Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, to Adopt NYSE Arca Rule 5.2-E(j)(8) Governing the Listing and Trading of Exchange-Traded Fund Shares, 21479-21490 [2020-08086]

Download as PDF Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices DATES: Comments are due: April 27, 2020. Submit comments electronically via the Commission’s Filing Online system at https:// www.prc.gov. Those who cannot submit comments electronically should contact the person identified in the FOR FURTHER INFORMATION CONTACT section by telephone for advice on filing alternatives. FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 202–789–6820. SUPPLEMENTARY INFORMATION: ADDRESSES: Table of Contents I. Introduction II. Contents of Filing III. Administrative Actions IV. Ordering Paragraphs I. Introduction On April 10, 2020, the Postal Service filed a notice of specific rates for its Inbound Letter Post Small Packets and Bulky Letters product effective January 1, 2021.1 The Postal Service requests that the Commission favorably review the proposed prices so that the Postal Service may submit the prices to the Universal Postal Union (UPU) before the June 1, 2020 deadline. Notice at 5. jbell on DSKJLSW7X2PROD with NOTICES II. Contents of Filing In its Notice, the Postal Service proposes new prices for the Inbound Letter Post Small Packets and Bulky Letters product. Notice at 1. Under the Universal Postal Convention, by June 1, 2020, the Postal Service may submit self-declared rates for Inbound Letter Post Small Packets and Bulky Letters that would take effect on January 1, 2021.2 The Postal Service states that the proposed prices comply with 39 U.S.C. 3633(a). Notice at 4. To support its proposed Inbound Letter Post Small Packets and Bulky Letters prices, the Postal Service filed the proposed prices (Attachment 2); a copy of the certification required under 39 CFR 3015.5(c)(2) (Attachment 3); and a redacted copy of Governors’ Decision 19–1. Id.; see id. Attachments 2–4. The Postal Service also filed redacted financial workpapers. Notice at 4. In addition, the Postal Service filed an unredacted copy of Governors’ Decision 1 Notice of the United States Postal Service of Specific Rates Not of General Applicability for Inbound E-Format Letter Post for 2021, and Application for Non-Public Treatment, April 10, 2020, at 1 (Notice). 2 Id. at 2; Universal Postal Convention (UPU Convention) Article 28bis.1. UPU Convention is available at: https://www.upu.int/uploads/tx_ sbdownloader/actsActsOfTheExtraordinary CongressGenevaEn.pdf. VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 19–1, the unredacted new prices, and related financial information under seal. Id. The Postal Service also provided an application for non-public treatment of material filed under seal filed pursuant to 39 CFR part 3007. Id. Attachment 1. III. Administrative Actions The Commission establishes Docket No. CP2020–120 for consideration of matters raised by the Notice and appoints Katalin K. Clendenin to serve as Public Representative in this docket. The Commission invites comments on whether the Postal Service’s filing is consistent with 39 U.S.C. 3632, 3633, and 39 CFR part 3015. Comments are due no later than April 27, 2020. The public portions of the filing can be accessed via the Commission’s website (https://www.prc.gov). Non-public portions of the Postal Service’s request, if any, can be accessed through compliance with the requirements of 39 CFR 3007.301.2. IV. Ordering Paragraphs It is ordered: 1. The Commission establishes Docket No. CP2020–120 for consideration of the matters raised by the Postal Service’s Notice. 2. Comments are due no later than April 27, 2020.3 3. Pursuant to 39 U.S.C. 505, Katalin K. Clendenin will serve as an officer of the Commission (Public Representative) to represent the interests of the general public in these dockets. 4. The Secretary shall arrange for publication of this order in the Federal Register. By the Commission. Erica A. Barker, Secretary. [FR Doc. 2020–08077 Filed 4–16–20; 8:45 am] BILLING CODE 7710–FW–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88625; File No. SR– NYSEArca–2019–81] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, to Adopt NYSE Arca Rule 5.2–E(j)(8) Governing the Listing and Trading of Exchange-Traded Fund Shares April 13, 2020. On November 1, 2019, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to, among other things, adopt new NYSE Arca Rule 5.2–E(j)(8) to permit the generic listing and trading of ExchangeTraded Fund Shares. The proposed rule change was published for comment in the Federal Register on November 20, 2019.3 On December 17, 2019, pursuant to Section 19(b)(2) of the Act,4 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.5 On February 12, 2020, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and replaced the proposed rule change in its entirety.6 On February 13, 2020, the Commission published the proposed rule change, as modified by Amendment No. 1, for notice and comment and instituted proceedings to determine whether to approve or disapprove the proposed change, as modified by Amendment No. 1.7 On April 7, 2020, the Exchange filed Amendment No. 2 to the proposed rule change, which replaced and superseded the proposed rule change, as modified by Amendment No. 1.8 The Commission 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 87542 (November 14, 2019), 84 FR 64170. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 87775, 84 FR 70590 (December 23, 2019). 6 See infra at note 8. 7 See Securities Exchange Act Release No. 88204, 85 FR 9892 (February 20, 2020). 8 Amendments No. 1 and 2 to the proposed rule change is available on the Commission’s website at: https://www.sec.gov/comments/sr-nysearca-201981/srnysearca201981.htm. 2 17 3 The Commission reminds interested persons that its revised and reorganized Rules of Practice and Procedure become effective April 20, 2020, and should be used in filings with the Commission after April 20, 2020. Beginning on that date, the rules will be available on the Commission’s website. In the meantime, the new rules can be found in Order No. 5407, which was issued on January 16, 2020. Docket No. RM2019–13, Order Reorganizing Commission Regulations and Amending Rules of Practice, January 16, 2020 (Order No. 5407). PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 21479 E:\FR\FM\17APN1.SGM 17APN1 21480 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices has received no comments on the proposed rule change. The Commission is publishing this notice to solicit comments on Amendment No. 2 to the proposed rule change from interested persons, and is approving the proposed rule change, as modified by Amendment No. 2, on an accelerated basis. I. The Exchange’s Description of the Proposal, as Modified by Amendment No. 2 The Exchange proposes new Rule 5.2– E(j)(8) to establish generic listing standards for Exchange-Traded Fund Shares, which are Derivative Securities Products that are permitted to operate in reliance on Rule 6c–11 under the Investment Company Act of 1940. In addition, the Exchange proposes to discontinue the quarterly reports currently required with respect to Managed Fund Shares listed on the Exchange pursuant to Commentary .01 to NYSE Arca Rule 8.600–E. This Amendment No. 2 to SR–NYSEArca– 2019–81 replaces SR–NYSEArca–2019– 81 as originally filed and Amendment 1 thereto, and supersedes such filings in their entirety. The proposed change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change jbell on DSKJLSW7X2PROD with NOTICES 1. Purpose The Exchange proposes new Rule 5.2– E(j)(8) to establish ‘‘generic’’ listing standards for Exchange-Traded Fund Shares, which are Derivative Securities Products 9 that are permitted to operate 9 The term ‘‘Derivative Securities Product’’ is defined in Rule 1.1(k) to mean a security that meets the definition of ‘‘derivative securities product’’ in Rule 19b–4(e) under the Exchange Act. 17 CFR 240.19b–4(e). As provided under Rule 19b–4(e), the VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 in reliance on Rule 6c–11 (‘‘Rule 6c– 11’’) under the Investment Company Act of 1940 (‘‘1940 Act’’).10 In addition, the Exchange proposes to discontinue the quarterly reports currently required with respect to Managed Fund Shares listed on the Exchange pursuant to Commentary .01 to Rule 8.600–E. The Exchange currently lists and trades shares of exchange-traded funds (‘‘ETFs’’) under the generic listing criteria of NYSE Arca Rule 5.2–E(j)(3) for Investment Company Units or Commentary .01 to NYSE Arca Rule 8.600–E for Managed Fund Shares, or pursuant to a Securities and Exchange Commission (‘‘Commission’’) approval order or notice of effectiveness under Section 19(b)(2) or Section 19(b)(3)(A), respectively, of the Act. Issuers of Investment Company Units and Managed Fund Shares have heretofore been required to submit an application for exemptive relief from certain provisions under the 1940 Act and to receive such relief pursuant to an exemptive order by the Commission. The Commission recently adopted Rule 6c–11 to permit ETFs that satisfy certain conditions to operate without obtaining an exemptive order from the Commission under the 1940 Act.11 The regulatory framework provided in Rule 6c–11, therefore, will streamline current procedures and reduce the costs and time frames associated with bringing ETFs to market, thereby enhancing competition among ETF issuers and reducing costs for investors.12 term ‘‘new derivative securities product’’ means any type of option, warrant, hybrid securities product or any other security, other than a single equity option or a security futures product, whose value is based, in whole or in part, upon the performance of, or interest in, an underlying instrument. The term ‘‘Exchange Act’’ is defined in Rule 1.1(q) to mean the Securities Exchange Act of 1934, as amended. 10 15 U.S.C. 80a–1. 11 See Release Nos. 33–10695; IC–33646; File No. S7–15–18 (Exchange-Traded Funds) (September 25, 2019), 84 FR 57162 (October 24, 2019) (the ‘‘Rule 6c–11 Release’’). 12 In approving the rule, the Commission stated that the ‘‘rule will modernize the regulatory framework for ETFs to reflect our more than two decades of experience with these investment products. The rule is designed to further important Commission objectives, including establishing a consistent, transparent, and efficient regulatory framework for ETFs and facilitating greater competition and innovation among ETFs.’’ Rule 6c– 11 Release, at 57163. The Commission also stated the following regarding the rule’s impact: ‘‘We believe rule 6c–11 will establish a regulatory framework that: (1) Reduces the expense and delay currently associated with forming and operating certain ETFs unable to rely on existing orders; and (2) creates a level playing field for ETFs that can rely on the rule. As such, the rule will enable increased product competition among certain ETF providers, which can lead to lower fees for investors, encourage financial innovation, and increase investor choice in the ETF market.’’ Rule 6c–11 Release, at 57204. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 Rule 19b–4(e)(1) provides that the listing and trading of a new derivative securities product by a self-regulatory organization (‘‘SRO’’) is not deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b–4,13 if the Commission has approved, pursuant to Section 19(b) of the Act, the SRO’s trading rules, procedures and listing standards for the product class that would include the new derivative securities product and the SRO has a surveillance program for the product class.14 As contemplated by this Rule, the Exchange proposes new Rule 5.2– E(j)(8) to establish generic listing standards for ETFs that are permitted to operate in reliance on Rule 6c–11. An ETF listed under proposed Rule 5.2– E(j)(8) would therefore not need a separate proposed rule change pursuant to Rule 19b–4 before it can be listed and traded on the Exchange.15 The Exchange believes that the proposed generic listing rules for Exchange-Traded Fund Shares, described below, would facilitate efficient procedures for ETFs that are permitted to operate in reliance on Rule 6c–11. The Exchange further believes that the proposed rule is fully consistent with, and will further, the Commission’s goals in adopting Rule 6c–11. As with Investment Company Units and Managed Fund Shares listed under the generic listing standards in NYSE Arca 13 17 CFR 240.19b–4(c)(1). As provided under SEC Rule 19b–4(c)(1), a stated policy, practice, or interpretation of the SRO shall be deemed to be a proposed rule change unless it is reasonably and fairly implied by an existing rule of the SRO. 14 Currently, ‘‘passive’’ ETFs (Investment Company Units) based on an underlying index as well as actively-managed ETFs (Managed Fund Shares) are listed on the Exchange pursuant to NYSE Arca Rules 5.2–E(j)(3) and 8.600–E, respectively, and such securities are eligible for Exchange listing pursuant to Rule 19b–4(e) if they satisfy the ‘‘generic’’ listing criteria specified in those Exchange rules. The Exchange may file with the Commission a proposed rule change pursuant to Rule 19(b) of the Act to permit listing of Investment Company Units and Managed Fund Shares that do not meet the applicable generic listing criteria. Such securities may be listed and traded on the Exchange following Commission approval or notice of effectiveness of the applicable proposed rule change. 15 With respect to ETFs that seek Exchange listing and that are not permitted to operate in reliance on Rule 6c–11—for example, leveraged ETFs—such ETFs could be listed on the Exchange pursuant to the generic listing criteria in NYSE Arca Rule 5.2– E(j)(3) or 8.600–E, or pursuant to an Exchange Rule 19b–4 filing to permit listing under NYSE Arca Rule 5.2–E(j)(3) or 8.600–E, as applicable. The Exchange represents that all statements and representations made in any such filing regarding (a) the description of the portfolio or reference assets, (b) limitations on portfolio holdings or reference assets, and (c) the applicability of Exchange listing rules specified in the applicable rule filing shall constitute continued listing requirements for listing the applicable series of Exchange-Traded Fund Shares. E:\FR\FM\17APN1.SGM 17APN1 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices Rules 5.2–E(j)(3) and 8.600–E, respectively, series of Exchange-Traded Fund Shares that are permitted to operate in reliance on Rule 6c–11 would be permitted to be listed and traded on the Exchange without a prior Commission approval order or notice of effectiveness pursuant to Section 19(b) of the Act. This will significantly reduce the time frame and costs associated with bringing these securities to market, thereby promoting market competition among issuers of Exchange-Traded Fund Shares, to the benefit of the investing public. jbell on DSKJLSW7X2PROD with NOTICES Proposed Rule 5.2–E(j)(8)—ExchangeTraded Fund Shares The Exchange is proposing standards that would pertain to Exchange-Traded Fund Shares to qualify for listing and trading pursuant to Rule 19b–4(e), as follows.16 Proposed Rule 5.2–E(j)(8)(a) would provide that the Exchange would consider for trading, whether by listing or pursuant to unlisted trading privileges (‘‘UTP’’), Exchange-Traded Fund Shares that meet the criteria of proposed Rule 5.2–E(j)(8). Proposed Rule 5.2–E(j)(8)(b) would specify applicability of proposed Rule 5.2–E(j)(8) and would provide that it is applicable only to Exchange-Traded Fund Shares. Proposed Rule 5.2–E(j)(8) (b) would further provide that, except to the extent inconsistent with proposed Rule 5.2–E(j)(8), or unless the context otherwise requires, Exchange rules would be applicable to the trading on the Exchange of such securities and that Exchange-Traded Fund Shares would be included within the definition of NMS Stock as defined in Rule 1.1. Proposed Rule 5.2–E(j)(8)(c) would set forth the definitions that would be used for purposes of the proposed rule as follows: • Proposed Rule 5.2–E(j)(8)(c)(1) would define the term ‘‘1940 Act’’ to mean the Investment Company Act of 1940, as amended. • Proposed Rule 5.2–E(j)(8)(c)(2) would define the term ‘‘ExchangeTraded Fund’’ as having the same meaning as the term ‘‘exchange-traded fund’’ as defined in Rule 6c–11(a)(1) under the 1940 Act.17 16 Rule 6c–11 became effective on December 23, 2019. Subject to approval of this proposed rule change, Exchange-Traded Fund Shares that are permitted to operate in reliance on Rule 6c–11 would be eligible for listing and trading on the Exchange under proposed Rule 5.2–E(j)(8) after that date. 17 Rule 6c–11(a)(1) defines ‘‘exchange-traded fund’’ as a registered open-end management company: (i) That issues (and redeems) creation units to (and from) authorized participants in exchange for a basket and a cash balancing amount VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 • Proposed Rule 5.2–E(j)(8)(c)(3) would define the term ‘‘ExchangeTraded Fund Share’’ to mean a share of stock issued by an Exchange-Traded Fund.18 Proposed Rule 5.2–E(j)(8)(c)(4) would define the term ‘‘Reporting Authority’’ to mean, in respect of a particular series of Exchange-Traded Fund Shares, the Exchange, an institution, or a reporting service designated by the Exchange or by the exchange that lists a particular series of Exchange-Traded Fund Shares (if the Exchange is trading such series pursuant to unlisted trading privileges) as the official source for calculating and reporting information relating to such series, including, but not limited to, any current index or portfolio value, the current value of the portfolio of any securities required to be deposited in connection with issuance of ExchangeTraded Fund Shares, the amount of any dividend equivalent payment or cash distribution to holders of ExchangeTraded Fund Shares, net asset value, or other information relating to the issuance, redemption or trading of Exchange-Traded Fund Shares. A series of Exchange-Traded Fund Shares may have more than one Reporting Authority, each having different functions.19 Proposed Rule 5.2–E(j)(8)(d) would specify the limitations on Exchange liability and relates to limitation of the Exchange, the Reporting Authority, or any agent of the Exchange as a result of specified events and conditions. Specifying such limitations of liability is standard in the Exchange’s rules governing the listing of Derivative Securities Products and the proposed rule text is substantively identical to Rules 5.2–E(j)(3)(D), 8.100–E(f), 8.201– E(f), 8.200–E(f), 8.202–E(f), 8.203–E(f), 8.204–E(g), 8.300–E(f), 8.400–E(f), 8.500–E(e), 8.600–E(e), and 8.700–E(g). Proposed Rule 5.2–E(j)(8)(e) would provide that Exchange may approve Exchange-Traded Fund Shares for listing and/or trading (including pursuant to UTP) pursuant to Rule 19b– 4(e) under the Exchange Act provided that each series of Exchange-Traded Fund Shares must be eligible to operate if any; and (ii) Whose shares are listed on a national securities exchange and traded at marketdetermined prices. The terms ‘‘authorized participant,’’ ‘‘basket’’ and ‘‘creation unit’’ are defined in Rule 6c–11(a). 18 The definition of Exchange-Traded Fund Shares is the same as the definition of ‘‘exchangetraded fund shares’’ in Rule 6c–11(a) under the 1940 Act. 19 Proposed Rule 5.2–E(j)(8)(c)(4) is based, for example, on Rules 8.100–E(a)(2) for Portfolio Depositary Receipts); 8.600–E(c)(4) (for Managed Fund Shares) and 8.700–E(c)(4) (for Managed Trust Securities). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 21481 in reliance on Rule 6c–11 under the 1940 Act and,) must satisfy the requirements of proposed Rule 5.2– E(j)(8)(as described below) upon initial listing and, except for subparagraph (1)(A) of Rule 5.2–E(j)(8), on a continuing basis. As further proposed, an issuer of such securities must notify the Exchange of any failure to comply with such requirements. Proposed Rule 5.2–E(j)(8)(e)(1) sets forth the initial and continued listing standards for Exchange-Traded Fund Shares to be listed on the Exchange and would provide that Exchange-Traded Fund Shares will be listed and traded on the Exchange subject to the requirement that the investment company issuing a series of ExchangeTraded Fund Shares is eligible to operate in reliance on the requirements of Rule 6c–11(c) on an initial and continued listing basis. Proposed Rule 5.2–E(j)(8)(e)(1)(A) provides that, for each series of Exchange-Traded Fund Shares, the Exchange will establish a minimum number of Exchange-Traded Fund Shares required to be outstanding at the time of commencement of trading on the Exchange. Proposed Rule 5.2–E(j)(8)(e)(2) would set forth the standards for suspension of trading or removal of Exchange-Traded Fund Shares from listing on the Exchange and would provide that the Exchange will consider the suspension of trading in, and will commence delisting proceedings under Rule 5.5– E(m) of, a series of Exchange-Traded Fund Shares under any of the following circumstances: (i) If the Exchange becomes aware that the investment company is no longer eligible to operate in reliance on Rule 6c–11; (see proposed Rule 5.2– E(j)(8)(e)(2)(A)); (ii) if the investment company no longer complies with the requirements set forth in Rule 5.2–E(j)(8) (see proposed Rule 5.2–E(j)(8)(e)(2)(B); (iii) if, following the initial twelvemonth period after commencement of trading on the Exchange of a series of Exchange-Traded Fund Shares, there are fewer than 50 beneficial holders of such series of Exchange-Traded Fund Shares (see proposed Rule 5.2–E(j)(8)(e)(2)(C)); or (iv) if such other event shall occur or condition exists which, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable (see proposed Rule 5.2–E(j)(8)(e)(2)(D)). This proposed rule text is based, for example, on Rules 5.2–E(j)(6)(B)(2)(c)(3)(for Index-Linked Securities); 8.600– E(d)(2)(C)(vi)(for Managed Fund E:\FR\FM\17APN1.SGM 17APN1 21482 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES Shares); and 8.700–E(d)(2)(c)(vi)(for Managed Trust Securities). Proposed Rule 5.2–E(j)(8)(f) would provide that transactions in ExchangeTraded Fund Shares would occur during the trading hours specified in Rule 7.34–E(a). As with other Derivative Securities Products listed on the Exchange, Exchange-Traded Fund Shares would trade during the Early, Core, and Late Trading Sessions, as defined in Rule 7.34–E(a). ETP Holders accepting orders in Exchange-Traded Fund Shares in the Early or Late Trading Session would be subject to the customer disclosure requirements specified in Rule 7.34–E(d).20 Proposed Rule 5.2–E(j)(8)(g) would provide that the Exchange would implement and maintain written surveillance procedures for ExchangeTraded Fund Shares. This proposed rule is based, for example, on Commentary .01(f) to Rule 5.2–E(j)(3) (for Investment Company Units); Commentary .03 to Rule 8.600–E (for Managed Fund Shares); and Commentary .04 to Rule 8.700–E (for Managed Trust Securities). Proposed Rule 5.2–E(j)(8)(h) would provide that, upon termination of an investment company issuing ExchangeTraded Fund Shares, the Exchange requires that Exchange-Traded Fund Shares issued in connection with such entity be removed from Exchange listing. 21 Proposed Commentary .01 to Rule 5.2–E(j)(8) would provide that a security that has previously been approved for listing on the Exchange pursuant to the generic listing requirements specified in Rule 5.2–E(j)(3) or Commentary .01 to Rule 8.600–E, or pursuant to a proposed rule change approved or subject to a notice of effectiveness by the Commission, may be considered approved for listing solely under Rule 5.2–E(j)(8) if such security is eligible to operate in reliance on Rule 6c–11 under the 1940 Act. Once so approved for listing, the continued listing requirements applicable to such previously-listed security will be those specified in paragraph (e) of Rule 5.2– E(j)(8). Any requirements for listing as 20 NYSE Arca Rule 1.1–E(o) states that the term ‘‘ETP Holder’’ shall refer to a sole proprietorship, partnership, corporation, limited liability company or other organization in good standing that has been issued an Equity Trading Permit (‘‘ETP’’). An ETP Holder must be a registered broker or dealer pursuant to Section 15 of the Act. An ETP Holder shall agree to be bound by the Certificate of Incorporation, Bylaws and Rules of the Exchange, and by all applicable rules and regulations of the Commission. 21 The Exchange will propose applicable NYSE Arca listing fees for Exchange-Traded Fund Shares in the NYSE Arca Equities Schedule of Fees and Charges in a separate proposed rule change. VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 specified in Rule 5.2–E(j)(3) or Commentary .01 to Rule 8.600–E, or an approval order or notice of effectiveness of a separate proposed rule change that differ from the requirements of Rule 5.2–E(j)(8) will no longer be applicable to such security.22 The Exchange believes that proposed Commentary .01 harmonizes the Exchange’s listing standards for all Exchange-Traded Funds that will be listed on the Exchange, even if they were previously listed pursuant to different continued listing requirements. Specifically, as noted in the Rule 6c–11 Release, one year following the effective date of Rule 6c–11, the Commission will be rescinding those portions of its prior ETF exemptive orders under the 1940 Act that grant relief related to the formation and operation of certain ETFs. The Exchange believes that once this occurs, all Exchange-Traded Funds will be subject to the same requirements under Rule 6c–11 and will no longer be subject to any differing requirements that may have been set forth in the exemptive orders issued before the effective date of Rule 6c–11. To maintain consistent standards for all Exchange-Traded Fund Shares on the Exchange, the Exchange further believes that such previously-listed products should no longer be required to comply with the previously-applicable continued listing requirements for such Exchange-Traded Funds. Proposed Commentary .02 to Rule 5.2–E(j)(8) would provide that the following requirements shall be met by series of Exchange-Traded Fund Shares on an initial and continued listing basis. With respect to series of ExchangeTraded Fund Shares that are based on an index: (1) If the underlying index is maintained by a broker-dealer or fund adviser, the broker-dealer or fund adviser will erect and maintain a ‘‘fire 22 With respect to (1) new issues of ExchangeTraded Fund Shares listed under 5.2–E(j)(8), and (2) ETFs previously listed on the Exchange pursuant to Rule 5.2–E(j)(3) or 8.600–E and that are eligible to operate under Rule 6c–11, the Exchange will file a Form 19b–4(e) pursuant to Rule 19b–4(e) under the Act. Item 3 to Form 19b–4(e) (Class of New Derivative Securities Product) would specify that the ETF is listed as an issue of Exchange-Traded Fund Shares under NYSE Arca Rule 5.2–E(j)(8). The Exchange will require Exchange-listed series of Investment Company Units or Managed Fund Shares that wish to transition to listing as Exchange-Traded Fund Shares under Rule 5.2– E(j)(8) to provide written notification to the Exchange of eligibility to rely on Rule 6c–11. After such transition, an issuer of any such security, prior to the Commission’s rescission of the issuer’s exemptive relief under the 1940 Act and following notice to the Exchange, could thereafter revert to reliance on the generic listing criteria in Rule 5.2– E(j)(3) or Commentary .01 to Rule 8.600–E, or any proposed rule change approved or subject to a notice of effectiveness by the Commission in connection with the listing of such security. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 wall’’ around the personnel who have access to information concerning changes and adjustments to the index and the index will be calculated by a third party who is not a broker-dealer or fund adviser, and (2) Any advisory committee, supervisory board, or similar entity that advises a Reporting Authority or that makes decisions on the index composition, methodology and related matters, must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable index. See proposed Commentary .02 (a) to Rule 5.2–E(j)(8). Proposed Commentary .02(a) is based on Commentary .01(b)(1) to Rule 5.2–E(j)(3) and Commentary .02(b)(1) and (b)(3) to Rule 5.2–E(j)(3). In addition, with respect to series of Exchange-Traded Fund Shares that are actively managed, if the investment adviser to the investment company issuing Exchange-Traded Fund Shares is affiliated with a broker-dealer, such investment adviser will erect and maintain a ‘‘fire wall’’ between the investment adviser and the brokerdealer with respect to access to information concerning the composition and/or changes to such ExchangeTraded Fund’s portfolio. Personnel who make decisions on the Exchange-Traded Fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable ExchangeTraded Fund portfolio. The Reporting Authority that provides information relating to the portfolio of a series of Exchange-Traded Fund Shares must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material nonpublic information regarding the actual components of such portfolio. (See proposed Commentary .02(b) to Rule 5.2–E(j)(8)). Proposed Commentary .02(b) is based in part on Commentary .06 to Rule 8.600–E. The Exchange also proposes nonsubstantive amendments to include Exchange-Traded Fund Shares in other Exchange rules. Specifically, the Exchange proposes to amend Rule 5.3– E, concerning Corporate Governance and Disclosure Policies, and Rule 5.3– E(e), concerning Shareholder/Annual Meetings, to add Exchange-Traded Fund Shares to the enumerated derivative and special purpose securities that are subject to the respective Rules. Thus, Exchange-Traded Fund Shares would be subject to corporate governance, disclosure and shareholder/annual meeting requirements that are consistent E:\FR\FM\17APN1.SGM 17APN1 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES with other derivative and special purpose securities enumerated in those Rules. The Exchange notes that ExchangeTraded Fund Shares will be subject to all Exchange rules applicable to equities trading. With respect to ExchangeTraded Fund Shares, all of the Exchange member obligations relating to product description and prospectus delivery requirements will continue to apply in accordance with Exchange rules and federal securities laws, and the Exchange and the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) will continue to monitor Exchange members for compliance with such requirements, which are not changing as a result of Rule 6c–11 under the 1940 Act. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in a series of Exchange-Traded Fund Shares.23 Trading in Exchange-Traded Fund Shares 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 Exchange-Traded Fund Shares inadvisable. These may include: (1) The extent to which certain information about the Exchange-Traded Fund Shares that is required to be disclosed under Rule 6c– 11(c) of the 1940 Act is not being made available; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. NYSE Arca Rule 7.18–E(d)(2) provides that, with respect to Derivative Securities Products (which would include Exchange-Traded Fund Shares) listed on the Exchange for which a Net Asset Value (‘‘NAV’’) is disseminated, if the Exchange becomes aware that the NAV is not being disseminated to all market participants at the same time, it will halt trading in the affected Derivative Securities Product on the NYSE Arca Marketplace until such time as the NAV is available to all market participants. In addition, the Exchange may halt trading in Exchange Traded Fund Shares if there is an interruption or disruption in the dissemination of an underlying index value, if applicable, if there are major interruptions in securities trading in U.S. or global markets, or in the presence of other unusual conditions or circumstances 23 See NYSE Arca Rule 7.12–E. VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 detrimental to the maintenance of a fair and orderly market. The Exchange will obtain a representation from the issuer of a series of Exchange-Traded Fund Shares that the NAV per share of such series will be calculated daily and will be made available to all market participants at the same time. Minimum Price Variation 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. Surveillance The Exchange represents that its surveillance procedures are adequate to properly monitor the trading of the Exchange-Traded Fund Shares in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange intends to utilize its existing surveillance procedures applicable to derivative products, which are currently applicable to Investment Company Units and Managed Fund Shares, among other product types, to monitor trading in Exchange-Traded Fund Shares. The Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in Exchange-Traded Fund Shares and certain of their applicable underlying components with other markets that are members of the Intermarket Surveillance Group (‘‘ISG’’) or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, the Exchange may obtain information regarding trading in Exchange-Traded Fund Shares and certain of their applicable underlying components from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. Additionally, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities that may be held by a series of Exchange-Traded Fund Shares reported to FINRA’s TRACE. FINRA also can access data obtained from the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (‘‘EMMA’’) system relating to municipal bond trading activity for surveillance purposes in connection with trading in a series of ExchangeTraded Fund Shares, to the extent that a series of Exchange-Traded Fund Shares holds municipal securities. As PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 21483 noted above, the issuer of a series of Exchange-Traded Fund Shares will be required to comply with Rule 10A–3 under the Act for the initial and continued listing of Exchange-Traded Fund Shares, as provided under Rule 5.3–E. Pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. As provided for under proposed Rule 5.2– E(j)(8)(e)(2), if the investment company or series of Exchange-Traded Fund Shares is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Rule 5.5–E(m). The Exchange will utilize its existing procedures to monitor issuer compliance with the requirements of proposed Rule 5.2–E(j)(8). 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 certain disclosures are not being made accurately or that other unusual conditions or circumstances are present that could be detrimental to the maintenance of a fair and orderly market. The Exchange will require periodic certification from the issuer of a series of Exchange-Traded Fund Shares that it is in compliance with Rule 6c–11 and the requirements of Rule 5.2–E(j)(8). Proposed Rule 5.2– E(j)(8)(e)(2)(i) provides that the Exchange will consider the suspension of trading in, and will commence delisting proceedings under Rule 5.5– E(m) of, a series of Exchange-Traded Fund Shares if the Exchange becomes aware that the investment company is no longer eligible to operate in reliance on Rule 6c–11. The Exchange’s awareness for purposes of determining whether to suspend trading or delist a series of Exchange-Traded Fund Shares may result from notification by the investment company or by the Exchange learning, through its own efforts, of noncompliance with Rule 5.2–E(j)(8).24 In addition, the Exchange will periodically review issuer websites to monitor whether disclosures are being made for a series of Exchange-Traded Fund Shares as required by Rule 6c–11(c)(1). The Exchange also notes that proposed Rule 5.2–E(j)(8)(e) would require an issuer of Exchange-Traded Fund Shares to notify the Exchange that it is no longer eligible to operate in reliance on Rule 6c–11 or that it does not comply 24 As proposed Rule 5.2–E(j)(8) does not impose index dissemination requirements, the Exchange does not plan to conduct a specific index dissemination surveillance for securities listed pursuant to such rule. E:\FR\FM\17APN1.SGM 17APN1 21484 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices with the requirements of proposed Rule 5.2–E(j)(8). The Exchange will rely on the foregoing procedures to become aware of any non-compliance with the requirements of Rule 5.2–E(j)(8). jbell on DSKJLSW7X2PROD with NOTICES Firewalls Commentary .01(b)(1) and Commentary .02(b) to NYSE Arca Rule 5.2–E (j)(3) (applicable to Investment Company Units) and Commentary .06 to NYSE Arca Rule 8.600–E (applicable to Managed Fund Shares) require the establishment and maintenance of a ‘‘firewall’’ around personnel who have access to information concerning changes to an index or the composition and/or changes to a fund’s portfolio; and that specified persons or entities be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the applicable index or portfolio. In the Rule 6c–11 Release, the Commission, in the context of indexbased ETFs with affiliated index providers (‘‘self-indexed ETFs’’), noted the federal securities law provisions that currently relate to implementation by funds of appropriate measures to deal with misuse of non-public information.25 The Exchange notes that these federal securities laws requirements will continue to apply to issues of index and actively-managed ETFs and the proposed generic listing rules for Exchange-Traded Fund Shares are consistent with such requirements. The Exchange notes that proposed Commentary .02(a) to Rule 5.2–E(j)(8) provides that, with respect to series of Exchange-Traded Fund Shares that are based on an index, if the underlying index is maintained by a broker-dealer 25 See Rule 6c–11 Release at 57168–57169. See also 17 CFR 270.38a–1 (rule 38a–1 under the 1940 Act) (requiring funds to adopt policies and procedures reasonably designed to prevent violation of federal securities laws); 17 CFR 270.17j–1(c)(1) (rule 17j–1(c)(1) under the Investment Company Act) (requiring funds to adopt a code of ethics containing provisions designed to prevent certain fund personnel (‘‘access persons’’) from misusing information regarding fund transactions); section 204A of the Investment Advisers Act of 1940 (‘‘Advisers Act’’) (15 U.S.C. 80b–204A) (requiring an adviser to adopt policies and procedures that are reasonably designed, taking into account the nature of its business, to prevent the misuse of material, non-public information by the adviser or any associated person, in violation of the Advisers Act or the Exchange Act, or the rules or regulations thereunder); section 15(g) of the Exchange Act (15 U.S.C. 78o(f)) (requiring a registered broker or dealer to adopt policies and procedures reasonably designed, taking into account the nature of the broker’s or dealer’s business, to prevent the misuse of material, nonpublic information by the broker or dealer or any person associated with the broker or dealer, in violation of the Exchange Act or the rules or regulations thereunder). VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 or fund adviser, the broker-dealer or fund adviser will erect and maintain a ‘‘fire wall’’ around the personnel who have access to information concerning changes and adjustments to the index and the index shall be calculated by a third party who is not a broker-dealer or fund advisor. In addition, proposed Commentary .02(b) provides that, with respect to series of Exchange-Traded Fund Shares that are actively managed, if the investment adviser to the Exchange-Traded Fund issuing Exchange-Traded Fund Shares is affiliated with a broker-dealer, such investment adviser will erect and maintain a ‘‘fire wall’’ between the investment adviser and the brokerdealer with respect to access to information concerning the composition and/or changes to such ExchangeTraded Fund portfolio. Personnel who make decisions on the applicable Exchange Traded Fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable Exchange Traded Fund portfolio. In support of this proposal, the Exchange represents that: (1) The Exchange-Traded Fund Shares will conform to the initial and continued listing criteria under Rule 5.2–E(j)(8); (2) the Exchange’s surveillance procedures are adequate to properly monitor the trading of the ExchangeTraded Fund Shares in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange intends to utilize its existing surveillance procedures applicable to derivative products, which will include ExchangeTraded Fund Shares, to monitor trading in the Exchange-Traded Fund Shares; (3) the issuer of a series of ExchangeTraded Fund Shares will be required to comply with Rule 10A–3 under the Act for the initial and continued listing of Exchange-Traded Fund Shares, as provided under Rule 5.3–E; and (4) Exchange-Traded Fund Shares will be subject to all Exchange rules applicable to equities trading. Proposed Discontinuance of Quarterly Reporting Obligation for Managed Fund Shares In its order approving the Exchange’s proposal to adopt generic listing standards for Managed Fund Shares,26 the Commission noted that the 26 See Securities Exchange Act Release No. 78397 (July 22, 2016), 81 FR 49320 (the ‘‘Managed Fund Shares Approval Order’’). PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 Exchange has represented that it would ‘‘provide the Commission staff with a report each calendar quarter that includes the following information for issues of Managed Fund Shares listed during such calendar quarter under Commentary .01 to NYSE Arca Rule 8.600–E: (1) Trading symbol and date of listing on the Exchange; (2) the number of active authorized participants and a description of any failure of an issue of Managed Fund Shares listed pursuant to Commentary .01 to Rule 8.600–E or of an authorized participant to deliver shares, cash, or cash and financial instruments in connection with creation or redemption orders; and (3) a description of any failure of an issue of Managed Fund Shares to comply with Rule 8.600–E.’’ 27 The Exchange has provided such information to the Commission on a quarterly basis for two years. The requirement to provide such quarterly reports for Managed Fund Shares is not separately specified in Rule 8.600–E, and Investment Company Units listed under Rule 5.2–E(j)(3) have not been subject to a similar requirement. The generic listing criteria in proposed Rule 5.2–E(j)(8) will now apply equally both to Exchange-Traded Fund Shares that are Investment Company Units previously listed under Rule 5.2–E(j)(3) and those that are Managed Fund Shares previously listed under Commentary .01 to Rule 8.600–E. All types of Exchange-Traded Fund Shares, whether index-based or actively managed, must be eligible to operate in reliance on Rule 6c–11.28 The Exchange believes no purpose would be served by continuing to require quarterly reports for one class of ETFs and not another when both would be subject to the same Exchange generic listing rules. In addition, Managed Fund Shares have 27 See Managed Fund Shares Approval Order at footnote 18. 28 The Exchange notes that Rule 6c–11(d) sets forth recordkeeping requirements applicable to exchange-traded funds, and provides that that the exchange-traded fund must maintain and preserve for a period of not less than five years, the first two years in an easily accessible place: (1) All written agreements (or copies thereof) between an authorized participant and the exchange-traded fund or one of its service providers that allows the authorized participant to place orders for the purchase or redemption of creation units; (2) For each basket exchanged with an authorized participant, records setting forth: (i) The ticker symbol, CUSIP or other identifier, description of holding, quantity of each holding, and percentage weight of each holding composing the basket exchanged for creation units; (ii) If applicable, identification of the basket as a custom basket and a record stating that the custom basket complies with policies and procedures that the exchangetraded fund adopted pursuant to paragraph (c)(3) of Rule 6c–11; (iii) Cash balancing amount (if any); and (iv) Identity of authorized participant transacting with the exchange-traded fund. E:\FR\FM\17APN1.SGM 17APN1 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES been trading on the Exchange since 2008 and there are currently 192 issues of Managed Fund Shares listed on the Exchange. The market for activelymanaged ETFs has expanded and matured significantly over the last twelve years and market participants, including national securities exchanges, have become more experienced with issues related to the operation and regulatory oversight of such securities. The Exchange, therefore, proposes to discontinue quarterly reporting going forward. 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, because 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, in general, to protect investors and the public interest. By facilitating efficient procedures for listing ETFs that are permitted to operate in reliance on Rule 6c–11, the generic listing rules in proposed Rule 5.2–E(j)(8) described above are consistent with, and will further, the Commission’s goals in adopting Rule 6c–11. In addition, by allowing Exchange-Traded Fund Shares to be listed and traded on the Exchange without a prior Commission approval order or notice of effectiveness pursuant to Section 19(b) of the Act, proposed Rule 5.2–E(j)(8) will significantly reduce the time frame and costs associated with bringing these securities to market, thereby promoting market competition among issuers of Exchange-Traded Fund Shares, to the benefit of the investing public. In addition, the proposed rule change would fulfill the intended objective of Rule 19b–4(e) under the Act by permitting Exchange-Traded Fund Shares that satisfy the proposed listing standards to be listed and traded without separate Commission approval. Proposed Rule 5.2–E(j)(8)(d) would specify the limitations on Exchange liability and relates to limitation of the Exchange, the Reporting Authority, or any agent of the Exchange as a result of specified events and conditions. As provided in proposed Rule 5.2– E(j)(8)(e), the Exchange may approve Exchange-Traded Fund Shares for listing and trading on the Exchange subject to the requirement that the 29 15 30 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 investment company issuing a series of Exchange-Traded Fund Shares is eligible to operate in reliance on Rule 6c–11 31 under the 1940 Act and must satisfy the requirements of Rule 5.2– E(j)(8) on an initial listing and, except for subparagraph (1)(A) of Rule 5.2– E(j)(8)(e), a continuing basis. An issuer of such securities must notify the Exchange of any failure to comply with such requirements. These requirements will ensure that Exchange-listed Exchange-Traded Fund Shares continue to operate in a manner that fully complies with the portfolio transparency requirements of Rule 6c– 11(c). As provided in proposed Rule 5.2– E(j)(8)(e)(1), Exchange-Traded Fund Shares will be listed and traded on the Exchange subject to the requirement that the investment company issuing a series of Exchange-Traded Fund Shares is eligible to operate in reliance on the requirements of Rule 6c–11(c) under the 1940 Act on an initial and continued listing basis. As provided in proposed Rule 5.2– E(j)(8)(e)(2) (Suspension of trading or removal), the Exchange will consider the suspension of trading in, and will commence delisting proceedings under Rule 5.5–E(m) of, a series of ExchangeTraded Fund Shares if the Exchange becomes aware that it is no longer eligible to operate in reliance on Rule 6c–11 or does not comply with the requirements set forth in Rule 5.2– E(j)(8); if, following the initial twelvemonth period after commencement of trading on the Exchange of a series of Exchange-Traded Fund Shares, there are fewer than 50 beneficial holders of such series of Exchange-Traded Fund Shares; or if such other event shall occur or condition exists which, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. As provided in proposed Rule 5.2– E(j)(8)(g), the Exchange will implement and maintain written surveillance procedures for Exchange-Traded Fund Shares. The Exchange represents that its surveillance procedures are adequate to properly monitor the trading of the Exchange-Traded Fund Shares in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange intends to utilize its existing surveillance procedures applicable to derivative products, which will include ExchangeTraded Fund Shares, to monitor trading in the Exchange-Traded Fund Shares. 31 Rule 6c–11(c) sets forth certain conditions applicable to exchange-traded funds, including information required to be disclosed on the fund’s website. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 21485 Proposed Rule 5.2–E(j)(8)(h) provides that, upon termination of an investment company issuing Exchange-Traded Fund Shares, the Exchange requires that Exchange-Traded Fund Shares issued in connection with such entity be removed from Exchange listing. Proposed Commentary .01 to Rule 5.2–E(j)(8) provides that a security that has previously been approved for listing on the Exchange pursuant to the generic listing requirements specified in Rule 5.2–E(j)(3) or Commentary .01 to Rule 8.600–E, or pursuant to a proposed rule change approved or subject to a notice of effectiveness by the Commission, may be considered approved for listing solely under Rule 5.2–E(j)(8) if such security is eligible to operate in reliance on Rule 6c–11 under the 1940 Act. Once so approved for listing, the continued listing requirements applicable to such previously-listed security will be those specified in paragraph (e) of Rule 5.2– E(j)(8). Any requirements for listing as specified in Rule 5.2–E(j)(3) or Commentary .01 to Rule 8.600–E, or an approval order or notice of effectiveness of a separate proposed rule change that differ from the requirements of Rule 5.2–E(j)(8) will no longer be applicable to such security. The Exchange believes proposed Commentary .01 will streamline the listing process for such securities, consistent with the regulatory framework adopted in Rule 6c–11 under the 1940 Act. Proposed Commentary .02 to Rule 5.2–E(j)(8) would provide requirements to be met on an initial and continued listing basis by series of ExchangeTraded Fund Shares that are based on an index or are actively managed regarding the erection and maintenance of a ‘‘fire wall’’ as well as implementation and maintenance of procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable index or portfolio. The Exchange believes the provisions of Commentary .02 will address possible concerns regarding misuse of material non-public information regarding an index underlying a series of ExchangeTraded Fund Shares or the portfolio for a series of Exchange-Traded Fund Shares, as applicable. The proposed addition of ExchangeTraded Fund Shares to the enumerated derivative and special purpose securities that are subject to the provisions of Rule 5.3–E (Corporate Governance and Disclosure Policies) and Rule 5.3–E (e) (Shareholder/Annual Meetings) would subject ExchangeTraded Fund Shares to the same requirements currently applicable to other 1940 Act-registered investment E:\FR\FM\17APN1.SGM 17APN1 jbell on DSKJLSW7X2PROD with NOTICES 21486 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices company securities (i.e., Investment Company Units, Managed Fund Shares and Portfolio Depositary Receipts). The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Exchange-Traded Fund Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. FINRA, on behalf of the Exchange, or the regulatory staff of the Exchange, will communicate as needed regarding trading in Exchange-Traded Fund Shares with other markets that are members of ISG, including all U.S. securities exchanges on which the components are traded. In addition, the Exchange may obtain information regarding trading in Exchange-Traded Fund Shares from other markets that are members of the ISG, including all U.S. securities exchanges on which the components are traded, or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Exchange intends to utilize its existing surveillance procedures applicable to derivative products, which are currently applicable to Investment Company Units and Managed Fund Shares, among other product types, to monitor trading in Exchange-Traded Fund Shares. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in Exchange-Traded Fund Shares and certain of their applicable underlying components with other markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, the Exchange may obtain information regarding trading in Exchange-Traded Fund Shares and certain of their applicable underlying components from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. Additionally, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities that may be held by a series of Exchange-Traded Fund Shares reported to FINRA’s TRACE. FINRA also can access data obtained from the Municipal Securities Rulemaking Board’s EMMA system relating to municipal bond trading activity for surveillance purposes in connection with trading in a series of ExchangeTraded Fund Shares, to the extent that a series of Exchange-Traded Fund VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 Shares holds municipal securities. As noted above, the issuer of a series of Exchange-Traded Fund Shares will be required to comply with Rule 10A–3 under the Act for the initial and continued listing of Exchange-Traded Fund Shares, as provided under Rule 5.3–E. With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in a series of Exchange-Traded Fund Shares.32 Trading in Exchange-Traded Fund Shares 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 Exchange-Traded Fund Shares inadvisable. NYSE Arca Rule 7.18– E(d)(2) provides that, with respect to Derivative Securities Products (which would include Exchange-Traded Fund Shares) listed on the Exchange for which an NAV is disseminated, if the Exchange becomes aware that the NAV is not being disseminated to all market participants at the same time, it will halt trading in the affected Derivative Securities Product on the NYSE Arca Marketplace until such time as the NAV is available to all market participants. The Exchange will obtain a representation from the issuer of a series of Exchange-Traded Fund Shares that the NAV per share of such series will be calculated daily and will be made available to all market participants at the same time. The Exchange will monitor for compliance with the continued listing requirements. If the Exchange-Traded Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Rule 5.5–E(m). The Exchange will utilize its existing procedures to monitor issuer compliance with the requirements of proposed Rule 5.2–E(j)(8). 