Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Four Series of Active Proxy Portfolio Shares Issued by T. Rowe Price Exchange-Traded Funds, Inc. Under Proposed NYSE Arca Rule 8.601-E, 19554-19562 [2020-07228]

Download as PDF 19554 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices proposed rule change should be disapproved. The 45th day after publication of the Notices for these proposed rule changes is April 3, 2020. The Commission is extending this 45day period. The Commission find that it is appropriate to designate a longer period within which to take action on the proposed rule changes so that it has sufficient time to consider the proposed rule changes and the comment letters. Accordingly, pursuant to Section 19(b)(2) of the Act,6 the Commission designates May 18, 2020, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to approve or disapprove, the proposed rule changes (File Nos. SR–NYSE–2020– 05, SR–NYSECHX–2020–02, SR– NYSEAMER–2020–05, SR–NYSEArca– 2020–08, SR–NYSENAT–2020–03). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–07232 Filed 4–6–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88535; File No. SR– NYSEArca–2019–92] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Four Series of Active Proxy Portfolio Shares Issued by T. Rowe Price Exchange-Traded Funds, Inc. Under Proposed NYSE Arca Rule 8.601–E khammond on DSKJM1Z7X2PROD with NOTICES April 1, 2020. I. Introduction On December 23, 2019, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade the following Active Proxy Portfolio Shares under proposed NYSE Arca Rule 8.601–E: T. Rowe Price Blue Chip Growth ETF, T. Rowe Price Dividend Growth ETF, T. 6 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(31). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 7 17 VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 Rowe Price Growth Stock ETF, and T. Rowe Price Equity Income ETF (‘‘Funds’’).3 The proposed rule change was published for comment in the Federal Register on January 3, 2020.4 On February 13, 2020, pursuant to Section 19(b)(2) of the Exchange Act,5 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.6 On March 31, 2020, the Exchange filed Amendment No. 1 to the proposed rule change, which replaced and superseded the proposed rule change as originally filed.7 The Commission has received no comments on the proposed rule change. The Commission is publishing this notice and order to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons and to institute proceedings pursuant to Section 19(b)(2)(B) of the Act 8 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1. 92 as originally filed and supersedes such filing in its entirety. The proposed change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. The Exchange’s Description of the Proposed Rule Change, as Modified by Amendment No. 1 1. Purpose The Exchange has proposed to add new NYSE Arca Rule 8.601–E for the purpose of permitting the listing and trading, or trading pursuant to unlisted trading privileges (‘‘UTP’’), of Active Proxy Portfolio Shares, which are securities issued by an actively managed open-end investment management company.9 Proposed Commentary .02 to Rule 8.601–E would require the Exchange to file separate proposals under Section 19(b) of the Act before listing and trading any series of Active Proxy Portfolio Shares on the Exchange. Therefore, the Exchange is submitting this proposal in order to list and trade shares (‘‘Shares’’) of the T. Rowe Price Blue Chip Growth ETF; T. Rowe Price Dividend Growth ETF; T. Rowe Price Growth Stock ETF; and T. Rowe Price The Exchange proposes to list and trade shares of the following under proposed NYSE Arca Rule 8.601–E (Active Proxy Portfolio Shares): T. Rowe Price Blue Chip Growth ETF; T. Rowe Price Dividend Growth ETF; T. Rowe Price Growth Stock ETF; and T. Rowe Price Equity Income ETF. This Amendment No. 1 to SR–NYSEArca– 2019–92 replaces SR–NYSEArca–2019– 3 The Exchange originally proposed to adopt NYSE Arca Rule 8.601–E to permit the Exchange to list and trade Managed Portfolio Securities, and to list and trade shares of the Funds under proposed Exchange Rule 8.601–E (Managed Portfolio Securities). In Amendment No. 1, the Exchange removed the proposal to adopt proposed NYSE Arca Rule 8.601–E (Managed Portfolio Securities) and revised the proposal to seek to list and trade shares of the Funds under proposed NYSE Arca Rule 8.601–E (Active Proxy Portfolio Shares). See Amendment No. 1, infra note 7. See also Amendment 2 to SR–NYSEArca–2019–95 (proposing to adopt NYSE Arca Rule 8.601–E to list and trade Active Proxy Portfolio Shares, available on the Commission’s website at https:// www.sec.gov/comments/sr-nysearca-2019-95/ srnysearca201995.htm). 4 See Securities Exchange Act Release No. 87865 (Dec. 30, 2019), 85 FR 380 (‘‘Notice’’). 5 15 U.S.C. 78s(b)(2). 6 See Securities Exchange Act Release No. 88197, 85 FR 9887 (Feb. 20, 2020). The Commission designated April 2, 2020, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. 7 Amendment No. 1 is available on the Commission’s website at https://www.sec.gov/. 8 15 U.S.C. 78s(b)(2)(B). PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 III. 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 Statutory Basis for, the Proposed Rule Change 9 See Amendment 2 to SR–NYSEArca–2019–95, filed on March 31, 2020. Proposed Rule 8.601– E(c)(1) provides that the term ‘‘Active Proxy Portfolio Share’’ means a security that (a) is issued by 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 Creation Unit, or multiples thereof, in return for a deposit by the purchaser of the Proxy Portfolio and/or cash with a value equal to the next determined net asset value (‘‘NAV’’); (c) when aggregated in the same specified minimum number of Active Proxy Portfolio Shares, or multiples thereof, may be redeemed at a holder’s request in return for a transfer of the Proxy Portfolio and/or cash to the holder by the issuer with a value equal to the next determined NAV; and (d) the portfolio holdings for which are disclosed within at least 60 days following the end of every fiscal quarter. E:\FR\FM\07APN1.SGM 07APN1 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices Equity Income ETF (each a ‘‘Fund’’ and, collectively, the ‘‘Funds’’) under proposed Rule 8.601–E. khammond on DSKJM1Z7X2PROD with NOTICES Key Features of Active Proxy Portfolio Shares While funds issuing Active Proxy Portfolio Shares will be activelymanaged and, to that extent, will be similar to Managed Fund Shares listed and traded under NYSE Arca Rule 8.600–E,10 Active Proxy Portfolio Shares differ from Managed Fund Shares in the following important respects. First, in contrast to Managed Fund Shares, for which a fund’s ‘‘Disclosed Portfolio’’ is required to be disseminated at least once daily,11 the full portfolio holdings for a series of Active Proxy Portfolio Shares will not be made available on a daily basis. Rather, a fund’s ‘‘Actual Portfolio’’ 12 will be publicly disclosed within at least 60 days following the end of every fiscal quarter in accordance and in compliance with the portfolio 10 The Commission has previously approved listing and trading on the Exchange of a number of issues of Managed Fund Shares under Rule 8.600– E. A Managed Fund Share is a security that represents an interest in an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as an open-end investment company or similar entity that invests in a portfolio of securities selected by its investment adviser consistent with its investment objectives and policies. In contrast, an open-end investment company that issues Investment Company Units, listed and traded on the Exchange under NYSE Arca Rule 5.2–E(j)(3), seeks to provide investment results that correspond generally to the price and yield performance of a specific foreign or domestic stock index, fixed income securities index or combination thereof. 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 activelymanaged funds of the WisdomTree Trust); 76871 (January 11, 2016), 81 FR 2261 (January 15, 2016) (SR–NYSEArca–2015–114) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to List and Trade Shares of the Market Vectors Dynamic Put Write ETF under NYSE Arca Equities Rule 8.600); 86636 (August 12, 2019), 84 FR 42030 (August 16, 2019) (SR– NYSEArca–2018–98) (Notice of Filing of Amendment No. 4 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 4, to List and Trade Shares of the iShares Commodity Multi-Strategy ETF under NYSE Arca Rule 8.600–E). 11 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 NAV at the end of the Business Day. NYSE Arca Rule 8.600–E(d)(2)(B)(i) requires that the Disclosed Portfolio be disseminated at least once daily and be made available to all market participants at the same time. 12 Proposed Rule 8.601–E(c)(2) provides that term ‘‘Actual Portfolio’’ means the identities and quantities of the securities and other assets held by the Investment Company that shall form the basis for the Investment Company’s calculation of NAV at the end of the business day. VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 holdings disclosure requirements applicable to other registered open-end funds, including traditional mutual funds.13 Second, in connection with the creation and redemption of Active Proxy Portfolio Shares, such creation or redemption may be in exchange for a fund’s Proxy Portfolio and/or cash with a value equal to the next determined NAV. The Proxy Portfolio is designed to serve as a pricing signal for low-risk arbitrage trades in shares of Active Proxy Portfolio Shares generally. Market makers have indicated to the Exchange that there will be sufficient data to engage in arbitrage trades in Active Proxy Portfolio Shares with accuracy and minimal risk. In addition, market makers have indicated that they are incented to engage in arbitrage trades when the risk of the trade is low. However, they cannot know with any certainty the precise risk of an arbitrage trade on the current or any future Business Day. Rather, they must use information from the past to evaluate the likely risk of an arbitrage trade executed today or in the future. More specifically, it is understood that they must use historical data about the performance of a fund whose shares are being arbitraged and the performance of the fund’s Proxy Portfolio. From such data, arbitrageurs may be able to develop sufficient insight into the risk of an arbitrage trade to evaluate and price it into the trade. Description of the Funds The Shares of each Fund will be issued by T. Rowe Price ExchangeTraded Funds, Inc. (‘‘Issuer’’), a corporation organized under the laws of the State of Maryland, which may be comprised of multiple separate series, and registered with the Commission as an open-end management investment company.14 The investment adviser for 13 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 the Fund’s fiscal quarter will be made publicly available 60 days after the end of the Fund’s fiscal quarter. Form N– PORT requires reporting of a fund’s complete portfolio holdings on a position-by-position basis on a quarterly basis within 60 days after fiscal quarter end. Investors can obtain a fund’s Statement of Additional Information, its Shareholder Reports, its Form N–CSR, filed twice a year, and its Form N–CEN, filed annually. A fund’s statement of additional information (‘‘SAI’’) and Shareholder Reports are available free upon request from the Investment Company, and those documents and the Form N–PORT, Form N–CSR, and Form N–CEN may be viewed on-screen or downloaded from the Commission’s website at www.sec.gov. 14 The Issuer is registered under the 1940 Act. On December 11, 2019, the Issuer filed a registration PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 19555 the Funds will be T. Rowe Price Associates, Inc. (‘‘Adviser’’). State Street Bank and Trust Co. will serve as the Funds’ transfer agent, administrator and custodian (the ‘‘Transfer Agent’’, ‘‘Administrator’’, or ‘‘Custodian’’). T. Rowe Price Investment Services, Inc., a registered broker dealer and an affiliate of the Adviser, will serve as the distributor (‘‘Distributor’’) of the Shares. Proposed Commentary .04 to NYSE Arca Rule 8.601–E provides that, if the investment adviser to the Investment Company issuing Active Proxy Portfolio 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 and/or Proxy Portfolio. Any person related to the investment adviser or Investment Company who makes decisions pertaining to the Investment Company’s portfolio composition or has access to non-public information regarding the Investment Company’s Actual Portfolio or changes thereto or the Proxy Portfolio must be subject to procedures reasonably designed to prevent the use and dissemination of material nonpublic information regarding the Actual Portfolio or changes thereto or the Proxy Portfolio. Proposed Commentary .04 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.15 statement on Form N–1A under the Securities Act of 1933 Act (‘‘1933 Act’’) (15 U.S.C. 77a) and under the 1940 Act relating to the Funds (File Nos. 333– 235450 and 811–23494) (the ‘‘Registration Statement’’). The Issuer filed a seventh amended 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– 14214), dated October 16, 2019 (‘‘Application’’). On December 10, 2019, the Commission issued an order (‘‘Exemptive Order’’) under the 1940 Act granting the exemptions requested in the Application (Investment Company Act Release No. 33713, December 10, 2019). Investments made by the Funds will comply with the conditions set forth in the Application and the Exemptive Order. The description of the operation of the Funds herein is based, in part, on the Registration Statement and the Application. 