Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt a New NYSE Arca Rule 8.900-E, 22200-22212 [2020-08385]

Download as PDF 22200 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices rule change would impact or impose any burden on competition. The proposed rule change would not affect the competitive dynamics between Clearing Members in that it would apply to all Clearing Members equally. The proposed rule change also would not inhibit access to OCC’s services or disadvantage or favor any particular user in relationship to another. In this regard, as described above, the proposed rule change is designed to further facilitate the prompt and accurate clearance and settlement of securities transactions. It would change the processing sequence so that closing sells are processed before exercises, which would ensure from a systematic perspective that only net long positions can be exercised. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–OCC–2020–004. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC’s website at https://www.theocc.com/about/ publications/bylaws.jsp. 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–OCC–2020–004 and should be submitted on or before May 12, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–08386 Filed 4–20–20; 8:45 am] BILLING CODE 8011–01–P lotter on DSKBCFDHB2PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2020–004 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88648; File No. SR– NYSEArca–2020–32] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt a New NYSE Arca Rule 8.900–E April 15, 2020. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on April 9, 2020, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt a new NYSE Arca Rule 8.900–E to permit it to list and trade Managed Portfolio Shares, which are shares of actively managed exchange-traded funds (‘‘ETFs’’) for which the portfolio is disclosed in accordance with standard mutual fund disclosure rules. The proposed rule 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. 1 15 U.S.C.78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 19 17 PO 00000 CFR 200.30–3(a)(12). Frm 00078 Fmt 4703 Sfmt 4703 E:\FR\FM\21APN1.SGM 21APN1 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change lotter on DSKBCFDHB2PROD with NOTICES 1. Purpose The Exchange proposes to add new NYSE Arca Rule 8.900–E for the purpose of permitting the listing and trading, or trading pursuant to unlisted trading privileges (‘‘UTP’’), of Managed Portfolio Shares, which are securities issued by an actively managed open-end investment management company. Proposed Listing Rules Proposed Rule 8.900–E(a) provides that the Exchange will consider for trading, whether by listing or pursuant to UTP, Managed Portfolio Shares that meet the criteria of Rule 8.900–E. Proposed Rule 8.900–E(b) provides that Rule 8.900–E is applicable only to Managed Portfolio Shares and that, except to the extent inconsistent with Rule 8.900–E, or unless the context otherwise requires, the rules and procedures of the Exchange’s Board of Directors shall be applicable to the trading on the Exchange of such securities. Proposed Rule 8.900(b) provides further that Managed Portfolio Shares are included within the definition of ‘‘security’’ or ‘‘securities’’ as such terms are used in the Rules of the Exchange. Proposed Rule 8.900–E(b)(1) provides that the Exchange will file separate proposals under Section 19(b) of the Act before the listing and trading of a series of Managed Portfolio Shares. The proposed rule further provides that all statements or representations contained in such rule filing regarding (a) the description of the portfolio or reference asset, (b) limitations on portfolio holdings or reference assets, or (c) the applicability of Exchange listing rules specified in such rule filing will constitute continued listing requirements. An issuer of such securities must notify the Exchange of any failure to comply with such continued listing requirements. Proposed Rule 8.900–E(b)(2) provides that transactions in Managed Portfolio Shares will occur during the trading hours specified in NYSE Arca Rule 7.34–E(a). Proposed Rule 8.900–E(b)(3) provides that the Exchange will implement and maintain written surveillance procedures for Managed Portfolio Shares. As part of these surveillance procedures, the Investment Company’s investment adviser will upon request by the Exchange or FINRA, on behalf of the Exchange, make available to the Exchange or FINRA the daily portfolio VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 holdings of each series of Managed Portfolio Shares. Proposed Rule 8.900–E(b)(4) provides that, if the investment adviser to the Investment Company issuing Managed Portfolio Shares is registered as a broker-dealer or is affiliated with a broker-dealer, such investment adviser will erect and maintain a ‘‘fire wall’’ between the investment adviser and personnel of the broker-dealer or brokerdealer affiliates, as applicable, with respect to access to information concerning the composition of and/or changes to such Investment Company portfolio and/or the Creation Basket. Any person related to the investment adviser or Investment Company who makes decisions pertaining to the Investment Company’s portfolio composition or has access to information regarding the Investment Company’s portfolio composition or changes thereto or the Creation Basket must be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the applicable Investment Company portfolio or changes thereto or the Creation Basket. Proposed Rule 8.900–E(b)(5) provides that any person or entity, including an AP Representative, custodian, Reporting Authority, distributor, or administrator, who has access to non-public information regarding the Investment Company’s portfolio composition or changes thereto or the Creation Basket, must be subject to procedures reasonably designed to prevent the use and dissemination of material nonpublic information regarding the applicable Investment Company portfolio or changes thereto or the Creation Basket. Moreover, if any such person or entity is registered as a brokerdealer or affiliated with a broker-dealer, such person or entity will erect and maintain a ‘‘fire wall’’ between the person or entity and the broker-dealer with respect to access to information concerning the composition and/or changes to such Investment Company portfolio or Creation Basket. Proposed Rule 8.900–E(c)(1) defines the term ‘‘Managed Portfolio Share’’ as a security that (a) represents an interest in an investment company registered under the Investment Company Act of 1940 (‘‘Investment Company’’) organized as an open-end management investment company, that invests in a portfolio of securities selected by the Investment Company’s investment adviser consistent with the Investment Company’s investment objectives and policies; (b) is issued in a Creation Unit, or multiples thereof, in return for a designated portfolio of instruments PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 22201 (and/or an amount of cash) with a value equal to the next determined net asset value and delivered to the Authorized Participant (as defined in the Investment Company’s Form N–1A filed with the Commission) through a Confidential Account; (c) when aggregated into a Redemption Unit, or multiples thereof, may be redeemed for a designated portfolio of instruments (and/or an amount of cash) with a value equal to the next determined net asset value delivered to the Confidential Account for the benefit of the Authorized Participant; and (d) the portfolio holdings for which are disclosed within at least 60 days following the end of every fiscal quarter.4 Proposed Rule 8.900–E(c)(2) defines the term ‘‘Verified Intraday Indicative Value (‘‘VIIV’’) as the indicative value of a Managed Portfolio Share based on all of the holdings of a series of Managed Portfolio Shares as of the close of business on the prior business day and, for corporate actions, based on the applicable holdings as of the opening of business on the current business day, priced and disseminated in one second intervals during the Core Trading Session by the Reporting Authority. Proposed Rule 8.900–E(c)(3) defines the term ‘‘AP Representative’’ as an unaffiliated broker-dealer, with which an Authorized Participant has signed an agreement to establish a Confidential Account for the benefit of such Authorized Participant, that will deliver or receive, on behalf of the Authorized Participant, all consideration to or from the Investment Company in a creation or redemption. An AP Representative will not be permitted to disclose the Creation Basket to any person, including the Authorized Participants. Proposed Rule 8.900–E(c)(4) defines the term ‘‘Confidential Account’’ as an account owned by an Authorized Participant and held with an AP Representative on behalf of the Authorized Participant. The account will be established and governed by contractual agreement between the AP Representative and the Authorized Participant solely for the purposes of creation and redemption, while keeping confidential the Creation Basket constituents of each series of Managed Portfolio Shares, including from the Authorized Participant. The books and records of the Confidential Account will 4 For purposes of this filing, references to a series of Managed Portfolio Shares are referred to interchangeably as a series of Managed Portfolio Shares or as a ‘‘Fund’’ and shares of a series of Managed Portfolio Shares are generally referred to as the ‘‘Shares’’. E:\FR\FM\21APN1.SGM 21APN1 lotter on DSKBCFDHB2PROD with NOTICES 22202 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices be maintained by the AP Representative on behalf of the Authorized Participant. Proposed Rule 8.900–E(c)(5) defines the term ‘‘Creation Basket’’ as on any given business day the names and quantities of the specified instruments (and/or an amount of cash) that are required for an AP Representative to deposit in-kind on behalf of an Authorized Participant in exchange for a Creation Unit and the names and quantities of the specified instruments (and/or an amount of cash) that will be transferred in-kind to an AP Representative on behalf of an Authorized Participant in exchange for a Redemption Unit, which will be identical and will be transmitted to each AP Representative before the commencement of trading. Proposed Rule 8.900–E(c)(6) defines the term ‘‘Creation Unit’’ as a specified minimum number of Managed Portfolio Shares issued by an Investment Company at the request of an Authorized Participant in return for a designated portfolio of instruments and/ or cash. Proposed Rule 8.900–E(c)(7) defines the term ‘‘Redemption Unit’’ as a specified minimum number of Managed Portfolio Shares that may be redeemed to an Investment Company at the request of an Authorized Participant in return for a portfolio of instruments and/or cash. Proposed Rule 8.900–E(c)(8) defines the term ‘‘Reporting Authority’’ in respect of a particular series of Managed Portfolio Shares as the Exchange, an institution, or a reporting service designated by the Exchange or by the exchange that lists a particular series of Managed Portfolio 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, the net asset value, the Verified Intraday Indicative Value, or other information relating to the issuance, redemption or trading of Managed Portfolio Shares. A series of Managed Portfolio Shares may have more than one Reporting Authority, each having different functions. Proposed Rule 8.900–E(c)(9) provides that the term ‘‘Normal Market Conditions’’ includes, but is not limited to, the absence of trading halts in the applicable financial markets generally; operations issues (e.g., systems failure) causing dissemination of inaccurate market information; or force majeure type events such as natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 disruptions or any similar intervening circumstance. Proposed Rule 8.900–E(d) sets forth initial listing criteria applicable to Managed Portfolio Shares. Proposed Rule 8.900–E(d)(1)(A) provides that, for each series of Managed Portfolio Shares, the Exchange will establish a minimum number of Managed Portfolio Shares required to be outstanding at the time of commencement of trading on the Exchange. In addition, proposed Rule 8.900–E(d)(1)(B) provides that the Exchange will obtain a representation from the issuer of each series of Managed Portfolio Shares that the net asset value (‘‘NAV’’) per share for the series will be calculated daily and that the NAV will be made available to all market participants at the same time.5 Proposed Rule 8.900–E(d)(1(C) provides that all Managed Portfolio Shares shall have a stated investment objective, which shall be adhered to under Normal Market Conditions. Proposed Rule 8.900–E(d)(2) provides that each series of Managed Portfolio Shares will be listed and traded subject to application of the following continued listing criteria. Proposed Rule 8.900–E(d)(2)(A) provides that the VIIV for Managed Portfolio Shares will be widely disseminated by the Reporting Authority and/or by one or more major market data vendors in one second intervals during the Exchange’s Core Trading Session (as defined in NYSE Arca Rule 7.34–E) and will be disseminated to all market participants at the same time. Proposed Rule 8.900–E(d)(2)(B) provides that the Exchange will consider the suspension of trading in, and will commence delisting proceedings under Rule 5.5–E(m) for, a series of Managed Portfolio Shares under any of the following circumstances: (i) If, following the initial twelve-month period after commencement of trading on the Exchange of a series of Managed Portfolio Shares, there are fewer than 50 beneficial holders of the series of Managed Portfolio Shares; (ii) if the Exchange has halted trading in a series of Managed Portfolio Shares because the VIIV is interrupted pursuant to Rule 8.900–E(d)(2)(C)(ii) and such interruption persists past the trading 5 NYSE Arca Rule 7.18–E(d)(2) (‘‘Trading Halts of Derivative Securities Products Listed on the NYSE Arca Marketplace)’’ provides that, with respect to Derivative Securities Products listed on the NYSE Arca Marketplace for which a 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. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 day in which it occurred or is no longer available; (iii) if the Exchange has halted trading in a series of Managed Portfolio Shares because the NAV with respect to such series of Managed Portfolio Shares is not disseminated to all market participants at the same time, the holdings of such series of Managed Portfolio Shares are not made available on at least a quarterly basis as required under the Investment Company Act of 1940 (the ‘‘1940 Act’’), or such holdings are not made available to all market participants at the same time pursuant to Rule 8.900–E(d)(2)(C)(ii) and such issue persists past the trading day in which it occurred; (iv) if the Exchange has halted trading in a series of Managed Portfolio Shares pursuant to Rule 8.900–E(d)(2)(C)(i), such issue persists past the trading day in which it occurred; (v) if the Investment Company issuing the Managed Portfolio Shares has failed to file any filings required by the Commission or if the Exchange is aware that the Investment Company is not in compliance with the conditions of any currently applicable exemptive order or no-action relief granted by the Commission or Commission staff to the Investment Company with respect to the series of Managed Portfolio Shares; (vi) if any of the continued listing requirements set forth in Rule 8.900–E are not continuously maintained; (vii) if any of the statements or representations regarding (a) the description of the portfolio, (b) limitations on portfolio holdings, or (c) the applicability of Exchange listing rules, specified in the Exchange’s rule filing pursuant to Section 19(b) of the Securities Exchange Act of 1934 to permit the listing and trading of a series of Managed Portfolio Shares, are not continuously maintained; or (viii) if such other event shall occur or condition exists which, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. Proposed Rule 8.900–E(d)(2)(C)(i) provides that the Exchange may consider all relevant factors in exercising its discretion to halt trading in a series of Managed Portfolio Shares. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the series of Managed Portfolio Shares inadvisable. These may include: (a) The extent to which trading is not occurring in the securities and/or the financial instruments composing the portfolio; or (b) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Proposed Rule 8.900–E(d)(2)(C)(ii) provides that, if the Exchange becomes E:\FR\FM\21APN1.SGM 21APN1 lotter on DSKBCFDHB2PROD with NOTICES Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices aware that: (a) the Verified Intraday Indicative Value of a series of Managed Portfolio Shares is not being calculated or disseminated in one second intervals, as required; (b) the net asset value with respect to a series of Managed Portfolio Shares is not disseminated to all market participants at the same time; (c) the holdings of a series of Managed Portfolio Shares are not made available on at least a quarterly basis as required under the 1940 Act; or (d) such holdings are not made available to all market participants at the same time (except as otherwise permitted under the currently applicable exemptive order or no-action relief granted by the Commission or Commission staff to the Investment Company with respect to the series of Managed Portfolio Shares), it will halt trading in such series until such time as the Verified Intraday Indicative Value, the net asset value, or the holdings are available, as required. Proposed Rule 8.900–E(d)(2)(D) provides that, upon termination of an Investment Company, the Exchange requires that Managed Portfolio Shares issued in connection with such entity be removed from Exchange listing. Proposed Rule 8.900–E(d)(2)(E) provides that voting rights shall be as set forth in the applicable Investment Company prospectus and/or statement of additional information. Proposed Rule 8.900–E(e), which relates to limitation of Exchange liability, provides that neither the Exchange, the Reporting Authority, when the Exchange is acting in the capacity of a Reporting Authority, nor any agent of the Exchange shall have any liability for damages, claims, losses or expenses caused by any errors, omissions, or delays in calculating or disseminating any current portfolio value; the current value of the portfolio of securities required to be deposited to the open-end management investment company in connection with issuance of Managed Portfolio Shares; the VIIV; the amount of any dividend equivalent payment or cash distribution to holders of Managed Portfolio Shares; NAV; or other information relating to the purchase, redemption, or trading of Managed Portfolio Shares, resulting from any negligent act or omission by the Exchange, the Reporting Authority when the Exchange is acting in the capacity of a Reporting Authority, or any agent of the Exchange, or any act, condition, or cause beyond the reasonable control of the Exchange, its agent, or the Reporting Authority, when the Exchange is acting in the capacity of a Reporting Authority, including, but not limited to, an act of God; fire; flood; extraordinary weather conditions; war; VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 insurrection; riot; strike; accident; action of government; communications or power failure; equipment or software malfunction; or any error, omission, or delay in the reports of transactions in one or more underlying securities. Proposed Rule 8.900–E(f), which relates to disclosures, provides that the provisions of subparagraph (f) apply only to series of Managed Portfolio Shares that are the subject of an order by the Commission exempting such series from certain prospectus delivery requirements under Section 24(d) of the 1940 Act and are not otherwise subject to prospectus delivery requirements under the Securities Act of 1933. The Exchange will inform its ETP Holders regarding application of subparagraph (f) to a particular series of Managed Portfolio Shares by means of an information circular prior to commencement of trading in such series. The Exchange requires that ETP Holders provide to all purchasers of a series of Managed Portfolio Shares a written description of the terms and characteristics of those securities, in a form prepared by the open-end management investment company issuing such securities, not later than the time a confirmation of the first transaction in such series is delivered to such a purchaser. In addition, ETP Holders shall include such a written description with any sales material relating to a series of Managed Portfolio Shares that is provided to customers or the public. Any other written materials provided by an ETP Holder to customers or the public making specific reference to a series of Managed Portfolio Shares as an investment vehicle must include a statement in substantially the following form: ‘‘A circular describing the terms and characteristics of (the series of Managed Portfolio Shares) has been prepared by the (open-end management investment company name) and is available from your broker. It is recommended that you obtain and review such circular before purchasing (the series of Managed Portfolio Shares).’’ An ETP Holder carrying an omnibus account for a non-ETP Holder brokerdealer is required to inform such nonETP Holder that execution of an order to purchase a series of Managed Portfolio Shares for such omnibus account will be deemed to constitute agreement by the non-ETP Holder to make such written description available to its customers on the same terms as are directly applicable to ETP Holders under this rule. Upon request of a customer, an ETP Holder shall also provide a prospectus PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 22203 for the particular series of Managed Portfolio Shares. Additionally, the Exchange proposes to amend current Rule 5.3–E to include Managed Portfolio Shares listed pursuant to proposed Rule 8.900–E among the derivative or special purpose securities that are subject to a limited set of corporate governance and disclosure policies. Similarly, the Exchange proposes to amend Rule 5.3– E(e) to include Managed Portfolio Shares listed pursuant to proposed Rule 8.900–E among the derivative or special purpose securities to which the requirements concerning shareholder/ annual meetings do not apply. Key Features of Managed Portfolio Shares While each series of Managed Portfolio Shares will be actively managed and, to that extent, will be similar to Managed Fund Shares (as defined in Rule 8.600–E),6 Managed Portfolio Shares differ from Managed Fund Shares in the following important respects. First, in contrast to Managed Fund Shares, which require a ‘‘Disclosed Portfolio’’ to be disseminated at least once daily,7 the portfolio for a series of Managed Portfolio Shares will be disclosed quarterly in accordance with normal disclosure requirements otherwise applicable to open-end investment companies registered under the 1940 6 The Commission approved a proposed rule change to adopt rules permitting the listing and trading of Managed Fund Shares. See Securities Exchange Act Release No. 57619 (April 4, 2008), 73 FR 19544 (April 10, 2008) (SR–NYSEArca–2008–25) (Order Granting Accelerated Approval of Rules Permitting the Listing and Trading of Managed Fund Shares, Trading Hours and Halts, Listing Fees Applicable To Managed Fund Shares). The Commission has also previously approved listing and trading on the Exchange of a number of issues of Managed Fund Shares under Rule 8.600–E. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) (SR– NYSEArca–2008–31) (order approving Exchange listing and trading of twelve actively-managed funds of the WisdomTree Trust); 60460 (August 7, 2009), 74 FR 41468 (August 17, 2009) (SR– NYSEArca–2009–55) (order approving listing of Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874 (October 18, 2010) (SR–NYSEArca–2010–79) (order approving Exchange listing and trading of Cambria Global Tactical ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR– NYSEArca–2010–118) (order approving Exchange listing and trading of the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic Allocation Growth Income ETF). 