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 certain disclosures are not being made accurately or that other unusual conditions or circumstances are present that could be detrimental to the maintenance of a fair and orderly market. The Exchange will require periodic certification from the issuer of a series of Exchange-Traded Fund Shares that it is in compliance with Rule 6c–11 and the requirements of Rule 5.2–E(j)(8). In addition, the Exchange, on a periodic basis will review issues of Exchange-Traded Fund Shares listed on the Exchange for compliance with the requirements of Rule 6c–11(c)(1). Proposed Rule 5.2– E(j)(8)(e) would require an issuer of Exchange-Traded Fund Shares to notify the Exchange if it is no longer eligible to operate in reliance on Rule 6c–11 or that it does not comply with the requirements of proposed Rule 5.2– E(j)(8) (except for subparagraph (1)(A) of Rule 5.2–E(j)(8)(e)). With respect to the proposed discontinuance of quarterly reports currently required for Managed Fund Shares, the Exchange believes such quarterly reports are no longer necessary in view of the requirements of Rule 6c– 11(d). The generic listing criteria in proposed Rule 5.2–E(j)(8) will now apply equally both to Exchange-Traded Fund Shares that are Investment Company Units previously listed under Rule 5.2–E(j)(3) and those that are Managed Fund Shares previously listed under Commentary .01 to Rule 8.600–E. All types of Exchange-Traded Fund Shares, whether index-based or actively managed, must be eligible to operate in reliance on Rule 6c–11.33 The Exchange believes no purpose would be served by continuing to require quarterly reports for one class of ETFs and not another when both would be subject to the same Exchange generic listing rules. As noted above, the market for actively-managed ETFs has expanded and matured significantly over the last twelve years and market participants, including national securities exchanges, have become more experienced with issues related to the operation and regulatory oversight of such securities. The Exchange, therefore, proposes to discontinue quarterly reporting going forward. For these reasons, the Exchange believes that the proposal is consistent with the Act. 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. Instead, the Exchange believes that the proposed rule change would facilitate the listing and trading of ExchangeTraded Fund Shares and result in an efficient process surrounding the listing and trading of Exchange-Traded Fund Shares, which will enhance competition 33 See 32 See PO 00000 NYSE Arca Rule 7.12–E. Frm 00101 Fmt 4703 Sfmt 4703 34 15 E:\FR\FM\17APN1.SGM note 25, supra. U.S.C. 78f(b)(8). 17APN1 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices among market participants, to the benefit of investors and the marketplace. The Exchange believes that this will reduce the time frame for bringing Exchange-Traded Fund Shares to market, thereby reducing the burdens on issuers and other market participants and promoting competition. In turn, the Exchange believes that the proposed change would make the process for listing Exchange-Traded Fund Shares more competitive by applying uniform listing standards with respect to Exchange-Traded Fund Shares. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 2, is consistent with the Act and rules and regulations thereunder applicable to a national securities exchange.35 In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 2, is consistent with Section 6(b)(5) of the Act,36 which requires, among other things, that the Exchange’s rules 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. jbell on DSKJLSW7X2PROD with NOTICES A. Proposed NYSE Arca Rule 5.2–E(j)(8) As an initial matter, the Commission notes that the Exchange currently has generic listing standards for Investment Company Units, Managed Fund Shares, and Portfolio Depositary Receipts,37 and therefore proposed NYSE Arca Rule 5.2–E(j)(8) would not permit the Exchange to generically list any novel product types. The Commission also notes that a number of the provisions of proposed NYSE Arca Rule 5.2–E(j)(8) are substantively similar to provisions of other NYSE Arca listing rules.38 The Commission believes that proposed NYSE Arca Rule 5.2–E(j)(8) is 35 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 36 15 U.S.C. 78f(b)(5). 37 See NYSE Arca Rules. 38 See Amendment No. 2, supra note 8, at 7–11. VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 reasonably designed to help prevent fraudulent and manipulative acts and practices. A central qualification for listing under the proposed rule is ongoing compliance with Rule 6c–11 under the 1940 Act, which requires, among other things, ETFs to prominently disclose the portfolio holdings that will form the basis for each calculation of net asset value per share.39 Because initial and ongoing compliance with Rule 6c–11 under the 1940 Act is a condition for listing and trading on the Exchange, the proposed rule would permit NYSE Arca to list and trade shares of an investment company with a fully transparent portfolio,40 and the Commission believes that portfolio transparency should help prevent manipulation of the price of Exchange-Traded Fund Shares.41 Additionally, proposed NYSE Arca Rule 5.2–E(j)(8) includes requirements relating to fire walls and procedures to prevent the use and dissemination of material, non-public information regarding the applicable ETF index and portfolio,42 all such 39 See Rule 6c–11 Release, supra note 11, at 57180–81. 40 See supra note 31 and accompanying text. The Commission also noted that, with respect to ETF portfolio transparency, the disclosures are designed to promote an effective arbitrage mechanism and inform investors about the risks of deviation between market price and net asset value when deciding whether to invest in ETFs generally or in a particular ETF. See Rule 6c–11 Release, supra note 11, at 57166. 41 See id. at 57169 (concluding that portfolio transparency combined with existing requirements should be sufficient to protect against certain abuses). 42 For example, proposed Commentary .02(a) to NYSE Arca Rule 5.2–E(j)(8) provides that, with respect to a series of Exchange-Traded Fund Shares that are based on an index, if the underlying index is maintained by a broker-dealer or fund adviser, the broker-dealer or fund adviser will erect and maintain a ‘‘fire wall’’ around the personnel who have access to information concerning changes and adjustments to the index, and the index will be calculated by a third party who is not a brokerdealer or fund adviser. In addition, any advisory committee, supervisory board, or similar entity that advises a Reporting Authority or that makes decisions on the index composition, methodology and related matters, must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material non-public information regarding the applicable index. Proposed Commentary .02(b) to NYSE Arca Rule 5.2–E(j)(8) further states that, with respect to series of Exchange-Traded Fund Shares that are actively managed, if the investment adviser to the investment company issuing Exchange-Traded Fund Shares is affiliated with a broker-dealer, such investment adviser will erect and maintain a ‘‘fire wall’’ between the investment adviser and the broker-dealer with respect to access to information concerning the composition and/or changes to such Exchange-Traded Fund’s portfolio. Additionally, personnel who make decisions on the ExchangeTraded Fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable Exchange- PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 21487 requirements of which are designed to prevent fraudulent and manipulative acts and practices.43 The Commission specifically notes that certain of these requirements relating to such fire walls and procedures, which are substantively identical to NYSE Arca’s rules governing the listing and trading of index-based and actively managed ETFs, apply in addition to what is already required under the Act and the 1940 Act and respective rules and regulations thereunder, and the Commission believes that such requirements collectively provide additional protections against the potential misuse of material, non-public information. Therefore, the Commission concludes that the proposed requirements relating to such fire walls and procedures, combined with ETF portfolio transparency and the existing requirements under the Act and 1940 Act, should help to protect against fraudulent and manipulative acts and practices under Section 6(b)(5) of the Act. Proposed NYSE Arca Rule 5.2– E(j)(8)(g) requires that the Exchange implement and maintain written surveillance procedures for ExchangeTraded Fund Shares. The Exchange intends to utilize its existing surveillance procedures applicable to derivative products, which are currently applicable to Investment Company Units and Managed Fund Shares (among other product types), to monitor trading in Exchange-Traded Fund Shares, and represents that its surveillance procedures are adequate to (a) properly monitor the trading of such securities during all trading sessions and (b) deter and detect violations of Exchange rules and the applicable federal securities laws. Consistent with Section 6(b)(1) of the Act, the Exchange represents that, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements, and that, as provided under proposed NYSE Arca Rule 5.2–E(j)(8)(e)(2), if the investment company or series of Exchange-Traded Fund Shares is not in Traded Fund portfolio. Moreover, the Reporting Authority that provides information relating to the portfolio of a series of Exchange-Traded Fund Shares must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material non-public information regarding the actual components of such portfolio. 43 In adopting Rule 6c–11, the Commission determined that the safeguards in the existing regulatory regime adequately address ‘‘special concerns that self-indexed ETFs present, including the potential ability of an affiliated index provider to manipulate an underlying index to the benefit or detriment of a self-indexed ETF.’’ Rule 6c–11 Release, supra note 11, 84 FR at 57168. E:\FR\FM\17APN1.SGM 17APN1 21488 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Rule 5.5–E(m).44 Further, the Exchange represents that it, or FINRA on behalf of the Exchange, will communicate as needed regarding trading in Exchange-Traded Fund Shares and certain of their applicable underlying components with other markets that are members of the ISG or with which NYSE Arca has in place a comprehensive surveillance sharing agreement. The Exchange represents that it will utilize its existing procedures to monitor issuer compliance with the requirements of proposed NYSE Arca Rule 5.2–E(j)(8). 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 certain disclosures are not being made accurately or that other unusual conditions or circumstances are present that could be detrimental to the maintenance of a fair and orderly market.45 The Exchange will require periodic certification from the issuer of a series of Exchange-Traded Fund Shares that it is in compliance with Rule 6c–11 under the 1940 Act and the requirements of NYSE Arca Rule 5.2– E(j)(8).46 Proposed NYSE Arca Rule 5.2– E(j)(8)(e)(2)(i) provides that the Exchange will consider the suspension of trading in, and will commence delisting proceedings under Rule 5.5– E(m) of, a series of Exchange-Traded Fund Shares if the Exchange becomes aware that the investment company is no longer eligible to operate in reliance on Rule 6c–11 under the 1940 Act.47 In addition, the Exchange states that it will periodically review issuer websites to monitor whether disclosures are being made for a series of Exchange-Traded Fund Shares as required by Rule 6c– 11(c)(1) under the 1940 Act.48 The Exchange also notes that proposed NYSE Arca Rule 5.2–E(j)(8)(e) would require an issuer of Exchange-Traded Fund Shares to notify the Exchange that 44 The Commission also finds that the proposed rule change, as modified by Amendment No. 2, is consistent with Section 6(b)(1) of the Act (15 U.S.C. 78f(b)(1)), which requires (among other things) that a national securities exchange be organized and have the capacity to comply with its own rules. 45 See Amendment No. 2, supra note 8, at 13. 46 See id. 47 The Exchange represents that its awareness for purposes of determining whether to suspend trading or delist a series of Exchange-Traded Fund Shares may result from notification by the investment company or by the Exchange learning, through its own efforts, of non-compliance with NYSE Arca Rule 5.2–E(j)(8). See id. 48 See id. VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 it is no longer eligible to operate in reliance on Rule 6c–11 under the 1940 Act or that it does not comply with the requirements of proposed NYSE Arca Rule 5.2–E(j)(8).49 Finally, proposed NYSE Arca Rule 5.2–E(j)(8)(e)(2)(C) requires that the Exchange commence delisting proceedings for a series of Exchange-Traded Fund Shares if, following the initial 12-month period after commencement of trading on the Exchange, there are fewer than 50 beneficial holders of such series of Exchange-Traded Fund Shares. Consistent with the requirement of Section 6(b)(5) of the Act 50 that the Exchange’s rules be designed to remove impediments to and perfect the mechanism of a free and open market, the Exchange’s rules regarding trading halts will help to ensure the maintenance of fair and orderly markets for Exchange-Traded Fund Shares. Specifically, as discussed above, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in a series of Exchange-Traded Fund Shares.51 NYSE Arca states that trading in ExchangeTraded Fund Shares will be halted if the circuit breaker parameters in NYSE Arca Rule 7.12–E have been reached.52 Additionally, NYSE Arca Rule 7.18– E(d)(2) provides that, with respect to Derivative Securities Products (which would include Exchange-Traded Fund Shares) listed on the Exchange for which an NAV is disseminated, if the Exchange becomes aware that the NAV is not being disseminated to all market participants at the same time, it will halt trading in the affected Derivative Securities Product until such time as the NAV is available to all market participants.53 Additionally, trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in Exchange-Traded Fund Shares inadvisable. As NYSE Arca represents in the proposal, examples of such market conditions or reasons may be: (1) The extent to which certain information about the Exchange-Traded Fund Shares that is required to be disclosed under Rule 6c–11 of the 1940 Act is not being made available;54 (2) if there is an interruption or disruption in the dissemination of an underlying index value, if applicable; (3) if there are major interruptions in securities trading in U.S. or global markets; or (4) in the 49 See Amendment No. 2, supra note 8, at 13–14. U.S.C. 78f(b)(5). 51 See Amendment No. 2, supra note 8, at 20. 52 See id. 53 See id. 54 See Amendment No. 2, supra note 8, at 12. 50 15 PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 presence of other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market.55 B. Discontinuance of Quarterly Reports of Generically Listed Managed Fund Shares In support of its proposal to adopt generic listing standards for Managed Fund Shares, the Exchange proposed to submit quarterly reports to the Commission disclosing certain information. These reports were designed to identify problems associated with generically listed Managed Fund Shares. In adopting Rule 6c–11 under the 1940 Act, the Commission largely eliminated prior distinctions between actively managed and index-based ETFs, and NYSE Arca does not submit quarterly reports regarding the shares of index-based ETFs that it generically lists. In addition, the Commission recognizes that, since the adoption of the Managed Fund Shares generic listing standards, the marketplace for ETFs has matured and developed, an increased number of actively managed ETFs have been listed and are trading on national securities exchanges, and market participants have become more familiar with such securities. Further, proposed NYSE Arca Rule 5.2–E(j)(8)(g) requires that the Exchange implement and maintain written surveillance procedures for Exchange-Traded Fund Shares.56 The Exchange represents that it intends to utilize its existing surveillance procedures applicable to derivative products, which will include ExchangeTraded Fund Shares, to monitor trading in the Exchange-Traded Fund Shares, and will perform ongoing surveillance of Exchange-Traded Fund Shares listed on the Exchange to ensure compliance with Rule 6c–11 and the 1940 Act on an ongoing basis. The Commission notes that manipulation concerns are mitigated by a combination of the Exchange’s surveillance procedures, NYSE Arca’s ability to halt trading under proposed NYSE Arca Rule 5.2– E(j)(8),57 and the Exchange’s ability to 55 See id. 56 Moreover, NYSE Arca Rule 8.600–E(d)(2)(C) requires that the Exchange implement and maintain written surveillance procedures for Managed Fund Shares. 57 The Exchange states that it may consider all relevant factors in exercising its discretion to halt or suspend trading in a series of Exchange-Traded Fund Shares, and that it may halt trading due to market conditions that make trading in the Exchange-Traded Fund Shares inadvisable, including the following circumstances: (1) If the circuit breaker parameters in NYSE Arca Rule 7.12– E have been reached; (2) if there is an interruption or disruption in the dissemination of an underlying E:\FR\FM\17APN1.SGM 17APN1 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices commence delisting proceedings under proposed NYSE Arca Rule 5.2– E(j)(8)(e)(2). In light of these reasons, as well as the Commission’s experience with the quarterly reports, the Commission believes that this proposal is consistent with Section 6(b)(5) of the Act, and it therefore finds that it is no longer necessary for NYSE Arca to continue to submit such quarterly reports. C. Other Related Rule Changes The Exchange also proposes nonsubstantive amendments to include Exchange-Traded Fund Shares in other Exchange rules. Specifically, the Exchange proposes to amend NYSE Arca Rule 5.3–E, concerning Corporate Governance and Disclosure Policies, and NYSE Arca Rule 5.3–E(e), concerning Shareholder/Annual Meetings, to add Exchange-Traded Fund Shares to the enumerated derivative and special purpose securities that are subject to the respective rules.58 The Exchange states that the proposed addition of Exchange-Traded Fund Shares to the enumerated derivative and special purpose securities that are subject to the provisions of NYSE Arca Rule 5.3–E (Corporate Governance and Disclosure Policies) and NYSE Arca Rule 5.3–E(e) (Shareholder/Annual Meetings) would subject ExchangeTraded Fund Shares to the same requirements currently applicable to other 1940 Act-registered investment company securities (i.e., Investment Company Units, Managed Fund Shares, and Portfolio Depositary Receipts).59 The Commission believes that these proposed changes simply incorporate proposed NYSE Arca Rule 5.2–E(j)(8) into the existing framework of the Exchange’s rules, and therefore finds that such changes are consistent with Section 6(b)(5) of the Act. D. Exchange Representations jbell on DSKJLSW7X2PROD with NOTICES In support of this proposal, the Exchange has made the following representations: (1) Exchange-Traded Fund Shares will conform to the initial and continued listing criteria under proposed NYSE Arca Rule 5.2–E(j)(8) and will be subject to all Exchange rules applicable to index value, if applicable, (3) if there are major interruptions in securities trading in U.S. or global markets; or (4) in the presence of other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market. 58 Under the current version of these rules, Investment Company Units, Portfolio Depositary Receipts and Managed Fund Shares are exempted from the specified corporate governance requirements. 59 See Amendment No. 2, supra note 8, at 19. VerDate Sep<11>2014 18:19 Apr 16, 2020 Jkt 250001 equity trading.60 With respect to Exchange-Traded Fund Shares, all of the Exchange member obligations relating to product description and prospectus delivery requirements will continue to apply in accordance with Exchange rules and federal securities laws, and the Exchange and FINRA will continue to monitor Exchange members for compliance with such requirements, which are not changing as a result of Rule 6c–11 under the 1940 Act.61 (2) NYSE Arca will (a) monitor for compliance with the continued listing standards; (b) review the website of series of Exchange-Traded Fund Shares to ensure that the requirements of Rule 6c–11 are being met; and (c) employ intraday alerts that will notify Exchange personnel of unusual trading activity throughout the day that could be indicative of unusual conditions or circumstances that could be detrimental to the maintenance of a fair and orderly market.62 (3) NYSE Arca will obtain a representation from the issuer of a series of Exchange-Traded Fund Shares that the NAV per share of such series will be calculated daily and will be made available to all market participants at the same time.63 (4) NYSE Arca’s surveillance procedures are adequate to properly monitor the trading of the ExchangeTraded Fund Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws.64 (5) The Exchange, or FINRA on behalf of the Exchange, will communicate as needed regarding trading in ExchangeTraded Fund Shares and certain of their applicable underlying components with other markets that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. Additionally, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities that may be held by a series of Exchange-Traded Fund Shares reported to TRACE. FINRA also can access data obtained from the EMMA system relating to municipal bond trading activity for surveillance purposes in connection with trading in a series of Exchange-Traded Fund 60 See id. at 11. id. 62 See id. at 13. NYSE Arca Rule 5.2–E(j)(8)(e) would require an issuer of Exchange-Traded Fund Shares to notify the Exchange that it is no longer eligible to operate in reliance on Rule 6c–11 or that it does not comply with the requirements of proposed NYSE Arca Rule 5.2–E(j)(8). 63 See id. at 12. 64 See id. at 19. 61 See PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 21489 Shares, to the extent that a series of Exchange-Traded Fund Shares holds municipal securities.65 (6) The issuer of a series of ExchangeTraded Fund Shares will be required to comply with Rule 10A–3 under the Act for the initial and continued listing of Exchange-Traded Fund Shares, as provided under NYSE Arca Rule 5.3– E.66 This approval order is based on all of the Exchange’s representations, including those set forth above and in Amendment No. 2 to the proposed rule change. For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 2, is consistent with Sections 6(b)(1) and 6(b)(5) of the Act 67 and the rules and regulations thereunder applicable to a national securities exchange. IV. Solicitation of Comments to the Proposed Rule Change, as Modified by Amendment No. 2 Interested persons are invited to submit written data, views, and arguments concerning whether Amendment No. 2 to the proposed rule change is consistent with the Exchange Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2019–81 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-2019–81. 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 65 See id. at 12–13. id. at 13. 67 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5), respectively. 66 See E:\FR\FM\17APN1.SGM 17APN1 21490 Federal Register / Vol. 85, No. 75 / Friday, April 17, 2020 / Notices 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–2019–81, and should be submitted on or before May 8, 2020. V. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 2 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 2, prior to the thirtieth day after the date of publication of notice of the filing of Amendment No. 2 in the Federal Register. In Amendment No. 2, the Exchange (among other things): (1) Expanded the circumstances in which it may halt trading in a series of ExchangeTraded Fund Shares; (2) clarified its undertakings with respect to ensuring compliance with the proposed generic listing standard; (3) specified that Exchange-Traded Fund Shares would be subject to rules governing Exchange member disclosure obligations; and (4) clarified the applicability of certain current listing rules in light of proposed NYSE Arca Rule 5.2–E(j)(8). These changes assisted the Commission in finding that the proposal is consistent with the Act. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,68 to approve the proposed rule change, as modified by Amendment No. 2, on an accelerated basis. jbell on DSKJLSW7X2PROD with NOTICES VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,69 that the proposed rule change (SR–NYSEArca– 2019–81), as modified by Amendment No. 2, be, and it hereby is, approved on an accelerated basis. 68 15 U.S.C. 78s(b)(2). 69 Id. VerDate Sep<11>2014 19:16 Apr 16, 2020 Jkt 250001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.70 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–08086 Filed 4–16–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88622; File No. SR–CBOE– 2020–014] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Designation of Longer Period for Commission Action on Proposed Rule Change Relating to Adopt a Delta-Adjusted at Close Order Instruction April 13, 2020. On February 18, 2020, Cboe Exchange, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt a Delta-Adjusted at Close order instruction that a User may apply to an order when entering it into the System for execution in an electronic or open outcry auction. The proposed rule change was published for comment in the Federal Register on March 9, 2020.3 The Commission has received no comments on the proposal. Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory 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 for this filing is April 23, 2020. The Commission is extending the 45day time period for Commission action on the proposed rule change. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. 70 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 88312 (March 3, 2020), 85 FR 13686. 4 15 U.S.C. 78s(b)(2). Accordingly, pursuant to Section 19(b)(2) of the Act,5 the Commission designates June 7, 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 change (File No. CBOE–2020–014). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–08088 Filed 4–16–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88626; File No. SR–Phlx– 2020–19] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Phlx’s Pricing Schedule April 13, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 3, 2020, Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Phlx’s Pricing Schedule. Specifically, the Exchange proposes to amend rule text within Options 7, Section 8, ‘‘Membership Fees.’’ While the changes proposed herein are effective upon filing, the Exchange has designated the amendments to become operative on May 1, 2020. The text of the proposed rule change is available on the Exchange’s website at https://nasdaqphlx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 1 15 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 5 Id. 6 17 CFR 200.30–3(a)(31). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\17APN1.SGM 17APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 75 (Friday, April 17, 2020)]
[Notices]
[Pages 21479-21490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08086]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88625; File No. SR-NYSEArca-2019-81]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, to Adopt NYSE 
Arca Rule 5.2-E(j)(8) Governing the Listing and Trading of Exchange-
Traded Fund Shares

