the net
asset value, or other information relating
to the issuance, redemption or trading of
Actively Managed Solution Shares. A
series of Actively Managed Solution
Shares may have more than one
Reporting Authority, each having
different functions.
Proposed Rule 8.602–E(c)(6) defines
the term ‘‘normal market conditions’’ as
including, but not limited to, the
absence of trading halts in the
applicable financial markets generally;
operational issues (e.g., systems failure)
causing dissemination of inaccurate
market information; or force majeure
type events such as natural or manmade
disaster, act of God, armed conflict, act
of terrorism, riot or labor disruption or
any similar intervening circumstance.
Proposed Rule 8.602–E (d) sets forth
initial and continued listing criteria
applicable to Actively Managed
Solution Shares. Proposed Rule 8.602–
E(d)(1)(A) provides that, for each series
of Actively Managed Solution Shares,
the Exchange will establish a minimum
number of Actively Managed Solution
Shares required to be outstanding at the
time of commencement of trading on the
Exchange. In addition, proposed Rule
8.602–E(d)(1)(B) provides that the
Exchange will obtain a representation
from the issuer of each series of Actively
Managed Solution Shares that the NAV
per share for the series will be
calculated daily and that the NAV will
be made available to all market
participants at the same time.4 Proposed
4 NYSE Arca Rule 7.18–E(d)(2) (‘‘Halts of
Derivative Securities Products Listed on the NYSE
Arca Marketplace’’) provides that, with respect to
Derivative Securities Products listed on the NYSE
Arca Marketplace for which a net asset value is
disseminated, if the Exchange becomes aware that
the net asset value is not being disseminated to all
market participants at the same time, it will halt
trading in the affected Derivative Securities Product
on the NYSE Arca Marketplace until such time as
the net asset value is available to all market
participants.
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
Rule 8.602–E(d)(1)(C) provides that all
Actively Managed Solution Shares shall
have a stated investment objective,
which shall be adhered to under normal
market conditions.
Proposed Rule 8.602–E(d)(2) provides
that each series of Actively Managed
Solution Shares will be listed and
traded subject to application of the
following continued listing criteria:
Proposed Rule 8.602–E(d)(2)(A)
provides that the Exchange will
consider the suspension of trading in,
and will commence delisting
proceedings under Rule 5.5–E(m) of, a
series of Actively Managed Solution
Shares under any of the following
circumstances:
(i) if any of the continued listing
requirements set forth in Rule 8.602–E
are not continuously maintained;
(ii) if any of the statements or
representations regarding (a) the
description of the portfolio, (b)
limitations on portfolio holdings, or (c)
the applicability of Exchange listing
rules, specified in the Exchange’s rule
filing pursuant to Section 19(b) of the
Securities Exchange Act of 1934 to
permit the listing and trading of a series
of Actively Managed Solution Shares, is
not continuously maintained; or
(iii) if such other event shall occur or
condition exists which, in the opinion
of the Exchange, makes further dealings
on the Exchange inadvisable.
Proposed Rule 8.602–E(d)(2)(B)
provides that, upon notification to the
Exchange by the issuer of a series of
Actively Managed Solution Shares that
the NAV with respect to such series is
not disseminated to all market
participants at the same time, it will halt
trading in such series until such time as
the NAV is available to all market
participants. The Exchange may also
halt trading at the request of the
investment adviser to a series of
Actively Managed Solution Shares upon
notification to the Exchange by the
issuer of such series that the securities
representing 10% or more of the Actual
Portfolio for such series do not have
readily available market quotations, and
during times of unusual market
volatility where a significant portion of
such series’ Actual Portfolio are subject
to a trading halt or have a last trade
price that the investment adviser deems
unreliable, if the investment adviser
determines that it is in the best interest
of such series.
Proposed Rule 8.602–E(d)(2)(C)
provides that, upon termination of an
Investment Company, the Exchange
requires that Actively Managed Solution
Shares issued in connection with such
entity be removed from Exchange
listing.
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
395
Proposed Rule 8.602–E(d)(2)(D)
provides that voting rights shall be as
set forth in the applicable Investment
Company prospectus.
Proposed Rule 8.602–E(e), which
relates to limitation of Exchange
liability, provides that neither the
Exchange, the Reporting Authority, nor
any agent of the Exchange shall have
any liability for damages, claims, losses
or expenses caused by any errors,
omissions, or delays in calculating or
disseminating any current portfolio
value; the current value of the portfolio
of securities required to be deposited to
the Investment Company in connection
with issuance of Actively Managed
Solution Shares; the amount of any
dividend equivalent payment or cash
distribution to holders of Actively
Managed Solution Shares; net asset
value; or other information relating to
the purchase, redemption, or trading of
Actively Managed Solution Shares,
resulting from any negligent act or
omission by the Exchange, the
Reporting Authority or any agent of the
Exchange, or any act, condition, or
cause beyond the reasonable control of
the Exchange, its agent, or the Reporting
Authority, including, but not limited to,
an act of God; fire; flood; extraordinary
weather conditions; war; insurrection;
riot; strike; accident; action of
government; communications or power
failure; equipment or software
malfunction; or any error, omission, or
delay in the reports of transactions in
one or more underlying securities.
Proposed Commentary .01 to NYSE
Arca Rule 8.602–E provides that the
Exchange will file separate proposals
under Section 19(b) of the Securities
Exchange Act of 1934 before the listing
and trading of Actively Managed
Solution Shares. All statements or
representations contained in such rule
filing regarding (a) the description of the
portfolio, (b) limitations on portfolio
holdings, or (c) the applicability of
Exchange listing rules specified in such
rule filing will constitute continued
listing requirements. An issuer of such
securities must notify the Exchange of
any failure to comply with such
continued listing requirements.
Proposed Commentary .02 to NYSE
Arca Rule 8.602–E provides that the
Exchange will implement and maintain
written surveillance procedures for
Actively Managed Solution Shares.
Proposed Commentary .03 to NYSE
Arca Rule 8.602–E provides that, if the
investment adviser to the Investment
Company issuing Actively Managed
Solution Shares is registered as a brokerdealer or is affiliated with a brokerdealer such investment adviser will
erect and maintain a ‘‘fire wall’’
E:\FR\FM\03JAN1.SGM
03JAN1
396
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
between the investment adviser and
personnel of the broker-dealer or brokerdealer affiliate, as applicable, with
respect to access to information
concerning the composition of and/or
changes to such Investment Company’s
Actual Portfolio or the applicable Proxy
Portfolio. Personnel who make
decisions on the Investment Company’s
Actual Portfolio or the applicable Proxy
Portfolio composition must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable Investment Company Actual
Portfolio or Proxy Portfolio.5
Key Features of Actively Managed
Solution Shares
jbell on DSKJLSW7X2PROD with NOTICES
While funds issuing Actively
Managed Solution Shares will be
actively-managed and, to that extent,
will be similar to Managed Fund Shares,
Actively Managed Solution Shares differ
from Managed Fund Shares in the
following important respects. First, in
contrast to Managed Fund Shares,
which are actively-managed funds listed
and traded under NYSE Arca Rule
8.600–E 6 and for which a ‘‘Disclosed
Portfolio’’ is required to be disseminated
at least once daily,7 the portfolio for an
issue of Actively Managed Solution
Shares will be disclosed at least
quarterly in accordance with normal
5 The Exchange will propose applicable NYSE
Arca listing fees for Actively Managed Solution
Shares in the NYSE Arca Equities Schedule of Fees
and Charges via a separate proposed rule change.
6 The Commission has previously approved
listing and trading on the Exchange of a number of
issues of Managed Fund Shares under NYSE Arca
Rule 8.600–E. See, e.g., Securities Exchange Act
Release Nos. 57801 (May 8, 2008), 73 FR 27878
(May 14, 2008) (SR–NYSEArca–2008–31) (order
approving Exchange listing and trading of twelve
actively-managed funds of the WisdomTree Trust);
60460 (August 7, 2009), 74 FR 41468 (August 17,
2009) (SR–NYSEArca–2009–55) (order approving
listing of Dent Tactical ETF); 63076 (October 12,
2010), 75 FR 63874 (October 18, 2010) (SR–
NYSEArca–2010–79) (order approving Exchange
listing and trading of Cambria Global Tactical ETF);
63802 (January 31, 2011), 76 FR 6503 (February 4,
2011) (SR–NYSEArca–2010–118) (order approving
Exchange listing and trading of the SiM Dynamic
Allocation Diversified Income ETF and SiM
Dynamic Allocation Growth Income ETF). The
Commission also has approved a proposed rule
change relating to generic listing standards for
Managed Fund Shares. Securities Exchange Act
Release No. 78397 (July 22, 2016), 81 FR 49320
(July 27, 2016 (SR–NYSEArca–2015–110)
(amending NYSE Arca Equities Rule 8.600 to adopt
generic listing standards for Managed Fund Shares).
7 NYSE Arca Rule 8.600–E(c)(2) defines the term
‘‘Disclosed Portfolio’’ as the identities and
quantities of the securities and other assets held by
the Investment Company that will form the basis for
the Investment Company’s calculation of net asset
value at the end of the business day. NYSE Arca
Rule 8.600–E(d)(2)(B)(i) requires that the Disclosed
Portfolio will be disseminated at least once daily
and will be made available to all market
participants at the same time.
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
disclosure requirements otherwise
applicable to open-end management
investment companies registered under
the 1940 Act.8 The composition of the
portfolio of an issue of Actively
Managed Solution Shares would not be
available at commencement of Exchange
listing and trading. Second, Actively
Managed Solution Shares would not
publish their full portfolio contents
daily. Instead, Actively Managed
Solution Shares would utilize a proxy
portfolio methodology, as described
below (the ‘‘NYSE Proxy Portfolio
Methodology’’) that would allow market
participants to assess the intraday value
and associated risk of a fund’s thencurrent portfolio (the ‘‘Actual
Portfolio’’) and thereby facilitate the
purchase and sale of shares by investors
in the secondary market at prices that
do not vary materially from their NAV.9
An important part of the NYSE Proxy
Portfolio Methodology would be the
creation of a basket of cash and
securities that is designed to closely
track the daily performance of a fund’s
portfolio (‘‘Proxy Portfolio’’).10 Daily
disclosure of Proxy Portfolio contents,
Proxy Overlap, and related metrics, as
described below (collectively, the
‘‘Proxy Portfolio Disclosures’’), would
permit hedging of risks associated with
arbitrage and market making activities
concerning a series of Actively Managed
Solution Shares. In essence, the Proxy
Portfolio Disclosures should permit
market making in fund shares that keeps
bid/ask spreads narrow and the
secondary market prices of fund shares
at or close to NAV.
The Exchange, after consulting with
various Lead Market Makers that trade
exchange-traded funds (‘‘ETFs’’) on the
Exchange, believes that market makers
will be able to make efficient and liquid
markets priced near the NAV in light of
the daily Proxy Portfolio Disclosures,
and market makers employ market
making techniques such as ‘‘statistical
8 A mutual fund is required to file with the
Commission its complete portfolio schedules for the
second and fourth fiscal quarters on Form N–CSR
under the 1940 Act, and is required to file its
complete portfolio schedules each month on Form
N–PORT under the 1940 Act, within 60 days of the
end of each month. Information reported on Form
N–PORT for the third month of a Fund’s fiscal
quarter will be made publicly available 60 days
after the end of a Fund’s fiscal quarter. These forms
are available to the public on the Commission’s
website at www.sec.gov.
9 The NYSE Proxy Portfolio Methodology is
owned by the NYSE Group, Inc. and licensed for
use by the Funds. NYSE Group, Inc. is not affiliated
with the Funds, Adviser or Distributor.
10 The Funds will have in place policies and
procedures regarding the construction and
composition of its Proxy Portfolio. Such policies
and procedures will be covered by a Fund’s
compliance program and other requirements under
Rule 38a-1 under the 1940 Act.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
arbitrage,’’ including correlation
hedging, beta hedging, and dispersion
trading, which is currently used
throughout the financial services
industry, to make efficient markets in
exchange-traded products.11 This ability
should permit market makers to make
efficient markets in an issue of Actively
Managed Solution Shares without
precise knowledge of a Fund’s
underlying portfolio.
The Exchange understands that
traders use statistical analysis to derive
correlations between different sets of
instruments to identify opportunities to
buy or sell one set of instruments when
it is mispriced relative to the others. For
Actively Managed Solution Shares,
market makers may use the knowledge
of a fund’s means of achieving its
investment objective, as described in the
applicable fund registration statement,
together with the Proxy Portfolio
Disclosures to manage a market maker’s
quoting risk in connection with trading
Fund Shares. Market makers can then
conduct statistical arbitrage between
Proxy Portfolio and shares of a fund,
buying and selling one against the other
over the course of the trading day. They
will evaluate how the Proxy Portfolio
performed in comparison to the price of
a fund’s shares, and use that analysis as
well as knowledge of risk metrics, such
as volatility and turnover, to provide a
more efficient hedge.