7 NYSE Arca Rule 8.600–E(c)(2) defines the term ‘‘Disclosed Portfolio’’ as the identities and quantities of the securities and other assets held by the Investment Company that will form the basis for the Investment Company’s calculation of net asset value at the end of the business day. NYSE Arca Equities Rule 8.600–E(d)(2)(B)(i) requires that the Disclosed Portfolio be disseminated at least once daily and be made available to all market participants at the same time. E:\FR\FM\21APN1.SGM 21APN1 22204 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES Act.8 The composition of the portfolio of a series of Managed Portfolio Shares would not be available at commencement of Exchange listing and/ or trading. Second, in connection with the creation and redemption of shares in Creation Unit or Redemption Unit size (as described below), the delivery of any portfolio securities in kind will be effected through a Confidential Account (as described below) for the benefit of the creating or redeeming AP (as described below in ‘‘Creation and Redemption of Shares’’) without disclosing the identity of such securities to the AP. For each series of Managed Portfolio Shares, an estimated value—the VIIV— that reflects an estimated intraday value of a fund’s portfolio will be disseminated. Specifically, the VIIV will be based upon all of a series’ holdings as of the close of the prior business day and, for corporate actions, based on the applicable holdings as of the opening of business on the current business day, and will be widely disseminated by the Reporting Authority and/or one or more major market data vendors in one second intervals during the Exchange’s Core Trading Session. The dissemination of the VIIV will allow investors to determine the estimated intra-day value of the underlying portfolio of a series of Managed Portfolio Shares and will provide a close estimate of that value throughout the trading day. The Exchange, after consulting with various Lead Market Makers (‘‘LMMs’’) 9 that trade ETFs on the Exchange, believes that market makers will be able to make efficient and liquid markets priced near the ETF’s intraday value as long as a VIIV is disseminated in one second intervals, and market makers employ market making techniques such as ‘‘statistical arbitrage,’’ including correlation hedging, beta hedging, and dispersion trading, which is currently used throughout the financial services industry, to make efficient markets in 8 Form N–PORT requires reporting of a fund’s complete portfolio holdings on a position-byposition basis on a quarterly basis within 60 days after fiscal quarter end. Investors can obtain a fund’s Statement of Additional Information, its Shareholder Reports, its Form N–CSR, filed twice a year, and its Form N–CEN, filed annually. A Fund’s SAI and Shareholder Reports are available free upon request from the Investment Company, and those documents and the Form N–PORT, Form N–CSR, and Form N–CEN may be viewed on-screen or downloaded from the Commission’s website at www.sec.gov. 9 The term ‘‘Lead Market Maker’’ is defined in Rule 1.1(w) to mean a registered Market Maker that is the exclusive Designated Market Maker in listings for which the Exchange is the primary market. VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 exchange-traded products.10 For Managed Portfolio Shares, market makers may use the knowledge of a Fund’s means of achieving its investment objective, as described in the applicable Fund registration statement (the ‘‘Registration Statement’’), to construct a hedging proxy for a Fund to manage a market maker’s quoting risk in connection with trading Fund Shares. Market makers can then conduct statistical arbitrage between their hedging proxy (for example, the Russell 1000 Index) and Shares of a Fund, buying and selling one against the other over the course of the trading day. This ability should permit market makers to make efficient markets in an issue of Managed Portfolio Shares without precise knowledge 11 of a Fund’s underlying portfolio.12 This is similar to 10 Statistical arbitrage enables a trader to construct an accurate proxy for another instrument, allowing it to hedge the other instrument or buy or sell the instrument when it is cheap or expensive in relation to the proxy. Statistical analysis permits traders to discover correlations based purely on trading data without regard to other fundamental drivers. These correlations are a function of differentials, over time, between one instrument or group of instruments and one or more other instruments. Once the nature of these price deviations have been quantified, a universe of securities is searched in an effort to, in the case of a hedging strategy, minimize the differential. Once a suitable hedging proxy has been identified, a trader can minimize portfolio risk by executing the hedging basket. The trader then can monitor the performance of this hedge throughout the trade period making corrections where warranted. In the case of correlation hedging, the analysis seeks to find a proxy that matches the pricing behavior of a fund. In the case of beta hedging, the analysis seeks to determine the relationship between the price movement over time of a fund and that of another stock. Dispersion trading is a hedged strategy designed to take advantage of relative value differences in implied volatilities between an index and the component stocks of that index. Such trading strategies will allow market participants to engage in arbitrage between series of Managed Portfolio Shares and other instruments, both through the creation and redemption process and strictly through arbitrage without such processes. 11 Using the various trading methodologies described above, both APs and other market participants will be able to hedge exposures by trading correlative portfolios, securities or other proxy instruments, thereby enabling an arbitrage functionality throughout the trading day. For example, if an AP believes that Shares of a Fund are trading at a price that is higher than the value of its underlying portfolio based on the VIIV, the AP may sell Shares short and purchase securities that the AP believes will track the movements of a Fund’s portfolio until the spread narrows and the AP executes offsetting orders or the AP enters an order through its AP Representative to create Fund Shares. Upon the completion of the Creation Unit, the AP will unwind its correlative hedge. Similarly, a non-AP market participant would be able to perform an identical function but, because it would not be able to create or redeem directly, would have to employ an AP to create or redeem Shares on its behalf. 12 APs that enter into their own separate Confidential Accounts shall have enough information to ensure that they are able to comply with applicable regulatory requirements. For PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 certain other existing exchange-traded products (for example, ETFs that invest in foreign securities that do not trade during U.S. trading hours), in which spreads may be generally wider in the early days of trading and then narrow as market makers gain more confidence in their real-time hedges. To protect the identity and weightings of the portfolio holdings, a series of Managed Portfolio Shares would sell and redeem their shares in Creation Units and Redemption Units to APs only through an AP Representative. As such, on each business day, before commencement of trading in Shares on the Exchange, each series of Managed Portfolio Shares will provide to an AP Representative of each AP the names and quantities of the instruments comprising a Creation Basket, i.e., the Deposit Instruments or ‘‘Redemption Instruments’’ and the estimated ‘‘Balancing Amount’’ (if any),13 for that day (as further described below). This information will permit APs to purchase Creation Units or redeem Redemption Units through an in-kind transaction with a Fund, as described below. Creation and Redemptions of Shares In connection with the creation and redemption of Creation Units and Redemption Units, the delivery or receipt of any portfolio securities inkind will be required to be effected through a Confidential Account 14 with an AP Representative,15 which will be a broker-dealer such as broker-dealer affiliates of JP Morgan Chase, State Street Bank and Trust, or Bank of New York Mellon, for the benefit of an AP.16 example, for purposes of net capital requirements, the maximum Securities Haircut applicable to the securities in a Creation Basket, as determined under Rule 15c3–1, will be disclosed daily on each Fund’s website. 13 The Balancing Amount is the cash amount necessary for the applicable Fund to receive or pay to compensate for the difference between the value of the securities delivered as part of a redemption and the NAV, to the extent that such values are different. 14 Transacting through a Confidential Account is designed to be very similar to transacting through any broker-dealer account, except that the AP Representative will be bound to keep the names and weights of the portfolio securities confidential. Each service provider that has access to the identity and weightings of securities in a Fund’s Creation Basket or portfolio securities, such as a Fund’s custodian or pricing verification agent, shall be restricted contractually from disclosing that information to any other person, or using that information for any purpose other than providing services to the Fund. To comply with certain recordkeeping requirements applicable to APs, the AP Representative will maintain and preserve, and make available to the Commission, certain required records related to the securities held in the Confidential Account. 15 Each AP shall enter into its own separate Confidential Account with an AP Representative. 16 Each Fund will identify one or more entities to enter into a contractual arrangement with the Fund E:\FR\FM\21APN1.SGM 21APN1 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES An AP must be a Depository Trust Company (‘‘DTC’’) Participant that has executed a ‘‘Participant Agreement’’ with the applicable distributor (the ‘‘Distributor’’) with respect to the creation and redemption of Creation Units and Redemption Units and formed a Confidential Account for its benefit in accordance with the terms of the Participant Agreement. For purposes of creations or redemptions, all transactions will be effected through the respective AP’s Confidential Account, for the benefit of the AP without disclosing the identity of such securities to the AP. The Funds will offer and redeem Creation Units and Redemption Units on a continuous basis at the NAV per Share next determined after receipt of an order in proper form. The NAV per Share of each Fund will be determined as of the close of regular trading each business day. Funds will sell and redeem Creation Units and Redemption Units only on business days. Each AP Representative will be given, before the commencement of trading each business day, the Creation Basket for that day. The published Creation Basket will apply until a new Creation Basket is announced on the following business day, and there will be no intraday changes to the Creation Basket except to correct errors in the published Creation Basket. In order to keep costs low and permit Funds to be as fully invested as possible, Shares will be purchased and redeemed in Creation Units and Redemption Units and generally on an in-kind basis. Accordingly, except where the purchase or redemption will include cash under the circumstances required or determined permissible by the Fund, APs will be required to purchase Creation Units by making an in-kind deposit of specified instruments (‘‘Deposit Instruments’’), and APs redeeming their Shares will receive an in-kind transfer of Redemption Instruments through the AP Representative in their Confidential Account.17 to serve as an AP Representative. In selecting entities to serve as AP Representatives, a Fund will obtain representations from the entity related to the confidentiality of the Fund’s Creation Basket and portfolio securities, the effectiveness of information barriers, and the adequacy of insider trading policies and procedures. In addition, as a brokerdealer, Section 15(g) of the Act requires the AP Representative to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information by the AP Representative or any person associated with the AP Representative. 17 Funds must comply with the federal securities laws in accepting Deposit Instruments and satisfying redemptions with Redemption Instruments, including that the Deposit Instruments and Redemption Instruments are sold in VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 In the case of a creation, the AP 18 would enter into an irrevocable creation order with a Fund and then direct the AP Representative to purchase the necessary basket of portfolio securities. The AP Representative would then purchase the necessary securities in the Confidential Account. In purchasing the necessary securities, the AP Representative would use methods such as breaking the purchase into multiple purchases and transacting in multiple marketplaces. Once the necessary basket of securities has been acquired, the purchased securities held in the Confidential Account would be contributed in-kind to the applicable Fund. Other market participants that are not APs will not have the ability to create or redeem shares directly with a Fund. Rather, if other market participants wish to create or redeem Shares in a Fund, they will have to do so through an AP. Placement of Purchase Orders Each Fund will issue Shares through the Distributor on a continuous basis at NAV. The Exchange represents that the issuance of Shares will operate in a manner substantially similar to that of other ETFs. Each Fund will issue Shares only at the NAV per Share next determined after an order in proper form is received. The Distributor will furnish acknowledgements to those placing orders that the orders have been accepted, but the Distributor may reject any order which is not submitted in proper form, as described in a Fund’s prospectus or Statement of Additional Information (‘‘SAI’’). The NAV of each Fund is expected to be determined once each business day at a time determined by the board of the Investment Company (‘‘Board’’), currently anticipated to be as of the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the ‘‘Valuation Time’’). Each Fund will establish a cut-off time (‘‘Order Cut-Off Time’’) for purchase orders in proper form. To initiate a purchase of Shares, an AP must submit to the Distributor an irrevocable order to purchase such Shares after the most recent prior Valuation Time. Purchases of Shares will be settled inkind and/or cash for an amount equal to the applicable NAV per Share purchased plus applicable ‘‘Transaction Fees,’’ as discussed below. transactions that would be exempt from registration under the 1933 Act. 18 An AP will issue execution instructions to the AP Representative and be responsible for all associated profit or losses. Like a traditional ETF, the AP has the ability to sell the basket securities at any point during the Core Trading Session. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 22205 Generally, all orders to purchase Creation Units must be received by the Distributor no later than the end of Core Trading Session on the date such order is placed (‘‘Transmittal Date’’) in order for the purchaser to receive the NAV per Share determined on the Transmittal Date. In the case of custom orders made in connection with creations or redemptions in whole or in part in cash, the order must be received by the Distributor, no later than the Order CutOff Time.19 Authorized Participant Redemption The Shares may be redeemed to a Fund in Redemption Unit size or multiples thereof as described below. Redemption orders of Redemption Units must be placed by or through an AP (‘‘AP Redemption Order’’). Each Fund will establish an Order Cut-Off Time for redemption orders of Redemption Units in proper form. Redemption Units of a Fund will be redeemable at their NAV per Share next determined after receipt of a request for redemption by the Investment Company in the manner specified below before the Order Cut-Off Time. To initiate an AP Redemption Order, an AP must submit to the Distributor an irrevocable order to redeem such Redemption Unit after the most recent prior Valuation Time but not later than the Order Cut-Off Time. In the case of a redemption, the AP would enter into an irrevocable redemption order, and then instruct the AP Representative to sell the underlying basket of securities that it will receive in the redemption. As with the purchase of securities, the AP Representative would be required to obfuscate the sale of the portfolio securities it will receive as redemption proceeds using similar tactics. Consistent with the provisions of Section 22(e) of the 1940 Act and Rule 22e–2 thereunder, the right to redeem will not be suspended, nor payment upon redemption delayed, except for: (1) Any period during which the Exchange is closed other than customary weekend and holiday closings, (2) any period during which trading on the Exchange is restricted, (3) any period during which an emergency exists as a result of which disposal by a Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for a Fund to determine its NAV, and (4) for such other periods as the Commission may by 19 A ‘‘custom order’’ is any purchase or redemption of Shares made in whole or in part on a cash basis, as provided in the Registration Statement. E:\FR\FM\21APN1.SGM 21APN1 22206 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES order permit for the protection of shareholders. It is expected that redemptions will occur primarily in-kind, although redemption payments may also be made partly or wholly in cash. The Participant Agreement signed by each AP will require establishment of a Confidential Account to receive distributions of securities in-kind upon redemption.20 Each AP will be required to open a Confidential Account with an AP Representative in order to facilitate orderly processing of redemptions. After receipt of a Redemption Order, a Fund’s custodian (‘‘Custodian’’) will typically deliver securities to the Confidential Account with a value approximately equal to the value of the Shares 21 tendered for redemption at the Cut-Off time. The Custodian will make delivery of the securities by appropriate entries on its books and records transferring ownership of the securities to the AP’s Confidential Account, subject to delivery of the Shares redeemed. The AP Representative of the Confidential Account will in turn liquidate the securities based on instructions from the AP. The AP Representative will pay the liquidation proceeds net of expenses plus or minus any cash Balancing Amount to the AP through DTC. The redemption securities that the Confidential Account receives are expected to mirror the portfolio holdings of a Fund pro rata. To the extent a Fund distributes portfolio securities through an in-kind distribution to more than one Confidential Account for the benefit of the accounts’ respective APs, each Fund expects to distribute a pro rata portion of the portfolio securities selected for distribution to each redeeming AP. If the AP would receive a security that it is restricted from receiving, for example if the AP is engaged in a distribution of the security, a Fund will deliver cash equal to the value of that security. APs will provide the AP Representative with a list of restricted 20 The terms of each Confidential Account will be set forth as an exhibit to the applicable Participant Agreement, which will be signed by each AP. The Authorized Participant will be free to choose an AP Representative for its Confidential Account from a list of broker-dealers that have signed confidentiality agreements with the Fund. The Authorized Participant will be free to negotiate account fees and brokerage charges with its selected AP Representative. The Authorized Participant will be responsible to pay all fees and expenses charged by the AP Representative of its Confidential Account. 21 If the NAV of the Shares redeemed differs from the value of the securities delivered to the applicable Confidential Account, the applicable Fund will receive or pay a cash Balancing Amount to compensate for the difference between the value of the securities delivered and the NAV. VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 securities applicable to the AP on a daily basis, and a Fund will substitute cash for those securities in the applicable Confidential Account. The Investment Company will accept a Redemption Order in proper form. A Redemption Order is subject to acceptance by the Investment Company and must be preceded or accompanied by an irrevocable commitment to deliver the requisite number of Shares. At the time of settlement, an AP will initiate a delivery of the Shares plus or minus any cash Balancing Amounts, and less the expenses of liquidation. Surveillance The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of Managed Portfolio Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of Managed Portfolio Shares through the Exchange will be subject to the Exchange’s surveillance procedures for derivative products. The Exchange will require the issuer of each series of Managed Portfolio Shares, upon initial listing and periodically thereafter, to provide a representation that it is in compliance with Rule 8.900–E. In addition, the Exchange will require issuers to represent that they will notify the Exchange of any failure to comply with the terms of applicable exemptive and no-action relief. As part of its surveillance procedures, the Exchange will rely on the foregoing procedures to become aware of any non-compliance with the requirements of Rule 8.900–E. The Exchange will require each issuer of a Fund to represent that it will advise the Exchange of any failure by a Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Exchange Act, the Exchange will monitor for compliance with the continued listing requirements. If a Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting proceedings under Exchange Rule 5.5– E(m). Specifically, the Exchange will implement real-time surveillances that monitor for the continued dissemination of the VIIV. The Exchange will also have surveillances designed to alert Exchange personnel where shares of a series of Managed Portfolio Shares are trading away from the VIIV. As noted in proposed Rule 8.900–E(b)(3), the Investment Company’s investment adviser will upon request make available to the Exchange and/or PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 FINRA, on behalf of the Exchange, the daily portfolio holdings of each series of Managed Portfolio Shares. The Exchange believes that this is appropriate because it will provide the Exchange or FINRA, on behalf of the Exchange, with access to the daily portfolio holdings of any series of Managed Portfolio Shares upon request on an as needed basis. The Exchange believes that the ability to access the information on an as needed basis will provide it with sufficient information to perform the necessary regulatory functions associated with listing and trading series of Managed Portfolio Shares on the Exchange, including the ability to monitor compliance with the initial and continued listing requirements as well as the ability to surveil for manipulation of the shares. The Exchange notes that any equity instruments or futures held by a Fund operating under an exemptive order would trade on markets that are a member of Intermarket Surveillance Group (‘‘ISG’’) or affiliated with a member of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.22 While future exemptive relief applicable to Managed Portfolio Shares may expand the investable universe, the Exchange notes that proposed Rule 8.900–E(b)(1) would require the Exchange to file separate proposals under Section 19(b) of the Act before listing and trading any series of Managed Portfolio Shares and such proposal would describe the investable universe for any such series of Managed Portfolio Shares along with the Exchange’s surveillance procedures applicable to such series. FINRA, on behalf of the Exchange, or the regulatory staff of the Exchange, or both, will communicate as needed regarding trading in the Shares, underlying exchange-traded instruments with other markets and other entities that are members of the Intermarket Surveillance Group (‘‘ISG’’), and FINRA, on behalf of the Exchange, or the regulatory staff of the Exchange, or both, may obtain trading information regarding trading such securities from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying exchange-traded instruments from other markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. 22 For a list of the current members of ISG, see www.isgportal.com. The Exchange notes that cash equivalents may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. E:\FR\FM\21APN1.SGM 21APN1 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Trading Halts As proposed above, the Exchange may consider all relevant factors in exercising its discretion to halt trading in a series of Managed Portfolio Shares. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the series of Managed Portfolio Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments comprising the portfolio; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Additionally, the Exchange would halt trading as soon as practicable where the Exchange becomes aware that: (1) The VIIV of a series of Managed Portfolio Shares is not being calculated or disseminated in one second intervals, as required; (2) the net asset value with respect to a series of Managed Portfolio Shares is not disseminated to all market participants at the same time; (3) the holdings of a series of Managed Portfolio Shares are not made available on at least a quarterly basis as required under the 1940 Act; or (4) such holdings are not made available to all market participants at the same time, (except as otherwise permitted under a currently applicable exemptive order or no-action relief granted by the Commission or Commission staff to the Investment Company with respect to the series of Managed Portfolio Shares) (collectively, ‘‘Availability of Information Halts’’). The Exchange would halt trading in such series of Managed Portfolio Shares until such time as the VIIV, the NAV, or the holdings are available, as required. lotter on DSKBCFDHB2PROD with NOTICES Availability of Information As noted above, Form N–PORT requires reporting of a fund’s complete portfolio holdings on a position-byposition basis on a quarterly basis within 60 days after fiscal quarter end. Investors can obtain a fund’s Statement of Additional Information, its Shareholder Reports, its Form N–CSR, filed twice a year, and its Form N–CEN, filed annually. A fund’s SAI and Shareholder Reports are available free upon request from the Investment Company, and those documents and the Form N–PORT, Form N–CSR, and Form N–CEN may be viewed on-screen or downloaded from the Commission’s website at www.sec.gov. VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. Information regarding the previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. Quotation and last sale information for the Shares will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line. In addition, the VIIV, as defined in proposed Rule 8.900–E(c)(2), will be widely disseminated by the Reporting Authority and/or one or more major market data vendors in one second intervals during the Exchange’s Core Trading Session. Trading Rules The Exchange deems Managed Portfolio Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Managed Portfolio Shares will trade on the Exchange only during the trading hours specified in Rule 7.34–E(a). As provided in NYSE Arca Rule 7.6–E, the minimum price variation (‘‘MPV’’) for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is $0.0001. Information Bulletin Prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares; (2) NYSE Arca Rule 9.2–E(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) how information regarding the VIIV is disseminated; (4) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; (5) trading information; and (6) that the portfolio holdings of the Shares are not disclosed on a daily basis. In addition, the Bulletin will reference that Funds are subject to various fees and expenses described in the Registration Statement. The Bulletin will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 22207 Act. The Bulletin will also disclose that the NAV for the Shares will be calculated after 4:00 p.m., E.T. each trading day. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,23 in general, and furthers the objectives of Section 6(b)(5) of the Act,24 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes that proposed Rule 8.900–E is designed to prevent fraudulent and manipulative acts and practices in that the proposed rules relating to listing and trading of Managed Portfolio Shares provide specific initial and continued listing criteria required to be met by such securities. Proposed Rule 8.900–E(d) sets forth initial and continued listing criteria applicable to Managed Portfolio Shares. Proposed Rule 8.900–E(d)(1)(A) provides that, for each series of Managed Portfolio Shares, the Exchange will establish a minimum number of Managed Portfolio Shares required to be outstanding at the time of commencement of trading. In addition, proposed Rule 8.900–E(d)(1)(B) provides that the Exchange will obtain a representation from the Investment Company that issues each series of Managed Portfolio Shares that the NAV per share for the series will be calculated daily and that the NAV will be made available to all market participants at the same time.25 Proposed Rule 8.900–E(d)(2) provides that each series of Managed Portfolio Shares will be listed and traded subject to application of the specified continued listing criteria, as described above. Proposed Rule 8.900–E(d)(2)(A) provides that the VIIV for Managed Portfolio Shares will be widely disseminated by the Reporting Authority and/or one or more major market data vendors in one second intervals during the Exchange’s Core Trading Session, and will be disseminated to all market participants 23 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 25 Proposed Rule 8.900–E(d)(2)(C)(ii) provides that if the Exchange becomes aware that the NAV with respect to a series of Managed Portfolio Shares is not disseminated to all market participants at the same time, it will halt trading in such series until such time as the NAV is available to all market participants at the same time. 24 15 E:\FR\FM\21APN1.SGM 21APN1 lotter on DSKBCFDHB2PROD with NOTICES 22208 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices at the same time. Proposed Rule 8.900– E(d)(2)(B) provides that the Exchange will consider the suspension of trading in, and will commence delisting proceedings under Rule 5.5–E(m) for, a series of Managed Portfolio Shares under any of the following circumstances: (a) If, following the initial twelve-month period after commencement of trading on the Exchange of a series of Managed Portfolio Shares, there are fewer than 50 beneficial holders of the series of Managed Portfolio Shares; (b) if the Exchange has halted trading in a series of Managed Portfolio Shares because the Verified Intraday Indicative Value is interrupted pursuant to Rule 8.900– E(d)(2)(C)(ii) and such interruption persists past the trading day in which it occurred or is no longer available; (c) if the Exchange has halted trading in a series of Managed Portfolio Shares because the net asset value with respect to such series of Managed Portfolio Shares is not disseminated to all market participants at the same time, the holdings of such series of Managed Portfolio Shares are not made available on at least a quarterly basis as required under the 1940 Act, or such holdings are not made available to all market participants at the same time pursuant to Rule 8.900–E(d)(2)(C)(ii) and such issue persists past the trading day in which it occurred; (d) if the Exchange has halted trading in a series of Managed Portfolio Shares pursuant to Rule 8.900–E(d)(2)(C)(i), such issue persists past the trading day in which it occurred; (e) if the Investment Company issuing the Managed Portfolio Shares has failed to file any filings required by the Commission or if the Exchange is aware that the Investment Company is not in compliance with the conditions of any currently applicable exemptive order or no-action relief granted by the Commission or Commission staff to the Investment Company with respect to the series of Managed Portfolio Shares; (f) if any of the continued listing requirements set forth in Rule 8.900–E are not continuously maintained; (g) if any of the statements or representations regarding (a) the description of the portfolio, (b) limitations on portfolio holdings, or (c) the applicability of Exchange listing rules, specified in the Exchange’s rule filing pursuant to Section 19(b) of the Securities Exchange Act of 1934 to permit the listing and trading of a series of Managed Portfolio Shares, are not continuously maintained; or (h) if such other event shall occur or condition exists which, in the opinion of the Exchange, makes further dealings on the Exchange VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 inadvisable. Proposed Rule 5.900– E(d)(2)(C)(i) provides that the Exchange may consider all relevant factors in exercising its discretion to halt trading in the series of Managed Portfolio Shares. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the series of Managed Portfolio Shares inadvisable. These may include: (a) The extent to which trading is not occurring in the securities and/or the financial instruments composing the portfolio; or (b) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Proposed Rule 8.900–E(d)(2)(C)(ii) provides that, if the Exchange becomes aware that: (a) The VIIV of a series of Managed Portfolio Shares is not being calculated or disseminated in one second intervals, as required; (b) the net asset value with respect to a series of Managed Portfolio Shares is not disseminated to all market participants at the same time; (c) the holdings of a series of Managed Portfolio Shares are not made available on at least a quarterly basis as required under the 1940 Act; or (d) such holdings are not made available to all market participants at the same time (except as otherwise permitted under the currently applicable exemptive order or no-action relief granted by the Commission or Commission staff to the Investment Company with respect to the series of Managed Portfolio Shares), it will halt trading in such series until such time as the VIIV, the net asset value, or the holdings are available, as required. Proposed Rule 8.900–E(d)(2)(D) provides that, upon termination of an Investment Company, the Exchange requires that Managed Portfolio Shares issued in connection with such entity be removed from Exchange listing. Proposed Rule 8.900–E(d)(2)(E) provides that voting rights shall be as set forth in the applicable Investment Company prospectus and/or Statement of Additional Information. The Exchange also notes that pursuant to its exemptive order, an issuer must comply with Regulation Fair Disclosure, which prohibits selective disclosure of any material non-public information, which otherwise do not apply to issuers of Managed Fund Shares. Proposed Rule 8.900–E(b)(4) provides that, if the investment adviser to the Investment Company issuing Managed Portfolio Shares is registered as a broker-dealer or is affiliated with a broker-dealer, such investment adviser will erect and maintain a ‘‘fire wall’’ between the investment adviser and personnel of the broker-dealer or broker- PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 dealer affiliates, as applicable, with respect to access to information concerning the composition of and/or changes to such Investment Company portfolio and/or the Creation Basket. Any person related to the investment adviser or Investment Company who makes decisions pertaining to the Investment Company’s portfolio composition or has access to information regarding the Investment Company’s portfolio composition or changes thereto or the Creation Basket must be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the applicable Investment Company portfolio or changes thereto or the Creation Basket. Proposed Rule 8.900–E(b)(5) provides that, any person or entity, including an AP Representative, custodian, Reporting Authority, distributor, or administrator, who has access to non-public information regarding the Investment Company’s portfolio composition or changes thereto or the Creation Basket, must be subject to procedures reasonably designed to prevent the use and dissemination of material nonpublic information regarding the applicable Investment Company portfolio or changes thereto or the Creation Basket. Moreover, if any such person or entity is registered as a brokerdealer or affiliated with a broker-dealer, such person or entity will erect and maintain a ‘‘fire wall’’ between the person or entity and the broker-dealer with respect to access to information concerning the composition and/or changes to such Investment Company portfolio or Creation Basket. The Exchange believes that these proposed rules are designed to prevent fraudulent and manipulative acts and practices related to the listing and trading of Managed Portfolio Shares because they provide meaningful requirements about both the data that will be made publicly available about the Shares as well as the information that will only be available to certain parties and the controls on such information. Specifically, the Exchange believes that the requirements related to information protection enumerated under proposed Rule 8.900–E(b)(5) will act as a strong safeguard against any misuse and improper dissemination of non-public information related to a Fund’s portfolio composition, the Creation Basket, or changes thereto. The requirement that any person or entity implement procedures reasonably designed to prevent the use and dissemination of material non-public information regarding the portfolio or E:\FR\FM\21APN1.SGM 21APN1 lotter on DSKBCFDHB2PROD with NOTICES Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices Creation Basket will act to prevent any individual or entity from sharing such information externally and the internal ‘‘fire wall’’ requirements applicable where an entity is a registered brokerdealer or affiliated with a broker-dealer will act to make sure that no entity will be able to misuse the data for their own purpose. As such, the Exchange believes that this proposal is designed to prevent fraudulent and manipulative acts and practices. The Exchange, after consulting with various LMMs that trade ETFs on the Exchange, believes that market makers will be able to make efficient and liquid markets priced near the VIIV, as long as market makers have knowledge of a Fund’s means of achieving its investment objective, even without daily disclosure of a fund’s underlying portfolio. The Exchange believes that market makers will employ riskmanagement techniques to make efficient markets in exchange traded products. This ability should permit market makers to make efficient markets in shares without knowledge of a fund’s underlying portfolio. The Exchange understands that traders use statistical analysis to derive correlations between different sets of instruments to identify opportunities to buy or sell one set of instruments when it is mispriced relative to the others. For Managed Portfolio Shares, market makers utilizing statistical arbitrage use the knowledge of a fund’s means of achieving its investment objective, as described in the applicable fund registration statement, to construct a hedging proxy for a fund to manage a market maker’s quoting risk in connection with trading fund shares. Market makers will then conduct statistical arbitrage between their hedging proxy (for example, the Russell 1000 Index) and shares of a fund, buying and selling one against the other over the course of the trading day. Eventually, at the end of each day, they will evaluate how their proxy performed in comparison to the price of a fund’s shares, and use that analysis as well as knowledge of risk metrics, such as volatility and turnover, to enhance their proxy calculation to make it a more efficient hedge. Market makers have indicated to the Exchange that