15 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 E:\FR\FM\07APN1.SGM Continued 07APN1 19556 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices Commentary .04 is also similar to Commentary .06 to Rule 8.600–E related to Managed Fund Shares, except that proposed Commentary .04 relates to establishment and maintenance of a ‘‘fire wall’’ between the investment adviser and the broker-dealer applicable to an Investment Company’s Actual Portfolio and/or Proxy Portfolio, and not just to the underlying portfolio, as is the case with Managed Fund Shares. The Adviser is not registered as a broker-dealer but is affiliated with a broker-dealer and has implemented and will maintain a ‘‘fire wall’’ with respect to such broker-dealer affiliate regarding access to information concerning the composition and/or changes to a Fund’s portfolio. In the event (a) the Adviser becomes registered as a broker-dealer or newly affiliated with a broker-dealer, or (b) any new adviser is a registered broker-dealer or becomes affiliated with a broker-dealer, it will implement and maintain a fire wall with respect to its relevant personnel or broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. khammond on DSKJM1Z7X2PROD with NOTICES Description of the Funds According to the Application, for each Fund, the Adviser will identify its Proxy Portfolio, which could be a broad-based securities index (e.g., the S&P 500) or a Fund’s recently disclosed portfolio holdings. The Proxy Portfolio will be determined such that at least 80% of its total assets will overlap with the portfolio weightings of a Fund. Although the Adviser may change a Fund’s Proxy Portfolio at any time, the Adviser currently does not expect to 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. VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 make such changes more frequently than quarterly (for example, in connection with the release of a Fund’s portfolio holdings). The Adviser will publish a new Proxy Portfolio for a Fund only before the commencement of trading of such Fund’s Shares on that ‘‘Business Day,’’ 16 and the Adviser will not make intra-day changes to the Proxy Portfolio except to correct errors in the published Proxy Portfolio. For the reasons described herein, the Adviser believes that each Fund’s Proxy Portfolio will be a high-quality hedging vehicle, the value of which will provide arbitrageurs with a high quality pricing signal. The Fund’s holdings will conform to the permissible investments as set forth in the Application and Exemptive Order as described below in ‘‘Other Characteristics of the Funds,’’ and the holdings will be consistent with all requirements in the Application and Exemptive Order. T. Rowe Price Blue Chip Growth ETF The investment objective of the T. Rowe Price Blue Chip Growth ETF will be to seek to provide long-term capital growth. Income will be a secondary objective. The Fund will normally invest at least 80% of its net assets in the common stocks of large and medium-sized bluechip growth companies that are listed in the United States. These are companies that, in the Adviser’s view, are well established in their industries and have the potential for above-average earnings growth. The Fund generally will invest in U.S. and foreign exchange-traded securities, U.S. exchange-traded futures, cash and cash equivalents. T. Rowe Price Dividend Growth ETF The investment objective of the T. Rowe Price Dividend Growth ETF will be to seek dividend income and longterm capital growth. The Fund normally will invest at least 65% of the Fund’s total assets in stocks listed in the United States, with an emphasis on stocks that have a strong track record of paying dividends or that are expected to increase their dividends over time. The Fund generally will invest in U.S. and foreign exchangetraded securities, U.S. exchange-traded futures cash, and cash equivalents. T. Rowe Price Growth Stock ETF The investment objective of the T. Rowe Price Growth Stock ETF will be to seek long-term capital growth. 16 ‘‘Business Day’’ is defined to mean any day that the Exchange is open, including any day when a Fund satisfies redemption requests as required by section 22(e) of the 1940 Act. PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 The Fund will normally invest at least 80% of its net assets in the common stocks of a diversified group of growth companies. While it may invest in companies of any market capitalization, the Fund generally seeks investments in stocks of large-capitalization companies with one or more of the following characteristics: Strong cash flow and an above-average rate of earnings growth; the ability to sustain earnings momentum during economic downturns; and occupation of a lucrative niche in the economy and the ability to expand even during times of slow economic growth. The Fund generally will invest in U.S. and foreign exchange-traded securities, U.S. exchange-traded futures, cash and cash equivalents. T. Rowe Price Equity Income ETF The investment objective of the T. Rowe Price Equity Income ETF will be to seek a high level of dividend income and long-term capital growth. The Fund will normally invest at least 80% of its net assets in common stocks listed in the United States, with an emphasis on large-capitalization stocks that have a strong track record of paying dividends or that are believed to be undervalued. The Fund typically will employ a ‘‘value’’ approach in selecting investments. The Fund generally will invest in U.S. and foreign exchangetraded securities, U.S. exchange-traded futures, cash and cash equivalents. Other Characteristics of the Funds With respect to the Funds, Shares will generally be issued and redeemed primarily on an in-kind basis, but may include cash under certain circumstances as described in the Application.17 With respect to the Funds, in order to provide a hedging vehicle whose performance reliably and highly correlates to the NAV of the relevant Fund, and that is liquid and trades synchronously (that is, during the hours of the Exchange’s Core Trading Session, normally 9:30 a.m. to 4:00 p.m. E.T.) with the Shares of the Funds, a Fund’s Actual Portfolio will (a) be listed on an exchange and the primary trading session of such exchange will trade synchronously with the Exchange’s Core Trading Session, as defined in Rule 7.34–E(a); (b) with respect to exchangetraded futures, be listed on a U.S. futures exchange; or (c) consist of cash and cash equivalents. Consistent with these representations, each Fund will only invest in exchangetraded common stocks, common stocks 17 See E:\FR\FM\07APN1.SGM note 22, infra. 07APN1 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices listed on a foreign exchange that trade on such exchange synchronously with the Shares (‘‘foreign common stocks’’), ETFs,18 exchange-traded notes (‘‘ETNs’’),19 exchange-traded preferred stocks, exchange-traded American Depositary Receipts (‘‘ADRs’’),20 exchange-traded real estate investment trusts, exchange-traded commodity pools, exchange-traded metals trusts, exchange-traded currency trusts and exchange-traded futures contracts 21 (collectively, ‘‘exchange-traded instruments’’) that trade synchronously with the Fund’s Shares, as well as cash and cash equivalents. For purposes of this filing, cash equivalents are shortterm U.S. Treasury securities, government money market funds, and repurchase agreements. The Proxy Portfolio will not include any asset that is ineligible to be in the Actual Portfolio of the applicable Fund. Investment Restrictions The Shares of each Fund will conform to the initial and continued listing criteria under proposed Rule 8.601–E. Each Fund’s investments will be consistent with its investment objective and with the applicable exemptive order or no-action relief granted by the Commission or Commission staff to the Issuer with respect to the Funds. Purchases and Redemptions khammond on DSKJM1Z7X2PROD with NOTICES The Issuer will offer, issue and sell Shares of each Fund to investors only in Creation Units through the Distributor 18 For purposes of this filing, ETFs include Investment Company Units (as described in NYSE Arca Rule 5.2–E (j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca Rule 8.100– E); and Managed Fund Shares (as described in NYSE Arca Rule 8.600–E). All ETFs will be listed and traded in the U.S. on a national securities exchange. While the Funds may invest in inverse ETFs, the Funds will not invest in leveraged (e.g., 2X, –2X, 3X or –3X) ETFs. 19 ETNs are securities as described in NYSE Arca Rule 5.2–E(j)(6) (Equity Index-Linked Securities, Commodity-Linked Securities, Currency-Linked Securities, Fixed Income Index-Linked Securities, Futures-Linked Securities and Multifactor IndexLinked Securities). All ETNs will be listed and traded in the U.S. on a national securities exchange. The Funds will not invest in inverse or leveraged (e.g., 2X, –2X, 3X or –3X) ETNs. 20 ADRs are issued by a U.S. financial institution (a ‘‘depositary’’) and evidence ownership in a security or pool of securities issued by a foreign issuer that have been deposited with the depositary. Each ADR is registered under the Securities Act of 1933 (‘‘1933 Act’’) (15 U.S.C. 77a) on Form F–6. ADRs in which a Fund may invest will trade on an exchange. 21 Exchange-traded futures are U.S. listed futures contracts where the futures contract’s reference asset is an asset that the Fund could invest in directly, or in the case of an index future, is based on an index of a type of asset that the Fund could invest in directly, such as an S&P 500 index futures contract. All futures contracts that a Fund may invest in will be traded on a U.S. futures exchange. VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 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 Issuer will sell and redeem Creation Units of each Fund only on a Business Day. A Creation Unit will consist of at least 5,000 Shares. 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 a Fund’s designated Proxy Portfolio, except to the extent that a Fund requires purchases and redemptions to be made entirely or in part on a cash basis, as described below. If there is a difference between the net asset value 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 that are in the best interests of a Fund, including the process for any revisions to or deviations from, those parameters. 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.22 In such an instance, the Fund will announce, before the open of trading 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 (as defined below), to have the purchase or 22 The Adviser represents that, to the extent the Issuer effects the creation or redemption of Shares in cash, such transactions will be effected in the same manner for all ‘‘Authorized Participants’’ (as defined below). PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 19557 redemption, as applicable, be made entirely or in part in cash. Each Business Day, before the open of trading on the Exchange, the 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. The Proxy Portfolio will be published each Business Day regardless of whether a Fund decides to issue or redeem Creation Units entirely or in part on a cash basis. All orders to purchase Creation Units must be placed with the Distributor by or through an Authorized Participant, which is a member or participant of a clearing agency registered with the Commission, which has a written agreement with a Fund or one of its service providers that allows the Authorized Participant to place orders for the purchase and redemption of Creation Units. Except as otherwise permitted, no promoter, principal underwriter (e.g., the Distributor) or affiliated person of a Fund, or any affiliated person of such person, will be an Authorized Participant in Shares. Validly submitted orders to purchase or redeem Creation Units on each Business Day will be accepted until the end of the Core Trading Session (the ‘‘Order Cut-Off Time’’), generally 4:00 p.m. E.T., on the Business Day that the order is placed (the ‘‘Transmittal Date’’). All Creation Unit orders must be received by the Distributor no later than the Order Cut-Off Time in order to receive the NAV determined on the Transmittal Date. When the Exchange closes earlier than normal, a Fund may require orders for Creation Units to be placed earlier in the Business Day. Availability of Information The Funds’ website, which will be publicly available at no charge prior to the public offering of Shares, will include a prospectus for each Fund that may be downloaded. In addition, the website will include the following: • Quantitative information updated on a daily basis, including, on a per Share basis for each Fund, the prior Business Day’s NAV and the Closing Price 23 or Bid/Ask Price of Shares, and 23 The ‘‘Closing Price’’ of Shares is the official closing price of Shares on the Exchange’s Core Trading Session. E:\FR\FM\07APN1.SGM 07APN1 19558 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices a calculation of the premium/discount of the Closing Price or Bid/Ask Price 24 against such NAV and any other information regarding premiums and discounts as may be required for other ETFs under rule 6c–11 under the 1940 Act. The website will also disclose any information regarding the bid-ask spread for each Fund as may be required for other ETFs under rule 6c–11 under the 1940 Act. • Each Fund’s Proxy Portfolio. • Bid-ask spread information for each Fund. Each Fund’s website also will disclose the information required under proposed Rule 8.601–E (c)(3).25 Investors interested in a particular Fund can also obtain its prospectus, statement of additional information (‘‘SAI’’), shareholder reports, Form N– CSR and Form N–CEN. Investors may access complete portfolio schedules for the Funds on Form N–CSR and Form N– PORT. The prospectus, SAI and shareholder reports will be available free upon request from the Funds, and those documents and the Form N–CSR and Form N–CEN may be viewed onscreen or downloaded from the Commission’s website at https:// www.sec.gov. Information regarding the market price of Shares and trading volume in Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. The previous day’s closing price and trading volume information may be published daily in the financial section of newspapers. khammond on DSKJM1Z7X2PROD with NOTICES Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund.26 Trading in Shares of the 24 The ‘‘Bid/Ask Price’’ is the midpoint of the highest bid and lowest offer based on the National Best Bid and Offer at the time that a Fund’s NAV is calculated. 