Market makers have indicated to the
Exchange that there will be sufficient
data to run a statistical analysis which
will lead to spreads being tightened
substantially around NAV of a fund’s
shares. This is similar to certain other
existing exchange traded products (for
example, ETFs that invest in foreign
securities that do not trade during U.S.
trading hours), in which spreads may be
generally wider in the early days of
trading and then narrow as market
11 Statistical arbitrage enables a trader to
construct an accurate proxy for another instrument,
allowing it to hedge the other instrument or buy or
sell the instrument when it is cheap or expensive
in relation to the proxy. Statistical analysis permits
traders to discover correlations based purely on
trading data without regard to other fundamental
drivers. These correlations are a function of
differentials, over time, between one instrument or
group of instruments and one or more other
instruments. Once the nature of these price
deviations have been quantified, a universe of
securities is searched in an effort to, in the case of
a hedging strategy, minimize the differential. Once
a suitable hedging proxy has been identified, a
trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the
performance of this hedge throughout the trade
period making correction where warranted. In the
case of correlation hedging, the analysis seeks to
find a proxy that matches the pricing behavior of
a fund. In the case of beta hedging, the analysis
seeks to determine the relationship between the
price movement over time of a fund and that of
another stock.
E:\FR\FM\03JAN1.SGM
03JAN1
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
makers gain more confidence in their
real-time hedges.
jbell on DSKJLSW7X2PROD with NOTICES
Description of the Funds and the Trust
The Funds will be series of the
American Century ETF Trust (‘‘Trust’’),
which will be registered with the
Commission as an open-end
management investment company.12
American Century Investment
Management, Inc. (‘‘Adviser’’) will be
the investment adviser to the Funds.
Foreside Fund Services, LLC will act as
the distributor and principal
underwriter (‘‘Distributor’’) for the
Funds.
Proposed Commentary .03 to NYSE
Arca Rule 8.602–E provides that, if the
investment adviser to the Investment
Company issuing Actively Managed
Solution Shares is registered as a brokerdealer or is affiliated with a brokerdealer such investment adviser will
erect and maintain a ‘‘fire wall’’
between the investment adviser and
personnel of the broker-dealer or brokerdealer affiliate, as applicable, with
respect to access to information
concerning the composition and/or
changes to such Investment Company’s
Actual Portfolio or the applicable Proxy
Portfolio. Personnel who make
decisions on the Investment Company’s
Actual Portfolio or the applicable Proxy
Portfolio composition must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable Investment Company Actual
12 The Trust is registered under the 1940 Act. The
Trust filed an application for an order under
Section 6(c) of the 1940 Act for exemptions from
various provisions of the 1940 Act and rules
thereunder (File No. 812–15082), dated December
11, 2019 (‘‘American Century Application’’ or
‘‘Application’’). The Shares will not be listed on the
Exchange until an order (‘‘American Century
Exemptive Order’’) under the 1940 Act has been
issued by the Commission with respect to the
Application. The American Century Application
states that the exemptive relief requested by the
Trust will apply to funds of the Trust that comply
with the terms and conditions of the American
Century Order and the order issued to Natixis ETF
Trust II. With respect to the Natixis ETF Trust II,
see Seventh Amended and Restated Application for
an Order under Section 6(c) of the 1940 Act for
exemptions from various provisions of the 1940 Act
and rules thereunder (File No. 812–14870) (October
21, 2019 (‘‘Natixis Application’’); the Commission
notice regarding the Natixis Application
(Investment Company Release No. 33684 (File No.
812–14870) November 14, 2019); and the
Commission order under the 1940 Act granting the
exemptions requested in the Natixis Application
(Investment Company Act Release No. 33711
(December 10, 2019)) (‘‘Natixis Exemptive Order’’).
The American Century Application incorporates the
Natixis Exemptive Order by reference. Investments
made by the Funds will comply with the conditions
set forth in the American Century Application,
American Century Exemptive Order and Natixis
Exemptive Order. The description of the operation
of the Trust and the Funds herein is based, in part,
on the American Century Application.
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
Portfolio or Proxy Portfolio. Proposed
Commentary .03(a) is similar to
Commentary .03(a)(i) and (iii) to NYSE
Arca Rule 5.2–E(j)(3); however,
Commentary .03(a) in connection with
the establishment 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.13 The
Adviser is not registered as a brokerdealer but is affiliated with a brokerdealer. The Adviser has implemented
and will maintain a ‘‘fire wall’’ with
respect to such broker-dealer affiliate
regarding access to information
concerning the composition of and/or
changes to a Fund’s portfolio.
In the event (a) the Adviser or any
sub-adviser becomes registered as a
broker-dealer or becomes newly
affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a
registered broker-dealer, or becomes
affiliated with a broker-dealer, it will
implement and maintain a fire wall with
respect to its relevant personnel or its
broker-dealer affiliate regarding access
to information concerning the
composition and/or changes to the
portfolio, and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding such
portfolio.
Actively Managed Solution Shares
With respect to the Funds, according
to the Application, the Adviser believes
Actively Managed Solution Shares
would allow for efficient trading of
Shares through an effective Fund
portfolio transparency substitute and
13 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel will be
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violations, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
397
publication of related informative
metrics, while still shielding the
identity of the full Fund portfolio
contents to protect a fund’s
performance-seeking strategies. Even
though a Fund would not publish its
full portfolio contents daily, the Adviser
believes that the NYSE Proxy Portfolio
Methodology would allow market
participants to assess the intraday value
and associated risk of a Fund’s thencurrent portfolio (the ‘‘Actual
Portfolio’’). As a result, the Adviser
believes that investors would be able to
purchase and sell Shares in the
secondary market at prices that are at or
close to their NAV. An important part
of the NYSE Proxy Portfolio
Methodology would be the creation of
the Proxy Portfolio. As noted above,
daily disclosure of the Proxy Portfolio
Disclosures would also allow a fund to
permit effective arbitrage, including
hedging of investors’ positions in
shares.
The Adviser believes Actively
Managed Solution Shares would benefit
investors by allowing them to access a
greater choice of active portfolio
managers in an ETF structure, which
provides benefits over traditional
mutual funds such as brokerage account
transactional efficiencies, lower fund
costs, tax efficiencies and intraday
liquidity.
The Funds
According to the Application, the
Funds may hold only ‘‘Permissible
Investments.’’ As defined in the
Application, Permissible Investments
include: Exchange-traded funds
(‘‘ETFs’’), 14 Exchange-traded notes
(‘‘ETNs’’),15 exchange-traded common
stocks, common stocks listed on a
foreign exchange that trade on such
exchange contemporaneously with the
Shares (‘‘foreign common stocks’’),
exchange-traded preferred stocks,
exchange-traded American Depositary
Receipts (‘‘ADRs’’), exchange-traded real
estate investment trusts, exchangetraded commodity pools, exchangetraded metals trusts, exchange-traded
currency trusts and exchange-traded
futures that trade contemporaneously
14 For purposes of this filing, the term ‘‘ETFs’’ are
Investment Company Units (as described in NYSE
Arca Rule 5.2–E(j)(3)); Portfolio Depositary Receipts
(as described in NYSE Arca Rule 8.100–E); and
Managed Fund Shares (as described in NYSE Arca
Rule 8.600–E). All ETFs will be listed and traded
in the U.S. on a national securities exchange.
15 For purposes of this filing, ETNs are securities
such as those listed on the Exchange under NYSE
Arca Rule 5.2–E(j)(6).
E:\FR\FM\03JAN1.SGM
03JAN1
398
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
with Fund Shares, as well as cash and
cash equivalents.16
Principal Investments
jbell on DSKJLSW7X2PROD with NOTICES
American Century Mid Cap Growth
Impact ETF
The Fund will seek long-term capital
growth. Under normal market
conditions (as defined in proposed Rule
8.602–E(c)(6)), the Fund will invest at
least 80% of its net assets in securities
of medium size companies. Securities in
which the Fund will generally invest
include the following: Exchange-traded
common stocks; common stocks listed
on a foreign exchange that trade on such
exchange contemporaneously with
Shares of the Fund, exchange-traded
notes, exchange-traded preferred stocks;
and exchange-traded ADRs.
The portfolio managers look for stocks
of medium-sized companies they
believe will increase in value over time,
using proprietary fundamental research.
To implement this strategy, the portfolio
managers will make their investment
decisions based primarily on their
analysis of individual companies, rather
than on broad economic forecasts. The
Fund’s portfolio managers will seek
companies with attractive returns on
invested capital that are demonstrating
or are forecasted to demonstrate longterm business improvement. Analytical
indicators helping to identify or forecast
signs of business improvement could
include accelerating earnings or revenue
growth rates, increasing cash flows, or
other indications of the relative future
strength of a company’s business. The
portfolio managers will then create an
investment thesis for each security that
considers both this analysis and the
United Nations Sustainable
Development Goals (‘‘SDG’’). These
theses support the portfolio managers’
decisions to buy or hold the stocks of
companies that meet their selection
criteria and sell the stocks of companies
whose characteristics no longer meet
their criteria.
contemporaneously with Shares of the
Fund, exchange-traded notes, exchangetraded preferred stocks; and exchangetraded ADRs. The Fund will generally
invest in larger-sized companies using a
quantitative model that combines
fundamental measures of a stock’s value
and growth potential. To measure value,
the Fund’s portfolio managers may use
ratios of stock price-to-earnings and
stock price-to-cash flow, among others.
To measure growth, the portfolio
managers may use the rate of growth of
a company’s earnings and cash flow and
changes in its earnings estimates, as
well as other factors. The model also
considers price momentum. The
portfolio managers also take
environmental, social and governance
factors into account in making
investment decisions.
Other Investments of the Funds
While a Fund, under normal market
conditions, will invest at least 80% of
its net assets in the securities described
in ‘‘Principal Investments’’ above, the
Funds may hold their remaining assets
in the following securities and financial
instruments.
The Funds may hold cash and cash
equivalents.
For cash management purposes, the
Funds may enter into E-mini S&P 500
futures contracts.17
Each of the Funds may invest in other
investment companies, including all
1940 Act-registered securities (in
addition to ETFs).
The Funds may invest in any other
security types included in the definition
of Permissible Investments.
American Century Sustainable Equity
ETF
The Fund will seek long-term capital
growth, with income as a secondary
objective. Under normal market
conditions, the Fund will invest at least
80% of its net assets in equity securities.
Equity securities in which the Fund will
generally invest include the following:
Exchange-traded common stocks;
common stocks listed on a foreign
exchange that trade on such exchange
The NYSE Proxy Portfolio Methodology
According to the Application, the goal
of the NYSE Proxy Portfolio
Methodology is to permit a fund’s Proxy
Portfolio, during all market conditions,
to track closely the daily performance of
a fund’s Actual Portfolio and minimize
intra-day misalignment between the
performance of the Proxy Portfolio and
the performance of the Actual Portfolio.
The Proxy Portfolio is designed to
reflect the economic exposures and the
risk characteristics of the Actual
Portfolio on any given trading day. The
Adviser and the Exchange believe that
the Proxy Portfolio Disclosures will
enable arbitrageurs and market
participants to use the component
securities and their weightings in the
Proxy Portfolio to calculate intraday
values that approximate the value of the
securities in the Actual Portfolio and,
16 For purposes of this filing, cash equivalents are
those securities and financial instruments
enumerated in Commentary .01(c) to NYSE Arca
Rule 8.600–E.
17 E-mini S&P 500 futures contracts are traded on
the Chicago Mercantile Exchange, which is a
member of the Intermarket Surveillance Group
(‘‘ISG’’).
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
based thereon, assess whether the
market price of the Shares is higher or
lower than the approximate
contemporaneous value of the Actual
Portfolio and engage in arbitrage and
hedging activities. These activities will
help ensure that Fund market prices
remain close to a fund’s NAV per Share.
In addition, the Proxy Portfolio
Disclosures generated by the NYSE
Proxy Portfolio Methodology will allow
for effective hedging activities by market
makers, which will facilitate narrow
bid/ask spreads for the Shares.
The Proxy Portfolio
According to the Application, the
Proxy Portfolio will be designed to
recreate the daily performance of the
Actual Portfolio. This is achieved by
performing a ‘‘Factor Model’’ analysis of
the Actual Portfolio. The Factor Model
is comprised of three sets of factors or
analytical metrics: market-based factors,
fundamental factors, and industry/
sector factors.
With respect to Actively Managed
Solution Shares, each fund utilizing the
NYSE Proxy Portfolio Methodology will
have a universe of securities (the
‘‘Model Universe’’) that will be used to
generate a fund’s Proxy Portfolio. The
Model Universe will be comprised of
securities that a fund can purchase and
will be a financial index or stated
portfolio of securities from which Fund
investments will be selected. For
example, the Model Universes could be
the S&P 500 Index, the Russell 1000
Index or the 3,000 largest U.S.-listed
equity securities. The results of the
Factor Model analysis of a fund’s Actual
Portfolio are then applied to a fund’s
Model Universe. The daily rebalanced
Proxy Portfolio is then generated as a
result of this Model Universe analysis
with the Proxy Portfolio being a small
sub-set of the Model Universe. The
Factor Model is applied to both the
Actual Portfolio and the Model Universe
to construct a fund’s Proxy Portfolio that
performs in a manner substantially
identical to the performance of its
Actual Portfolio. The Proxy Portfolio
will only include Permissible
Investments.