there will be sufficient data to run a statistical analysis which will lead to spreads being tightened substantially around the VIIV. This is similar to certain other existing exchange-traded products (for example, ETFs that invest in foreign securities that do not trade during U.S. trading hours), in which spreads may be generally wider in the early days of VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 trading and then narrow as market makers gain more confidence in their real-time hedges. The LMMs also indicated that, as with some other new exchange-traded products, spreads would tend to narrow as market makers gain more confidence in the accuracy of their hedges and their ability to adjust these hedges in realtime relative to the published VIIV and gain an understanding of the applicable market risk metrics such as volatility and turnover, and as natural buyers and sellers enter the market. Other relevant factors cited by LMMs were that a fund’s investment objectives are clearly disclosed in the applicable prospectus, the existence of quarterly portfolio disclosure and the ability to create shares in creation unit size or redeem in redemption unit size through an AP. The real-time dissemination of a Fund’s VIIV together with the right of APs to create and redeem each day at the NAV will be sufficient for market participants to value and trade Shares in a manner that will not lead to significant deviations between the Shares’ bid/ask price and NAV. The pricing efficiency with respect to trading a series of Managed Portfolio Shares will generally rest on the ability of market participants to arbitrage between the Shares and a fund’s portfolio, in addition to the ability of market participants to assess a fund’s underlying value accurately enough throughout the trading day in order to hedge positions in shares effectively. Professional traders can buy Shares that they perceive to be trading at a price less than that which will be available at a subsequent time, and sell Shares they perceive to be trading at a price higher than that which will be available at a subsequent time. It is expected that, as part of their normal day-to-day trading activity, market makers assigned to Shares by the Exchange, off-exchange market makers, firms that specialize in electronic trading, hedge funds and other professionals specializing in shortterm, non-fundamental trading strategies will assume the risk of being ‘‘long’’ or ‘‘short’’ shares through such trading and will hedge such risk wholly or partly by simultaneously taking positions in correlated assets 26 or by 26 Price correlation trading is used throughout the financial industry. It is used to discover both trading opportunities to be exploited, such as currency pairs and statistical arbitrage, as well as for risk mitigation such as dispersion trading and beta hedging. These correlations are a function of differentials, over time, between one or multiple securities pricing. Once the nature of these price deviations have been quantified, a universe of securities is searched in an effort to, in the case of a hedging strategy, minimize the differential. Once a suitable hedging basket has been identified, a PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 22209 netting the exposure against other, offsetting trading positions—much as such firms do with existing ETFs and other equities. Disclosure of a fund’s investment objective and principal investment strategies in its prospectus and SAI, along with the dissemination of the VIIV in one second intervals, should permit professional investors to engage easily in this type of hedging activity.27 With respect to trading of the Shares, the ability of market participants to buy and sell Shares at prices near the VIIV is dependent upon their assessment that the VIIV is a reliable, indicative realtime value for a Fund’s underlying holdings. Market participants are expected to accept the VIIV as a reliable, indicative real-time value because (1) the VIIV will be calculated and disseminated based on a Fund’s actual portfolio holdings, (2) the securities in which a Fund plans to invest are generally highly liquid and actively traded and therefore generally have accurate real time pricing available, and (3) market participants will have a daily opportunity to evaluate whether the VIIV at or near the close of trading is indeed predictive of the actual NAV. In a typical index-based ETF, it is standard for APs to know what securities must be delivered in a creation or will be received in a trader can minimize portfolio risk by executing the hedging basket. The trader then can monitor the performance of this hedge throughout the trade period, making corrections where warranted. 27 With respect to trading in the Shares, market participants would manage risk in a variety of ways. It is expected that market participants will be able to determine how to trade Shares at levels approximating the VIIV without taking undue risk by gaining experience with how various market factors (e.g., general market movements, sensitivity of the VIIV to intraday movements in interest rates or commodity prices, etc.) affect VIIV, and by finding hedges for their long or short positions in Shares using instruments correlated with such factors. Market participants will likely initially determine the VIIV’s correlation to a major large capitalization equity benchmark with active derivative contracts, such as the Russell 1000 Index, and the degree of sensitivity of the VIIV to changes in that benchmark. For example, using hypothetical numbers for illustrative purposes, market participants should be able to determine quickly that price movements in the Russell 1000 Index predict movements in a Fund’s VIIV 95% of the time (an acceptably high correlation) but that the VIIV generally moves approximately half as much as the Russell 1000 Index with each price movement. This information is sufficient for market participants to construct a reasonable hedge—buy or sell an amount of futures, swaps or ETFs that track the Russell 1000 equal to half the opposite exposure taken with respect to Shares. Market participants will also continuously compare the intraday performance of their hedge to a Fund’s VIIV. If the intraday performance of the hedge is correlated with the VIIV to the expected degree, market participants will feel comfortable they are appropriately hedged and can rely on the VIIV as appropriately indicative of a Fund’s performance. E:\FR\FM\21APN1.SGM 21APN1 lotter on DSKBCFDHB2PROD with NOTICES 22210 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices redemption. For Managed Portfolio Shares, however, APs do not need to know the securities comprising the portfolio of a Fund since creations and redemptions are handled through the Confidential Account mechanism. Inkind creations and redemptions through a Confidential Account are expected to preserve the integrity of the active investment strategy and reduce the potential for ‘‘free riding’’ or ‘‘frontrunning,’’ while still providing investors with the advantages of the ETF structure. The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation from the Investment Company that issues each series of Managed Portfolio Shares that the NAV per share of a fund will be calculated daily and that the NAV will be made available to all market participants at the same time. Investors can also obtain a fund’s Statement of Additional Information, its Shareholder Reports, its Form N–CSR, filed twice a year, and its Form N–CEN, filed annually. A fund’s SAI and Shareholder Reports are available free upon request from the Investment Company, and those documents and the Form N– PORT, Form N–CSR, and Form N–CEN may be viewed on-screen or downloaded from the Commission’s website at www.sec.gov. In addition, a large amount of information will be publicly available regarding the Funds and the Shares, thereby promoting market transparency. Quotation and last sale information for the Shares will be available via the CTA high-speed line. Information regarding the VIIV will be widely disseminated in one second intervals throughout the Core Trading Session by the Reporting Authority and/ or one or more major market data vendors. The website for each Fund will include a form of the prospectus for the Fund that may be downloaded, and additional data relating to NAV and other applicable quantitative information, updated on a daily basis. Moreover, prior to the commencement of trading, the Exchange will inform its members in an Information Bulletin of the special characteristics and risks associated with trading the Shares. The Exchange further believes that the proposal is designed to prevent fraudulent and manipulative acts and practices related to the listing and trading of Managed Portfolio Shares and to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange would halt trading under certain circumstances under which trading in VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 the shares of a Fund may be inadvisable. Specifically, the Exchange may consider all relevant factors in exercising its discretion to halt trading in a series of Managed Portfolio Shares. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the series of Managed Portfolio Shares inadvisable. These may include: (a) The extent to which trading is not occurring in the securities and/or the financial instruments composing the portfolio; or (b) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Additionally, the Exchange would halt trading as soon as practicable where the Exchange becomes aware that: (a) The VIIV of a series of Managed Portfolio Shares is not being calculated or disseminated in one second intervals, as required; (b) the net asset value with respect to a series of Managed Portfolio Shares is not disseminated to all market participants at the same time; (c) the holdings of a series of Managed Portfolio Shares are not made available on at least a quarterly basis as required under the 1940 Act; or (d) such holdings are not made available to all market participants at the same time, (except as otherwise permitted under a currently applicable exemptive order or no-action relief granted by the Commission or Commission staff to the Investment Company with respect to the series of Managed Portfolio Shares). The Exchange would halt trading in such series of Managed Portfolio Shares until such time as the VIIV, the NAV, or the holdings are available, as required. The Exchange is proposing to retain discretion to halt trading in a series of Managed Portfolio Shares based on market conditions or where the Exchange determines that trading in such series is inadvisable (each a ‘‘Discretionary Halt’’) and is also proposing the four Availability of Information Halts described above. The Exchange believes that retaining discretion to implement a Discretionary Halt as specified is consistent with the Act. The proposed rule retaining discretion related to halts is designed to ensure the maintenance of a fair and orderly market and protect investors and the public interest in that it provides the Exchange with the ability to halt when it determines that trading in the shares is inadvisable. This could be based on the Exchange’s own analysis of market conditions being detrimental to a fair and orderly market and/or information provided by the Investment Company or its agent. There PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 are certain circumstances related to the trading and dissemination of information related to the underlying holdings of a series of Managed Portfolio Shares, such as the extent to which trading is not occurring in the securities and/or financial instruments composing the portfolio, that the Exchange may not be in a position to know or become aware of as expeditiously as the Investment Company or its agent. There are certain circumstances where the Investment Company or its agent may request that the Exchange halt trading in the applicable series of Managed Portfolio Shares. Upon receipt of information and/or a request from the Investment Company, the Exchange would consider the information and/or circumstances leading to the request as well as other factors both specific to such issue of Managed Portfolio Shares and the broader market in determining whether trading in the series of Managed Portfolio Shares is inadvisable and that halting trading is necessary in order to maintain a fair and orderly market. As such, the Exchange believes that the proposal to provide the Exchange with discretion to implement a Discretionary Halt is consistent with the Act. The Exchange believes that the proposed Availability of Information Halts to halt trading in shares of a series of Managed Portfolio Shares are consistent with the Act because: (i) The Commission has already determined that the requirement that the VIIV be disseminated every second is appropriate; (ii) the other Availability of Information Halts are generally consistent with and designed to address the same concerns about asymmetry of information that Rule 8.600–E(d)(2)(D) related to trading halts in Managed Fund Shares 28 is intended to address, 28 Rule 8.600–E(d)(2)(D) provides that ‘‘If the Portfolio Indicative Value (as defined in Rule 8.600–E(c)(3)) of a series of Managed Fund Shares is not being disseminated as required, the Exchange may halt trading during the day in which the interruption to the dissemination of the Portfolio Indicative Value occurs. If the interruption to the dissemination of the Portfolio Indicative Value persists past the trading day in which it occurred, the Exchange will halt trading no later than the beginning of the trading day following the interruption. If a series of Managed Fund Shares is trading on the Exchange pursuant to unlisted trading privileges, the Exchange will halt trading in that series as specified in Rule 7.34–E(a). In addition, if the Exchange becomes aware that the net asset value or the Disclosed Portfolio with respect to a series of Managed Fund Shares is not disseminated to all market participants at the same time, it will halt trading in such series until such time as the net asset value or the Disclosed Portfolio is available to all market participants.’’ These are generally consistent with the proposed Availability of Information Halts, specifically as it relates to whether the NAV or Disclosed Portfolio is not being E:\FR\FM\21APN1.SGM 21APN1 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES specifically that the availability of such information is intended to reduce the potential for manipulation and help ensure a fair and orderly market in Managed Portfolio Shares;29 and (iii) the quarterly disclosure of portfolio holdings is a fundamental component of Managed Portfolio Shares that allows market participants to better understand the strategy of the funds and to monitor how closely trading in the funds is tracking the value of the underlying portfolio and when such information is not being disclosed as required, trading in the shares is inadvisable and it is necessary and appropriate to halt trading. The Exchange notes, however, that an Investment Company that issues Managed Portfolio Shares will still be subject to Rule 5.2–E(b), which requires that an ‘‘Issuer with securities listed under Rule 5.2–E or Rule 8–E must provide the Exchange with prompt notification after the issuer becomes aware of any noncompliance by the issuer with the applicable continued listing requirements of Rule 5.2–E, Rule 5.5–E or Rule 8–E.’’ The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an additional type of activelymanaged exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares and may obtain information via ISG from other exchanges that are members of ISG or with which the made available to all market participants at the same time. 29 See, e.g., Securities Exchange Act Release No. 80169 (March 7, 2017), 82 FR 13536 (March 13, 2017); Securities Exchange Act Release Nos. 54739 (November 9, 2006), 71 FR 66993, 66997 (November 17, 2006) (SR–AMEX–2006–78) (approving generic listing standards for Portfolio Depositary Receipts and Index Fund Shares based on international or global indexes, and stating that ‘‘the proposed listing standards are designed to preclude ETFs from becoming surrogates for trading in unregistered securities’’ and that ‘‘the requirement that each component security underlying an ETF be listed on an exchange and subject to last-sale reporting should contribute to the transparency of the market for ETFs’’ and that ‘‘by requiring pricing information for both the relevant underlying index and the ETF to be readily available and disseminated, the proposal is designed to ensure a fair and orderly market for ETFs’’); 53142 (January 19, 2006), 71 FR 4180, 4186 (January 25, 2006) (SR– NASD–2006–001) (approving generic listing standards for Index-Linked Securities and stating that ‘‘[t]he Commission believes that by requiring pricing information for both the relevant underlying index or indexes and the Index Security to be readily available and disseminated, the proposed listing standards should help ensure a fair and orderly market for Index Securities’’). VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 Exchange has entered into a comprehensive surveillance sharing agreement. Additionally, any equity instruments or futures held by a Fund operating under an exemptive order would trade on markets that are a member of Intermarket Surveillance Group (‘‘ISG’’) or affiliated with a member of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.30 While future exemptive relief applicable to Managed Portfolio Shares may expand the investable universe, the Exchange notes that proposed Rule 8.900–E(b)(1) would require the Exchange to file separate proposals under Section 19(b) of the Act before listing and trading any series of Managed Portfolio Shares and such proposal would describe the investable universe for any such series of Managed Portfolio Shares along with the Exchange’s surveillance procedures applicable to such series. In addition, as noted above, investors will have ready access to information regarding the VIIV and quotation and last sale information for the Shares. For the above reasons, the Exchange believes that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that the proposed rule change, rather will facilitate the listing and trading of a new type of activelymanaged exchange-traded product that will enhance competition among both market participants and listing venues, to the benefit of investors and the marketplace. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become 30 The Exchange notes that cash equivalents may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 22211 operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 31 and Rule 19b– 4(f)(6) thereunder.32 A proposed rule change filed under Rule 19b–4(f)(6) 33 normally does not become operative for 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),34 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange states that waiver of the operative delay would allow for the immediate listing and trading of Managed Portfolio Shares on the Exchange and therefore would provide issuers with an additional listing and trading venue. The Commission notes that the proposed rule change is based on and substantively identical to the rules of the Cboe BZX Exchange, Inc. (‘‘BZX’’) relating to the listing of Managed Portfolio Shares.35 For these reasons, the Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission waives the 30-day operative delay and designates the proposed rule change operative upon filing.36 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of 31 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 33 17 CFR 240.19b–4(f)(6). 34 17 CFR 240.19b–4(f)(6)(iii). 35 See BZX Rule 14.11(k). See also Securities Exchange Act Release No. 87759 (December 16, 2019), 84 FR 70223 (December 20, 2019) (SR– CboeBZX–2019–047) (Notice of Filing of Amendment Nos. 4 and 5, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 4 and 5, To Adopt BZX Rule 14.11(k) To Permit the Listing and Trading of Managed Portfolio Shares). 36 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 32 17 E:\FR\FM\21APN1.SGM 21APN1 22212 Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: [FR Doc. 2020–08385 Filed 4–20–20; 8:45 am] BILLING CODE 8011–01–P proposed rule change (SR–CboeBYX– 2019–012). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–08384 Filed 4–20–20; 8:45 am] SECURITIES AND EXCHANGE COMMISSION BILLING CODE 8011–01–P Electronic Comments [Release No. 34–88647; File No. SR– CboeBYX–2019–012] SECURITIES AND EXCHANGE COMMISSION • 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–2020–32 on the subject line. Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Withdrawal of a Proposed Rule Change To Introduce a Small Retail Broker Distribution Program [Release No. 34–88638; File No. SR–CBOE– 2020–032] Paper Comments • Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. lotter on DSKBCFDHB2PROD with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 J. Matthew DeLesDernier, Assistant Secretary. All submissions should refer to File Number SR–NYSEArca–2020–32. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2020–32 and should be submitted on or before May 12, 2020. VerDate Sep<11>2014 21:19 Apr 20, 2020 Jkt 250001 April 15, 2020. On August 1, 2019, Cboe BYX Exchange, Inc. (‘‘Exchange’’ or ‘‘BYX’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to amend the BYX fee schedule to introduce a Small Retail Broker Distribution Program. The proposed rule change was immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.3 The proposed rule change was published for comment in the Federal Register on August 20, 2019.4 The Commission received no comment letters regarding the proposed rule change. On September 30, 2019, the Commission issued an order temporarily suspending the proposed rule change pursuant to Section 19(b)(3)(C) of the Act 5 and simultaneously instituting proceedings under Section 19(b)(2)(B) of the Act 6 to determine whether to approve or disapprove the proposed rule change (‘‘OIP’’).7 The Commission received no comment letters in response to the OIP. On February 12, 2020, pursuant to Section 19(b)(2) of the Act,8 the Commission designated a longer period within which to approve or disapprove the proposed rule change.9 On April 9, 2020, the Exchange withdrew the 37 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 See Securities Exchange Act Release No. 86670 (August 14, 2019), 84 FR 43207 (August 20, 2019). 5 15 U.S.C. 78s(b)(3)(C). 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 87166 (September 30, 2019), 84 FR 53197 (October 4, 2019). 8 15 U.S.C. 78s(b)(2). 9 See Securities Exchange Act Release No. 88179 (February 12, 2020), 85 FR 9505 (February 19, 2020). 1 15 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Fees Schedule April 15, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 1, 2020, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (the ‘‘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 Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) proposes to amend its fees schedule. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://www.cboe.com/ AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the 10 17 CFR 200.30–3(a)(57) and (58). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\21APN1.SGM 21APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 77 (Tuesday, April 21, 2020)]
[Notices]
[Pages 22200-22212]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08385]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88648; File No. SR-NYSEArca-2020-32]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt a New NYSE 
Arca Rule 8.900-E

April 15, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on April 9, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a new NYSE Arca Rule 8.900-E to 
permit it to list and trade Managed Portfolio Shares, which are shares 
of actively managed exchange-traded funds (``ETFs'') for which the 
portfolio is disclosed in accordance with standard mutual fund 
disclosure rules. The proposed rule 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.

[[Page 22201]]

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

1. Purpose
    The Exchange proposes to add new NYSE Arca Rule 8.900-E for the 
purpose of permitting the listing and trading, or trading pursuant to 
unlisted trading privileges (``UTP''), of Managed Portfolio Shares, 
which are securities issued by an actively managed open-end investment 
management company.
Proposed Listing Rules
    Proposed Rule 8.900-E(a) provides that the Exchange will consider 
for trading, whether by listing or pursuant to UTP, Managed Portfolio 
Shares that meet the criteria of Rule 8.900-E.
    Proposed Rule 8.900-E(b) provides that Rule 8.900-E is applicable 
only to Managed Portfolio Shares and that, except to the extent 
inconsistent with Rule 8.900-E, or unless the context otherwise 
requires, the rules and procedures of the Exchange's Board of Directors 
shall be applicable to the trading on the Exchange of such securities. 
Proposed Rule 8.900(b) provides further that Managed Portfolio Shares 
are included within the definition of ``security'' or ``securities'' as 
such terms are used in the Rules of the Exchange.
    Proposed Rule 8.900-E(b)(1) provides that the Exchange will file 
separate proposals under Section 19(b) of the Act before the listing 
and trading of a series of Managed Portfolio Shares. The proposed rule 
further provides that all statements or representations contained in 
such rule filing regarding (a) the description of the portfolio or 
reference asset, (b) limitations on portfolio holdings or reference 
assets, or (c) the applicability of Exchange listing rules specified in 
such rule filing will constitute continued listing requirements. An 
issuer of such securities must notify the Exchange of any failure to 
comply with such continued listing requirements.