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. 25 See note 9, supra. Proposed Rule 8.601–E (c)(3) provides that the website for each series of Active Proxy Portfolio Shares shall disclose the information regarding the Proxy Portfolio as provided in the exemptive relief pursuant to the Investment Company Act of 1940 applicable to such series, including the following, to the extent applicable: (i) Ticker symbol; (ii) CUSIP or other identifier; (iii) Description of holding; (iv) Quantity of each security or other asset held; and (v) Percentage weighting of the holding in the portfolio. 26 See NYSE Arca Rule 7.12–E. VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 Fund will be halted if the circuit breaker parameters in NYSE Arca Rule 7.12–E have been reached. Trading also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. Trading in the Shares will be subject to NYSE Arca Rule 8.601– E(d)(2)(D), which sets forth circumstances under which Shares of the Fund will be halted. Specifically, proposed Rule 8.601– E(d)(2)(D) provides that the Exchange may consider all relevant factors in exercising its discretion to halt trading in a series of Active Proxy Portfolio Shares. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the series of Active Proxy Portfolio Shares inadvisable. These may include: (a) The extent to which trading is not occurring in the securities and/or the financial instruments composing the portfolio; or (b) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. In addition, upon notification to the Exchange by the issuer of a series of Active Proxy Portfolio Shares, that the NAV, Proxy Portfolio or Actual Portfolio with respect to a series of Active Proxy Portfolio Shares is not disseminated to all market participants at the same time, the Exchange shall halt trading in such series until such time as the NAV, Proxy Portfolio or Actual Portfolio is available to all market participants at the same time. The issuer has represented to the Exchange that it will provide the Exchange with prompt notification upon the existence of any such condition or set of conditions. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Shares will trade on the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with NYSE Arca Rule 7.34–E (Opening, Core, and Late Trading Sessions). The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in NYSE Arca Rule 7.6–E, the minimum price variation (‘‘MPV’’) for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is $0.0001. The Shares will conform to the initial and continued listing criteria under NYSE Arca Rule 8.601–E. PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 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. The Exchange has appropriate rules to facilitate trading in the Shares during all trading sessions. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by the Financial Industry Regulatory Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.27 The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. The surveillances referred to above generally focus on detecting securities trading outside their normal patterns, which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. FINRA, on behalf of the Exchange, or the Exchange or both will communicate as needed regarding trading in the Shares, certain exchange-traded equities, ETFs, ETNs and futures with other markets and other entities that are members of the Intermarket Surveillance Group (‘‘ISG’’), and FINRA, on behalf of the Exchange, or 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.28 The Funds’ Adviser will make available to FINRA and the Exchange the portfolio holdings of each Fund in order to facilitate the performance of the surveillances referred to above on a confidential basis. 27 FINRA surveils trading on the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 28 For a list of the current members of ISG, see www.isgportal.org. E:\FR\FM\07APN1.SGM 07APN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Proposed Commentary .03 to NYSE Arca Rule 8.601–E provides that the Exchange will implement and maintain written surveillance procedures for Active Proxy Portfolio Shares. As part of these surveillance procedures, the Investment Company’s investment adviser will upon request by the Exchange or FINRA, on behalf of the Exchange, make available to the Exchange or FINRA the daily portfolio holdings of each series of Active Proxy Portfolio Shares. The Exchange believes that the ability to access the information on an as needed basis will provide it with sufficient information to perform the necessary regulatory functions associated with listing and trading series of Active Proxy Portfolio Shares on the Exchange, including the ability to monitor compliance with the initial and continued listing requirements as well as the ability to surveil for manipulation of Active Proxy Portfolio Shares. The Exchange will utilize its existing procedures to monitor issuer compliance with the requirements of proposed Rule 8.601–E. For example, the Exchange will continue to use intraday alerts that will notify Exchange personnel of trading activity throughout the day that may indicate that unusual conditions or circumstances are present that could be detrimental to the maintenance of a fair and orderly market. The Exchange will require from the issuer of a series of Active Proxy Portfolio Shares, upon initial listing and periodically thereafter, a representation that it is in compliance with Rule 8.601–E. The Exchange notes that proposed Commentary .01 to Rule 8.601–E would require an issuer of Active Proxy Portfolio Shares to notify the Exchange of any failure to comply with the continued listing requirements of Rule 8.601–E. In addition, the Exchange will require issuers to represent that they will notify the Exchange of any failure to comply with the terms of applicable exemptive and no-action relief. The Exchange will rely on the foregoing procedures to become aware of any non-compliance with the requirements of Rule 8.601–E. With respect to the Funds, all statements and representations made in this filing regarding (a) the description of the portfolio or reference asset, (b) limitations on portfolio holdings or reference assets, or (c) the applicability of Exchange listing rules specified in this rule filing shall constitute continued listing requirements for listing the Shares on the Exchange. The VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 issuer has represented to the Exchange that it will advise the Exchange of any failure by a Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. If a Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Rule 5.5– E(m). Information Bulletin Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares. 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; (3) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; (4) that holdings of a Fund will not be disclosed daily; and (5) trading information. In addition, the Bulletin will reference that the Funds are subject to various fees and expenses described in the Registration Statement. The Bulletin will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. The Bulletin will also disclose that the NAV for the Shares will be calculated as of 4:00 p.m. E.T. each trading day. The Exchange notes that the proposed change is not otherwise intended to address any other issues and that the Exchange is not aware of any problems that Equity Trading Permit Holders or issuers would have in complying with the proposed change. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,29 in general, and furthers the objectives of Section 6(b)(5) of the Act,30 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 29 15 30 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00138 Fmt 4703 Sfmt 4703 19559 system, and, in general, to protect investors and the public interest. 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 8.601–E. One-hundred percent of the value of a Fund’s Actual Portfolio (except for cash, cash equivalents and Treasury securities) at the time of purchase will be listed on U.S. or foreign securities exchanges (or, in the limited case of futures contracts, U.S. futures exchanges). The listing and trading of such securities is subject to rules of the exchanges on which they are listed and traded, as approved by the Commission. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, certain exchange-traded equities, ETFs, ETNs and futures with other markets and other entities that are members of the ISG, and FINRA, on behalf of the Exchange, 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. With respect to the Funds, the Exchange believes that a Fund’s Proxy Portfolio, as well as 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 Active Proxy Portfolio Shares will not generally rest on the ability of market participants to arbitrage between the Active Proxy Portfolio Shares and a fund’s portfolio, but rather on the ability of market participants to assess a fund’s underlying value accurately enough throughout the trading day in order to hedge positions in Active Proxy Portfolio Shares effectively. Professional traders will buy Active Proxy Portfolio Shares that they perceive to be trading at a price less than that which will be available at a subsequent time, and sell Active Proxy Portfolio Shares they perceive to be trading at a price higher than that which will be available at a E:\FR\FM\07APN1.SGM 07APN1 19560 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES subsequent time. It is expected that, as part of their normal day-to-day trading activity, market makers assigned to series of Active Proxy Portfolio Shares by the Exchange, off-exchange market makers, firms that specialize in electronic trading, hedge funds and other professionals specializing in shortterm, non-fundamental trading strategies will assume the risk of being ‘‘long’’ or ‘‘short’’ Active Proxy Portfolio Shares through such trading and will hedge such risk wholly or partly by simultaneously taking positions in correlated assets 31 or by netting the exposure against other, offsetting trading positions—much as such firms do with existing ETFs and other equities. With respect to the Funds, disclosure of the Proxy Portfolio, a Fund’s investment objective and principal investment strategies in its prospectus and SAI, should permit professional investors to engage readily in this type of hedging activity.32 It is expected that market participants will utilize the Proxy Portfolio as a pricing signal and high quality hedging vehicle and gain experience with how various market factors (e.g., general market movements, sensitivity or correlations of the Proxy Portfolio to intraday movements in interest rates or commodity prices, other benchmarks, etc.) affect the value of the Proxy Portfolio in order to determine how best to hedge long or short positions taken in Shares in a manner that will permit them to provide a bid/ask price for Shares that is near to the value of the Proxy Portfolio throughout the day. The ability of market participants to 31 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. With the Proxy Portfolio identified, a trader can minimize portfolio risk by executing the hedging basket. The trader then can monitor the performance of the Proxy Portfolio throughout the trade period, making corrections where warranted. 