Hedging and Arbitrage Opportunities
According to the Application, the
Adviser believes that a reliable fund
share hedging vehicle, where Proxy
Portfolio performance is closely
correlated to the Actual Portfolio
performance, will reduce the risk of
arbitrage trading and will encourage
market making activity that drives Share
market trading price closer to NAV per
Share of a Fund. The Adviser believes
that market makers for the Shares would
E:\FR\FM\03JAN1.SGM
03JAN1
jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
determine bid/ask spreads for the
Shares based primarily on the market
makers’ costs to hedge their exposure to
the Shares, much in the same way that
they determine bid/ask spreads for
actively managed and passive ETFs that
are already listed and traded in the
secondary market. The prices and
determination of effective hedging
instruments will be influenced by the
expected ‘‘Tracking Error’’ (described
below) and the price differentials
between the Proxy Portfolio, which is
fully disclosed, and the expected NAV
per Share that will be calculated at the
end of the trading day.
According to the Application,
historically, active ETFs have sought to
facilitate market making activity and
arbitrage trading by providing full daily
portfolio transparency. The Adviser
believes that market making activity and
arbitrage trading can be facilitated for a
Fund by the information proposed to be
provided to the market including: The
identity and quantity of the components
in the highly correlated Proxy Portfolio,
the Proxy Overlap, Tracking Error, and
the last publicly-disclosed Fund
portfolio as well as the identity of a
Fund’s benchmark index. The Adviser
represents that, all other factors being
equal, the statistical analysis and case
studies of Proxy Portfolio and Actual
Portfolio performance correlation
indicate that market maker bid/ask
spreads for Shares should, on average,
be similar to those of active ETFs
currently trading on exchanges.
More specifically, because the Proxy
Portfolio will be constructed to generate
performance that is correlated to the
performance of the Actual Portfolio, the
Adviser believes that arbitrageurs and
market participants will be able to use
the component securities and their
weightings in the Proxy Portfolio to
calculate intraday values that
approximate the value of the securities
in the Actual Portfolio. Arbitrageurs and
market makers then would be able to
assess whether the market price of the
Shares was higher or lower than the
approximate contemporaneous value of
the Actual Portfolio securities, and to
make arbitrage and hedging decisions
using the securities in the Proxy
Portfolio.18
At the end of each trading day, each
Fund will calculate its Proxy Overlap
and the standard deviation over the past
three months of the daily proxy spread
(i.e., the difference, in percentage terms,
between the Proxy Portfolio per share
NAV and that of the Actual Portfolio at
the end of the trading day) (‘‘Tracking
Error’’) and publish such information
before the opening of Fund Share
trading in the Exchange’s Core Trading
Session (normally (9:30 a.m. to 4:00
p.m., Eastern Time (‘‘E.T.’’) each
‘‘Business Day.’’ 19 The Proxy Overlap
and Tracking Error will provide
additional information to the market
making community. In particular, they
would help market participants evaluate
the risk that the performance of the
Proxy Portfolio may deviate from the
performance of the portfolio holdings of
a Fund. The Adviser believes this
information, alongside the periodic
Fund disclosures and the other Proxy
Portfolio Disclosures, will provide the
level of detail necessary to foster
efficient markets and support effective
arbitrage and hedging functions by
giving them additional information as to
the intraday value and associated risk of
the Actual Portfolio. As a result, daily
Tracking Error and Proxy Overlap
publication (as described below) should
allow market participants to provide
more efficient markets and therefore
narrower bid/ask spreads.
18 According to the Application, the Adviser
believes that it is statistically impractical to
replicate the Actual Portfolio in a manner that
would provide any trading advantage to a market
participant over a Fund. A Fund’s daily disclosures,
(e.g., Proxy Portfolio Disclosures and other fund
website information and periodic disclosures) are
insufficient to permit a third-party to replicate a
Fund’s Actual Portfolio because the NYSE Proxy
Portfolio Methodology only uses lagged information
regarding purchases and sales occurring in the
Actual Portfolio. Moreover, the daily publication of
the Creation Basket information is insufficient to
replicate the Actual Portfolio because it is based on
the Proxy Portfolio, the construction of which is
discussed above. None of the Proxy Portfolio
Disclosures provide up-to-date, granular or frequent
enough information about the Actual Portfolio to
permit replication of the Actual Portfolio or Fund
investment strategies on a current basis.
19 ‘‘Business Day’’ is defined in the Application
to include any day the Trust is open, including any
day when it satisfies redemption requests as
required by Section 22(e) of the 1940 Act.
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
Daily Disclosures
With respect to the Funds, the
following information will comprise the
‘‘Proxy Portfolio Disclosures’’ and will
be publicly available on the Funds’
website before the commencement of
trading in Shares on each Business Day:
• The Proxy Portfolio. The Proxy
Portfolio published on the Funds’
website each Business Day will include
the following information for each
portfolio holding in the Proxy Portfolio:
(1) Ticker symbol; (2) CUSIP or other
identifier; (3) description of holding; (4)
quantity of each security or other asset
held; and (5) percentage weight of the
holding in the Proxy Portfolio.
• The historical ‘‘Tracking Error’’
between the Fund’s last published NAV
per share and the value, on a per Share
basis, of the Fund’s Proxy Portfolio
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
399
calculated as of the close of trading on
the prior Business Day.
• The ‘‘Proxy Overlap’’. ‘‘Proxy
Overlap’’ is the percentage weight
overlap between the holdings of the
prior Business Day’s Proxy Portfolio
compared to the Actual Portfolio’s
holdings that formed the basis for the
Fund’s calculation of NAV at the end of
the prior Business Day. The Fund’s
website will note that the Proxy Overlap
is calculated based on the Proxy
Portfolio and portfolio holdings as of the
prior Business Day. The Proxy Overlap
will be calculated by taking the lesser
weight of each asset held in common
between the Actual Portfolio and the
Proxy Portfolio and adding the totals.
Creations and Redemptions of Shares
According to the Application, the
Creation Basket will be based on the
Proxy Portfolio, which is designed to
approximate the value and performance
of the Actual Portfolio. All Creation
Basket instruments will be valued in the
same manner as they are valued for
purposes of calculating a Fund’s NAV,
and such valuation will be made in the
same manner regardless of the identity
of the purchaser or redeemer. Further,
the total consideration paid for the
purchase or redemption of a Creation
Unit of Shares will be based on the NAV
of such Fund, as calculated in
accordance with the policies and
procedures set forth in its registration
statement.
As with the Proxy Portfolio, the
Creation Basket will mask a Fund’s
Actual Portfolio from full disclosure
while at the same time maximize
benefits of the ETF structure to
shareholders. In particular, the Adviser
believes that the ability of a Fund to
take deposits and make redemptions inkind may aid in achieving a Fund’s
investment objectives by allowing it to
be more fully invested, minimizing cash
drag, and reducing flow-related trading
costs. In-kind transactions may also
increase a Fund’s tax efficiency and
promote efficient secondary market
trading in Shares.
According to the Application, the
Trust will offer, issue and sell Shares of
each Fund to investors only in Creation
Units through the Distributor on a
continuous basis at the NAV per Share
next determined after an order in proper
form is received. The NAV of each Fund
is expected to be determined as of 4:00
p.m. E.T. on each Business Day. The
Trust will sell and redeem Creation
Units of each Fund only on a Business
Day. Creation Units of the Funds may be
purchased and/or redeemed entirely for
cash, as permissible under the
procedures described below. The
E:\FR\FM\03JAN1.SGM
03JAN1
jbell on DSKJLSW7X2PROD with NOTICES
400
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
Adviser anticipates that the trading
price of a Share will range from $10 to
$100.
In order to keep costs low and permit
each Fund to be as fully invested as
possible, Shares will be purchased and
redeemed in Creation Units and
generally on an in-kind basis.
Accordingly, except where the purchase
or redemption will include cash under
the circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’). The names and
quantities of the instruments that
constitute the Deposit Instruments and
the Redemption Instruments for a Fund
(collectively, the ‘‘Creation Basket’’) will
be the same as the Fund’s Proxy
Portfolio, except to the extent purchases
and redemptions are made entirely or in
part on a cash basis.
If there is a difference between the
NAV attributable to a Creation Unit and
the aggregate market value of the
Creation Basket exchanged for the
Creation Unit, the party conveying
instruments with the lower value will
also pay to the other an amount in cash
equal to that difference (the ‘‘Cash
Amount’’).
Each Fund will adopt and implement
policies and procedures regarding the
composition of its Creation Baskets. The
policies and procedures will set forth
detailed parameters for the construction
and acceptance of baskets in compliance
with the terms and conditions of the
Exemptive Order and that are in the best
interests of the Fund and its
shareholders, including the process for
any revisions to or deviations from
those parameters. The Fund’s basket
policies and procedures would be
covered by the Fund’s compliance
program and other requirements under
Rule 38a–1 under the 1940 Act.
A Fund that normally issues and
redeems Creation Units in kind may
require purchases and redemptions to
be made entirely or in part on a cash
basis. In such an instance, the Fund will
announce, before the open of trading in
the Core Trading Session (normally,
9:30 a.m. to 4:00 p.m., E.T.) on a given
Business Day, that all purchases, all
redemptions, or all purchases and
redemptions on that day will be made
wholly or partly in cash. A Fund may
also determine, upon receiving a
purchase or redemption order from an
Authorized Participant, to have the
purchase or redemption, as applicable,
be made entirely or in part in cash. Each
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
Business Day, before the open of trading
on the Exchange, a Fund will cause to
be published through the National
Securities Clearing Corporation
(‘‘NSCC’’) the names and quantities of
the instruments comprising the Creation
Basket, as well as the estimated Cash
Amount (if any), for that day. The
published Creation Basket will apply
until a new Creation Basket is
announced on the following Business
Day, and there will be no intra-day
changes to the Creation Basket except to
correct errors in the published Creation
Basket.
All orders to purchase Creation Units
must be placed with the Distributor by
or through an Authorized Participant,
which is either: (1) A ‘‘participating
party’’ (i.e., a broker or other
participant), in the Continuous Net
Settlement (‘‘CNS’’) System of the
NSCC, a clearing agency registered with
the Commission and affiliated with the
Depository Trust Company (‘‘DTC’’), or
(2) a DTC Participant, which in any case
has executed a participant agreement
with the Distributor and the transfer
agent.
Timing and Transmission of Purchase
Orders
All orders to purchase (or redeem)
Creation Units, whether using the NSCC
Process or the DTC Process, must be
received by the Distributor no later than
the NAV calculation time (‘‘NAV
Calculation Time’’), generally 4:00 p.m.
E.T. on the date the order is placed
(‘‘Transmittal Date’’) in order for the
purchaser (or redeemer) to receive the
NAV determined on the Transmittal
Date. In the case of custom orders, the
order must be received by the
Distributor sufficiently in advance of the
NAV Calculation Time in order to help
ensure that the Fund has an opportunity
to purchase the missing securities with
the cash in lieu amounts or to sell
securities to generate the cash in lieu
amounts prior to the NAV Calculation
Time. On days when the Exchange
closes earlier than normal, a Fund may
require custom orders to be placed
earlier in the day.
Availability of Information
The Funds’ website will include on a
daily basis, per Share for each Fund, the
prior Business Day’s NAV and the
Closing Price or Bid/Ask Price, and a
calculation of the premium/discount of
the Closing Price or Bid/Ask Price
against such NAV.20 In addition, each
20 The ‘‘premium/discount’’ refers to the
premium or discount to NAV at the end of a trading
day and will be calculated based on the last Bid/
Ask Price or the Closing Price on a given trading
day. The ‘‘Closing Price’’ of Shares is the official
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
Fund will provide any other
information on its website regarding
premiums/discounts that ETFs
registered under the 1940 Act may be
required to provide. The website also
will include the Proxy Portfolio, the
Proxy Overlap, Tracking Error, and bid/
ask spread information for each Fund.21
The Proxy Overlap and Tracking Error
will be published on the Funds’ website
before the opening of Fund Shares in
the Core Trading Session each Business
Day.
Investors can obtain a Fund’s
prospectus, statement of additional
information (‘‘SAI’’), Shareholder
Reports, Form N–CSR, N–PORT and
Form N–CEN filed with the
Commission. The prospectus, SAI and
Shareholder Reports are available free
upon request from the Trust, and those
documents and the Form N–CSR, N–
PORT, and Form N–CEN may be viewed
on-screen or downloaded from the
Commission’s website.
Updated price information for U.S.
exchange-listed equity securities is
available through major market data
vendors or securities exchanges trading
such securities. Quotation and last sale
information for the Shares, equity
securities and ETFs will be available via
the Consolidated Tape Association
(‘‘CTA’’) high-speed line. Price
information for cash equivalents is
available through major market data
vendors
Investment Restrictions
The Shares of the Funds will conform
to the initial and continued listing
criteria under proposed Rule 8.602–E.
The Funds’ holdings will be limited to
and consistent with Permissible
Investments as described in the
Application.