April 13, 2020.
    On November 1, 2019, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to, among other things, adopt new 
NYSE Arca Rule 5.2-E(j)(8) to permit the generic listing and trading of 
Exchange-Traded Fund Shares. The proposed rule change was published for 
comment in the Federal Register on November 20, 2019.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 87542 (November 14, 
2019), 84 FR 64170.
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    On December 17, 2019, pursuant to Section 19(b)(2) of the Act,\4\ 
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.\5\ On February 12, 2020, the Exchange filed Amendment No. 1 to 
the proposed rule change, which amended and replaced the proposed rule 
change in its entirety.\6\ On February 13, 2020, the Commission 
published the proposed rule change, as modified by Amendment No. 1, for 
notice and comment and instituted proceedings to determine whether to 
approve or disapprove the proposed change, as modified by Amendment No. 
1.\7\ On April 7, 2020, the Exchange filed Amendment No. 2 to the 
proposed rule change, which replaced and superseded the proposed rule 
change, as modified by Amendment No. 1.\8\ The Commission

[[Page 21480]]

has received no comments on the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 87775, 84 FR 70590 
(December 23, 2019).
    \6\ See infra at note 8.
    \7\ See Securities Exchange Act Release No. 88204, 85 FR 9892 
(February 20, 2020).
    \8\ Amendments No. 1 and 2 to the proposed rule change is 
available on the Commission's website at: https://www.sec.gov/comments/sr-nysearca-2019-81/srnysearca201981.htm.
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    The Commission is publishing this notice to solicit comments on 
Amendment No. 2 to the proposed rule change from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
2, on an accelerated basis.