32 With respect to trading in Shares of the Funds, market participants can manage risk in a variety of ways. It is expected that market participants will be able to determine how to trade Shares at levels approximating the intra-day value of the Funds’ holdings without taking undue risk by utilizing the Proxy Portfolio directly as a hedge, analyzing other data that may be disseminated by a Fund, gaining experience with how various market factors (e.g., general market movements, sensitivity of the value of the Proxy Portfolio to intraday movements in interest rates or commodity prices, etc.) affect value of the Proxy Portfolio, and by finding hedges for their long or short positions in Shares using instruments correlated with such factors. VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 accurately hedge their positions should serve to minimize any divergence between the secondary market price of the Shares and a Fund’s NAV, as well as create liquidity in the Shares. With respect to trading of Shares of the Funds, the ability of market participants to buy and sell Shares at prices near the NAV is dependent upon their assessment that the value of the Proxy Portfolio is a reliable, indicative realtime value for a Fund’s underlying holdings. Market participants are expected to accept the value of the Proxy Portfolio as a reliable, indicative real-time value because (1) the Proxy Portfolio will be determined such that at least 80% of its total assets will overlap with the portfolio weightings of the Fund, (2) the securities in which the Funds plan to invest are generally highly liquid and actively traded and therefore generally have accurate real time pricing available, and (3) market participants will have a daily opportunity to evaluate whether the value of the Proxy Portfolio at or near the close of trading is predictive of the actual NAV. The disclosure of a Fund’s Proxy Portfolio and the ability of Authorized Participants to create and redeem each Business Day at the NAV, will be crucial 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. With respect to Active Proxy Portfolio Shares generally, 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 Active Proxy Portfolio Shares that the NAV per share of such issue will be calculated daily and that the NAV and Actual Portfolio 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 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 and Form N–CEN may be viewed on-screen or downloaded from the Commission’s website. Proposed Commentary .03 to NYSE Arca Rule 8.601–E provides that the Exchange will implement and maintain written surveillance procedures for Active Proxy Portfolio Shares. As part of these surveillance procedures, the Investment Company’s investment adviser will, upon request by the Exchange or FINRA, on behalf of the Exchange, make available to the PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 Exchange or FINRA the daily portfolio holdings of each series of Active Proxy Portfolio Shares. The Exchange believes that the ability to access the information on an as needed basis will provide it with sufficient information to perform the necessary regulatory functions associated with listing and trading series of Active Proxy Portfolio Shares on the Exchange, including the ability to monitor compliance with the initial and continued listing requirements as well as the ability to surveil for manipulation of Active Proxy Portfolio Shares. With respect to the Fund, the Adviser will make available daily to FINRA and the Exchange the portfolio holdings of the Fund upon request in order to facilitate the performance of the surveillances referred to above. The Exchange will utilize its existing procedures to monitor issuer compliance with the requirements of proposed Rule 8.601–E. For example, the Exchange will continue to use intraday alerts that will notify Exchange personnel of trading activity throughout the day that may indicate that unusual conditions or circumstances are present that could be detrimental to the maintenance of a fair and orderly market. The Exchange will require from the issuer of a series of Active Proxy Portfolio Shares, upon initial listing and periodically thereafter, a representation that it is in compliance with Rule 8.601–E. The Exchange notes that proposed Commentary .01 to Rule 8.601–E would require an issuer of Active Proxy Portfolio Shares to notify the Exchange of any failure to comply with the continued listing requirements of Rule 8.601–E.33 In addition, the Exchange will require issuers to represent that they will notify the Exchange of any failure to comply with the terms of applicable exemptive and no-action relief. The Exchange will rely on the foregoing procedures to become aware of any non-compliance with the requirements of Rule 8.601–E. In addition, with respect to the Funds, 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 Consolidated Tape Association high-speed line. The website for the Funds will include a form of the prospectus for the Funds 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 33 Id. E:\FR\FM\07APN1.SGM [sic]. 07APN1 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Holders in a Bulletin of the special characteristics and risks associated with trading the Shares. Trading in Shares of a Fund will be halted if the circuit breaker parameters in NYSE Arca Rule 7.12–E have been reached or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. Trading in the Shares will be subject to NYSE Arca Rule 8.601–E(d)(2)(D), which sets forth circumstances under which Shares of the Funds may be halted. In addition, as noted above, investors will have ready access to the Proxy Portfolio, and quotation and last sale information for the Shares. The Shares will conform to the initial and continued listing criteria under proposed Rule 8.601–E. The components of a Fund’s Actual Portfolio will (a) be listed on an exchange and the primary trading session of such exchange will trade synchronously with the Exchange’s Core Trading Session, as defined in Rule 7.34–E(a); (b) with respect to exchangetraded futures, be listed on a U.S. futures exchange; or (c) consist of cash and cash equivalents. The proposed rule change is designed to improve 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, with respect to the Active Proxy Portfolio Shares generally, the Exchange has in place surveillance procedures relating to trading in such securities 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, with respect to the Funds, investors will have ready access to information regarding the Proxy Portfolio and quotation and last sale information for the Shares. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,34 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 activelymanaged ETF that has characteristics different from existing actively-managed and index ETFs, including that the portfolio is disclosed at least once quarterly as opposed to daily, 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. IV. Proceedings To Determine Whether To Approve or Disapprove SR– NYSEArca–2019–92, as Modified by Amendment No. 1, and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Exchange Act 35 to determine whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Exchange Act,36 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of the proposed rule change’s consistency with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be ‘‘designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, . . . 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.’’ 37 V. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the 35 15 U.S.C. 78s(b)(2)(B). 36 Id. 34 15 U.S.C. 78f(b)(8). VerDate Sep<11>2014 18:22 Apr 06, 2020 37 15 Jkt 250001 PO 00000 U.S.C. 78f(b)(5). Frm 00140 Fmt 4703 Sfmt 4703 19561 proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposed rule change, as modified by Amendment No. 1, is consistent with Section 6(b)(5) or any other provision of the Exchange Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.38 Interested persons are invited to submit written data, views, and arguments regarding whether the proposed rule change, as modified by Amendment No. 1, should be approved or disapproved by April 28, 2020. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by May 12, 2020. The Commission asks that commenters address the sufficiency of the Exchange’s statements in support of the proposal, which are set forth in Amendment No. 1,39 and any other issues raised by the proposed rule change, as modified by Amendment No. 1, under the Exchange Act. In this regard, the Commission seeks commenters’ views regarding whether the Exchange’s proposed rule to list and trade Active Proxy Portfolio Shares, which are actively managed exchangetraded products for which the portfolio holdings would be disclosed on a quarterly, rather than daily, basis, is adequately designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest, and is consistent with the maintenance of a fair and orderly market under the Exchange Act. In particular, the Commission seeks commenters’ views regarding whether the Exchange’s proposed listing rule provisions as they relate to foreign securities are adequate to prevent fraud and manipulation. In addition, the Commission seeks commenters’ views regarding whether the Exchange’s proposed listing rule provisions are adequate to prevent the 38 Section 19(b)(2) of the Exchange Act, as amended by the Securities Act Amendments of 1975, Public Law 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a selfregulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 39 See supra note 7. E:\FR\FM\07APN1.SGM 07APN1 19562 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices use and dissemination of material nonpublic information relating to the Funds. Comments may be submitted by any of the following methods: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.40 J. Matthew DeLesDernier, Assistant Secretary. Electronic Comments BILLING CODE 8011–01–P • 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–2019–92 on the subject line. Paper Comments khammond on DSKJM1Z7X2PROD with NOTICES • 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–2019–92. 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–2019–92 and should be submitted on or before April 28, 2020. Rebuttal comments should be submitted by May 12, 2020. VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 [FR Doc. 2020–07228 Filed 4–6–20; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88540; File Nos. SR–NYSE– 2020–11, SR–NYSECHX–2020–05, SR– NYSEAMER–2020–10, SR–NYSEArca–2020– 15, SR–NYSENAT–2020–08] Self-Regulatory Organizations; New York Stock Exchange LLC, NYSE Chicago, Inc., NYSE American LLC, NYSE Arca, Inc., and NYSE National, Inc.; Notice of Designation of a Longer Period for Commission Action on Proposed Rule Changes To Amend the Schedule of Wireless Connectivity Fees and Charges To Add Wireless Connectivity Services April 1, 2020. On February 11, 2020, New York Stock Exchange LLC, NYSE Chicago, Inc., NYSE Arca, Inc., and NYSE National, Inc. each filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend the schedule of Wireless Connectivity Fees and Charges to add wireless connectivity services that transport the market data of the Exchanges. NYSE American LLC filed with the Commission a substantively identical filing on February 12, 2020.3 The proposed rule changes were published for comment in the Federal Register on February 25, 2020.4 The Commission has received comment letters on the proposed rule changes.5 40 17 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 New York Stock Exchange LLC, NYSE Chicago, Inc., NYSE American LLC, NYSE Arca, Inc., and NYSE National, Inc. are collectively referred to herein as the ‘‘Exchanges.’’ 4 See Securities Exchange Act Release Nos. 88237 (February 19, 2020), 85 FR 10752 (February 25, 2020) (SR–NYSE–2020–11); 88240 (February 19, 2020), 85 FR 10795 (February 25, 2020) (SR– NYSECHX–2020–05); 88238 (February 19, 2020), 85 FR 10776 (February 25, 2020) (SR–NYSEAMER– 2020–10); 88239 (February 19, 2020), 85 FR 10786 (February 25, 2020) (SR–NYSEArca–2020–15); and 88241 (February 19, 2020), 85 FR 10738 (February 25, 2020) (SR–NYSENAT–2020–08) (collectively, the ‘‘Notices’’). 5 Comments received on the Notices are available on the Commission’s website at: https:// www.sec.gov/comments/sr-nyse-2020-11/ srnyse202011.htm. 1 15 PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 Section 19(b)(2) of the Act 6 provides that within 45 days of the publication of notice of the filing of a propose rule change, or within such longer period up to 90 days as the Commission may designate if it find such longer period to be appropriate and published its reasons for so finding or as to which the selfregulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the Notices for these proposed rule changes is April 10, 2020. The Commission is extending this 45day period. The Commission find that it is appropriate to designate a longer period within which to take action on the proposed rule changes so that it has sufficient time to consider the proposed rule changes and the comment letters. Accordingly, pursuant to Section 19(b)(2) of the Act,7 the Commission designates May 25, 2020, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to approve or disapprove, the proposed rule changes (File Nos. SR–NYSE–2020– 11, SR–NYSECHX–2020–05, SR– NYSEAMER–2020–10, SR–NYSEArca– 2020–15, SR–NYSENAT–2020–08). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–07233 Filed 4–6–20; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #16357 and #16358; SOUTH CAROLINA Disaster Number SC– 00068] Presidential Declaration of a Major Disaster for Public Assistance Only for the State of South Carolina U.S. Small Business Administration. ACTION: Notice. AGENCY: This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of South Carolina (FEMA– 4479–DR), dated 03/17/2020. Incident: Severe Storms, Tornadoes, Straight-line Winds, and Flooding. SUMMARY: 6 15 U.S.C. 78s(b)(2). U.S.C. 78s(b)(2). 8 17 CFR 200.30–3(a)(31). 7 15 E:\FR\FM\07APN1.SGM 07APN1