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
a Fund.22 Trading in Shares of a Fund
closing price of the Shares on the Fund’s Exchange.
The ‘‘Bid/Ask Price’’ is the midpoint of the highest
bid and lowest offer based upon the National Best
Bid and Offer as of the time of calculation of such
Fund’s NAV. The ‘‘National Best Bid and Offer’’ is
the current national best bid and national best offer
as disseminated by the Consolidated Quotation
System or UTP Plan Securities Information
Processor.
21 According to the Application, the Funds’
website will include any other information
regarding premiums and discounts as may be
required for other ETFs under Rule 6c–11 under the
1940 Act and will also disclose any information
regarding the bid/ask spread for a Fund as may be
required for other ETFs under Rule 6c–11 under the
1940 Act.
22 See NYSE Arca Rule 7.12–E.
E:\FR\FM\03JAN1.SGM
03JAN1
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12–E
have been reached. Trading also may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. Trading in the Shares will
be subject to NYSE Arca Rule 8.602–
E(d)(2)(B), which sets forth
circumstances under which Shares of a
Fund will be halted.
jbell on DSKJLSW7X2PROD with NOTICES
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 in all
trading sessions in accordance with
NYSE Arca Rule 7.34–E(a). 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.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Rule 8.602–E. The Exchange
represents that, for initial and/or
continued listing, the Funds will be in
compliance with Rule 10A–3 under the
Act,23 as provided by NYSE Arca Rule
5.3–E. The Exchange will obtain a
representation from the issuer of the
Shares of a Fund that the NAV per
Share of a Fund will be calculated daily
and 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.24 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
23 See
17 CFR 240.10A–3.
conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
24 FINRA
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
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, exchange-traded
equity securities, and E-mini S&P 500
futures contracts with other markets and
other entities that are members of the
ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may
obtain trading information regarding
trading such securities and financial
instruments from such markets and
other entities. In addition, the Exchange
may obtain information regarding
trading in such securities and financial
instruments from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement.25
The Adviser will make available daily
to FINRA and the Exchange the
portfolio holdings of a Fund in order to
facilitate the performance of the
surveillances referred to above.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
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.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares;
(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; (4) how information
regarding the Proxy Portfolio will be
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 a Fund is subject to
various fees and expenses described in
the applicable registration statement.
The Bulletin will discuss any
exemptive, no-action, and interpretive
relief granted by the Commission from
25 For a list of the current members of ISG, see
www.isgportal.org.
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
401
any rules under the Act. The Bulletin
will also disclose that the NAV for the
Shares will be calculated after 4:00 p.m.,
E.T. each trading day.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,26 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,27 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
The Exchange believes that proposed
Rule 8.602–E is designed to prevent
fraudulent and manipulative acts and
practices in that the proposed rules
relating to listing and trading of
Actively Managed Solution Shares
provide specific initial and continued
listing criteria required to be met by
such securities.
Proposed Rule 8.602–E (d) sets forth
initial and continued listing criteria
applicable to Actively Managed
Solution Shares. Proposed Rule 8.602–
E(d)(1)(A) provides that, for each series
of Actively Managed Solution Shares,
the Exchange will establish a minimum
number of Actively Managed Solution
Shares required to be outstanding at the
time of commencement of trading on the
Exchange. In addition, proposed Rule
8.602–E(d)(1)(B) provides that the
Exchange will obtain a representation
from the issuer of each series of Actively
Managed Solution Shares that the NAV
per share for the series will be
calculated daily and that the NAV will
be made available to all market
participants at the same time. Proposed
Rule 8.602–E(d)(2) provides that each
series of Actively Managed Solution
Shares will be listed and traded subject
to application of specified continued
listing criteria. Proposed Rule 8.602–
E(d)(2)(A) provides that the Exchange
will consider the suspension of trading
in, and will commence delisting
proceedings under Rule 5.5–E(m) of, a
series of Actively Managed Solution
Shares under any of the circumstances
specified in such rule.
Proposed Rule 8.602–E(d)(2)(B)
provides that, upon notification to the
Exchange by the issuer of a series of
Actively Managed Solution Shares that
the net asset value with respect to such
series is not disseminated to all market
participants at the same time, it will halt
26 15
27 15
E:\FR\FM\03JAN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
03JAN1
jbell on DSKJLSW7X2PROD with NOTICES
402
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
trading in such series until such time as
the net asset value is available to all
market participants.
Proposed Commentary .01 to NYSE
Arca Rule 8.602–E provides that the
Exchange will file separate proposals
under Section 19(b) of the Securities
Exchange Act of 1934 before the listing
and trading of Actively Managed
Solution Shares. All statements or
representations contained in such rule
filing regarding (a) the description of the
portfolio, (b) limitations on portfolio
holdings, or (c) the applicability of
Exchange listing rules specified in such
rule filing will constitute continued
listing requirements. An issuer of such
securities must notify the Exchange of
any failure to comply with such
continued listing requirements.
Proposed Commentary .02 to NYSE
Arca Rule 8.602–E provides that the
Exchange will implement and maintain
written surveillance procedures for
Actively Managed Solution Shares.
Proposed Commentary .03 provides
that, if the investment adviser to the
Investment Company issuing Actively
Managed Solution Shares is registered
as a broker-dealer or is affiliated with a
broker-dealer such investment adviser
will erect and maintain a ‘‘fire wall’’
between the investment adviser and
personnel of the broker-dealer or brokerdealer affiliate, as applicable, with
respect to access to information
concerning the composition and/or
changes to such Investment Company’s
Actual Portfolio or the applicable Proxy
Portfolio. Personnel who make
decisions on the Investment Company’s
Actual Portfolio or the applicable Proxy
Portfolio composition must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable Investment Company Actual
Portfolio or Proxy Portfolio.
With respect to the proposed listing
and trading of Shares of the Funds, 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
8.602–E. The Funds’ investments will
be consistent with its investment
objective and will not be used to
enhance leverage. The Exchange or
FINRA, on behalf of the Exchange, or
both, will communicate as needed
regarding trading in the Shares,
exchange-traded equity securities, and
E-mini S&P 500 futures with other
markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
both, may obtain trading information
regarding trading such securities and
financial instruments from such markets
and other entities. In addition, the
Exchange may obtain information
regarding trading in such securities and
financial instruments from markets and
other entities that are members of ISG or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement.
The Exchange, after consulting with
various Lead Market Makers that trade
ETFs on the Exchange, believes that
market makers will be able to make
efficient and liquid markets priced near
the NAV, and that market makers have
knowledge of a fund’s means of
achieving its investment objective even
without daily disclosure of a fund’s
underlying portfolio. The Exchange
believes that market makers will employ
risk-management techniques to make
efficient markets in exchange traded
products.28 This ability should permit
market makers to make efficient markets
in shares without knowledge of a fund’s
underlying portfolio.
The Exchange understands that
traders use statistical analysis to derive
correlations between different sets of
instruments to identify opportunities to
buy or sell one set of instruments when
it is mispriced relative to the others. For
Actively Managed Solution Shares,
market makers utilizing statistical
arbitrage use the knowledge of a fund’s
means of achieving its investment
objective, as described in the applicable
fund registration statement, as well as
Proxy Portfolio Disclosures to manage a
market maker’s quoting risk in
connection with trading fund shares.
Market makers will then conduct
statistical arbitrage between the Proxy
Portfolio and shares of a fund, buying
and selling one against the other over
the course of the trading day.
Eventually, at the end of each day, they
will evaluate how the Proxy Portfolio
performed in comparison to the price of
a fund’s shares, and use that analysis as
well as knowledge of risk metrics, such
as volatility and turnover, to provide a
more efficient hedge.
The Lead Market Makers also
indicated that, as with some other new
exchange-traded products, spreads
would tend to narrow as market makers
gain more confidence in the accuracy of
their hedges and their ability to adjust
these hedges in real-time and gain an
understanding of the applicable market
risk metrics such as volatility and
turnover, and as natural buyers and
sellers enter the market. Other relevant
factors cited by Lead Market Makers
28 See
PO 00000
note 11, supra.
Frm 00106
Fmt 4703
Sfmt 4703
were that a fund’s investment objectives
are clearly disclosed in the applicable
prospectus, the existence of quarterly
portfolio disclosure and the ability to
create shares in creation unit size.
The real-time dissemination of the
identity and quantity of Proxy Portfolio
component investments, and historical
tracking error (as referenced above),
together with the right of Authorized
Participants to create and redeem each
day at the NAV, will be sufficient for
market participants to value and trade
shares in a manner that will not lead to
significant deviations between the
Shares’ Bid/Ask Price and NAV.
The pricing efficiency with respect to
trading a series of Actively Managed
Solution Shares will generally rest on
the ability of market participants to
arbitrage between the shares and a
fund’s portfolio, in addition to the
ability of market participants to assess a
fund’s underlying value accurately
enough throughout the trading day in
order to hedge positions in shares
effectively. Professional traders can buy
shares that they perceive to be trading
at a price less than that which will be
available at a subsequent time and sell
shares they perceive to be trading at a
price higher than that which will be
available at a subsequent time. It is
expected that, as part of their normal
day-to-day trading activity, market
makers assigned to shares by the
Exchange, off-exchange market makers,
firms that specialize in electronic
trading, hedge funds and other
professionals specializing in short-term,
non-fundamental trading strategies will
assume the risk of being ‘‘long’’ or
‘‘short’’ shares through such trading and
will hedge such risk wholly or partly by
simultaneously taking positions in
correlated assets 29 or by netting the
exposure against other, offsetting
trading positions—much as such firms
do with existing ETFs and other
equities. Disclosure of a fund’s
investment objective and principal
investment strategies in its prospectus
and SAI should permit professional
29 Price correlation trading is used throughout the
financial industry. It is used to discover both
trading opportunities to be exploited, such as
currency pairs and statistical arbitrage, as well as
for risk mitigation such as dispersion trading and
beta hedging. These correlations are a function of
differentials, over time, between one or multiple
securities pricing. Once the nature of these price
deviations have been quantified, a universe of
securities is searched in an effort to, in the case of
a hedging strategy, minimize the differential. Once
a suitable hedging basket has been identified, a
trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the
performance of this hedge throughout the trade
period, making corrections where warranted.
E:\FR\FM\03JAN1.SGM
03JAN1
jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 85, No. 2 / Friday, January 3, 2020 / Notices
investors to engage easily in this type of
hedging activity.
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 an issue of Actively Managed
Solution Shares that the NAV per Share
of a Fund will be calculated daily and
that the NAV will be made available to
all market participants at the same time.
Investors can also obtain a fund’s SAI,
shareholder reports, and its Form N–
CSR, Form N–PORT and Form N–CEN.
A Fund’s SAI and shareholder reports
will be available free upon request from
the applicable Fund, and those
documents and the Form N–CSR, Form
N–PORT and Form N–CEN may be
viewed on-screen or downloaded from
the Commission’s website. In addition,
with respect to each Fund, a large
amount of information will be publicly
available regarding the Funds and the
Shares, thereby promoting market
transparency. Quotation and last sale
information for the Shares will be
available via the CTA high-speed line.
The website for the Funds will include
a form of the prospectus for each Fund
that may be downloaded, and additional
data relating to NAV and other
applicable quantitative information,
updated on a daily basis. Moreover,
prior to the commencement of trading,
the Exchange will inform its ETP
Holders in an Information Bulletin of
the special characteristics and risks
associated with trading the Shares.
Trading in Shares of the Funds will be
halted if the circuit breaker parameters
in NYSE Arca Rule 7.12–E have been
reached or because of market conditions
or for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. Trading in the Shares will
be subject to NYSE Arca Rule 8.602–E
(d)(2)(C), which sets forth circumstances
under which Shares of a Fund will be
halted. In addition, as noted above,
investors will have ready access to the
Proxy Portfolio Disclosures and
quotation and last sale information for
the Shares. The Shares will conform to
the initial and continued listing criteria
under proposed Rule 8.602–E.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
VerDate Sep<11>2014
17:29 Jan 02, 2020
Jkt 250001
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding quotation and last
sale information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes the proposed rule
change would permit listing and trading
of another type of actively-managed ETF
that has characteristics different from
existing actively-managed and index
ETFs and would introduce additional
competition among various ETF
products to the benefit of investors.
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:
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2019–96. 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–2019–96 and
should be submitted on or before
January 24, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–28415 Filed 1–2–20; 8:45 am]
BILLING CODE 8011–01–P
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–2019–96 on the subject line.
PO 00000
Frm 00107
Fmt 4703
Sfmt 9990
403
30 17
E:\FR\FM\03JAN1.SGM
CFR 200.30–3(a)(12).