I. The Exchange's Description of the Proposal, as Modified by Amendment 
No. 2

    The Exchange proposes new Rule 5.2-E(j)(8) to establish generic 
listing standards for Exchange-Traded Fund Shares, which are Derivative 
Securities Products that are permitted to operate in reliance on Rule 
6c-11 under the Investment Company Act of 1940. In addition, the 
Exchange proposes to discontinue the quarterly reports currently 
required with respect to Managed Fund Shares listed on the Exchange 
pursuant to Commentary .01 to NYSE Arca Rule 8.600-E. This Amendment 
No. 2 to SR-NYSEArca-2019-81 replaces SR-NYSEArca-2019-81 as originally 
filed and Amendment 1 thereto, and supersedes such filings in their 
entirety. The proposed change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes new Rule 5.2-E(j)(8) to establish ``generic'' 
listing standards for Exchange-Traded Fund Shares, which are Derivative 
Securities Products \9\ that are permitted to operate in reliance on 
Rule 6c-11 (``Rule 6c-11'') under the Investment Company Act of 1940 
(``1940 Act'').\10\ In addition, the Exchange proposes to discontinue 
the quarterly reports currently required with respect to Managed Fund 
Shares listed on the Exchange pursuant to Commentary .01 to Rule 8.600-
E.
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    \9\ The term ``Derivative Securities Product'' is defined in 
Rule 1.1(k) to mean a security that meets the definition of 
``derivative securities product'' in Rule 19b-4(e) under the 
Exchange Act. 17 CFR 240.19b-4(e). As provided under Rule 19b-4(e), 
the term ``new derivative securities product'' means any type of 
option, warrant, hybrid securities product or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest in, an underlying instrument. The term ``Exchange Act'' 
is defined in Rule 1.1(q) to mean the Securities Exchange Act of 
1934, as amended.
    \10\ 15 U.S.C. 80a-1.
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    The Exchange currently lists and trades shares of exchange-traded 
funds (``ETFs'') under the generic listing criteria of NYSE Arca Rule 
5.2-E(j)(3) for Investment Company Units or Commentary .01 to NYSE Arca 
Rule 8.600-E for Managed Fund Shares, or pursuant to a Securities and 
Exchange Commission (``Commission'') approval order or notice of 
effectiveness under Section 19(b)(2) or Section 19(b)(3)(A), 
respectively, of the Act. Issuers of Investment Company Units and 
Managed Fund Shares have heretofore been required to submit an 
application for exemptive relief from certain provisions under the 1940 
Act and to receive such relief pursuant to an exemptive order by the 
Commission. The Commission recently adopted Rule 6c-11 to permit ETFs 
that satisfy certain conditions to operate without obtaining an 
exemptive order from the Commission under the 1940 Act.\11\ The 
regulatory framework provided in Rule 6c-11, therefore, will streamline 
current procedures and reduce the costs and time frames associated with 
bringing ETFs to market, thereby enhancing competition among ETF 
issuers and reducing costs for investors.\12\
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    \11\ See Release Nos. 33-10695; IC-33646; File No. S7-15-18 
(Exchange-Traded Funds) (September 25, 2019), 84 FR 57162 (October 
24, 2019) (the ``Rule 6c-11 Release'').
    \12\ In approving the rule, the Commission stated that the 
``rule will modernize the regulatory framework for ETFs to reflect 
our more than two decades of experience with these investment 
products. The rule is designed to further important Commission 
objectives, including establishing a consistent, transparent, and 
efficient regulatory framework for ETFs and facilitating greater 
competition and innovation among ETFs.'' Rule 6c-11 Release, at 
57163. The Commission also stated the following regarding the rule's 
impact: ``We believe rule 6c-11 will establish a regulatory 
framework that: (1) Reduces the expense and delay currently 
associated with forming and operating certain ETFs unable to rely on 
existing orders; and (2) creates a level playing field for ETFs that 
can rely on the rule. As such, the rule will enable increased 
product competition among certain ETF providers, which can lead to 
lower fees for investors, encourage financial innovation, and 
increase investor choice in the ETF market.'' Rule 6c-11 Release, at 
57204.
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    Rule 19b-4(e)(1) provides that the listing and trading of a new 
derivative securities product by a self-regulatory organization 
(``SRO'') is not deemed a proposed rule change, pursuant to paragraph 
(c)(1) of Rule 19b-4,\13\ if the Commission has approved, pursuant to 
Section 19(b) of the Act, the SRO's trading rules, procedures and 
listing standards for the product class that would include the new 
derivative securities product and the SRO has a surveillance program 
for the product class.\14\ As contemplated by this Rule, the Exchange 
proposes new Rule 5.2-E(j)(8) to establish generic listing standards 
for ETFs that are permitted to operate in reliance on Rule 6c-11. An 
ETF listed under proposed Rule 5.2-E(j)(8) would therefore not need a 
separate proposed rule change pursuant to Rule 19b-4 before it can be 
listed and traded on the Exchange.\15\
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    \13\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO 
shall be deemed to be a proposed rule change unless it is reasonably 
and fairly implied by an existing rule of the SRO.
    \14\ Currently, ``passive'' ETFs (Investment Company Units) 
based on an underlying index as well as actively-managed ETFs 
(Managed Fund Shares) are listed on the Exchange pursuant to NYSE 
Arca Rules 5.2-E(j)(3) and 8.600-E, respectively, and such 
securities are eligible for Exchange listing pursuant to Rule 19b-
4(e) if they satisfy the ``generic'' listing criteria specified in 
those Exchange rules. The Exchange may file with the Commission a 
proposed rule change pursuant to Rule 19(b) of the Act to permit 
listing of Investment Company Units and Managed Fund Shares that do 
not meet the applicable generic listing criteria. Such securities 
may be listed and traded on the Exchange following Commission 
approval or notice of effectiveness of the applicable proposed rule 
change.
    \15\ With respect to ETFs that seek Exchange listing and that 
are not permitted to operate in reliance on Rule 6c-11--for example, 
leveraged ETFs--such ETFs could be listed on the Exchange pursuant 
to the generic listing criteria in NYSE Arca Rule 5.2-E(j)(3) or 
8.600-E, or pursuant to an Exchange Rule 19b-4 filing to permit 
listing under NYSE Arca Rule 5.2-E(j)(3) or 8.600-E, as applicable. 
The Exchange represents that all statements and representations made 
in any such filing regarding (a) the description of the portfolio or 
reference assets, (b) limitations on portfolio holdings or reference 
assets, and (c) the applicability of Exchange listing rules 
specified in the applicable rule filing shall constitute continued 
listing requirements for listing the applicable series of Exchange-
Traded Fund Shares.
---------------------------------------------------------------------------

    The Exchange believes that the proposed generic listing rules for 
Exchange-Traded Fund Shares, described below, would facilitate 
efficient procedures for ETFs that are permitted to operate in reliance 
on Rule 6c-11. The Exchange further believes that the proposed rule is 
fully consistent with, and will further, the Commission's goals in 
adopting Rule 6c-11. As with Investment Company Units and Managed Fund 
Shares listed under the generic listing standards in NYSE Arca

[[Page 21481]]

Rules 5.2-E(j)(3) and 8.600-E, respectively, series of Exchange-Traded 
Fund Shares that are permitted to operate in reliance on Rule 6c-11 
would be permitted to be listed and traded on the Exchange without a 
prior Commission approval order or notice of effectiveness pursuant to 
Section 19(b) of the Act. This will significantly reduce the time frame 
and costs associated with bringing these securities to market, thereby 
promoting market competition among issuers of Exchange-Traded Fund 
Shares, to the benefit of the investing public.
Proposed Rule 5.2-E(j)(8)--Exchange-Traded Fund Shares
    The Exchange is proposing standards that would pertain to Exchange-
Traded Fund Shares to qualify for listing and trading pursuant to Rule 
19b-4(e), as follows.\16\
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    \16\ Rule 6c-11 became effective on December 23, 2019. Subject 
to approval of this proposed rule change, Exchange-Traded Fund 
Shares that are permitted to operate in reliance on Rule 6c-11 would 
be eligible for listing and trading on the Exchange under proposed 
Rule 5.2-E(j)(8) after that date.
---------------------------------------------------------------------------

    Proposed Rule 5.2-E(j)(8)(a) would provide that the Exchange would 
consider for trading, whether by listing or pursuant to unlisted 
trading privileges (``UTP''), Exchange-Traded Fund Shares that meet the 
criteria of proposed Rule 5.2-E(j)(8).
    Proposed Rule 5.2-E(j)(8)(b) would specify applicability of 
proposed Rule 5.2-E(j)(8) and would provide that it is applicable only 
to Exchange-Traded Fund Shares. Proposed Rule 5.2-E(j)(8) (b) would 
further provide that, except to the extent inconsistent with proposed 
Rule 5.2-E(j)(8), or unless the context otherwise requires, Exchange 
rules would be applicable to the trading on the Exchange of such 
securities and that Exchange-Traded Fund Shares would be included 
within the definition of NMS Stock as defined in Rule 1.1.
    Proposed Rule 5.2-E(j)(8)(c) would set forth the definitions that 
would be used for purposes of the proposed rule as follows:
     Proposed Rule 5.2-E(j)(8)(c)(1) would define the term 
``1940 Act'' to mean the Investment Company Act of 1940, as amended.
     Proposed Rule 5.2-E(j)(8)(c)(2) would define the term 
``Exchange-Traded Fund'' as having the same meaning as the term 
``exchange-traded fund'' as defined in Rule 6c-11(a)(1) under the 1940 
Act.\17\
---------------------------------------------------------------------------

    \17\ Rule 6c-11(a)(1) defines ``exchange-traded fund'' as a 
registered open-end management company: (i) That issues (and 
redeems) creation units to (and from) authorized participants in 
exchange for a basket and a cash balancing amount if any; and (ii) 
Whose shares are listed on a national securities exchange and traded 
at market-determined prices. The terms ``authorized participant,'' 
``basket'' and ``creation unit'' are defined in Rule 6c-11(a).
---------------------------------------------------------------------------

     Proposed Rule 5.2-E(j)(8)(c)(3) would define the term 
``Exchange-Traded Fund Share'' to mean a share of stock issued by an 
Exchange-Traded Fund.\18\
---------------------------------------------------------------------------

    \18\ The definition of Exchange-Traded Fund Shares is the same 
as the definition of ``exchange-traded fund shares'' in Rule 6c-
11(a) under the 1940 Act.
---------------------------------------------------------------------------

    Proposed Rule 5.2-E(j)(8)(c)(4) would define the term ``Reporting 
Authority'' to mean, in respect of a particular series of Exchange-
Traded Fund Shares, the Exchange, an institution, or a reporting 
service designated by the Exchange or by the exchange that lists a 
particular series of Exchange-Traded Fund Shares (if the Exchange is 
trading such series pursuant to unlisted trading privileges) as the 
official source for calculating and reporting information relating to 
such series, including, but not limited to, any current index or 
portfolio value, the current value of the portfolio of any securities 
required to be deposited in connection with issuance of Exchange-Traded 
Fund Shares, the amount of any dividend equivalent payment or cash 
distribution to holders of Exchange-Traded Fund Shares, net asset 
value, or other information relating to the issuance, redemption or 
trading of Exchange-Traded Fund Shares. A series of Exchange-Traded 
Fund Shares may have more than one Reporting Authority, each having 
different functions.\19\
---------------------------------------------------------------------------

    \19\ Proposed Rule 5.2-E(j)(8)(c)(4) is based, for example, on 
Rules 8.100-E(a)(2) for Portfolio Depositary Receipts); 8.600-
E(c)(4) (for Managed Fund Shares) and 8.700-E(c)(4) (for Managed 
Trust Securities).
---------------------------------------------------------------------------

    Proposed Rule 5.2-E(j)(8)(d) would specify the limitations on 
Exchange liability and relates to limitation of the Exchange, the 
Reporting Authority, or any agent of the Exchange as a result of 
specified events and conditions. Specifying such limitations of 
liability is standard in the Exchange's rules governing the listing of 
Derivative Securities Products and the proposed rule text is 
substantively identical to Rules 5.2-E(j)(3)(D), 8.100-E(f), 8.201-
E(f), 8.200-E(f), 8.202-E(f), 8.203-E(f), 8.204-E(g), 8.300-E(f), 
8.400-E(f), 8.500-E(e), 8.600-E(e), and 8.700-E(g).
    Proposed Rule 5.2-E(j)(8)(e) would provide that Exchange may 
approve Exchange-Traded Fund Shares for listing and/or trading 
(including pursuant to UTP) pursuant to Rule 19b-4(e) under the 
Exchange Act provided that each series of Exchange-Traded Fund Shares 
must be eligible to operate in reliance on Rule 6c-11 under the 1940 
Act and,) must satisfy the requirements of proposed Rule 5.2-E(j)(8)(as 
described below) upon initial listing and, except for subparagraph 
(1)(A) of Rule 5.2-E(j)(8), on a continuing basis. As further proposed, 
an issuer of such securities must notify the Exchange of any failure to 
comply with such requirements.
    Proposed Rule 5.2-E(j)(8)(e)(1) sets forth the initial and 
continued listing standards for Exchange-Traded Fund Shares to be 
listed on the Exchange and would provide that Exchange-Traded Fund 
Shares will be listed and traded on the Exchange subject to the 
requirement that the investment company issuing a series of Exchange-
Traded Fund Shares is eligible to operate in reliance on the 
requirements of Rule 6c-11(c) on an initial and continued listing 
basis.
    Proposed Rule 5.2-E(j)(8)(e)(1)(A) provides that, for each series 
of Exchange-Traded Fund Shares, the Exchange will establish a minimum 
number of Exchange-Traded Fund Shares required to be outstanding at the 
time of commencement of trading on the Exchange.
    Proposed Rule 5.2-E(j)(8)(e)(2) would set forth the standards for 
suspension of trading or removal of Exchange-Traded Fund Shares from 
listing on the Exchange and would provide that the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 5.5-E(m) of, a series of Exchange-Traded Fund 
Shares under any of the following circumstances:
    (i) If the Exchange becomes aware that the investment company is no 
longer eligible to operate in reliance on Rule 6c-11; (see proposed 
Rule 5.2-E(j)(8)(e)(2)(A));
    (ii) if the investment company no longer complies with the 
requirements set forth in Rule 5.2-E(j)(8) (see proposed Rule 5.2-
E(j)(8)(e)(2)(B);
    (iii) if, following the initial twelve-month period after 
commencement of trading on the Exchange of a series of Exchange-Traded 
Fund Shares, there are fewer than 50 beneficial holders of such series 
of Exchange-Traded Fund Shares (see proposed Rule 5.2-
E(j)(8)(e)(2)(C)); or
    (iv) if such other event shall occur or condition exists which, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable (see proposed Rule 5.2-E(j)(8)(e)(2)(D)). This proposed 
rule text is based, for example, on Rules 5.2-E(j)(6)(B)(2)(c)(3)(for 
Index-Linked Securities); 8.600-E(d)(2)(C)(vi)(for Managed Fund

[[Page 21482]]

Shares); and 8.700-E(d)(2)(c)(vi)(for Managed Trust Securities).
    Proposed Rule 5.2-E(j)(8)(f) would provide that transactions in 
Exchange-Traded Fund Shares would occur during the trading hours 
specified in Rule 7.34-E(a). As with other Derivative Securities 
Products listed on the Exchange, Exchange-Traded Fund Shares would 
trade during the Early, Core, and Late Trading Sessions, as defined in 
Rule 7.34-E(a). ETP Holders accepting orders in Exchange-Traded Fund 
Shares in the Early or Late Trading Session would be subject to the 
customer disclosure requirements specified in Rule 7.34-E(d).\20\
---------------------------------------------------------------------------