Agencies

[Federal Register Volume 85, Number 67 (Tuesday, April 7, 2020)]
[Notices]
[Pages 19554-19562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07228]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88535; File No. SR-NYSEArca-2019-92]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 and Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by 
Amendment No. 1, To List and Trade Four Series of Active Proxy 
Portfolio Shares Issued by T. Rowe Price Exchange-Traded Funds, Inc. 
Under Proposed NYSE Arca Rule 8.601-E

April 1, 2020.

I. Introduction

    On December 23, 2019, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade the following Active Proxy 
Portfolio Shares under proposed NYSE Arca Rule 8.601-E: T. Rowe Price 
Blue Chip Growth ETF, T. Rowe Price Dividend Growth ETF, T. Rowe Price 
Growth Stock ETF, and T. Rowe Price Equity Income ETF (``Funds'').\3\ 
The proposed rule change was published for comment in the Federal 
Register on January 3, 2020.\4\ On February 13, 2020, pursuant to 
Section 19(b)(2) of the Exchange Act,\5\ the Commission designated a 
longer period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change.\6\ On March 
31, 2020, the Exchange filed Amendment No. 1 to the proposed rule 
change, which replaced and superseded the proposed rule change as 
originally filed.\7\ The Commission has received no comments on the 
proposed rule change. The Commission is publishing this notice and 
order to solicit comments on the proposed rule change, as modified by 
Amendment No. 1, from interested persons and to institute proceedings 
pursuant to Section 19(b)(2)(B) of the Act \8\ to determine whether to 
approve or disapprove the proposed rule change, as modified by 
Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange originally proposed to adopt NYSE Arca Rule 
8.601-E to permit the Exchange to list and trade Managed Portfolio 
Securities, and to list and trade shares of the Funds under proposed 
Exchange Rule 8.601-E (Managed Portfolio Securities). In Amendment 
No. 1, the Exchange removed the proposal to adopt proposed NYSE Arca 
Rule 8.601-E (Managed Portfolio Securities) and revised the proposal 
to seek to list and trade shares of the Funds under proposed NYSE 
Arca Rule 8.601-E (Active Proxy Portfolio Shares). See Amendment No. 
1, infra note 7. See also Amendment 2 to SR-NYSEArca-2019-95 
(proposing to adopt NYSE Arca Rule 8.601-E to list and trade Active 
Proxy Portfolio Shares, available on the Commission's website at 
https://www.sec.gov/comments/sr-nysearca-2019-95/srnysearca201995.htm).
    \4\ See Securities Exchange Act Release No. 87865 (Dec. 30, 
2019), 85 FR 380 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 88197, 85 FR 9887 
(Feb. 20, 2020). The Commission designated April 2, 2020, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \7\ Amendment No. 1 is available on the Commission's website at 
https://www.sec.gov/.
    \8\ 15 U.S.C. 78s(b)(2)(B).
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 1

    The Exchange proposes to list and trade shares of the following 
under proposed NYSE Arca Rule 8.601-E (Active Proxy Portfolio Shares): 
T. Rowe Price Blue Chip Growth ETF; T. Rowe Price Dividend Growth ETF; 
T. Rowe Price Growth Stock ETF; and T. Rowe Price Equity Income ETF. 
This Amendment No. 1 to SR-NYSEArca-2019-92 replaces SR-NYSEArca-2019-
92 as originally filed and supersedes such filing in its entirety.
    The proposed change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

III. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange has proposed to add new NYSE Arca Rule 8.601-E for the 
purpose of permitting the listing and trading, or trading pursuant to 
unlisted trading privileges (``UTP''), of Active Proxy Portfolio 
Shares, which are securities issued by an actively managed open-end 
investment management company.\9\ Proposed Commentary .02 to Rule 
8.601-E would require the Exchange to file separate proposals under 
Section 19(b) of the Act before listing and trading any series of 
Active Proxy Portfolio Shares on the Exchange. Therefore, the Exchange 
is submitting this proposal in order to list and trade shares 
(``Shares'') of the T. Rowe Price Blue Chip Growth ETF; T. Rowe Price 
Dividend Growth ETF; T. Rowe Price Growth Stock ETF; and T. Rowe Price

[[Page 19555]]

Equity Income ETF (each a ``Fund'' and, collectively, the ``Funds'') 
under proposed Rule 8.601-E.
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    \9\ See Amendment 2 to SR-NYSEArca-2019-95, filed on March 31, 
2020. Proposed Rule 8.601-E(c)(1) provides that the term ``Active 
Proxy Portfolio Share'' means a security that (a) is issued by 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 Creation 
Unit, or multiples thereof, in return for a deposit by the purchaser 
of the Proxy Portfolio and/or cash with a value equal to the next 
determined net asset value (``NAV''); (c) when aggregated in the 
same specified minimum number of Active Proxy Portfolio Shares, or 
multiples thereof, may be redeemed at a holder's request in return 
for a transfer of the Proxy Portfolio and/or cash to the holder by 
the issuer with a value equal to the next determined NAV; and (d) 
the portfolio holdings for which are disclosed within at least 60 
days following the end of every fiscal quarter.
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Key Features of Active Proxy Portfolio Shares
    While funds issuing Active Proxy Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares 
listed and traded under NYSE Arca Rule 8.600-E,\10\ Active Proxy 
Portfolio Shares differ from Managed Fund Shares in the following 
important respects. First, in contrast to Managed Fund Shares, for 
which a fund's ``Disclosed Portfolio'' is required to be disseminated 
at least once daily,\11\ the full portfolio holdings for a series of 
Active Proxy Portfolio Shares will not be made available on a daily 
basis. Rather, a fund's ``Actual Portfolio'' \12\ will be publicly 
disclosed within at least 60 days following the end of every fiscal 
quarter in accordance and in compliance with the portfolio holdings 
disclosure requirements applicable to other registered open-end funds, 
including traditional mutual funds.\13\ Second, in connection with the 
creation and redemption of Active Proxy Portfolio Shares, such creation 
or redemption may be in exchange for a fund's Proxy Portfolio and/or 
cash with a value equal to the next determined NAV. The Proxy Portfolio 
is designed to serve as a pricing signal for low-risk arbitrage trades 
in shares of Active Proxy Portfolio Shares generally.
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    \10\ The Commission has previously approved listing and trading 
on the Exchange of a number of issues of Managed Fund Shares under 
Rule 8.600-E. A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3), 
seeks to provide investment results that correspond generally to the 
price and yield performance of a specific foreign or domestic stock 
index, fixed income securities index or combination thereof. 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); 76871 (January 11, 2016), 81 FR 2261 (January 15, 
2016) (SR-NYSEArca-2015-114) (Notice of Filing of Amendment No. 1 
and Order Granting Accelerated Approval of a Proposed Rule Change, 
as Modified by Amendment No. 1, to List and Trade Shares of the 
Market Vectors Dynamic Put Write ETF under NYSE Arca Equities Rule 
8.600); 86636 (August 12, 2019), 84 FR 42030 (August 16, 2019) (SR-
NYSEArca-2018-98) (Notice of Filing of Amendment No. 4 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 4, to List and Trade Shares of the iShares 
Commodity Multi-Strategy ETF under NYSE Arca Rule 8.600-E).
    \11\ 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 NAV at the end of the 
Business Day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires that the 
Disclosed Portfolio be disseminated at least once daily and be made 
available to all market participants at the same time.
    \12\ Proposed Rule 8.601-E(c)(2) provides that term ``Actual 
Portfolio'' means the identities and quantities of the securities 
and other assets held by the Investment Company that shall form the 
basis for the Investment Company's calculation of NAV at the end of 
the business day.
    \13\ 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 the Fund's fiscal 
quarter will be made publicly available 60 days after the end of the 
Fund's fiscal quarter. Form N-PORT requires reporting of a fund's 
complete portfolio holdings on a position-by-position basis on a 
quarterly basis within 60 days after fiscal quarter end. Investors 
can obtain a fund's Statement of Additional Information, its 
Shareholder Reports, its Form N-CSR, filed twice a year, and its 
Form N-CEN, filed annually. A fund's statement of additional 
information (``SAI'') and Shareholder Reports are available free 
upon request from the Investment Company, and those documents and 
the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed on-screen 
or downloaded from the Commission's website at www.sec.gov.
---------------------------------------------------------------------------