03JAN1
]]>Agencies
[Federal Register Volume 85, Number 2 (Friday, January 3, 2020)]
[Notices]
[Pages 394-403]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28415]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87867; File No. SR-NYSEArca-2019-96]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Adopt NYSE Arca Rule 8.602-E To Permit the
Listing and Trading of Actively Managed Solution Shares and To List and
Trade Two Series of Actively Managed Solution Shares Issued by the
American Century ETF Trust Under Proposed NYSE Arca Rule 8.602-E
December 30, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on December 23, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. 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 adopt a new NYSE Arca Rule 8.602-E to
permit it to list and trade Actively Managed Solution Shares, which are
shares of actively managed exchange-traded funds for which the
portfolio is disclosed in accordance with standard mutual fund
disclosure rules. In addition, the Exchange proposes to list and trade
shares of the following under proposed NYSE Arca Rule 8.602-E: American
Century Mid Cap Growth Impact ETF and American Century Sustainable
Equity ETF. 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 add new NYSE Arca Rule 8.602-E for the
purpose of permitting the listing and trading, or trading pursuant to
unlisted trading privileges (``UTP''), of Actively Managed Solution
Shares, which are securities issued by an actively managed open-end
investment management company. The Exchange also proposes to list and
trade shares (``Shares'') of the following under proposed NYSE Arca
Rule 8.602-E: American Century Mid Cap Growth Impact ETF and American
Century Sustainable Equity ETF (each a ``Fund'' and, collectively, the
``Funds'').
Proposed Listing Rules
Proposed Rule 8.602-E (a) provides that the Exchange will consider
for trading, whether by listing or pursuant to UTP, Actively Managed
Solution Shares that meet the criteria of Rule 8.602-E.
Proposed Rule 8.602-E (b) provides that Rule 8.602-E is applicable
only to Actively Managed Solution Shares and that, except to the extent
inconsistent with Rule 8.602-E, or unless the context otherwise
requires, the rules and procedures of the Exchange's Board of Directors
shall be applicable to the trading on the Exchange of such securities.
Proposed Rule 8.602-E (b) provides further that Actively Managed
Solution Shares are included within the definition of ``security'' or
``securities'' as such terms are used in the Rules of the Exchange.
Proposed Rule 8.602-E(c)(1) defines the term ``Actively Managed
Solution Shares'' as a security that (a) represents an interest in a
registered investment company (``Investment Company'') organized as an
open-end management investment company that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies; (b) is issued in a specified aggregate minimum number of
shares equal to a Creation Unit, or multiples thereof, in return for a
designated portfolio of securities (and/or an amount of cash) with a
value equal to the next determined net asset value; and (c) when
aggregated in the same specified aggregate number of shares, or
multiples thereof, may be redeemed at the request of an Authorized
Participant (as defined in the applicable Investment Company
prospectus), which Authorized Participant will be paid a portfolio of
securities and/or cash with a value equal to the next determined net
asset value (``NAV'').
Proposed Rule 8.602-E(c)(2) defines the term ``Actual Portfolio''
as the aggregation of securities held by a series of Actively Managed
Solution Shares, which aggregation is periodically disclosed in
accordance with requirements applicable to open-end management
investment companies registered under the Investment Company Act of
1940 (``1940 Act'').
Proposed Rule 8.602-E(c)(3) defines the term ``Proxy Portfolio'' as
a basket of cash and securities that differs from the Actual Portfolio
of a series of Actively Managed Solution Shares and that is intended to
closely track the daily performance of the Actual Portfolio on any
trading day. The Proxy Portfolio will be disseminated each business day
on the website for each series of Actively Managed Solution Shares.
Proposed Rule 8.602-E(c)(4) defines the term ``Creation Unit'' as a
specified minimum number of Actively Managed Solution Shares issued by
an Investment Company at the request of an Authorized Participant in
return for a designated portfolio of securities (and/or an amount of
cash) specified each day and a specified minimum number of Actively
Managed Solution Shares that may be redeemed to an Investment
[[Page 395]]
Company at the request of an Authorized Participant in return for a
portfolio of securities and/or cash, consistent with the Investment
Company's investment objectives and policies.
Proposed Rule 8.602-E(c)(5) defines the term ``Reporting
Authority'' in respect of a particular series of Actively Managed
Solution Shares means the Exchange, the exchange that lists a
particular series of Actively Managed Solution Shares (if the Exchange
is trading such series pursuant to unlisted trading privileges), an
institution, or a reporting service designated by the issuer of a
series of Actively Managed Solution Shares as the official source for
calculating and reporting information relating to such series,
including the net asset value, or other information relating to the
issuance, redemption or trading of Actively Managed Solution Shares. A
series of Actively Managed Solution Shares may have more than one
Reporting Authority, each having different functions.
Proposed Rule 8.602-E(c)(6) defines the term ``normal market
conditions'' as including, but not limited to, the absence of trading
halts in the applicable financial markets generally; operational issues
(e.g., systems failure) causing dissemination of inaccurate market
information; or force majeure type events such as natural or manmade
disaster, act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
Proposed Rule 8.602-E (d) sets forth initial and continued listing
criteria applicable to Actively Managed Solution Shares. Proposed Rule
8.602-E(d)(1)(A) provides that, for each series of Actively Managed
Solution Shares, the Exchange will establish a minimum number of
Actively Managed Solution Shares required to be outstanding at the time
of commencement of trading on the Exchange. In addition, proposed Rule
8.602-E(d)(1)(B) provides that the Exchange will obtain a
representation from the issuer of each series of Actively Managed
Solution Shares that the NAV per share for the series will be
calculated daily and that the NAV will be made available to all market
participants at the same time.\4\ Proposed Rule 8.602-E(d)(1)(C)
provides that all Actively Managed Solution Shares shall have a stated
investment objective, which shall be adhered to under normal market
conditions.
---------------------------------------------------------------------------
\4\ NYSE Arca Rule 7.18-E(d)(2) (``Halts of Derivative
Securities Products Listed on the NYSE Arca Marketplace'') provides
that, with respect to Derivative Securities Products listed on the
NYSE Arca Marketplace for which a net asset value is disseminated,
if the Exchange becomes aware that the net asset value is not being
disseminated to all market participants at the same time, it will
halt trading in the affected Derivative Securities Product on the
NYSE Arca Marketplace until such time as the net asset value is
available to all market participants.
---------------------------------------------------------------------------
Proposed Rule 8.602-E(d)(2) provides that each series of Actively
Managed Solution Shares will be listed and traded subject to
application of the following continued listing criteria:
Proposed Rule 8.602-E(d)(2)(A) provides that the Exchange will
consider the suspension of trading in, and will commence delisting
proceedings under Rule 5.5-E(m) of, a series of Actively Managed
Solution Shares under any of the following circumstances:
(i) if any of the continued listing requirements set forth in Rule
8.602-E are not continuously maintained;
(ii) if any of the statements or representations regarding (a) the
description of the portfolio, (b) limitations on portfolio holdings, or
(c) the applicability of Exchange listing rules, specified in the
Exchange's rule filing pursuant to Section 19(b) of the Securities
Exchange Act of 1934 to permit the listing and trading of a series of
Actively Managed Solution Shares, is not continuously maintained; or
(iii) if such other event shall occur or condition exists which, in
the opinion of the Exchange, makes further dealings on the Exchange
inadvisable.
Proposed Rule 8.602-E(d)(2)(B) provides that, upon notification to
the Exchange by the issuer of a series of Actively Managed Solution
Shares that the NAV with respect to such series is not disseminated to
all market participants at the same time, it will halt trading in such
series until such time as the NAV is available to all market
participants. The Exchange may also halt trading at the request of the
investment adviser to a series of Actively Managed Solution Shares upon
notification to the Exchange by the issuer of such series that the
securities representing 10% or more of the Actual Portfolio for such
series do not have readily available market quotations, and during
times of unusual market volatility where a significant portion of such
series' Actual Portfolio are subject to a trading halt or have a last
trade price that the investment adviser deems unreliable, if the
investment adviser determines that it is in the best interest of such
series.
Proposed Rule 8.602-E(d)(2)(C) provides that, upon termination of
an Investment Company, the Exchange requires that Actively Managed
Solution Shares issued in connection with such entity be removed from
Exchange listing.
Proposed Rule 8.602-E(d)(2)(D) provides that voting rights shall be
as set forth in the applicable Investment Company prospectus.
Proposed Rule 8.602-E(e), which relates to limitation of Exchange
liability, provides that neither the Exchange, the Reporting Authority,
nor any agent of the Exchange shall have any liability for damages,
claims, losses or expenses caused by any errors, omissions, or delays
in calculating or disseminating any current portfolio value; the
current value of the portfolio of securities required to be deposited
to the Investment Company in connection with issuance of Actively
Managed Solution Shares; the amount of any dividend equivalent payment
or cash distribution to holders of Actively Managed Solution Shares;
net asset value; or other information relating to the purchase,
redemption, or trading of Actively Managed Solution Shares, resulting
from any negligent act or omission by the Exchange, the Reporting
Authority or any agent of the Exchange, or any act, condition, or cause
beyond the reasonable control of the Exchange, its agent, or the
Reporting Authority, including, but not limited to, an act of God;
fire; flood; extraordinary weather conditions; war; insurrection; riot;
strike; accident; action of government; communications or power
failure; equipment or software malfunction; or any error, omission, or
delay in the reports of transactions in one or more underlying
securities.
Proposed Commentary .01 to NYSE Arca Rule 8.602-E provides that the
Exchange will file separate proposals under Section 19(b) of the
Securities Exchange Act of 1934 before the listing and trading of
Actively Managed Solution Shares. All statements or representations
contained in such rule filing regarding (a) the description of the
portfolio, (b) limitations on portfolio holdings, or (c) the
applicability of Exchange listing rules specified in such rule filing
will constitute continued listing requirements. An issuer of such
securities must notify the Exchange of any failure to comply with such
continued listing requirements.
Proposed Commentary .02 to NYSE Arca Rule 8.602-E provides that the
Exchange will implement and maintain written surveillance procedures
for Actively Managed Solution Shares.
Proposed Commentary .03 to NYSE Arca Rule 8.602-E provides that, if
the investment adviser to the Investment Company issuing Actively
Managed Solution Shares is registered as a broker-dealer or is
affiliated with a broker-dealer such investment adviser will erect and
maintain a ``fire wall''
[[Page 396]]
between the investment adviser and personnel of the broker-dealer or
broker-dealer affiliate, as applicable, with respect to access to
information concerning the composition of and/or changes to such
Investment Company's Actual Portfolio or the applicable Proxy
Portfolio. Personnel who make decisions on the Investment Company's
Actual Portfolio or the applicable Proxy Portfolio composition must be
subject to procedures designed to prevent the use and dissemination of
material nonpublic information regarding the applicable Investment
Company Actual Portfolio or Proxy Portfolio.\5\
---------------------------------------------------------------------------
\5\ The Exchange will propose applicable NYSE Arca listing fees
for Actively Managed Solution Shares in the NYSE Arca Equities
Schedule of Fees and Charges via a separate proposed rule change.
---------------------------------------------------------------------------
Key Features of Actively Managed Solution Shares
While funds issuing Actively Managed Solution Shares will be
actively-managed and, to that extent, will be similar to Managed Fund
Shares, Actively Managed Solution Shares differ from Managed Fund
Shares in the following important respects. First, in contrast to
Managed Fund Shares, which are actively-managed funds listed and traded
under NYSE Arca Rule 8.600-E \6\ and for which a ``Disclosed
Portfolio'' is required to be disseminated at least once daily,\7\ the
portfolio for an issue of Actively Managed Solution Shares will be
disclosed at least quarterly in accordance with normal disclosure
requirements otherwise applicable to open-end management investment
companies registered under the 1940 Act.\8\ The composition of the
portfolio of an issue of Actively Managed Solution Shares would not be
available at commencement of Exchange listing and trading. Second,
Actively Managed Solution Shares would not publish their full portfolio
contents daily. Instead, Actively Managed Solution Shares would utilize
a proxy portfolio methodology, as described below (the ``NYSE Proxy
Portfolio Methodology'') that would allow market participants to assess
the intraday value and associated risk of a fund's then-current
portfolio (the ``Actual Portfolio'') and thereby facilitate the
purchase and sale of shares by investors in the secondary market at
prices that do not vary materially from their NAV.\9\ An important part
of the NYSE Proxy Portfolio Methodology would be the creation of a
basket of cash and securities that is designed to closely track the
daily performance of a fund's portfolio (``Proxy Portfolio'').\10\
Daily disclosure of Proxy Portfolio contents, Proxy Overlap, and
related metrics, as described below (collectively, the ``Proxy
Portfolio Disclosures''), would permit hedging of risks associated with
arbitrage and market making activities concerning a series of Actively
Managed Solution Shares. In essence, the Proxy Portfolio Disclosures
should permit market making in fund shares that keeps bid/ask spreads
narrow and the secondary market prices of fund shares at or close to
NAV.
---------------------------------------------------------------------------
\6\ The Commission has previously approved listing and trading
on the Exchange of a number of issues of Managed Fund Shares under
NYSE Arca Rule 8.600-E. See, e.g., Securities Exchange Act Release
Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-
2008-31) (order approving Exchange listing and trading of twelve
actively-managed funds of the WisdomTree Trust); 60460 (August 7,
2009), 74 FR 41468 (August 17, 2009) (SR-NYSEArca-2009-55) (order
approving listing of Dent Tactical ETF); 63076 (October 12, 2010),
75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order
approving Exchange listing and trading of Cambria Global Tactical
ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR-
NYSEArca-2010-118) (order approving Exchange listing and trading of
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic
Allocation Growth Income ETF). The Commission also has approved a
proposed rule change relating to generic listing standards for
Managed Fund Shares. Securities Exchange Act Release No. 78397 (July
22, 2016), 81 FR 49320 (July 27, 2016 (SR-NYSEArca-2015-110)
(amending NYSE Arca Equities Rule 8.600 to adopt generic listing
standards for Managed Fund Shares).