    \20\ NYSE Arca Rule 1.1-E(o) states that the term ``ETP Holder'' 
shall refer to a sole proprietorship, partnership, corporation, 
limited liability company or other organization in good standing 
that has been issued an Equity Trading Permit (``ETP''). An ETP 
Holder must be a registered broker or dealer pursuant to Section 15 
of the Act. An ETP Holder shall agree to be bound by the Certificate 
of Incorporation, Bylaws and Rules of the Exchange, and by all 
applicable rules and regulations of the Commission.
---------------------------------------------------------------------------

    Proposed Rule 5.2-E(j)(8)(g) would provide that the Exchange would 
implement and maintain written surveillance procedures for Exchange-
Traded Fund Shares. This proposed rule is based, for example, on 
Commentary .01(f) to Rule 5.2-E(j)(3) (for Investment Company Units); 
Commentary .03 to Rule 8.600-E (for Managed Fund Shares); and 
Commentary .04 to Rule 8.700-E (for Managed Trust Securities).
    Proposed Rule 5.2-E(j)(8)(h) would provide that, upon termination 
of an investment company issuing Exchange-Traded Fund Shares, the 
Exchange requires that Exchange-Traded Fund Shares issued in connection 
with such entity be removed from Exchange listing. \21\
---------------------------------------------------------------------------

    \21\ The Exchange will propose applicable NYSE Arca listing fees 
for Exchange-Traded Fund Shares in the NYSE Arca Equities Schedule 
of Fees and Charges in a separate proposed rule change.
---------------------------------------------------------------------------

    Proposed Commentary .01 to Rule 5.2-E(j)(8) would provide that a 
security that has previously been approved for listing on the Exchange 
pursuant to the generic listing requirements specified in Rule 5.2-
E(j)(3) or Commentary .01 to Rule 8.600-E, or pursuant to a proposed 
rule change approved or subject to a notice of effectiveness by the 
Commission, may be considered approved for listing solely under Rule 
5.2-E(j)(8) if such security is eligible to operate in reliance on Rule 
6c-11 under the 1940 Act. Once so approved for listing, the continued 
listing requirements applicable to such previously-listed security will 
be those specified in paragraph (e) of Rule 5.2-E(j)(8). Any 
requirements for listing as specified in Rule 5.2-E(j)(3) or Commentary 
.01 to Rule 8.600-E, or an approval order or notice of effectiveness of 
a separate proposed rule change that differ from the requirements of 
Rule 5.2-E(j)(8) will no longer be applicable to such security.\22\
---------------------------------------------------------------------------

    \22\ With respect to (1) new issues of Exchange-Traded Fund 
Shares listed under 5.2-E(j)(8), and (2) ETFs previously listed on 
the Exchange pursuant to Rule 5.2-E(j)(3) or 8.600-E and that are 
eligible to operate under Rule 6c-11, the Exchange will file a Form 
19b-4(e) pursuant to Rule 19b-4(e) under the Act. Item 3 to Form 
19b-4(e) (Class of New Derivative Securities Product) would specify 
that the ETF is listed as an issue of Exchange-Traded Fund Shares 
under NYSE Arca Rule 5.2-E(j)(8). The Exchange will require 
Exchange-listed series of Investment Company Units or Managed Fund 
Shares that wish to transition to listing as Exchange-Traded Fund 
Shares under Rule 5.2-E(j)(8) to provide written notification to the 
Exchange of eligibility to rely on Rule 6c-11. After such 
transition, an issuer of any such security, prior to the 
Commission's rescission of the issuer's exemptive relief under the 
1940 Act and following notice to the Exchange, could thereafter 
revert to reliance on the generic listing criteria in Rule 5.2-
E(j)(3) or Commentary .01 to Rule 8.600-E, or any proposed rule 
change approved or subject to a notice of effectiveness by the 
Commission in connection with the listing of such security.
---------------------------------------------------------------------------

    The Exchange believes that proposed Commentary .01 harmonizes the 
Exchange's listing standards for all Exchange-Traded Funds that will be 
listed on the Exchange, even if they were previously listed pursuant to 
different continued listing requirements. Specifically, as noted in the 
Rule 6c-11 Release, one year following the effective date of Rule 6c-
11, the Commission will be rescinding those portions of its prior ETF 
exemptive orders under the 1940 Act that grant relief related to the 
formation and operation of certain ETFs. The Exchange believes that 
once this occurs, all Exchange-Traded Funds will be subject to the same 
requirements under Rule 6c-11 and will no longer be subject to any 
differing requirements that may have been set forth in the exemptive 
orders issued before the effective date of Rule 6c-11. To maintain 
consistent standards for all Exchange-Traded Fund Shares on the 
Exchange, the Exchange further believes that such previously-listed 
products should no longer be required to comply with the previously-
applicable continued listing requirements for such Exchange-Traded 
Funds.
    Proposed Commentary .02 to Rule 5.2-E(j)(8) would provide that the 
following requirements shall be met by series of Exchange-Traded Fund 
Shares on an initial and continued listing basis. With respect to 
series of Exchange-Traded Fund Shares that are based on an index: (1) 
If the underlying index is maintained by a broker-dealer or fund 
adviser, the broker-dealer or fund adviser will erect and maintain a 
``fire wall'' around the personnel who have access to information 
concerning changes and adjustments to the index and the index will be 
calculated by a third party who is not a broker-dealer or fund adviser, 
and (2) Any advisory committee, supervisory board, or similar entity 
that advises a Reporting Authority or that makes decisions on the index 
composition, methodology and related matters, must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
applicable index. See proposed Commentary .02 (a) to Rule 5.2-E(j)(8). 
Proposed Commentary .02(a) is based on Commentary .01(b)(1) to Rule 
5.2-E(j)(3) and Commentary .02(b)(1) and (b)(3) to Rule 5.2-E(j)(3).
    In addition, with respect to series of Exchange-Traded Fund Shares 
that are actively managed, if the investment adviser to the investment 
company issuing Exchange-Traded Fund Shares is affiliated with a 
broker-dealer, such investment adviser will erect and maintain a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such Exchange-Traded Fund's portfolio. Personnel who make 
decisions on the Exchange-Traded Fund's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable Exchange-Traded 
Fund portfolio. The Reporting Authority that provides information 
relating to the portfolio of a series of Exchange-Traded Fund Shares 
must implement and maintain, or be subject to, procedures designed to 
prevent the use and dissemination of material non-public information 
regarding the actual components of such portfolio. (See proposed 
Commentary .02(b) to Rule 5.2-E(j)(8)). Proposed Commentary .02(b) is 
based in part on Commentary .06 to Rule 8.600-E.
    The Exchange also proposes non-substantive amendments to include 
Exchange-Traded Fund Shares in other Exchange rules. Specifically, the 
Exchange proposes to amend Rule 5.3-E, concerning Corporate Governance 
and Disclosure Policies, and Rule 5.3-E(e), concerning Shareholder/
Annual Meetings, to add Exchange-Traded Fund Shares to the enumerated 
derivative and special purpose securities that are subject to the 
respective Rules. Thus, Exchange-Traded Fund Shares would be subject to 
corporate governance, disclosure and shareholder/annual meeting 
requirements that are consistent

[[Page 21483]]

with other derivative and special purpose securities enumerated in 
those Rules.
    The Exchange notes that Exchange-Traded Fund Shares will be subject 
to all Exchange rules applicable to equities trading. With respect to 
Exchange-Traded Fund Shares, all of the Exchange member obligations 
relating to product description and prospectus delivery requirements 
will continue to apply in accordance with Exchange rules and federal 
securities laws, and the Exchange and the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') will continue to monitor Exchange members 
for compliance with such requirements, which are not changing as a 
result of Rule 6c-11 under the 1940 Act.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in a series of Exchange-Traded Fund Shares.\23\ Trading in 
Exchange-Traded Fund Shares 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 Exchange-Traded Fund Shares 
inadvisable.
---------------------------------------------------------------------------

    \23\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    These may include: (1) The extent to which certain information 
about the Exchange-Traded Fund Shares that is required to be disclosed 
under Rule 6c-11(c) of the 1940 Act is not being made available; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.
    NYSE Arca Rule 7.18-E(d)(2) provides that, with respect to 
Derivative Securities Products (which would include Exchange-Traded 
Fund Shares) listed on the Exchange for which a Net Asset Value 
(``NAV'') is disseminated, if the Exchange becomes aware that the NAV 
is not being disseminated to all market participants at the same time, 
it will halt trading in the affected Derivative Securities Product on 
the NYSE Arca Marketplace until such time as the NAV is available to 
all market participants. In addition, the Exchange may halt trading in 
Exchange Traded Fund Shares if there is an interruption or disruption 
in the dissemination of an underlying index value, if applicable, if 
there are major interruptions in securities trading in U.S. or global 
markets, or in the presence of other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market.
    The Exchange will obtain a representation from the issuer of a 
series of Exchange-Traded Fund Shares that the NAV per share of such 
series will be calculated daily and will be made available to all 
market participants at the same time.
Minimum Price Variation
    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.
Surveillance
    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Exchange-Traded Fund 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules. Specifically, the Exchange intends to utilize its 
existing surveillance procedures applicable to derivative products, 
which are currently applicable to Investment Company Units and Managed 
Fund Shares, among other product types, to monitor trading in Exchange-
Traded Fund Shares. The Exchange or FINRA, on behalf of the Exchange, 
will communicate as needed regarding trading in Exchange-Traded Fund 
Shares and certain of their applicable underlying components with other 
markets that are members of the Intermarket Surveillance Group 
(``ISG'') or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. In addition, the Exchange may obtain 
information regarding trading in Exchange-Traded Fund Shares and 
certain of their applicable underlying components from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement. Additionally, 
FINRA, on behalf of the Exchange, is able to access, as needed, trade 
information for certain fixed income securities that may be held by a 
series of Exchange-Traded Fund Shares reported to FINRA's TRACE. FINRA 
also can access data obtained from the Municipal Securities Rulemaking 
Board's Electronic Municipal Market Access (``EMMA'') system relating 
to municipal bond trading activity for surveillance purposes in 
connection with trading in a series of Exchange-Traded Fund Shares, to 
the extent that a series of Exchange-Traded Fund Shares holds municipal 
securities. As noted above, the issuer of a series of Exchange-Traded 
Fund Shares will be required to comply with Rule 10A-3 under the Act 
for the initial and continued listing of Exchange-Traded Fund Shares, 
as provided under Rule 5.3-E.
    Pursuant to its obligations under Section 19(g)(1) of the Act, the 
Exchange will monitor for compliance with the continued listing 
requirements. As provided for under proposed Rule 5.2-E(j)(8)(e)(2), if 
the investment company or series of Exchange-Traded Fund Shares is not 
in compliance with the applicable listing requirements, the Exchange 
will commence delisting procedures under Rule 5.5-E(m).
    The Exchange will utilize its existing procedures to monitor issuer 
compliance with the requirements of proposed Rule 5.2-E(j)(8). 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 certain disclosures are not being made accurately or 
that other unusual conditions or circumstances are present that could 
be detrimental to the maintenance of a fair and orderly market. The 
Exchange will require periodic certification from the issuer of a 
series of Exchange-Traded Fund Shares that it is in compliance with 
Rule 6c-11 and the requirements of Rule 5.2-E(j)(8). Proposed Rule 5.2-
E(j)(8)(e)(2)(i) provides that the Exchange will consider the 
suspension of trading in, and will commence delisting proceedings under 
Rule 5.5-E(m) of, a series of Exchange-Traded Fund Shares if the 
Exchange becomes aware that the investment company is no longer 
eligible to operate in reliance on Rule 6c-11. The Exchange's awareness 
for purposes of determining whether to suspend trading or delist a 
series of Exchange-Traded Fund Shares may result from notification by 
the investment company or by the Exchange learning, through its own 
efforts, of non-compliance with Rule 5.2-E(j)(8).\24\ In addition, the 
Exchange will periodically review issuer websites to monitor whether 
disclosures are being made for a series of Exchange-Traded Fund Shares 
as required by Rule 6c-11(c)(1). The Exchange also notes that proposed 
Rule 5.2-E(j)(8)(e) would require an issuer of Exchange-Traded Fund 
Shares to notify the Exchange that it is no longer eligible to operate 
in reliance on Rule 6c-11 or that it does not comply

[[Page 21484]]

with the requirements of proposed Rule 5.2-E(j)(8). The Exchange will 
rely on the foregoing procedures to become aware of any non-compliance 
with the requirements of Rule 5.2-E(j)(8).
---------------------------------------------------------------------------

    \24\ As proposed Rule 5.2-E(j)(8) does not impose index 
dissemination requirements, the Exchange does not plan to conduct a 
specific index dissemination surveillance for securities listed 
pursuant to such rule.
---------------------------------------------------------------------------

Firewalls
    Commentary .01(b)(1) and Commentary .02(b) to NYSE Arca Rule 5.2-E 
(j)(3) (applicable to Investment Company Units) and Commentary .06 to 
NYSE Arca Rule 8.600-E (applicable to Managed Fund Shares) require the 
establishment and maintenance of a ``firewall'' around personnel who 
have access to information concerning changes to an index or the 
composition and/or changes to a fund's portfolio; and that specified 
persons or entities be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding the 
applicable index or portfolio.
    In the Rule 6c-11 Release, the Commission, in the context of index-
based ETFs with affiliated index providers (``self-indexed ETFs''), 
noted the federal securities law provisions that currently relate to 
implementation by funds of appropriate measures to deal with misuse of 
non-public information.\25\ The Exchange notes that these federal 
securities laws requirements will continue to apply to issues of index 
and actively-managed ETFs and the proposed generic listing rules for 
Exchange-Traded Fund Shares are consistent with such requirements. The 
Exchange notes that proposed Commentary .02(a) to Rule 5.2-E(j)(8) 
provides that, with respect to series of Exchange-Traded Fund Shares 
that are based on an index, if the underlying index is maintained by a 
broker-dealer or fund adviser, the broker-dealer or fund adviser will 
erect and maintain a ``fire wall'' around the personnel who have access 
to information concerning changes and adjustments to the index and the 
index shall be calculated by a third party who is not a broker-dealer 
or fund advisor. In addition, proposed Commentary .02(b) provides that, 
with respect to series of Exchange-Traded Fund Shares that are actively 
managed, if the investment adviser to the Exchange-Traded Fund issuing 
Exchange-Traded Fund Shares is affiliated with a broker-dealer, such 
investment adviser will erect and maintain a ``fire wall'' between the 
investment adviser and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such Exchange-
Traded Fund portfolio. Personnel who make decisions on the applicable 
Exchange Traded Fund's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Exchange Traded Fund 
portfolio.
---------------------------------------------------------------------------

    \25\ See Rule 6c-11 Release at 57168-57169. See also 17 CFR 
270.38a-1 (rule 38a-1 under the 1940 Act) (requiring funds to adopt 
policies and procedures reasonably designed to prevent violation of 
federal securities laws); 17 CFR 270.17j-1(c)(1) (rule 17j-1(c)(1) 
under the Investment Company Act) (requiring funds to adopt a code 
of ethics containing provisions designed to prevent certain fund 
personnel (``access persons'') from misusing information regarding 
fund transactions); section 204A of the Investment Advisers Act of 
1940 (``Advisers Act'') (15 U.S.C. 80b-204A) (requiring an adviser 
to adopt policies and procedures that are reasonably designed, 
taking into account the nature of its business, to prevent the 
misuse of material, non-public information by the adviser or any 
associated person, in violation of the Advisers Act or the Exchange 
Act, or the rules or regulations thereunder); section 15(g) of the 
Exchange Act (15 U.S.C. 78o(f)) (requiring a registered broker or 
dealer to adopt policies and procedures reasonably designed, taking 
into account the nature of the broker's or dealer's business, to 
prevent the misuse of material, nonpublic information by the broker 
or dealer or any person associated with the broker or dealer, in 
violation of the Exchange Act or the rules or regulations 
thereunder).
---------------------------------------------------------------------------

    In support of this proposal, the Exchange represents that:
    (1) The Exchange-Traded Fund Shares will conform to the initial and 
continued listing criteria under Rule 5.2-E(j)(8);
    (2) the Exchange's surveillance procedures are adequate to properly 
monitor the trading of the Exchange-Traded Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules. 
Specifically, the Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products, which will include 
Exchange-Traded Fund Shares, to monitor trading in the Exchange-Traded 
Fund Shares;
    (3) the issuer of a series of Exchange-Traded Fund Shares will be 
required to comply with Rule 10A-3 under the Act for the initial and 
continued listing of Exchange-Traded Fund Shares, as provided under 
Rule 5.3-E; and
    (4) Exchange-Traded Fund Shares will be subject to all Exchange 
rules applicable to equities trading.
Proposed Discontinuance of Quarterly Reporting Obligation for Managed 
Fund Shares
    In its order approving the Exchange's proposal to adopt generic 
listing standards for Managed Fund Shares,\26\ the Commission noted 
that the Exchange has represented that it would ``provide the 
Commission staff with a report each calendar quarter that includes the 
following information for issues of Managed Fund Shares listed during 
such calendar quarter under Commentary .01 to NYSE Arca Rule 8.600-E: 
(1) Trading symbol and date of listing on the Exchange; (2) the number 
of active authorized participants and a description of any failure of 
an issue of Managed Fund Shares listed pursuant to Commentary .01 to 
Rule 8.600-E or of an authorized participant to deliver shares, cash, 
or cash and financial instruments in connection with creation or 
redemption orders; and (3) a description of any failure of an issue of 
Managed Fund Shares to comply with Rule 8.600-E.'' \27\ The Exchange 
has provided such information to the Commission on a quarterly basis 
for two years. The requirement to provide such quarterly reports for 
Managed Fund Shares is not separately specified in Rule 8.600-E, and 
Investment Company Units listed under Rule 5.2-E(j)(3) have not been 
subject to a similar requirement.
---------------------------------------------------------------------------