    Market makers have indicated to the Exchange that there will be 
sufficient data to engage in arbitrage trades in Active Proxy Portfolio 
Shares with accuracy and minimal risk. In addition, market makers have 
indicated that they are incented to engage in arbitrage trades when the 
risk of the trade is low. However, they cannot know with any certainty 
the precise risk of an arbitrage trade on the current or any future 
Business Day. Rather, they must use information from the past to 
evaluate the likely risk of an arbitrage trade executed today or in the 
future. More specifically, it is understood that they must use 
historical data about the performance of a fund whose shares are being 
arbitraged and the performance of the fund's Proxy Portfolio. From such 
data, arbitrageurs may be able to develop sufficient insight into the 
risk of an arbitrage trade to evaluate and price it into the trade.
Description of the Funds
    The Shares of each Fund will be issued by T. Rowe Price Exchange-
Traded Funds, Inc. (``Issuer''), a corporation organized under the laws 
of the State of Maryland, which may be comprised of multiple separate 
series, and registered with the Commission as an open-end management 
investment company.\14\ The investment adviser for the Funds will be T. 
Rowe Price Associates, Inc. (``Adviser''). State Street Bank and Trust 
Co. will serve as the Funds' transfer agent, administrator and 
custodian (the ``Transfer Agent'', ``Administrator'', or 
``Custodian''). T. Rowe Price Investment Services, Inc., a registered 
broker dealer and an affiliate of the Adviser, will serve as the 
distributor (``Distributor'') of the Shares.
---------------------------------------------------------------------------

    \14\ The Issuer is registered under the 1940 Act. On December 
11, 2019, the Issuer filed a registration statement on Form N-1A 
under the Securities Act of 1933 Act (``1933 Act'') (15 U.S.C. 77a) 
and under the 1940 Act relating to the Funds (File Nos. 333-235450 
and 811-23494) (the ``Registration Statement''). The Issuer filed a 
seventh amended 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. 812-14214), dated October 16, 2019 
(``Application''). On December 10, 2019, the Commission issued an 
order (``Exemptive Order'') under the 1940 Act granting the 
exemptions requested in the Application (Investment Company Act 
Release No. 33713, December 10, 2019). Investments made by the Funds 
will comply with the conditions set forth in the Application and the 
Exemptive Order. The description of the operation of the Funds 
herein is based, in part, on the Registration Statement and the 
Application.
---------------------------------------------------------------------------

    Proposed Commentary .04 to NYSE Arca Rule 8.601-E provides that, if 
the investment adviser to the Investment Company issuing Active Proxy 
Portfolio 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 and/or Proxy Portfolio. Any 
person related to the investment adviser or Investment Company who 
makes decisions pertaining to the Investment Company's portfolio 
composition or has access to non-public information regarding the 
Investment Company's Actual Portfolio or changes thereto or the Proxy 
Portfolio must be subject to procedures reasonably designed to prevent 
the use and dissemination of material non-public information regarding 
the Actual Portfolio or changes thereto or the Proxy Portfolio.
    Proposed Commentary .04 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.\15\

[[Page 19556]]

Commentary .04 is also similar to Commentary .06 to Rule 8.600-E 
related to Managed Fund Shares, except that proposed Commentary .04 
relates to establishment and maintenance of a ``fire wall'' between the 
investment adviser and the broker-dealer applicable to an Investment 
Company's Actual Portfolio and/or Proxy Portfolio, and not just to the 
underlying portfolio, as is the case with Managed Fund Shares.
---------------------------------------------------------------------------

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

    The Adviser is not registered as a broker-dealer but is affiliated 
with a broker-dealer and has implemented and will maintain a ``fire 
wall'' with respect to such broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to a Fund's 
portfolio. In the event (a) the Adviser becomes registered as a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new adviser 
is a registered broker-dealer or becomes affiliated with a broker-
dealer, it will implement and maintain a fire wall with respect to its 
relevant personnel or broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
Description of the Funds
    According to the Application, for each Fund, the Adviser will 
identify its Proxy Portfolio, which could be a broad-based securities 
index (e.g., the S&P 500) or a Fund's recently disclosed portfolio 
holdings. The Proxy Portfolio will be determined such that at least 80% 
of its total assets will overlap with the portfolio weightings of a 
Fund. Although the Adviser may change a Fund's Proxy Portfolio at any 
time, the Adviser currently does not expect to make such changes more 
frequently than quarterly (for example, in connection with the release 
of a Fund's portfolio holdings). The Adviser will publish a new Proxy 
Portfolio for a Fund only before the commencement of trading of such 
Fund's Shares on that ``Business Day,'' \16\ and the Adviser will not 
make intra-day changes to the Proxy Portfolio except to correct errors 
in the published Proxy Portfolio. For the reasons described herein, the 
Adviser believes that each Fund's Proxy Portfolio will be a high-
quality hedging vehicle, the value of which will provide arbitrageurs 
with a high quality pricing signal.
---------------------------------------------------------------------------

    \16\ ``Business Day'' is defined to mean any day that the 
Exchange is open, including any day when a Fund satisfies redemption 
requests as required by section 22(e) of the 1940 Act.
---------------------------------------------------------------------------

    The Fund's holdings will conform to the permissible investments as 
set forth in the Application and Exemptive Order as described below in 
``Other Characteristics of the Funds,'' and the holdings will be 
consistent with all requirements in the Application and Exemptive 
Order.
T. Rowe Price Blue Chip Growth ETF
    The investment objective of the T. Rowe Price Blue Chip Growth ETF 
will be to seek to provide long-term capital growth. Income will be a 
secondary objective.
    The Fund will normally invest at least 80% of its net assets in the 
common stocks of large and medium-sized blue-chip growth companies that 
are listed in the United States. These are companies that, in the 
Adviser's view, are well established in their industries and have the 
potential for above-average earnings growth. The Fund generally will 
invest in U.S. and foreign exchange-traded securities, U.S. exchange-
traded futures, cash and cash equivalents.
T. Rowe Price Dividend Growth ETF
    The investment objective of the T. Rowe Price Dividend Growth ETF 
will be to seek dividend income and long-term capital growth.
    The Fund normally will invest at least 65% of the Fund's total 
assets in stocks listed in the United States, with an emphasis on 
stocks that have a strong track record of paying dividends or that are 
expected to increase their dividends over time. The Fund generally will 
invest in U.S. and foreign exchange-traded securities, U.S. exchange-
traded futures cash, and cash equivalents.
T. Rowe Price Growth Stock ETF
    The investment objective of the T. Rowe Price Growth Stock ETF will 
be to seek long-term capital growth.
    The Fund will normally invest at least 80% of its net assets in the 
common stocks of a diversified group of growth companies. While it may 
invest in companies of any market capitalization, the Fund generally 
seeks investments in stocks of large-capitalization companies with one 
or more of the following characteristics: Strong cash flow and an 
above-average rate of earnings growth; the ability to sustain earnings 
momentum during economic downturns; and occupation of a lucrative niche 
in the economy and the ability to expand even during times of slow 
economic growth. The Fund generally will invest in U.S. and foreign 
exchange-traded securities, U.S. exchange-traded futures, cash and cash 
equivalents.
T. Rowe Price Equity Income ETF
    The investment objective of the T. Rowe Price Equity Income ETF 
will be to seek a high level of dividend income and long-term capital 
growth.
    The Fund will normally invest at least 80% of its net assets in 
common stocks listed in the United States, with an emphasis on large-
capitalization stocks that have a strong track record of paying 
dividends or that are believed to be undervalued. The Fund typically 
will employ a ``value'' approach in selecting investments. The Fund 
generally will invest in U.S. and foreign exchange-traded securities, 
U.S. exchange-traded futures, cash and cash equivalents.
Other Characteristics of the Funds
    With respect to the Funds, Shares will generally be issued and 
redeemed primarily on an in-kind basis, but may include cash under 
certain circumstances as described in the Application.\17\
---------------------------------------------------------------------------

    \17\ See note 22, infra.
---------------------------------------------------------------------------

    With respect to the Funds, in order to provide a hedging vehicle 
whose performance reliably and highly correlates to the NAV of the 
relevant Fund, and that is liquid and trades synchronously (that is, 
during the hours of the Exchange's Core Trading Session, normally 9:30 
a.m. to 4:00 p.m. E.T.) with the Shares of the Funds, a Fund's Actual 
Portfolio will (a) be listed on an exchange and the primary trading 
session of such exchange will trade synchronously with the Exchange's 
Core Trading Session, as defined in Rule 7.34-E(a); (b) with respect to 
exchange-traded futures, be listed on a U.S. futures exchange; or (c) 
consist of cash and cash equivalents.
    Consistent with these representations, each Fund will only invest 
in exchange-traded common stocks, common stocks

[[Page 19557]]

listed on a foreign exchange that trade on such exchange synchronously 
with the Shares (``foreign common stocks''), ETFs,\18\ exchange-traded 
notes (``ETNs''),\19\ exchange-traded preferred stocks, exchange-traded 
American Depositary Receipts (``ADRs''),\20\ exchange-traded real 
estate investment trusts, exchange-traded commodity pools, exchange-
traded metals trusts, exchange-traded currency trusts and exchange-
traded futures contracts \21\ (collectively, ``exchange-traded 
instruments'') that trade synchronously with the Fund's Shares, as well 
as cash and cash equivalents. For purposes of this filing, cash 
equivalents are short-term U.S. Treasury securities, government money 
market funds, and repurchase agreements.
---------------------------------------------------------------------------

    \18\ For purposes of this filing, ETFs include Investment 
Company Units (as described in NYSE Arca Rule 5.2-E (j)(3)); 
Portfolio Depositary Receipts (as described in NYSE Arca Rule 8.100-
E); and Managed Fund Shares (as described in NYSE Arca Rule 8.600-
E). All ETFs will be listed and traded in the U.S. on a national 
securities exchange. While the Funds may invest in inverse ETFs, the 
Funds will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
    \19\ ETNs are securities as described in NYSE Arca Rule 5.2-
E(j)(6) (Equity Index-Linked Securities, Commodity-Linked 
Securities, Currency-Linked Securities, Fixed Income Index-Linked 
Securities, Futures-Linked Securities and Multifactor Index-Linked 
Securities). All ETNs will be listed and traded in the U.S. on a 
national securities exchange. The Funds will not invest in inverse 
or leveraged (e.g., 2X, -2X, 3X or -3X) ETNs.
    \20\ ADRs are issued by a U.S. financial institution (a 
``depositary'') and evidence ownership in a security or pool of 
securities issued by a foreign issuer that have been deposited with 
the depositary. Each ADR is registered under the Securities Act of 
1933 (``1933 Act'') (15 U.S.C. 77a) on Form F-6. ADRs in which a 
Fund may invest will trade on an exchange.
    \21\ Exchange-traded futures are U.S. listed futures contracts 
where the futures contract's reference asset is an asset that the 
Fund could invest in directly, or in the case of an index future, is 
based on an index of a type of asset that the Fund could invest in 
directly, such as an S&P 500 index futures contract. All futures 
contracts that a Fund may invest in will be traded on a U.S. futures 
exchange.
---------------------------------------------------------------------------