\7\ NYSE Arca Rule 8.600-E(c)(2) defines the term ``Disclosed
Portfolio'' as the identities and quantities of the securities and
other assets held by the Investment Company that will form the basis
for the Investment Company's calculation of net asset value at the
end of the business day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires
that the Disclosed Portfolio will be disseminated at least once
daily and will be made available to all market participants at the
same time.
\8\ A mutual fund is required to file with the Commission its
complete portfolio schedules for the second and fourth fiscal
quarters on Form N-CSR under the 1940 Act, and is required to file
its complete portfolio schedules each month on Form N-PORT under the
1940 Act, within 60 days of the end of each month. Information
reported on Form N-PORT for the third month of a Fund's fiscal
quarter will be made publicly available 60 days after the end of a
Fund's fiscal quarter. These forms are available to the public on
the Commission's website at www.sec.gov.
\9\ The NYSE Proxy Portfolio Methodology is owned by the NYSE
Group, Inc. and licensed for use by the Funds. NYSE Group, Inc. is
not affiliated with the Funds, Adviser or Distributor.
\10\ The Funds will have in place policies and procedures
regarding the construction and composition of its Proxy Portfolio.
Such policies and procedures will be covered by a Fund's compliance
program and other requirements under Rule 38a-1 under the 1940 Act.
---------------------------------------------------------------------------
The Exchange, after consulting with various Lead Market Makers that
trade exchange-traded funds (``ETFs'') on the Exchange, believes that
market makers will be able to make efficient and liquid markets priced
near the NAV in light of the daily Proxy Portfolio Disclosures, and
market makers employ market making techniques such as ``statistical
arbitrage,'' including correlation hedging, beta hedging, and
dispersion trading, which is currently used throughout the financial
services industry, to make efficient markets in exchange-traded
products.\11\ This ability should permit market makers to make
efficient markets in an issue of Actively Managed Solution Shares
without precise knowledge of a Fund's underlying portfolio.
---------------------------------------------------------------------------
\11\ Statistical arbitrage enables a trader to construct an
accurate proxy for another instrument, allowing it to hedge the
other instrument or buy or sell the instrument when it is cheap or
expensive in relation to the proxy. Statistical analysis permits
traders to discover correlations based purely on trading data
without regard to other fundamental drivers. These correlations are
a function of differentials, over time, between one instrument or
group of instruments and one or more other instruments. Once the
nature of these price deviations have been quantified, a universe of
securities is searched in an effort to, in the case of a hedging
strategy, minimize the differential. Once a suitable hedging proxy
has been identified, a trader can minimize portfolio risk by
executing the hedging basket. The trader then can monitor the
performance of this hedge throughout the trade period making
correction where warranted. In the case of correlation hedging, the
analysis seeks to find a proxy that matches the pricing behavior of
a fund. In the case of beta hedging, the analysis seeks to determine
the relationship between the price movement over time of a fund and
that of another stock.
---------------------------------------------------------------------------
The Exchange understands that traders use statistical analysis to
derive correlations between different sets of instruments to identify
opportunities to buy or sell one set of instruments when it is
mispriced relative to the others. For Actively Managed Solution Shares,
market makers may use the knowledge of a fund's means of achieving its
investment objective, as described in the applicable fund registration
statement, together with the Proxy Portfolio Disclosures to manage a
market maker's quoting risk in connection with trading Fund Shares.
Market makers can then conduct statistical arbitrage between Proxy
Portfolio and shares of a fund, buying and selling one against the
other over the course of the trading day. They will evaluate how the
Proxy Portfolio performed in comparison to the price of a fund's
shares, and use that analysis as well as knowledge of risk metrics,
such as volatility and turnover, to provide a more efficient hedge.
Market makers have indicated to the Exchange that there will be
sufficient data to run a statistical analysis which will lead to
spreads being tightened substantially around NAV of a fund's shares.
This is similar to certain other existing exchange traded products (for
example, ETFs that invest in foreign securities that do not trade
during U.S. trading hours), in which spreads may be generally wider in
the early days of trading and then narrow as market
[[Page 397]]
makers gain more confidence in their real-time hedges.
Description of the Funds and the Trust
The Funds will be series of the American Century ETF Trust
(``Trust''), which will be registered with the Commission as an open-
end management investment company.\12\
---------------------------------------------------------------------------
\12\ The Trust is registered under the 1940 Act. The Trust filed
an application for an order under Section 6(c) of the 1940 Act for
exemptions from various provisions of the 1940 Act and rules
thereunder (File No. 812-15082), dated December 11, 2019 (``American
Century Application'' or ``Application''). The Shares will not be
listed on the Exchange until an order (``American Century Exemptive
Order'') under the 1940 Act has been issued by the Commission with
respect to the Application. The American Century Application states
that the exemptive relief requested by the Trust will apply to funds
of the Trust that comply with the terms and conditions of the
American Century Order and the order issued to Natixis ETF Trust II.
With respect to the Natixis ETF Trust II, see Seventh Amended and
Restated Application for an Order under Section 6(c) of the 1940 Act
for exemptions from various provisions of the 1940 Act and rules
thereunder (File No. 812-14870) (October 21, 2019 (``Natixis
Application''); the Commission notice regarding the Natixis
Application (Investment Company Release No. 33684 (File No. 812-
14870) November 14, 2019); and the Commission order under the 1940
Act granting the exemptions requested in the Natixis Application
(Investment Company Act Release No. 33711 (December 10, 2019))
(``Natixis Exemptive Order''). The American Century Application
incorporates the Natixis Exemptive Order by reference. Investments
made by the Funds will comply with the conditions set forth in the
American Century Application, American Century Exemptive Order and
Natixis Exemptive Order. The description of the operation of the
Trust and the Funds herein is based, in part, on the American
Century Application.
---------------------------------------------------------------------------
American Century Investment Management, Inc. (``Adviser'') will be
the investment adviser to the Funds. Foreside Fund Services, LLC will
act as the distributor and principal underwriter (``Distributor'') for
the Funds.
Proposed Commentary .03 to NYSE Arca Rule 8.602-E provides that, if
the investment adviser to the Investment Company issuing Actively
Managed Solution Shares is registered as a broker-dealer or is
affiliated with a broker-dealer such investment adviser will erect and
maintain a ``fire wall'' between the investment adviser and personnel
of the broker-dealer or broker-dealer affiliate, as applicable, with
respect to access to information concerning the composition and/or
changes to such Investment Company's Actual Portfolio or the applicable
Proxy Portfolio. Personnel who make decisions on the Investment
Company's Actual Portfolio or the applicable Proxy Portfolio
composition must be subject to procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
applicable Investment Company Actual Portfolio or Proxy Portfolio.
Proposed Commentary .03(a) is similar to Commentary .03(a)(i) and (iii)
to NYSE Arca Rule 5.2-E(j)(3); however, Commentary .03(a) in connection
with the establishment 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.\13\ The Adviser is not registered as a broker-dealer
but is affiliated with a broker-dealer. The Adviser has implemented and
will maintain a ``fire wall'' with respect to such broker-dealer
affiliate regarding access to information concerning the composition of
and/or changes to a Fund's portfolio.
---------------------------------------------------------------------------
\13\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel will be
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violations, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
---------------------------------------------------------------------------
In the event (a) the Adviser or any sub-adviser becomes registered
as a broker-dealer or becomes newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser is a registered broker-dealer, or
becomes affiliated with a broker-dealer, it will implement and maintain
a fire wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
Actively Managed Solution Shares
With respect to the Funds, according to the Application, the
Adviser believes Actively Managed Solution Shares would allow for
efficient trading of Shares through an effective Fund portfolio
transparency substitute and publication of related informative metrics,
while still shielding the identity of the full Fund portfolio contents
to protect a fund's performance-seeking strategies. Even though a Fund
would not publish its full portfolio contents daily, the Adviser
believes that the NYSE Proxy Portfolio Methodology would allow market
participants to assess the intraday value and associated risk of a
Fund's then-current portfolio (the ``Actual Portfolio''). As a result,
the Adviser believes that investors would be able to purchase and sell
Shares in the secondary market at prices that are at or close to their
NAV. An important part of the NYSE Proxy Portfolio Methodology would be
the creation of the Proxy Portfolio. As noted above, daily disclosure
of the Proxy Portfolio Disclosures would also allow a fund to permit
effective arbitrage, including hedging of investors' positions in
shares.
The Adviser believes Actively Managed Solution Shares would benefit
investors by allowing them to access a greater choice of active
portfolio managers in an ETF structure, which provides benefits over
traditional mutual funds such as brokerage account transactional
efficiencies, lower fund costs, tax efficiencies and intraday
liquidity.
The Funds
According to the Application, the Funds may hold only ``Permissible
Investments.'' As defined in the Application, Permissible Investments
include: Exchange-traded funds (``ETFs''), \14\ Exchange-traded notes
(``ETNs''),\15\ exchange-traded common stocks, common stocks listed on
a foreign exchange that trade on such exchange contemporaneously with
the Shares (``foreign common stocks''), exchange-traded preferred
stocks, exchange-traded American Depositary Receipts (``ADRs''),
exchange-traded real estate investment trusts, exchange-traded
commodity pools, exchange-traded metals trusts, exchange-traded
currency trusts and exchange-traded futures that trade
contemporaneously
[[Page 398]]
with Fund Shares, as well as cash and cash equivalents.\16\
---------------------------------------------------------------------------
\14\ For purposes of this filing, the term ``ETFs'' are
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a
national securities exchange.
\15\ For purposes of this filing, ETNs are securities such as
those listed on the Exchange under NYSE Arca Rule 5.2-E(j)(6).
\16\ For purposes of this filing, cash equivalents are those
securities and financial instruments enumerated in Commentary .01(c)
to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------
Principal Investments
American Century Mid Cap Growth Impact ETF
The Fund will seek long-term capital growth. Under normal market
conditions (as defined in proposed Rule 8.602-E(c)(6)), the Fund will
invest at least 80% of its net assets in securities of medium size
companies. Securities in which the Fund will generally invest include
the following: Exchange-traded common stocks; common stocks listed on a
foreign exchange that trade on such exchange contemporaneously with
Shares of the Fund, exchange-traded notes, exchange-traded preferred
stocks; and exchange-traded ADRs.
The portfolio managers look for stocks of medium-sized companies
they believe will increase in value over time, using proprietary
fundamental research. To implement this strategy, the portfolio
managers will make their investment decisions based primarily on their
analysis of individual companies, rather than on broad economic
forecasts. The Fund's portfolio managers will seek companies with
attractive returns on invested capital that are demonstrating or are
forecasted to demonstrate long-term business improvement. Analytical
indicators helping to identify or forecast signs of business
improvement could include accelerating earnings or revenue growth
rates, increasing cash flows, or other indications of the relative
future strength of a company's business. The portfolio managers will
then create an investment thesis for each security that considers both
this analysis and the United Nations Sustainable Development Goals
(``SDG''). These theses support the portfolio managers' decisions to
buy or hold the stocks of companies that meet their selection criteria
and sell the stocks of companies whose characteristics no longer meet
their criteria.
American Century Sustainable Equity ETF
The Fund will seek long-term capital growth, with income as a
secondary objective. Under normal market conditions, the Fund will
invest at least 80% of its net assets in equity securities. Equity
securities in which the Fund will generally invest include the
following: Exchange-traded common stocks; common stocks listed on a
foreign exchange that trade on such exchange contemporaneously with
Shares of the Fund, exchange-traded notes, exchange-traded preferred
stocks; and exchange-traded ADRs. The Fund will generally invest in
larger-sized companies using a quantitative model that combines
fundamental measures of a stock's value and growth potential. To
measure value, the Fund's portfolio managers may use ratios of stock
price-to-earnings and stock price-to-cash flow, among others. To
measure growth, the portfolio managers may use the rate of growth of a
company's earnings and cash flow and changes in its earnings estimates,
as well as other factors. The model also considers price momentum. The
portfolio managers also take environmental, social and governance
factors into account in making investment decisions.
Other Investments of the Funds
While a Fund, under normal market conditions, will invest at least
80% of its net assets in the securities described in ``Principal
Investments'' above, the Funds may hold their remaining assets in the
following securities and financial instruments.
The Funds may hold cash and cash equivalents.
For cash management purposes, the Funds may enter into E-mini S&P
500 futures contracts.\17\
---------------------------------------------------------------------------
\17\ E-mini S&P 500 futures contracts are traded on the Chicago
Mercantile Exchange, which is a member of the Intermarket
Surveillance Group (``ISG'').
---------------------------------------------------------------------------
Each of the Funds may invest in other investment companies,
including all 1940 Act-registered securities (in addition to ETFs).