    \26\ See Securities Exchange Act Release No. 78397 (July 22, 
2016), 81 FR 49320 (the ``Managed Fund Shares Approval Order'').
    \27\ See Managed Fund Shares Approval Order at footnote 18.
---------------------------------------------------------------------------

    The generic listing criteria in proposed Rule 5.2-E(j)(8) will now 
apply equally both to Exchange-Traded Fund Shares that are Investment 
Company Units previously listed under Rule 5.2-E(j)(3) and those that 
are Managed Fund Shares previously listed under Commentary .01 to Rule 
8.600-E. All types of Exchange-Traded Fund Shares, whether index-based 
or actively managed, must be eligible to operate in reliance on Rule 
6c-11.\28\ The Exchange believes no purpose would be served by 
continuing to require quarterly reports for one class of ETFs and not 
another when both would be subject to the same Exchange generic listing 
rules. In addition, Managed Fund Shares have

[[Page 21485]]

been trading on the Exchange since 2008 and there are currently 192 
issues of Managed Fund Shares listed on the Exchange. The market for 
actively-managed ETFs has expanded and matured significantly over the 
last twelve years and market participants, including national 
securities exchanges, have become more experienced with issues related 
to the operation and regulatory oversight of such securities. The 
Exchange, therefore, proposes to discontinue quarterly reporting going 
forward.
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    \28\ The Exchange notes that Rule 6c-11(d) sets forth 
recordkeeping requirements applicable to exchange-traded funds, and 
provides that that the exchange-traded fund must maintain and 
preserve for a period of not less than five years, the first two 
years in an easily accessible place: (1) All written agreements (or 
copies thereof) between an authorized participant and the exchange-
traded fund or one of its service providers that allows the 
authorized participant to place orders for the purchase or 
redemption of creation units; (2) For each basket exchanged with an 
authorized participant, records setting forth: (i) The ticker 
symbol, CUSIP or other identifier, description of holding, quantity 
of each holding, and percentage weight of each holding composing the 
basket exchanged for creation units; (ii) If applicable, 
identification of the basket as a custom basket and a record stating 
that the custom basket complies with policies and procedures that 
the exchange-traded fund adopted pursuant to paragraph (c)(3) of 
Rule 6c-11; (iii) Cash balancing amount (if any); and (iv) Identity 
of authorized participant transacting with the exchange-traded fund.
---------------------------------------------------------------------------

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, because 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, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

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

    By facilitating efficient procedures for listing ETFs that are 
permitted to operate in reliance on Rule 6c-11, the generic listing 
rules in proposed Rule 5.2-E(j)(8) described above are consistent with, 
and will further, the Commission's goals in adopting Rule 6c-11. In 
addition, by allowing Exchange-Traded Fund Shares to be listed and 
traded on the Exchange without a prior Commission approval order or 
notice of effectiveness pursuant to Section 19(b) of the Act, proposed 
Rule 5.2-E(j)(8) will significantly reduce the time frame and costs 
associated with bringing these securities to market, thereby promoting 
market competition among issuers of Exchange-Traded Fund Shares, to the 
benefit of the investing public.
    In addition, the proposed rule change would fulfill the intended 
objective of Rule 19b-4(e) under the Act by permitting Exchange-Traded 
Fund Shares that satisfy the proposed listing standards to be listed 
and traded without separate Commission approval.
    Proposed Rule 5.2-E(j)(8)(d) would specify the limitations on 
Exchange liability and relates to limitation of the Exchange, the 
Reporting Authority, or any agent of the Exchange as a result of 
specified events and conditions.
    As provided in proposed Rule 5.2-E(j)(8)(e), the Exchange may 
approve Exchange-Traded Fund Shares for listing and trading on the 
Exchange subject to the requirement that the investment company issuing 
a series of Exchange-Traded Fund Shares is eligible to operate in 
reliance on Rule 6c-11 \31\ under the 1940 Act and must satisfy the 
requirements of Rule 5.2-E(j)(8) on an initial listing and, except for 
subparagraph (1)(A) of Rule 5.2-E(j)(8)(e), a continuing basis. An 
issuer of such securities must notify the Exchange of any failure to 
comply with such requirements. These requirements will ensure that 
Exchange-listed Exchange-Traded Fund Shares continue to operate in a 
manner that fully complies with the portfolio transparency requirements 
of Rule 6c-11(c).
---------------------------------------------------------------------------

    \31\ Rule 6c-11(c) sets forth certain conditions applicable to 
exchange-traded funds, including information required to be 
disclosed on the fund's website.
---------------------------------------------------------------------------

    As provided in proposed Rule 5.2-E(j)(8)(e)(1), Exchange-Traded 
Fund Shares will be listed and traded on the Exchange subject to the 
requirement that the investment company issuing a series of Exchange-
Traded Fund Shares is eligible to operate in reliance on the 
requirements of Rule 6c-11(c) under the 1940 Act on an initial and 
continued listing basis.
    As provided in proposed Rule 5.2-E(j)(8)(e)(2) (Suspension of 
trading or removal), the Exchange will consider the suspension of 
trading in, and will commence delisting proceedings under Rule 5.5-E(m) 
of, a series of Exchange-Traded Fund Shares if the Exchange becomes 
aware that it is no longer eligible to operate in reliance on Rule 6c-
11 or does not comply with the requirements set forth in Rule 5.2-
E(j)(8); if, following the initial twelve-month period after 
commencement of trading on the Exchange of a series of Exchange-Traded 
Fund Shares, there are fewer than 50 beneficial holders of such series 
of Exchange-Traded Fund Shares; or if such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable.
    As provided in proposed Rule 5.2-E(j)(8)(g), the Exchange will 
implement and maintain written surveillance procedures for Exchange-
Traded Fund Shares. The Exchange represents that its surveillance 
procedures are adequate to properly monitor the trading of the 
Exchange-Traded Fund Shares in all trading sessions and to deter and 
detect violations of Exchange rules. Specifically, the Exchange intends 
to utilize its existing surveillance procedures applicable to 
derivative products, which will include Exchange-Traded Fund Shares, to 
monitor trading in the Exchange-Traded Fund Shares.
    Proposed Rule 5.2-E(j)(8)(h) provides that, upon termination of an 
investment company issuing Exchange-Traded Fund Shares, the Exchange 
requires that Exchange-Traded Fund Shares issued in connection with 
such entity be removed from Exchange listing.
    Proposed Commentary .01 to Rule 5.2-E(j)(8) provides that a 
security that has previously been approved for listing on the Exchange 
pursuant to the generic listing requirements specified in Rule 5.2-
E(j)(3) or Commentary .01 to Rule 8.600-E, or pursuant to a proposed 
rule change approved or subject to a notice of effectiveness by the 
Commission, may be considered approved for listing solely under Rule 
5.2-E(j)(8) if such security is eligible to operate in reliance on Rule 
6c-11 under the 1940 Act. Once so approved for listing, the continued 
listing requirements applicable to such previously-listed security will 
be those specified in paragraph (e) of Rule 5.2-E(j)(8). Any 
requirements for listing as specified in Rule 5.2-E(j)(3) or Commentary 
.01 to Rule 8.600-E, or an approval order or notice of effectiveness of 
a separate proposed rule change that differ from the requirements of 
Rule 5.2-E(j)(8) will no longer be applicable to such security. The 
Exchange believes proposed Commentary .01 will streamline the listing 
process for such securities, consistent with the regulatory framework 
adopted in Rule 6c-11 under the 1940 Act.
    Proposed Commentary .02 to Rule 5.2-E(j)(8) would provide 
requirements to be met on an initial and continued listing basis by 
series of Exchange-Traded Fund Shares that are based on an index or are 
actively managed regarding the erection and maintenance of a ``fire 
wall'' as well as implementation and maintenance of procedures designed 
to prevent the use and dissemination of material non-public information 
regarding the applicable index or portfolio. The Exchange believes the 
provisions of Commentary .02 will address possible concerns regarding 
misuse of material non-public information regarding an index underlying 
a series of Exchange-Traded Fund Shares or the portfolio for a series 
of Exchange-Traded Fund Shares, as applicable.
    The proposed addition of Exchange-Traded Fund Shares to the 
enumerated derivative and special purpose securities that are subject 
to the provisions of Rule 5.3-E (Corporate Governance and Disclosure 
Policies) and Rule 5.3-E (e) (Shareholder/Annual Meetings) would 
subject Exchange-Traded Fund Shares to the same requirements currently 
applicable to other 1940 Act-registered investment

[[Page 21486]]

company securities (i.e., Investment Company Units, Managed Fund Shares 
and Portfolio Depositary Receipts).
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices. The Exchange 
has in place surveillance procedures that are adequate to properly 
monitor trading in the Exchange-Traded Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. FINRA, on behalf of the Exchange, 
or the regulatory staff of the Exchange, will communicate as needed 
regarding trading in Exchange-Traded Fund Shares with other markets 
that are members of ISG, including all U.S. securities exchanges on 
which the components are traded. In addition, the Exchange may obtain 
information regarding trading in Exchange-Traded Fund Shares from other 
markets that are members of the ISG, including all U.S. securities 
exchanges on which the components are traded, or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
The Exchange intends to utilize its existing surveillance procedures 
applicable to derivative products, which are currently applicable to 
Investment Company Units and Managed Fund Shares, among other product 
types, to monitor trading in Exchange-Traded Fund Shares. FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
Exchange-Traded Fund Shares and certain of their applicable underlying 
components with other markets that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
In addition, the Exchange may obtain information regarding trading in 
Exchange-Traded Fund Shares and certain of their applicable underlying 
components from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. Additionally, FINRA, on behalf of the Exchange, is 
able to access, as needed, trade information for certain fixed income 
securities that may be held by a series of Exchange-Traded Fund Shares 
reported to FINRA's TRACE. FINRA also can access data obtained from the 
Municipal Securities Rulemaking Board's EMMA system relating to 
municipal bond trading activity for surveillance purposes in connection 
with trading in a series of Exchange-Traded Fund Shares, to the extent 
that a series of Exchange-Traded Fund Shares holds municipal 
securities. As noted above, the issuer of a series of Exchange-Traded 
Fund Shares will be required to comply with Rule 10A-3 under the Act 
for the initial and continued listing of Exchange-Traded Fund Shares, 
as provided under Rule 5.3-E.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in a series of Exchange-Traded Fund Shares.\32\ Trading in 
Exchange-Traded Fund Shares 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 Exchange-Traded Fund Shares 
inadvisable. NYSE Arca Rule 7.18-E(d)(2) provides that, with respect to 
Derivative Securities Products (which would include Exchange-Traded 
Fund Shares) listed on the Exchange for which an NAV is disseminated, 
if the Exchange becomes aware that the NAV is not being disseminated to 
all market participants at the same time, it will halt trading in the 
affected Derivative Securities Product on the NYSE Arca Marketplace 
until such time as the NAV is available to all market participants. The 
Exchange will obtain a representation from the issuer of a series of 
Exchange-Traded Fund Shares that the NAV per share of such series will 
be calculated daily and will be made available to all market 
participants at the same time.
---------------------------------------------------------------------------

    \32\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    The Exchange will monitor for compliance with the continued listing 
requirements. If the Exchange-Traded Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under Rule 5.5-E(m).
    The Exchange will utilize its existing procedures to monitor issuer 
compliance with the requirements of proposed Rule 5.2-E(j)(8). 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 certain disclosures are not being made accurately or 
that other unusual conditions or circumstances are present that could 
be detrimental to the maintenance of a fair and orderly market. The 
Exchange will require periodic certification from the issuer of a 
series of Exchange-Traded Fund Shares that it is in compliance with 
Rule 6c-11 and the requirements of Rule 5.2-E(j)(8). In addition, the 
Exchange, on a periodic basis will review issues of Exchange-Traded 
Fund Shares listed on the Exchange for compliance with the requirements 
of Rule 6c-11(c)(1). Proposed Rule 5.2-E(j)(8)(e) would require an 
issuer of Exchange-Traded Fund Shares to notify the Exchange if it is 
no longer eligible to operate in reliance on Rule 6c-11 or that it does 
not comply with the requirements of proposed Rule 5.2-E(j)(8) (except 
for subparagraph (1)(A) of Rule 5.2-E(j)(8)(e)).
    With respect to the proposed discontinuance of quarterly reports 
currently required for Managed Fund Shares, the Exchange believes such 
quarterly reports are no longer necessary in view of the requirements 
of Rule 6c-11(d). The generic listing criteria in proposed Rule 5.2-
E(j)(8) will now apply equally both to Exchange-Traded Fund Shares that 
are Investment Company Units previously listed under Rule 5.2-E(j)(3) 
and those that are Managed Fund Shares previously listed under 
Commentary .01 to Rule 8.600-E. All types of Exchange-Traded Fund 
Shares, whether index-based or actively managed, must be eligible to 
operate in reliance on Rule 6c-11.\33\ The Exchange believes no purpose 
would be served by continuing to require quarterly reports for one 
class of ETFs and not another when both would be subject to the same 
Exchange generic listing rules. As noted above, the market for 
actively-managed ETFs has expanded and matured significantly over the 
last twelve years and market participants, including national 
securities exchanges, have become more experienced with issues related 
to the operation and regulatory oversight of such securities. The 
Exchange, therefore, proposes to discontinue quarterly reporting going 
forward.
---------------------------------------------------------------------------

    \33\ See note 25, supra.
---------------------------------------------------------------------------

    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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. Instead, the Exchange believes that the 
proposed rule change would facilitate the listing and trading of 
Exchange-Traded Fund Shares and result in an efficient process 
surrounding the listing and trading of Exchange-Traded Fund Shares, 
which will enhance competition

[[Page 21487]]

among market participants, to the benefit of investors and the 
marketplace. The Exchange believes that this will reduce the time frame 
for bringing Exchange-Traded Fund Shares to market, thereby reducing 
the burdens on issuers and other market participants and promoting 
competition. In turn, the Exchange believes that the proposed change 
would make the process for listing Exchange-Traded Fund Shares more 
competitive by applying uniform listing standards with respect to 
Exchange-Traded Fund Shares.
---------------------------------------------------------------------------

    \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.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the Act and 
rules and regulations thereunder applicable to a national securities 
exchange.\35\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act,\36\ which requires, among other things, that the 
Exchange's rules 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.
---------------------------------------------------------------------------

    \35\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Proposed NYSE Arca Rule 5.2-E(j)(8)

    As an initial matter, the Commission notes that the Exchange 
currently has generic listing standards for Investment Company Units, 
Managed Fund Shares, and Portfolio Depositary Receipts,\37\ and 
therefore proposed NYSE Arca Rule 5.2-E(j)(8) would not permit the 
Exchange to generically list any novel product types. The Commission 
also notes that a number of the provisions of proposed NYSE Arca Rule 
5.2-E(j)(8) are substantively similar to provisions of other NYSE Arca 
listing rules.\38\
---------------------------------------------------------------------------

    \37\ See NYSE Arca Rules.
    \38\ See Amendment No. 2, supra note 8, at 7-11.
---------------------------------------------------------------------------