    The Proxy Portfolio will not include any asset that is ineligible 
to be in the Actual Portfolio of the applicable Fund.
Investment Restrictions
    The Shares of each Fund will conform to the initial and continued 
listing criteria under proposed Rule 8.601-E.
    Each Fund's investments will be consistent with its investment 
objective and with the applicable exemptive order or no-action relief 
granted by the Commission or Commission staff to the Issuer with 
respect to the Funds.
Purchases and Redemptions
    The Issuer 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 Issuer will 
sell and redeem Creation Units of each Fund only on a Business Day. A 
Creation Unit will consist of at least 5,000 Shares.
    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 a Fund's designated Proxy 
Portfolio, except to the extent that a Fund requires purchases and 
redemptions to be made entirely or in part on a cash basis, as 
described below.
    If there is a difference between the net asset value 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 that are in the best interests of a Fund, 
including the process for any revisions to or deviations from, those 
parameters.
    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.\22\ In such an instance, the Fund will announce, before the 
open of trading 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 (as defined 
below), to have the purchase or redemption, as applicable, be made 
entirely or in part in cash.
---------------------------------------------------------------------------

    \22\ The Adviser represents that, to the extent the Issuer 
effects the creation or redemption of Shares in cash, such 
transactions will be effected in the same manner for all 
``Authorized Participants'' (as defined below).
---------------------------------------------------------------------------

    Each Business Day, before the open of trading on the Exchange, the 
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. The 
Proxy Portfolio will be published each Business Day regardless of 
whether a Fund decides to issue or redeem Creation Units entirely or in 
part on a cash basis.
    All orders to purchase Creation Units must be placed with the 
Distributor by or through an Authorized Participant, which is a member 
or participant of a clearing agency registered with the Commission, 
which has a written agreement with a Fund or one of its service 
providers that allows the Authorized Participant to place orders for 
the purchase and redemption of Creation Units. Except as otherwise 
permitted, no promoter, principal underwriter (e.g., the Distributor) 
or affiliated person of a Fund, or any affiliated person of such 
person, will be an Authorized Participant in Shares.
    Validly submitted orders to purchase or redeem Creation Units on 
each Business Day will be accepted until the end of the Core Trading 
Session (the ``Order Cut-Off Time''), generally 4:00 p.m. E.T., on the 
Business Day that the order is placed (the ``Transmittal Date''). All 
Creation Unit orders must be received by the Distributor no later than 
the Order Cut-Off Time in order to receive the NAV determined on the 
Transmittal Date. When the Exchange closes earlier than normal, a Fund 
may require orders for Creation Units to be placed earlier in the 
Business Day.
Availability of Information
    The Funds' website, which will be publicly available at no charge 
prior to the public offering of Shares, will include a prospectus for 
each Fund that may be downloaded. In addition, the website will include 
the following:
     Quantitative information updated on a daily basis, 
including, on a per Share basis for each Fund, the prior Business Day's 
NAV and the Closing Price \23\ or Bid/Ask Price of Shares, and

[[Page 19558]]

a calculation of the premium/discount of the Closing Price or Bid/Ask 
Price \24\ against such NAV and any other information regarding 
premiums and discounts as may be required for other ETFs under rule 6c-
11 under the 1940 Act. The website will also disclose any information 
regarding the bid-ask spread for each Fund as may be required for other 
ETFs under rule 6c-11 under the 1940 Act.
---------------------------------------------------------------------------

    \23\ The ``Closing Price'' of Shares is the official closing 
price of Shares on the Exchange's Core Trading Session.
    \24\ The ``Bid/Ask Price'' is the midpoint of the highest bid 
and lowest offer based on the National Best Bid and Offer at the 
time that a Fund's NAV is calculated. 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.
---------------------------------------------------------------------------

     Each Fund's Proxy Portfolio.
     Bid-ask spread information for each Fund.
    Each Fund's website also will disclose the information required 
under proposed Rule 8.601-E (c)(3).\25\
---------------------------------------------------------------------------

    \25\ See note 9, supra. Proposed Rule 8.601-E (c)(3) provides 
that the website for each series of Active Proxy Portfolio Shares 
shall disclose the information regarding the Proxy Portfolio as 
provided in the exemptive relief pursuant to the Investment Company 
Act of 1940 applicable to such series, including the following, to 
the extent applicable:
    (i) Ticker symbol;
    (ii) CUSIP or other identifier;
    (iii) Description of holding;
    (iv) Quantity of each security or other asset held; and
    (v) Percentage weighting of the holding in the portfolio.
---------------------------------------------------------------------------

    Investors interested in a particular Fund can also obtain its 
prospectus, statement of additional information (``SAI''), shareholder 
reports, Form N-CSR and Form N-CEN. Investors may access complete 
portfolio schedules for the Funds on Form N-CSR and Form N-PORT. The 
prospectus, SAI and shareholder reports will be available free upon 
request from the Funds, and those documents and the Form N-CSR and Form 
N-CEN may be viewed on-screen or downloaded from the Commission's 
website at https://www.sec.gov.
    Information regarding the market price of Shares and trading volume 
in Shares will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services. The 
previous day's closing price and trading volume information may be 
published daily in the financial section of newspapers.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\26\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Trading in the Shares will be 
subject to NYSE Arca Rule 8.601-E(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund will be halted.
---------------------------------------------------------------------------

    \26\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    Specifically, proposed Rule 8.601-E(d)(2)(D) provides that the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in a series of Active Proxy Portfolio Shares. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the series of Active Proxy 
Portfolio Shares inadvisable. These may include: (a) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the portfolio; or (b) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present.
    In addition, upon notification to the Exchange by the issuer of a 
series of Active Proxy Portfolio Shares, that the NAV, Proxy Portfolio 
or Actual Portfolio with respect to a series of Active Proxy Portfolio 
Shares is not disseminated to all market participants at the same time, 
the Exchange shall halt trading in such series until such time as the 
NAV, Proxy Portfolio or Actual Portfolio is available to all market 
participants at the same time. The issuer has represented to the 
Exchange that it will provide the Exchange with prompt notification 
upon the existence of any such condition or set of conditions.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Rule 7.34-E (Opening, Core, and Late Trading Sessions). The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in NYSE Arca Rule 7.6-E, the 
minimum price variation (``MPV'') for quoting and entry of orders in 
equity securities traded on the NYSE Arca Marketplace is $0.01, with 
the exception of securities that are priced less than $1.00 for which 
the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.601-E.
    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. The Exchange has 
appropriate rules to facilitate trading in the Shares during all 
trading sessions.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\27\ 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.
---------------------------------------------------------------------------

    \27\ FINRA surveils trading on 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.
    FINRA, on behalf of the Exchange, or the Exchange or both will 
communicate as needed regarding trading in the Shares, certain 
exchange-traded equities, ETFs, ETNs and futures with other markets and 
other entities that are members of the Intermarket Surveillance Group 
(``ISG''), and FINRA, on behalf of the Exchange, or 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.\28\
---------------------------------------------------------------------------

    \28\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    The Funds' Adviser will make available to FINRA and the Exchange 
the portfolio holdings of each Fund in order to facilitate the 
performance of the surveillances referred to above on a confidential 
basis.

[[Page 19559]]

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    Proposed Commentary .03 to NYSE Arca Rule 8.601-E provides that the 
Exchange will implement and maintain written surveillance procedures 
for Active Proxy Portfolio Shares. As part of these surveillance 
procedures, the Investment Company's investment adviser will upon 
request by the Exchange or FINRA, on behalf of the Exchange, make 
available to the Exchange or FINRA the daily portfolio holdings of each 
series of Active Proxy Portfolio Shares. The Exchange believes that the 
ability to access the information on an as needed basis will provide it 
with sufficient information to perform the necessary regulatory 
functions associated with listing and trading series of Active Proxy 
Portfolio Shares on the Exchange, including the ability to monitor 
compliance with the initial and continued listing requirements as well 
as the ability to surveil for manipulation of Active Proxy Portfolio 
Shares.
    The Exchange will utilize its existing procedures to monitor issuer 
compliance with the requirements of proposed Rule 8.601-E. For example, 
the Exchange will continue to use intraday alerts that will notify 
Exchange personnel of trading activity throughout the day that may 
indicate that unusual conditions or circumstances are present that 
could be detrimental to the maintenance of a fair and orderly market. 
The Exchange will require from the issuer of a series of Active Proxy 
Portfolio Shares, upon initial listing and periodically thereafter, a 
representation that it is in compliance with Rule 8.601-E. The Exchange 
notes that proposed Commentary .01 to Rule 8.601-E would require an 
issuer of Active Proxy Portfolio Shares to notify the Exchange of any 
failure to comply with the continued listing requirements of Rule 
8.601-E. In addition, the Exchange will require issuers to represent 
that they will notify the Exchange of any failure to comply with the 
terms of applicable exemptive and no-action relief. The Exchange will 
rely on the foregoing procedures to become aware of any non-compliance 
with the requirements of Rule 8.601-E.
    With respect to the Funds, all statements and representations made 
in this filing regarding (a) the description of the portfolio or 
reference asset, (b) limitations on portfolio holdings or reference 
assets, or (c) the applicability of Exchange listing rules specified in 
this rule filing shall constitute continued listing requirements for 
listing the Shares on the Exchange. The issuer has represented to the 
Exchange that it will advise the Exchange of any failure by a Fund to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements. If a 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. 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; (3) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; (4) that 
holdings of a Fund will not be disclosed daily; and (5) trading 
information.
    In addition, the Bulletin will reference that the Funds are subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated as of 4:00 p.m. E.T. each trading day.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and that the Exchange is not aware 
of any problems that Equity Trading Permit Holders or issuers would 
have in complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\29\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\30\ 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.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 8.601-E. One-
hundred percent of the value of a Fund's Actual Portfolio (except for 
cash, cash equivalents and Treasury securities) at the time of purchase 
will be listed on U.S. or foreign securities exchanges (or, in the 
limited case of futures contracts, U.S. futures exchanges). The listing 
and trading of such securities is subject to rules of the exchanges on 
which they are listed and traded, as approved by the Commission. FINRA, 
on behalf of the Exchange, will communicate as needed regarding trading 
in the Shares, certain exchange-traded equities, ETFs, ETNs and futures 
with other markets and other entities that are members of the ISG, and 
FINRA, on behalf of the Exchange, 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.
    With respect to the Funds, the Exchange believes that a Fund's 
Proxy Portfolio, as well as 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 Active 
Proxy Portfolio Shares will not generally rest on the ability of market 
participants to arbitrage between the Active Proxy Portfolio Shares and 
a fund's portfolio, but rather on the ability of market participants to 
assess a fund's underlying value accurately enough throughout the 
trading day in order to hedge positions in Active Proxy Portfolio 
Shares effectively. Professional traders will buy Active Proxy 
Portfolio Shares that they perceive to be trading at a price less than 
that which will be available at a subsequent time, and sell Active 
Proxy Portfolio Shares they perceive to be trading at a price higher 
than that which will be available at a