The Funds may invest in any other security types included in the
definition of Permissible Investments.
The NYSE Proxy Portfolio Methodology
According to the Application, the goal of the NYSE Proxy Portfolio
Methodology is to permit a fund's Proxy Portfolio, during all market
conditions, to track closely the daily performance of a fund's Actual
Portfolio and minimize intra-day misalignment between the performance
of the Proxy Portfolio and the performance of the Actual Portfolio. The
Proxy Portfolio is designed to reflect the economic exposures and the
risk characteristics of the Actual Portfolio on any given trading day.
The Adviser and the Exchange believe that the Proxy Portfolio
Disclosures will enable arbitrageurs and market participants to use the
component securities and their weightings in the Proxy Portfolio to
calculate intraday values that approximate the value of the securities
in the Actual Portfolio and, based thereon, assess whether the market
price of the Shares is higher or lower than the approximate
contemporaneous value of the Actual Portfolio and engage in arbitrage
and hedging activities. These activities will help ensure that Fund
market prices remain close to a fund's NAV per Share. In addition, the
Proxy Portfolio Disclosures generated by the NYSE Proxy Portfolio
Methodology will allow for effective hedging activities by market
makers, which will facilitate narrow bid/ask spreads for the Shares.
The Proxy Portfolio
According to the Application, the Proxy Portfolio will be designed
to recreate the daily performance of the Actual Portfolio. This is
achieved by performing a ``Factor Model'' analysis of the Actual
Portfolio. The Factor Model is comprised of three sets of factors or
analytical metrics: market-based factors, fundamental factors, and
industry/sector factors.
With respect to Actively Managed Solution Shares, each fund
utilizing the NYSE Proxy Portfolio Methodology will have a universe of
securities (the ``Model Universe'') that will be used to generate a
fund's Proxy Portfolio. The Model Universe will be comprised of
securities that a fund can purchase and will be a financial index or
stated portfolio of securities from which Fund investments will be
selected. For example, the Model Universes could be the S&P 500 Index,
the Russell 1000 Index or the 3,000 largest U.S.-listed equity
securities. The results of the Factor Model analysis of a fund's Actual
Portfolio are then applied to a fund's Model Universe. The daily
rebalanced Proxy Portfolio is then generated as a result of this Model
Universe analysis with the Proxy Portfolio being a small sub-set of the
Model Universe. The Factor Model is applied to both the Actual
Portfolio and the Model Universe to construct a fund's Proxy Portfolio
that performs in a manner substantially identical to the performance of
its Actual Portfolio. The Proxy Portfolio will only include Permissible
Investments.
Hedging and Arbitrage Opportunities
According to the Application, the Adviser believes that a reliable
fund share hedging vehicle, where Proxy Portfolio performance is
closely correlated to the Actual Portfolio performance, will reduce the
risk of arbitrage trading and will encourage market making activity
that drives Share market trading price closer to NAV per Share of a
Fund. The Adviser believes that market makers for the Shares would
[[Page 399]]
determine bid/ask spreads for the Shares based primarily on the market
makers' costs to hedge their exposure to the Shares, much in the same
way that they determine bid/ask spreads for actively managed and
passive ETFs that are already listed and traded in the secondary
market. The prices and determination of effective hedging instruments
will be influenced by the expected ``Tracking Error'' (described below)
and the price differentials between the Proxy Portfolio, which is fully
disclosed, and the expected NAV per Share that will be calculated at
the end of the trading day.
According to the Application, historically, active ETFs have sought
to facilitate market making activity and arbitrage trading by providing
full daily portfolio transparency. The Adviser believes that market
making activity and arbitrage trading can be facilitated for a Fund by
the information proposed to be provided to the market including: The
identity and quantity of the components in the highly correlated Proxy
Portfolio, the Proxy Overlap, Tracking Error, and the last publicly-
disclosed Fund portfolio as well as the identity of a Fund's benchmark
index. The Adviser represents that, all other factors being equal, the
statistical analysis and case studies of Proxy Portfolio and Actual
Portfolio performance correlation indicate that market maker bid/ask
spreads for Shares should, on average, be similar to those of active
ETFs currently trading on exchanges.
More specifically, because the Proxy Portfolio will be constructed
to generate performance that is correlated to the performance of the
Actual Portfolio, the Adviser believes that arbitrageurs and market
participants will be able to use the component securities and their
weightings in the Proxy Portfolio to calculate intraday values that
approximate the value of the securities in the Actual Portfolio.
Arbitrageurs and market makers then would be able to assess whether the
market price of the Shares was higher or lower than the approximate
contemporaneous value of the Actual Portfolio securities, and to make
arbitrage and hedging decisions using the securities in the Proxy
Portfolio.\18\
---------------------------------------------------------------------------
\18\ According to the Application, the Adviser believes that it
is statistically impractical to replicate the Actual Portfolio in a
manner that would provide any trading advantage to a market
participant over a Fund. A Fund's daily disclosures, (e.g., Proxy
Portfolio Disclosures and other fund website information and
periodic disclosures) are insufficient to permit a third-party to
replicate a Fund's Actual Portfolio because the NYSE Proxy Portfolio
Methodology only uses lagged information regarding purchases and
sales occurring in the Actual Portfolio. Moreover, the daily
publication of the Creation Basket information is insufficient to
replicate the Actual Portfolio because it is based on the Proxy
Portfolio, the construction of which is discussed above. None of the
Proxy Portfolio Disclosures provide up-to-date, granular or frequent
enough information about the Actual Portfolio to permit replication
of the Actual Portfolio or Fund investment strategies on a current
basis.
---------------------------------------------------------------------------
At the end of each trading day, each Fund will calculate its Proxy
Overlap and the standard deviation over the past three months of the
daily proxy spread (i.e., the difference, in percentage terms, between
the Proxy Portfolio per share NAV and that of the Actual Portfolio at
the end of the trading day) (``Tracking Error'') and publish such
information before the opening of Fund Share trading in the Exchange's
Core Trading Session (normally (9:30 a.m. to 4:00 p.m., Eastern Time
(``E.T.'') each ``Business Day.'' \19\ The Proxy Overlap and Tracking
Error will provide additional information to the market making
community. In particular, they would help market participants evaluate
the risk that the performance of the Proxy Portfolio may deviate from
the performance of the portfolio holdings of a Fund. The Adviser
believes this information, alongside the periodic Fund disclosures and
the other Proxy Portfolio Disclosures, will provide the level of detail
necessary to foster efficient markets and support effective arbitrage
and hedging functions by giving them additional information as to the
intraday value and associated risk of the Actual Portfolio. As a
result, daily Tracking Error and Proxy Overlap publication (as
described below) should allow market participants to provide more
efficient markets and therefore narrower bid/ask spreads.
---------------------------------------------------------------------------
\19\ ``Business Day'' is defined in the Application to include
any day the Trust is open, including any day when it satisfies
redemption requests as required by Section 22(e) of the 1940 Act.
---------------------------------------------------------------------------
Daily Disclosures
With respect to the Funds, the following information will comprise
the ``Proxy Portfolio Disclosures'' and will be publicly available on
the Funds' website before the commencement of trading in Shares on each
Business Day:
The Proxy Portfolio. The Proxy Portfolio published on the
Funds' website each Business Day will include the following information
for each portfolio holding in the Proxy Portfolio: (1) Ticker symbol;
(2) CUSIP or other identifier; (3) description of holding; (4) quantity
of each security or other asset held; and (5) percentage weight of the
holding in the Proxy Portfolio.
The historical ``Tracking Error'' between the Fund's last
published NAV per share and the value, on a per Share basis, of the
Fund's Proxy Portfolio calculated as of the close of trading on the
prior Business Day.
The ``Proxy Overlap''. ``Proxy Overlap'' is the percentage
weight overlap between the holdings of the prior Business Day's Proxy
Portfolio compared to the Actual Portfolio's holdings that formed the
basis for the Fund's calculation of NAV at the end of the prior
Business Day. The Fund's website will note that the Proxy Overlap is
calculated based on the Proxy Portfolio and portfolio holdings as of
the prior Business Day. The Proxy Overlap will be calculated by taking
the lesser weight of each asset held in common between the Actual
Portfolio and the Proxy Portfolio and adding the totals.
Creations and Redemptions of Shares
According to the Application, the Creation Basket will be based on
the Proxy Portfolio, which is designed to approximate the value and
performance of the Actual Portfolio. All Creation Basket instruments
will be valued in the same manner as they are valued for purposes of
calculating a Fund's NAV, and such valuation will be made in the same
manner regardless of the identity of the purchaser or redeemer.
Further, the total consideration paid for the purchase or redemption of
a Creation Unit of Shares will be based on the NAV of such Fund, as
calculated in accordance with the policies and procedures set forth in
its registration statement.
As with the Proxy Portfolio, the Creation Basket will mask a Fund's
Actual Portfolio from full disclosure while at the same time maximize
benefits of the ETF structure to shareholders. In particular, the
Adviser believes that the ability of a Fund to take deposits and make
redemptions in-kind may aid in achieving a Fund's investment objectives
by allowing it to be more fully invested, minimizing cash drag, and
reducing flow-related trading costs. In-kind transactions may also
increase a Fund's tax efficiency and promote efficient secondary market
trading in Shares.
According to the Application, the Trust will offer, issue and sell
Shares of each Fund to investors only in Creation Units through the
Distributor on a continuous basis at the NAV per Share next determined
after an order in proper form is received. The NAV of each Fund is
expected to be determined as of 4:00 p.m. E.T. on each Business Day.
The Trust will sell and redeem Creation Units of each Fund only on a
Business Day. Creation Units of the Funds may be purchased and/or
redeemed entirely for cash, as permissible under the procedures
described below. The
[[Page 400]]
Adviser anticipates that the trading price of a Share will range from
$10 to $100.
In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Accordingly, except where the
purchase or redemption will include cash under the circumstances
specified below, purchasers will be required to purchase Creation Units
by making an in-kind deposit of specified instruments (``Deposit
Instruments''), and shareholders redeeming their Shares will receive an
in-kind transfer of specified instruments (``Redemption Instruments'').
The names and quantities of the instruments that constitute the Deposit
Instruments and the Redemption Instruments for a Fund (collectively,
the ``Creation Basket'') will be the same as the Fund's Proxy
Portfolio, except to the extent purchases and redemptions are made
entirely or in part on a cash basis.
If there is a difference between the NAV attributable to a Creation
Unit and the aggregate market value of the Creation Basket exchanged
for the Creation Unit, the party conveying instruments with the lower
value will also pay to the other an amount in cash equal to that
difference (the ``Cash Amount'').
Each Fund will adopt and implement policies and procedures
regarding the composition of its Creation Baskets. The policies and
procedures will set forth detailed parameters for the construction and
acceptance of baskets in compliance with the terms and conditions of
the Exemptive Order and that are in the best interests of the Fund and
its shareholders, including the process for any revisions to or
deviations from those parameters. The Fund's basket policies and
procedures would be covered by the Fund's compliance program and other
requirements under Rule 38a-1 under the 1940 Act.
A Fund that normally issues and redeems Creation Units in kind may
require purchases and redemptions to be made entirely or in part on a
cash basis. In such an instance, the Fund will announce, before the
open of trading in the Core Trading Session (normally, 9:30 a.m. to
4:00 p.m., E.T.) on a given Business Day, that all purchases, all
redemptions, or all purchases and redemptions on that day will be made
wholly or partly in cash. A Fund may also determine, upon receiving a
purchase or redemption order from an Authorized Participant, to have
the purchase or redemption, as applicable, be made entirely or in part
in cash. Each Business Day, before the open of trading on the Exchange,
a Fund will cause to be published through the National Securities
Clearing Corporation (``NSCC'') the names and quantities of the
instruments comprising the Creation Basket, as well as the estimated
Cash Amount (if any), for that day. The published Creation Basket will
apply until a new Creation Basket is announced on the following
Business Day, and there will be no intra-day changes to the Creation
Basket except to correct errors in the published Creation Basket.
All orders to purchase Creation Units must be placed with the
Distributor by or through an Authorized Participant, which is either:
(1) A ``participating party'' (i.e., a broker or other participant), in
the Continuous Net Settlement (``CNS'') System of the NSCC, a clearing
agency registered with the Commission and affiliated with the
Depository Trust Company (``DTC''), or (2) a DTC Participant, which in
any case has executed a participant agreement with the Distributor and
the transfer agent.
Timing and Transmission of Purchase Orders
All orders to purchase (or redeem) Creation Units, whether using
the NSCC Process or the DTC Process, must be received by the
Distributor no later than the NAV calculation time (``NAV Calculation
Time''), generally 4:00 p.m. E.T. on the date the order is placed
(``Transmittal Date'') in order for the purchaser (or redeemer) to
receive the NAV determined on the Transmittal Date. In the case of
custom orders, the order must be received by the Distributor
sufficiently in advance of the NAV Calculation Time in order to help
ensure that the Fund has an opportunity to purchase the missing
securities with the cash in lieu amounts or to sell securities to
generate the cash in lieu amounts prior to the NAV Calculation Time. On
days when the Exchange closes earlier than normal, a Fund may require
custom orders to be placed earlier in the day.