    The Commission believes that proposed NYSE Arca Rule 5.2-E(j)(8) is 
reasonably designed to help prevent fraudulent and manipulative acts 
and practices. A central qualification for listing under the proposed 
rule is ongoing compliance with Rule 6c-11 under the 1940 Act, which 
requires, among other things, ETFs to prominently disclose the 
portfolio holdings that will form the basis for each calculation of net 
asset value per share.\39\ Because initial and ongoing compliance with 
Rule 6c-11 under the 1940 Act is a condition for listing and trading on 
the Exchange, the proposed rule would permit NYSE Arca to list and 
trade shares of an investment company with a fully transparent 
portfolio,\40\ and the Commission believes that portfolio transparency 
should help prevent manipulation of the price of Exchange-Traded Fund 
Shares.\41\ Additionally, proposed NYSE Arca Rule 5.2-E(j)(8) includes 
requirements relating to fire walls and procedures to prevent the use 
and dissemination of material, non-public information regarding the 
applicable ETF index and portfolio,\42\ all such requirements of which 
are designed to prevent fraudulent and manipulative acts and 
practices.\43\ The Commission specifically notes that certain of these 
requirements relating to such fire walls and procedures, which are 
substantively identical to NYSE Arca's rules governing the listing and 
trading of index-based and actively managed ETFs, apply in addition to 
what is already required under the Act and the 1940 Act and respective 
rules and regulations thereunder, and the Commission believes that such 
requirements collectively provide additional protections against the 
potential misuse of material, non-public information. Therefore, the 
Commission concludes that the proposed requirements relating to such 
fire walls and procedures, combined with ETF portfolio transparency and 
the existing requirements under the Act and 1940 Act, should help to 
protect against fraudulent and manipulative acts and practices under 
Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \39\ See Rule 6c-11 Release, supra note 11, at 57180-81.
    \40\ See supra note 31 and accompanying text. The Commission 
also noted that, with respect to ETF portfolio transparency, the 
disclosures are designed to promote an effective arbitrage mechanism 
and inform investors about the risks of deviation between market 
price and net asset value when deciding whether to invest in ETFs 
generally or in a particular ETF. See Rule 6c-11 Release, supra note 
11, at 57166.
    \41\ See id. at 57169 (concluding that portfolio transparency 
combined with existing requirements should be sufficient to protect 
against certain abuses).
    \42\ For example, proposed Commentary .02(a) to NYSE Arca Rule 
5.2-E(j)(8) provides that, with respect to a series of Exchange-
Traded Fund Shares that are based on an index, if the underlying 
index is maintained by a broker-dealer or fund adviser, the broker-
dealer or fund adviser will erect and maintain a ``fire wall'' 
around the personnel who have access to information concerning 
changes and adjustments to the index, and the index will be 
calculated by a third party who is not a broker-dealer or fund 
adviser. In addition, any advisory committee, supervisory board, or 
similar entity that advises a Reporting Authority or that makes 
decisions on the index composition, methodology and related matters, 
must implement and maintain, or be subject to, procedures designed 
to prevent the use and dissemination of material non-public 
information regarding the applicable index. Proposed Commentary 
.02(b) to NYSE Arca Rule 5.2-E(j)(8) further states that, with 
respect to series of Exchange-Traded Fund Shares that are actively 
managed, if the investment adviser to the investment company issuing 
Exchange-Traded Fund Shares is affiliated with a broker-dealer, such 
investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and the broker-dealer with respect to access 
to information concerning the composition and/or changes to such 
Exchange-Traded Fund's portfolio. Additionally, personnel who make 
decisions on the Exchange-Traded Fund's portfolio composition must 
be subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the 
applicable Exchange-Traded Fund portfolio. Moreover, the Reporting 
Authority that provides information relating to the portfolio of a 
series of Exchange-Traded Fund Shares must implement and maintain, 
or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
actual components of such portfolio.
    \43\ In adopting Rule 6c-11, the Commission determined that the 
safeguards in the existing regulatory regime adequately address 
``special concerns that self-indexed ETFs present, including the 
potential ability of an affiliated index provider to manipulate an 
underlying index to the benefit or detriment of a self-indexed 
ETF.'' Rule 6c-11 Release, supra note 11, 84 FR at 57168.
---------------------------------------------------------------------------

    Proposed NYSE Arca Rule 5.2-E(j)(8)(g) requires that the Exchange 
implement and maintain written surveillance procedures for Exchange-
Traded Fund Shares. The Exchange intends to utilize its existing 
surveillance procedures applicable to derivative products, which are 
currently applicable to Investment Company Units and Managed Fund 
Shares (among other product types), to monitor trading in Exchange-
Traded Fund Shares, and represents that its surveillance procedures are 
adequate to (a) properly monitor the trading of such securities during 
all trading sessions and (b) deter and detect violations of Exchange 
rules and the applicable federal securities laws. Consistent with 
Section 6(b)(1) of the Act, the Exchange represents that, pursuant to 
its obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements, and 
that, as provided under proposed NYSE Arca Rule 5.2-E(j)(8)(e)(2), if 
the investment company or series of Exchange-Traded Fund Shares is not 
in

[[Page 21488]]

compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under NYSE Arca Rule 5.5-E(m).\44\ 
Further, the Exchange represents that it, or FINRA on behalf of the 
Exchange, will communicate as needed regarding trading in Exchange-
Traded Fund Shares and certain of their applicable underlying 
components with other markets that are members of the ISG or with which 
NYSE Arca has in place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    \44\ The Commission also finds that the proposed rule change, as 
modified by Amendment No. 2, is consistent with Section 6(b)(1) of 
the Act (15 U.S.C. 78f(b)(1)), which requires (among other things) 
that a national securities exchange be organized and have the 
capacity to comply with its own rules.
---------------------------------------------------------------------------

    The Exchange represents that it will utilize its existing 
procedures to monitor issuer compliance with the requirements of 
proposed NYSE Arca Rule 5.2-E(j)(8). 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 certain 
disclosures are not being made accurately or that other unusual 
conditions or circumstances are present that could be detrimental to 
the maintenance of a fair and orderly market.\45\ The Exchange will 
require periodic certification from the issuer of a series of Exchange-
Traded Fund Shares that it is in compliance with Rule 6c-11 under the 
1940 Act and the requirements of NYSE Arca Rule 5.2-E(j)(8).\46\ 
Proposed NYSE Arca Rule 5.2-E(j)(8)(e)(2)(i) provides that the Exchange 
will consider the suspension of trading in, and will commence delisting 
proceedings under Rule 5.5-E(m) of, a series of Exchange-Traded Fund 
Shares if the Exchange becomes aware that the investment company is no 
longer eligible to operate in reliance on Rule 6c-11 under the 1940 
Act.\47\ In addition, the Exchange states that it will periodically 
review issuer websites to monitor whether disclosures are being made 
for a series of Exchange-Traded Fund Shares as required by Rule 6c-
11(c)(1) under the 1940 Act.\48\ The Exchange also notes that proposed 
NYSE Arca Rule 5.2-E(j)(8)(e) would require an issuer of Exchange-
Traded Fund Shares to notify the Exchange that it is no longer eligible 
to operate in reliance on Rule 6c-11 under the 1940 Act or that it does 
not comply with the requirements of proposed NYSE Arca Rule 5.2-
E(j)(8).\49\ Finally, proposed NYSE Arca Rule 5.2-E(j)(8)(e)(2)(C) 
requires that the Exchange commence delisting proceedings for a series 
of Exchange-Traded Fund Shares if, following the initial 12-month 
period after commencement of trading on the Exchange, there are fewer 
than 50 beneficial holders of such series of Exchange-Traded Fund 
Shares.
---------------------------------------------------------------------------

    \45\ See Amendment No. 2, supra note 8, at 13.
    \46\ See id.
    \47\ The Exchange represents that its awareness for purposes of 
determining whether to suspend trading or delist a series of 
Exchange-Traded Fund Shares may result from notification by the 
investment company or by the Exchange learning, through its own 
efforts, of non-compliance with NYSE Arca Rule 5.2-E(j)(8). See id.
    \48\ See id.
    \49\ See Amendment No. 2, supra note 8, at 13-14.
---------------------------------------------------------------------------

    Consistent with the requirement of Section 6(b)(5) of the Act \50\ 
that the Exchange's rules be designed to remove impediments to and 
perfect the mechanism of a free and open market, the Exchange's rules 
regarding trading halts will help to ensure the maintenance of fair and 
orderly markets for Exchange-Traded Fund Shares. Specifically, as 
discussed above, the Exchange may consider all relevant factors in 
exercising its discretion to halt or suspend trading in a series of 
Exchange-Traded Fund Shares.\51\ NYSE Arca states that trading in 
Exchange-Traded Fund Shares will be halted if the circuit breaker 
parameters in NYSE Arca Rule 7.12-E have been reached.\52\ 
Additionally, NYSE Arca Rule 7.18-E(d)(2) provides that, with respect 
to Derivative Securities Products (which would include Exchange-Traded 
Fund Shares) listed on the Exchange for which an NAV is disseminated, 
if the Exchange becomes aware that the NAV is not being disseminated to 
all market participants at the same time, it will halt trading in the 
affected Derivative Securities Product until such time as the NAV is 
available to all market participants.\53\ Additionally, trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in Exchange-Traded Fund Shares inadvisable. 
As NYSE Arca represents in the proposal, examples of such market 
conditions or reasons may be: (1) The extent to which certain 
information about the Exchange-Traded Fund Shares that is required to 
be disclosed under Rule 6c-11 of the 1940 Act is not being made 
available;\54\ (2) if there is an interruption or disruption in the 
dissemination of an underlying index value, if applicable; (3) if there 
are major interruptions in securities trading in U.S. or global 
markets; or (4) in the presence of other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market.\55\
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    \50\ 15 U.S.C. 78f(b)(5).
    \51\ See Amendment No. 2, supra note 8, at 20.
    \52\ See id.
    \53\ See id.
    \54\ See Amendment No. 2, supra note 8, at 12.
    \55\ See id.
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B. Discontinuance of Quarterly Reports of Generically Listed Managed 
Fund Shares

    In support of its proposal to adopt generic listing standards for 
Managed Fund Shares, the Exchange proposed to submit quarterly reports 
to the Commission disclosing certain information. These reports were 
designed to identify problems associated with generically listed 
Managed Fund Shares. In adopting Rule 6c-11 under the 1940 Act, the 
Commission largely eliminated prior distinctions between actively 
managed and index-based ETFs, and NYSE Arca does not submit quarterly 
reports regarding the shares of index-based ETFs that it generically 
lists. In addition, the Commission recognizes that, since the adoption 
of the Managed Fund Shares generic listing standards, the marketplace 
for ETFs has matured and developed, an increased number of actively 
managed ETFs have been listed and are trading on national securities 
exchanges, and market participants have become more familiar with such 
securities. Further, proposed NYSE Arca Rule 5.2-E(j)(8)(g) requires 
that the Exchange implement and maintain written surveillance 
procedures for Exchange-Traded Fund Shares.\56\ The Exchange represents 
that it intends to utilize its existing surveillance procedures 
applicable to derivative products, which will include Exchange-Traded 
Fund Shares, to monitor trading in the Exchange-Traded Fund Shares, and 
will perform ongoing surveillance of Exchange-Traded Fund Shares listed 
on the Exchange to ensure compliance with Rule 6c-11 and the 1940 Act 
on an ongoing basis. The Commission notes that manipulation concerns 
are mitigated by a combination of the Exchange's surveillance 
procedures, NYSE Arca's ability to halt trading under proposed NYSE 
Arca Rule 5.2-E(j)(8),\57\ and the Exchange's ability to

[[Page 21489]]

commence delisting proceedings under proposed NYSE Arca Rule 5.2-
E(j)(8)(e)(2). In light of these reasons, as well as the Commission's 
experience with the quarterly reports, the Commission believes that 
this proposal is consistent with Section 6(b)(5) of the Act, and it 
therefore finds that it is no longer necessary for NYSE Arca to 
continue to submit such quarterly reports.
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    \56\ Moreover, NYSE Arca Rule 8.600-E(d)(2)(C) requires that the 
Exchange implement and maintain written surveillance procedures for 
Managed Fund Shares.
    \57\ The Exchange states that it may consider all relevant 
factors in exercising its discretion to halt or suspend trading in a 
series of Exchange-Traded Fund Shares, and that it may halt trading 
due to market conditions that make trading in the Exchange-Traded 
Fund Shares inadvisable, including the following circumstances: (1) 
If the circuit breaker parameters in NYSE Arca Rule 7.12-E have been 
reached; (2) if there is an interruption or disruption in the 
dissemination of an underlying index value, if applicable, (3) if 
there are major interruptions in securities trading in U.S. or 
global markets; or (4) in the presence of other unusual conditions 
or circumstances detrimental to the maintenance of a fair and 
orderly market.
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C. Other Related Rule Changes

    The Exchange also proposes non-substantive amendments to include 
Exchange-Traded Fund Shares in other Exchange rules. Specifically, the 
Exchange proposes to amend NYSE Arca Rule 5.3-E, concerning Corporate 
Governance and Disclosure Policies, and NYSE Arca Rule 5.3-E(e), 
concerning Shareholder/Annual Meetings, to add Exchange-Traded Fund 
Shares to the enumerated derivative and special purpose securities that 
are subject to the respective rules.\58\ The Exchange states that the 
proposed addition of Exchange-Traded Fund Shares to the enumerated 
derivative and special purpose securities that are subject to the 
provisions of NYSE Arca Rule 5.3-E (Corporate Governance and Disclosure 
Policies) and NYSE Arca Rule 5.3-E(e) (Shareholder/Annual Meetings) 
would subject Exchange-Traded Fund Shares to the same requirements 
currently applicable to other 1940 Act-registered investment company 
securities (i.e., Investment Company Units, Managed Fund Shares, and 
Portfolio Depositary Receipts).\59\ The Commission believes that these 
proposed changes simply incorporate proposed NYSE Arca Rule 5.2-E(j)(8) 
into the existing framework of the Exchange's rules, and therefore 
finds that such changes are consistent with Section 6(b)(5) of the Act.
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    \58\ Under the current version of these rules, Investment 
Company Units, Portfolio Depositary Receipts and Managed Fund Shares 
are exempted from the specified corporate governance requirements.
    \59\ See Amendment No. 2, supra note 8, at 19.
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D. Exchange Representations

    In support of this proposal, the Exchange has made the following 
representations:
    (1) Exchange-Traded Fund Shares will conform to the initial and 
continued listing criteria under proposed NYSE Arca Rule 5.2-E(j)(8) 
and will be subject to all Exchange rules applicable to equity 
trading.\60\ With respect to Exchange-Traded Fund Shares, all of the 
Exchange member obligations relating to product description and 
prospectus delivery requirements will continue to apply in accordance 
with Exchange rules and federal securities laws, and the Exchange and 
FINRA will continue to monitor Exchange members for compliance with 
such requirements, which are not changing as a result of Rule 6c-11 
under the 1940 Act.\61\
---------------------------------------------------------------------------

    \60\ See id. at 11.
    \61\ See id.
---------------------------------------------------------------------------

    (2) NYSE Arca will (a) monitor for compliance with the continued 
listing standards; (b) review the website of series of Exchange-Traded 
Fund Shares to ensure that the requirements of Rule 6c-11 are being 
met; and (c) employ intraday alerts that will notify Exchange personnel 
of unusual trading activity throughout the day that could be indicative 
of unusual conditions or circumstances that could be detrimental to the 
maintenance of a fair and orderly market.\62\
---------------------------------------------------------------------------

    \62\ See id. at 13. NYSE Arca Rule 5.2-E(j)(8)(e) would require 
an issuer of Exchange-Traded Fund Shares to notify the Exchange that 
it is no longer eligible to operate in reliance on Rule 6c-11 or 
that it does not comply with the requirements of proposed NYSE Arca 
Rule 5.2-E(j)(8).
---------------------------------------------------------------------------

    (3) NYSE Arca will obtain a representation from the issuer of a 
series of Exchange-Traded Fund Shares that the NAV per share of such 
series will be calculated daily and will be made available to all 
market participants at the same time.\63\
---------------------------------------------------------------------------

    \63\ See id. at 12.
---------------------------------------------------------------------------

    (4) NYSE Arca's surveillance procedures are adequate to properly 
monitor the trading of the Exchange-Traded Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws.\64\
---------------------------------------------------------------------------

    \64\ See id. at 19.
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    (5) The Exchange, or FINRA on behalf of the Exchange, will 
communicate as needed regarding trading in Exchange-Traded Fund Shares 
and certain of their applicable underlying components with other 
markets that are members of the ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Additionally, 
FINRA, on behalf of the Exchange, is able to access, as needed, trade 
information for certain fixed income securities that may be held by a 
series of Exchange-Traded Fund Shares reported to TRACE. FINRA also can 
access data obtained from the EMMA system relating to municipal bond 
trading activity for surveillance purposes in connection with trading 
in a series of Exchange-Traded Fund Shares, to the extent that a series 
of Exchange-Traded Fund Shares holds municipal securities.\65\
---------------------------------------------------------------------------

    \65\ See id. at 12-13.
---------------------------------------------------------------------------

    (6) The issuer of a series of Exchange-Traded Fund Shares will be 
required to comply with Rule 10A-3 under the Act for the initial and 
continued listing of Exchange-Traded Fund Shares, as provided under 
NYSE Arca Rule 5.3-E.\66\
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    \66\ See id. at 13.
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    This approval order is based on all of the Exchange's 
representations, including those set forth above and in Amendment No. 2 
to the proposed rule change. For the foregoing reasons, the Commission 
finds that the proposed rule change, as modified by Amendment No. 2, is 
consistent with Sections 6(b)(1) and 6(b)(5) of the Act \67\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5), respectively.
---------------------------------------------------------------------------

IV. Solicitation of Comments to the Proposed Rule Change, as Modified 
by Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 to the proposed rule 
change is consistent with the Exchange Act. Comments may be submitted 
by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2019-81 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-2019-81. 
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

[[Page 21490]]

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-2019-81, and should 
be submitted on or before May 8, 2020.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. In Amendment No. 2, the Exchange (among 
other things): (1) Expanded the circumstances in which it may halt 
trading in a series of Exchange-Traded Fund Shares; (2) clarified its 
undertakings with respect to ensuring compliance with the proposed 
generic listing standard; (3) specified that Exchange-Traded Fund 
Shares would be subject to rules governing Exchange member disclosure 
obligations; and (4) clarified the applicability of certain current 
listing rules in light of proposed NYSE Arca Rule 5.2-E(j)(8). These 
changes assisted the Commission in finding that the proposal is 
consistent with the Act. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\68\ to approve the proposed 
rule change, as modified by Amendment No. 2, on an accelerated basis.
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\69\ that the proposed rule change (SR-NYSEArca-2019-81), as 
modified by Amendment No. 2, be, and it hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \69\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\70\
---------------------------------------------------------------------------

    \70\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08086 Filed 4-16-20; 8:45 am]
BILLING CODE 8011-01-P

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