[[Page 19560]]

subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to series of Active Proxy 
Portfolio 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'' Active 
Proxy Portfolio Shares through such trading and will hedge such risk 
wholly or partly by simultaneously taking positions in correlated 
assets \31\ or by netting the exposure against other, offsetting 
trading positions--much as such firms do with existing ETFs and other 
equities.
---------------------------------------------------------------------------

    \31\ 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. With the Proxy Portfolio identified, a 
trader can minimize portfolio risk by executing the hedging basket. 
The trader then can monitor the performance of the Proxy Portfolio 
throughout the trade period, making corrections where warranted.
---------------------------------------------------------------------------

    With respect to the Funds, disclosure of the Proxy Portfolio, a 
Fund's investment objective and principal investment strategies in its 
prospectus and SAI, should permit professional investors to engage 
readily in this type of hedging activity.\32\
---------------------------------------------------------------------------

    \32\ With respect to trading in Shares of the Funds, market 
participants can manage risk in a variety of ways. It is expected 
that market participants will be able to determine how to trade 
Shares at levels approximating the intra-day value of the Funds' 
holdings without taking undue risk by utilizing the Proxy Portfolio 
directly as a hedge, analyzing other data that may be disseminated 
by a Fund, gaining experience with how various market factors (e.g., 
general market movements, sensitivity of the value of the Proxy 
Portfolio to intraday movements in interest rates or commodity 
prices, etc.) affect value of the Proxy Portfolio, and by finding 
hedges for their long or short positions in Shares using instruments 
correlated with such factors.
---------------------------------------------------------------------------

    It is expected that market participants will utilize the Proxy 
Portfolio as a pricing signal and high quality hedging vehicle and gain 
experience with how various market factors (e.g., general market 
movements, sensitivity or correlations of the Proxy Portfolio to 
intraday movements in interest rates or commodity prices, other 
benchmarks, etc.) affect the value of the Proxy Portfolio in order to 
determine how best to hedge long or short positions taken in Shares in 
a manner that will permit them to provide a bid/ask price for Shares 
that is near to the value of the Proxy Portfolio throughout the day. 
The ability of market participants to accurately hedge their positions 
should serve to minimize any divergence between the secondary market 
price of the Shares and a Fund's NAV, as well as create liquidity in 
the Shares. With respect to trading of Shares of the Funds, the ability 
of market participants to buy and sell Shares at prices near the NAV is 
dependent upon their assessment that the value of the Proxy Portfolio 
is a reliable, indicative real-time value for a Fund's underlying 
holdings. Market participants are expected to accept the value of the 
Proxy Portfolio as a reliable, indicative real-time value because (1) 
the Proxy Portfolio will be determined such that at least 80% of its 
total assets will overlap with the portfolio weightings of the Fund, 
(2) the securities in which the Funds plan to invest are generally 
highly liquid and actively traded and therefore generally have accurate 
real time pricing available, and (3) market participants will have a 
daily opportunity to evaluate whether the value of the Proxy Portfolio 
at or near the close of trading is predictive of the actual NAV.
    The disclosure of a Fund's Proxy Portfolio and the ability of 
Authorized Participants to create and redeem each Business Day at the 
NAV, will be crucial 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.
    With respect to Active Proxy Portfolio Shares generally, 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 Active Proxy Portfolio Shares that the NAV per share of such 
issue will be calculated daily and that the NAV and Actual Portfolio 
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 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 and Form N-CEN may be viewed on-screen or 
downloaded from the Commission's website.
    Proposed Commentary .03 to NYSE Arca Rule 8.601-E provides that the 
Exchange will implement and maintain written surveillance procedures 
for Active Proxy Portfolio Shares. As part of these surveillance 
procedures, the Investment Company's investment adviser will, upon 
request by the Exchange or FINRA, on behalf of the Exchange, make 
available to the Exchange or FINRA the daily portfolio holdings of each 
series of Active Proxy Portfolio Shares. The Exchange believes that the 
ability to access the information on an as needed basis will provide it 
with sufficient information to perform the necessary regulatory 
functions associated with listing and trading series of Active Proxy 
Portfolio Shares on the Exchange, including the ability to monitor 
compliance with the initial and continued listing requirements as well 
as the ability to surveil for manipulation of Active Proxy Portfolio 
Shares. With respect to the Fund, the Adviser will make available daily 
to FINRA and the Exchange the portfolio holdings of the Fund upon 
request in order to facilitate the performance of the surveillances 
referred to above.
    The Exchange will utilize its existing procedures to monitor issuer 
compliance with the requirements of proposed Rule 8.601-E. For example, 
the Exchange will continue to use intraday alerts that will notify 
Exchange personnel of trading activity throughout the day that may 
indicate that unusual conditions or circumstances are present that 
could be detrimental to the maintenance of a fair and orderly market. 
The Exchange will require from the issuer of a series of Active Proxy 
Portfolio Shares, upon initial listing and periodically thereafter, a 
representation that it is in compliance with Rule 8.601-E. The Exchange 
notes that proposed Commentary .01 to Rule 8.601-E would require an 
issuer of Active Proxy Portfolio Shares to notify the Exchange of any 
failure to comply with the continued listing requirements of Rule 
8.601-E.\33\ In addition, the Exchange will require issuers to 
represent that they will notify the Exchange of any failure to comply 
with the terms of applicable exemptive and no-action relief. The 
Exchange will rely on the foregoing procedures to become aware of any 
non-compliance with the requirements of Rule 8.601-E.
---------------------------------------------------------------------------

    \33\ Id. [sic].
---------------------------------------------------------------------------

    In addition, with respect to the Funds, 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 Consolidated Tape 
Association high-speed line. The website for the Funds will include a 
form of the prospectus for the Funds 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

[[Page 19561]]

Holders in a Bulletin of the special characteristics and risks 
associated with trading the Shares. Trading in Shares of a Fund will be 
halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E have 
been reached or because of market conditions or for reasons that, in 
the view of the Exchange, make trading in the Shares inadvisable. 
Trading in the Shares will be subject to NYSE Arca Rule 8.601-
E(d)(2)(D), which sets forth circumstances under which Shares of the 
Funds may be halted. In addition, as noted above, investors will have 
ready access to the Proxy Portfolio, and quotation and last sale 
information for the Shares. The Shares will conform to the initial and 
continued listing criteria under proposed Rule 8.601-E.
    The components of a Fund's Actual Portfolio will (a) be listed on 
an exchange and the primary trading session of such exchange will trade 
synchronously with the Exchange's Core Trading Session, as defined in 
Rule 7.34-E(a); (b) with respect to exchange-traded futures, be listed 
on a U.S. futures exchange; or (c) consist of cash and cash 
equivalents.
    The proposed rule change is designed to improve 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, with respect to the 
Active Proxy Portfolio Shares generally, the Exchange has in place 
surveillance procedures relating to trading in such securities 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, with 
respect to the Funds, investors will have ready access to information 
regarding the Proxy Portfolio and quotation and last sale information 
for the Shares.

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

    In accordance with Section 6(b)(8) of the Act,\34\ 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, including that the portfolio is disclosed at least once 
quarterly as opposed to daily, and would introduce additional 
competition among various ETF products to the benefit of investors.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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.

IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2019-92, as Modified by Amendment No. 1, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act \35\ to determine whether the proposed 
rule change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\36\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of the proposed rule change's consistency with 
Section 6(b)(5) of the Exchange Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, . . . 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.'' \37\
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    \36\ Id.
    \37\ 15 U.S.C. 78f(b)(5).
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V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) or any other provision of the Exchange Act, or the rules and 
regulations thereunder. Although there do not appear to be any issues 
relevant to approval or disapproval that would be facilitated by an 
oral presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4, any request for an opportunity to 
make an oral presentation.\38\
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    \38\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by April 28, 2020. 
Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by May 12, 2020.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in Amendment No. 1,\39\ and any other issues raised by the proposed 
rule change, as modified by Amendment No. 1, under the Exchange Act. In 
this regard, the Commission seeks commenters' views regarding whether 
the Exchange's proposed rule to list and trade Active Proxy Portfolio 
Shares, which are actively managed exchange-traded products for which 
the portfolio holdings would be disclosed on a quarterly, rather than 
daily, basis, is adequately designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and to protect investors and the public interest, 
and is consistent with the maintenance of a fair and orderly market 
under the Exchange Act. In particular, the Commission seeks commenters' 
views regarding whether the Exchange's proposed listing rule provisions 
as they relate to foreign securities are adequate to prevent fraud and 
manipulation. In addition, the Commission seeks commenters' views 
regarding whether the Exchange's proposed listing rule provisions are 
adequate to prevent the

[[Page 19562]]

use and dissemination of material non-public information relating to 
the Funds.
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    \39\ See supra note 7.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2019-92 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-2019-92. 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-2019-92 and should be submitted 
on or before April 28, 2020. Rebuttal comments should be submitted by 
May 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07228 Filed 4-6-20; 8:45 am]
BILLING CODE 8011-01-P
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