Availability of Information
The Funds' website will include on a daily basis, per Share for
each Fund, the prior Business Day's NAV and the Closing Price or Bid/
Ask Price, and a calculation of the premium/discount of the Closing
Price or Bid/Ask Price against such NAV.\20\ In addition, each Fund
will provide any other information on its website regarding premiums/
discounts that ETFs registered under the 1940 Act may be required to
provide. The website also will include the Proxy Portfolio, the Proxy
Overlap, Tracking Error, and bid/ask spread information for each
Fund.\21\ The Proxy Overlap and Tracking Error will be published on the
Funds' website before the opening of Fund Shares in the Core Trading
Session each Business Day.
---------------------------------------------------------------------------
\20\ The ``premium/discount'' refers to the premium or discount
to NAV at the end of a trading day and will be calculated based on
the last Bid/Ask Price or the Closing Price on a given trading day.
The ``Closing Price'' of Shares is the official closing price of the
Shares on the Fund's Exchange. The ``Bid/Ask Price'' is the midpoint
of the highest bid and lowest offer based upon the National Best Bid
and Offer as of the time of calculation of such Fund's NAV. The
``National Best Bid and Offer'' is the current national best bid and
national best offer as disseminated by the Consolidated Quotation
System or UTP Plan Securities Information Processor.
\21\ According to the Application, the Funds' website will
include any other information regarding premiums and discounts as
may be required for other ETFs under Rule 6c-11 under the 1940 Act
and will also disclose any information regarding the bid/ask spread
for a Fund as may be required for other ETFs under Rule 6c-11 under
the 1940 Act.
---------------------------------------------------------------------------
Investors can obtain a Fund's prospectus, statement of additional
information (``SAI''), Shareholder Reports, Form N-CSR, N-PORT and Form
N-CEN filed with the Commission. The prospectus, SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR, N-PORT, and Form N-CEN may be viewed on-
screen or downloaded from the Commission's website.
Updated price information for U.S. exchange-listed equity
securities is available through major market data vendors or securities
exchanges trading such securities. Quotation and last sale information
for the Shares, equity securities and ETFs will be available via the
Consolidated Tape Association (``CTA'') high-speed line. Price
information for cash equivalents is available through major market data
vendors
Investment Restrictions
The Shares of the Funds will conform to the initial and continued
listing criteria under proposed Rule 8.602-E. The Funds' holdings will
be limited to and consistent with Permissible Investments as described
in the Application.
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 a Fund.\22\ Trading in Shares of a Fund
[[Page 401]]
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. Trading in the Shares will be
subject to NYSE Arca Rule 8.602-E(d)(2)(B), which sets forth
circumstances under which Shares of a Fund will be halted.
---------------------------------------------------------------------------
\22\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------
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 in all trading sessions in accordance with
NYSE Arca Rule 7.34-E(a). 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.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.602-E. The Exchange represents that,
for initial and/or continued listing, the Funds will be in compliance
with Rule 10A-3 under the Act,\23\ as provided by NYSE Arca Rule 5.3-E.
The Exchange will obtain a representation from the issuer of the Shares
of a Fund that the NAV per Share of a Fund will be calculated daily and
will be made available to all market participants at the same time.
---------------------------------------------------------------------------
\23\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Exchange, as
well as cross-market surveillances administered by FINRA on behalf of
the Exchange, which are designed to detect violations of Exchange rules
and applicable federal securities laws.\24\ 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.
---------------------------------------------------------------------------
\24\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, exchange-traded
equity securities, and E-mini S&P 500 futures contracts with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading such securities and financial
instruments from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in such securities
and financial instruments from markets and other entities that are
members of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\25\
---------------------------------------------------------------------------
\25\ For a list of the current members of ISG, see
www.isgportal.org.
---------------------------------------------------------------------------
The Adviser will make available daily to FINRA and the Exchange the
portfolio holdings of a Fund in order to facilitate the performance of
the surveillances referred to above.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
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. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares;
(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; (4) how information regarding the Proxy
Portfolio will be 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 a Fund is subject to
various fees and expenses described in the applicable registration
statement. The Bulletin will discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the
Act. The Bulletin will also disclose that the NAV for the Shares will
be calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\26\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\27\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that proposed Rule 8.602-E is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading of Actively Managed
Solution Shares provide specific initial and continued listing criteria
required to be met by such securities.
Proposed Rule 8.602-E (d) sets forth initial and continued listing
criteria applicable to Actively Managed Solution Shares. Proposed Rule
8.602-E(d)(1)(A) provides that, for each series of Actively Managed
Solution Shares, the Exchange will establish a minimum number of
Actively Managed Solution Shares required to be outstanding at the time
of commencement of trading on the Exchange. In addition, proposed Rule
8.602-E(d)(1)(B) provides that the Exchange will obtain a
representation from the issuer of each series of Actively Managed
Solution Shares that the NAV per share for the series will be
calculated daily and that the NAV will be made available to all market
participants at the same time. Proposed Rule 8.602-E(d)(2) provides
that each series of Actively Managed Solution Shares will be listed and
traded subject to application of specified continued listing criteria.
Proposed Rule 8.602-E(d)(2)(A) provides that the Exchange will consider
the suspension of trading in, and will commence delisting proceedings
under Rule 5.5-E(m) of, a series of Actively Managed Solution Shares
under any of the circumstances specified in such rule.
Proposed Rule 8.602-E(d)(2)(B) provides that, upon notification to
the Exchange by the issuer of a series of Actively Managed Solution
Shares that the net asset value with respect to such series is not
disseminated to all market participants at the same time, it will halt
[[Page 402]]
trading in such series until such time as the net asset value is
available to all market participants.
Proposed Commentary .01 to NYSE Arca Rule 8.602-E provides that the
Exchange will file separate proposals under Section 19(b) of the
Securities Exchange Act of 1934 before the listing and trading of
Actively Managed Solution Shares. All statements or representations
contained in such rule filing regarding (a) the description of the
portfolio, (b) limitations on portfolio holdings, or (c) the
applicability of Exchange listing rules specified in such rule filing
will constitute continued listing requirements. An issuer of such
securities must notify the Exchange of any failure to comply with such
continued listing requirements.
Proposed Commentary .02 to NYSE Arca Rule 8.602-E provides that the
Exchange will implement and maintain written surveillance procedures
for Actively Managed Solution Shares. Proposed Commentary .03 provides
that, if the investment adviser to the Investment Company issuing
Actively Managed Solution Shares is registered as a broker-dealer or is
affiliated with a broker-dealer such investment adviser will erect and
maintain a ``fire wall'' between the investment adviser and personnel
of the broker-dealer or broker-dealer affiliate, as applicable, with
respect to access to information concerning the composition and/or
changes to such Investment Company's Actual Portfolio or the applicable
Proxy Portfolio. Personnel who make decisions on the Investment
Company's Actual Portfolio or the applicable Proxy Portfolio
composition must be subject to procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
applicable Investment Company Actual Portfolio or Proxy Portfolio.
With respect to the proposed listing and trading of Shares of the
Funds, 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 8.602-E. The
Funds' investments will be consistent with its investment objective and
will not be used to enhance leverage. The Exchange or FINRA, on behalf
of the Exchange, or both, will communicate as needed regarding trading
in the Shares, exchange-traded equity securities, and E-mini S&P 500
futures with other markets and other entities that are members of the
ISG, and the Exchange or FINRA, on behalf of the Exchange, or both, may
obtain trading information regarding trading such securities and
financial instruments from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in such
securities and financial instruments from markets and other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
The Exchange, after consulting with various Lead Market Makers that
trade ETFs on the Exchange, believes that market makers will be able to
make efficient and liquid markets priced near the NAV, and that market
makers have knowledge of a fund's means of achieving its investment
objective even without daily disclosure of a fund's underlying
portfolio. The Exchange believes that market makers will employ risk-
management techniques to make efficient markets in exchange traded
products.\28\ This ability should permit market makers to make
efficient markets in shares without knowledge of a fund's underlying
portfolio.
---------------------------------------------------------------------------
\28\ See note 11, supra.
---------------------------------------------------------------------------
The Exchange understands that traders use statistical analysis to
derive correlations between different sets of instruments to identify
opportunities to buy or sell one set of instruments when it is
mispriced relative to the others. For Actively Managed Solution Shares,
market makers utilizing statistical arbitrage use the knowledge of a
fund's means of achieving its investment objective, as described in the
applicable fund registration statement, as well as Proxy Portfolio
Disclosures to manage a market maker's quoting risk in connection with
trading fund shares. Market makers will then conduct statistical
arbitrage between the Proxy Portfolio and shares of a fund, buying and
selling one against the other over the course of the trading day.
Eventually, at the end of each day, they will evaluate how the Proxy
Portfolio performed in comparison to the price of a fund's shares, and
use that analysis as well as knowledge of risk metrics, such as
volatility and turnover, to provide a more efficient hedge.
The Lead Market Makers also indicated that, as with some other new
exchange-traded products, spreads would tend to narrow as market makers
gain more confidence in the accuracy of their hedges and their ability
to adjust these hedges in real-time and gain an understanding of the
applicable market risk metrics such as volatility and turnover, and as
natural buyers and sellers enter the market. Other relevant factors
cited by Lead Market Makers were that a fund's investment objectives
are clearly disclosed in the applicable prospectus, the existence of
quarterly portfolio disclosure and the ability to create shares in
creation unit size.
The real-time dissemination of the identity and quantity of Proxy
Portfolio component investments, and historical tracking error (as
referenced above), together with the right of Authorized Participants
to create and redeem each day at the NAV, will be sufficient for market
participants to value and trade shares in a manner that will not lead
to significant deviations between the Shares' Bid/Ask Price and NAV.
The pricing efficiency with respect to trading a series of Actively
Managed Solution Shares will generally rest on the ability of market
participants to arbitrage between the shares and a fund's portfolio, in
addition to the ability of market participants to assess a fund's
underlying value accurately enough throughout the trading day in order
to hedge positions in shares effectively. Professional traders can buy
shares that they perceive to be trading at a price less than that which
will be available at a subsequent time and sell shares they perceive to
be trading at a price higher than that which will be available at a
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to shares by the Exchange,
off-exchange market makers, firms that specialize in electronic
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being
``long'' or ``short'' shares through such trading and will hedge such
risk wholly or partly by simultaneously taking positions in correlated
assets \29\ or by netting the exposure against other, offsetting
trading positions--much as such firms do with existing ETFs and other
equities. Disclosure of a fund's investment objective and principal
investment strategies in its prospectus and SAI should permit
professional
[[Page 403]]
investors to engage easily in this type of hedging activity.
---------------------------------------------------------------------------
\29\ Price correlation trading is used throughout the financial
industry. It is used to discover both trading opportunities to be
exploited, such as currency pairs and statistical arbitrage, as well
as for risk mitigation such as dispersion trading and beta hedging.
These correlations are a function of differentials, over time,
between one or multiple securities pricing. Once the nature of these
price deviations have been quantified, a universe of securities is
searched in an effort to, in the case of a hedging strategy,
minimize the differential. Once a suitable hedging basket has been
identified, a trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the performance of this
hedge throughout the trade period, making corrections where
warranted.
---------------------------------------------------------------------------
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 an
issue of Actively Managed Solution Shares that the NAV per Share of a
Fund will be calculated daily and that the NAV will be made available
to all market participants at the same time. Investors can also obtain
a fund's SAI, shareholder reports, and its Form N-CSR, Form N-PORT and
Form N-CEN. A Fund's SAI and shareholder reports will be available free
upon request from the applicable Fund, and those documents and the Form
N-CSR, Form N-PORT and Form N-CEN may be viewed on-screen or downloaded
from the Commission's website. In addition, with respect to each Fund,
a large amount of information will be publicly available regarding the
Funds and the Shares, thereby promoting market transparency. Quotation
and last sale information for the Shares will be available via the CTA
high-speed line. The website for the Funds will include a form of the
prospectus for each Fund that may be downloaded, and additional data
relating to NAV and other applicable quantitative information, updated
on a daily basis. Moreover, prior to the commencement of trading, the
Exchange will inform its ETP Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Trading in Shares of the Funds will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12-E have been reached or because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. Trading in the Shares will be
subject to NYSE Arca Rule 8.602-E (d)(2)(C), which sets forth
circumstances under which Shares of a Fund will be halted. In addition,
as noted above, investors will have ready access to the Proxy Portfolio
Disclosures and quotation and last sale information for the Shares. The
Shares will conform to the initial and continued listing criteria under
proposed Rule 8.602-E.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding quotation and last sale
information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes the
proposed rule change would permit listing and trading of another type
of actively-managed ETF that has characteristics different from
existing actively-managed and index ETFs and would introduce additional
competition among various ETF products to the benefit of investors.
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-2019-96 on the subject line.
Paper Comments
Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-NYSEArca-2019-96. 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-2019-96 and should be submitted
on or before January 24, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------
\30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28415 Filed 1-2-20; 8:45 am]
BILLING CODE 8011-01-P