    Proposed Rule 8.900-E(b)(2) provides that transactions in Managed 
Portfolio Shares will occur during the trading hours specified in NYSE 
Arca Rule 7.34-E(a).
    Proposed Rule 8.900-E(b)(3) provides that the Exchange will 
implement and maintain written surveillance procedures for Managed 
Portfolio Shares. As part of these surveillance procedures, the 
Investment Company's investment adviser will upon request by the 
Exchange or FINRA, on behalf of the Exchange, make available to the 
Exchange or FINRA the daily portfolio holdings of each series of 
Managed Portfolio Shares.
    Proposed Rule 8.900-E(b)(4) provides that, if the investment 
adviser to the Investment Company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliates, as applicable, with respect to access to information 
concerning the composition of and/or changes to such Investment Company 
portfolio and/or the Creation Basket. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to 
information regarding the Investment Company's portfolio composition or 
changes thereto or the Creation Basket must be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the applicable Investment Company portfolio or 
changes thereto or the Creation Basket.
    Proposed Rule 8.900-E(b)(5) provides that any person or entity, 
including an AP Representative, custodian, Reporting Authority, 
distributor, or administrator, who has access to non-public information 
regarding the Investment Company's portfolio composition or changes 
thereto or the Creation Basket, must be subject to procedures 
reasonably designed to prevent the use and dissemination of material 
non-public information regarding the applicable Investment Company 
portfolio or changes thereto or the Creation Basket. Moreover, if any 
such person or entity is registered as a broker-dealer or affiliated 
with a broker-dealer, such person or entity will erect and maintain a 
``fire wall'' between the person or entity and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio or Creation Basket.
    Proposed Rule 8.900-E(c)(1) defines the term ``Managed Portfolio 
Share'' as a security that (a) represents an interest in an investment 
company registered under the Investment Company Act of 1940 
(``Investment Company'') organized as an open-end management investment 
company, that invests in a portfolio of securities selected by the 
Investment Company's investment adviser consistent with the Investment 
Company's investment objectives and policies; (b) is issued in a 
Creation Unit, or multiples thereof, in return for a designated 
portfolio of instruments (and/or an amount of cash) with a value equal 
to the next determined net asset value and delivered to the Authorized 
Participant (as defined in the Investment Company's Form N-1A filed 
with the Commission) through a Confidential Account; (c) when 
aggregated into a Redemption Unit, or multiples thereof, may be 
redeemed for a designated portfolio of instruments (and/or an amount of 
cash) with a value equal to the next determined net asset value 
delivered to the Confidential Account for the benefit of the Authorized 
Participant; and (d) the portfolio holdings for which are disclosed 
within at least 60 days following the end of every fiscal quarter.\4\
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    \4\ For purposes of this filing, references to a series of 
Managed Portfolio Shares are referred to interchangeably as a series 
of Managed Portfolio Shares or as a ``Fund'' and shares of a series 
of Managed Portfolio Shares are generally referred to as the 
``Shares''.
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    Proposed Rule 8.900-E(c)(2) defines the term ``Verified Intraday 
Indicative Value (``VIIV'') as the indicative value of a Managed 
Portfolio Share based on all of the holdings of a series of Managed 
Portfolio Shares as of the close of business on the prior business day 
and, for corporate actions, based on the applicable holdings as of the 
opening of business on the current business day, priced and 
disseminated in one second intervals during the Core Trading Session by 
the Reporting Authority.
    Proposed Rule 8.900-E(c)(3) defines the term ``AP Representative'' 
as an unaffiliated broker-dealer, with which an Authorized Participant 
has signed an agreement to establish a Confidential Account for the 
benefit of such Authorized Participant, that will deliver or receive, 
on behalf of the Authorized Participant, all consideration to or from 
the Investment Company in a creation or redemption. An AP 
Representative will not be permitted to disclose the Creation Basket to 
any person, including the Authorized Participants.
    Proposed Rule 8.900-E(c)(4) defines the term ``Confidential 
Account'' as an account owned by an Authorized Participant and held 
with an AP Representative on behalf of the Authorized Participant. The 
account will be established and governed by contractual agreement 
between the AP Representative and the Authorized Participant solely for 
the purposes of creation and redemption, while keeping confidential the 
Creation Basket constituents of each series of Managed Portfolio 
Shares, including from the Authorized Participant. The books and 
records of the Confidential Account will

[[Page 22202]]

be maintained by the AP Representative on behalf of the Authorized 
Participant.
    Proposed Rule 8.900-E(c)(5) defines the term ``Creation Basket'' as 
on any given business day the names and quantities of the specified 
instruments (and/or an amount of cash) that are required for an AP 
Representative to deposit in-kind on behalf of an Authorized 
Participant in exchange for a Creation Unit and the names and 
quantities of the specified instruments (and/or an amount of cash) that 
will be transferred in-kind to an AP Representative on behalf of an 
Authorized Participant in exchange for a Redemption Unit, which will be 
identical and will be transmitted to each AP Representative before the 
commencement of trading.
    Proposed Rule 8.900-E(c)(6) defines the term ``Creation Unit'' as a 
specified minimum number of Managed Portfolio Shares issued by an 
Investment Company at the request of an Authorized Participant in 
return for a designated portfolio of instruments and/or cash.
    Proposed Rule 8.900-E(c)(7) defines the term ``Redemption Unit'' as 
a specified minimum number of Managed Portfolio Shares that may be 
redeemed to an Investment Company at the request of an Authorized 
Participant in return for a portfolio of instruments and/or cash.
    Proposed Rule 8.900-E(c)(8) defines the term ``Reporting 
Authority'' in respect of a particular series of Managed Portfolio 
Shares as the Exchange, an institution, or a reporting service 
designated by the Exchange or by the exchange that lists a particular 
series of Managed Portfolio 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, the net asset value, the Verified 
Intraday Indicative Value, or other information relating to the 
issuance, redemption or trading of Managed Portfolio Shares. A series 
of Managed Portfolio Shares may have more than one Reporting Authority, 
each having different functions.
    Proposed Rule 8.900-E(c)(9) provides that the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operations issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or man-made 
disaster, act of God, armed conflict, act of terrorism, riot or labor 
disruptions or any similar intervening circumstance.
    Proposed Rule 8.900-E(d) sets forth initial listing criteria 
applicable to Managed Portfolio Shares. Proposed Rule 8.900-E(d)(1)(A) 
provides that, for each series of Managed Portfolio Shares, the 
Exchange will establish a minimum number of Managed Portfolio Shares 
required to be outstanding at the time of commencement of trading on 
the Exchange. In addition, proposed Rule 8.900-E(d)(1)(B) provides that 
the Exchange will obtain a representation from the issuer of each 
series of Managed Portfolio Shares that the net asset value (``NAV'') 
per share for the series will be calculated daily and that the NAV will 
be made available to all market participants at the same time.\5\ 
Proposed Rule 8.900-E(d)(1(C) provides that all Managed Portfolio 
Shares shall have a stated investment objective, which shall be adhered 
to under Normal Market Conditions.
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    \5\ NYSE Arca Rule 7.18-E(d)(2) (``Trading Halts of Derivative 
Securities Products Listed on the NYSE Arca Marketplace)'' provides 
that, with respect to Derivative Securities Products listed on the 
NYSE Arca Marketplace for which a 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.
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    Proposed Rule 8.900-E(d)(2) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the following continued listing criteria. Proposed Rule 8.900-
E(d)(2)(A) provides that the VIIV for Managed Portfolio Shares will be 
widely disseminated by the Reporting Authority and/or by one or more 
major market data vendors in one second intervals during the Exchange's 
Core Trading Session (as defined in NYSE Arca Rule 7.34-E) and will be 
disseminated to all market participants at the same time.
    Proposed Rule 8.900-E(d)(2)(B) provides that the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 5.5-E(m) for, a series of Managed Portfolio 
Shares under any of the following circumstances: (i) If, following the 
initial twelve-month period after commencement of trading on the 
Exchange of a series of Managed Portfolio Shares, there are fewer than 
50 beneficial holders of the series of Managed Portfolio Shares; (ii) 
if the Exchange has halted trading in a series of Managed Portfolio 
Shares because the VIIV is interrupted pursuant to Rule 8.900-
E(d)(2)(C)(ii) and such interruption persists past the trading day in 
which it occurred or is no longer available; (iii) if the Exchange has 
halted trading in a series of Managed Portfolio Shares because the NAV 
with respect to such series of Managed Portfolio Shares is not 
disseminated to all market participants at the same time, the holdings 
of such series of Managed Portfolio Shares are not made available on at 
least a quarterly basis as required under the Investment Company Act of 
1940 (the ``1940 Act''), or such holdings are not made available to all 
market participants at the same time pursuant to Rule 8.900-
E(d)(2)(C)(ii) and such issue persists past the trading day in which it 
occurred; (iv) if the Exchange has halted trading in a series of 
Managed Portfolio Shares pursuant to Rule 8.900-E(d)(2)(C)(i), such 
issue persists past the trading day in which it occurred; (v) if the 
Investment Company issuing the Managed Portfolio Shares has failed to 
file any filings required by the Commission or if the Exchange is aware 
that the Investment Company is not in compliance with the conditions of 
any currently applicable exemptive order or no-action relief granted by 
the Commission or Commission staff to the Investment Company with 
respect to the series of Managed Portfolio Shares; (vi) if any of the 
continued listing requirements set forth in Rule 8.900-E are not 
continuously maintained; (vii) if any of the statements or 
representations regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings, or (c) the applicability of Exchange 
listing rules, specified in the Exchange's rule filing pursuant to 
Section 19(b) of the Securities Exchange Act of 1934 to permit the 
listing and trading of a series of Managed Portfolio Shares, are not 
continuously maintained; or (viii) if such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable.
    Proposed Rule 8.900-E(d)(2)(C)(i) provides that the Exchange may 
consider all relevant factors in exercising its discretion to halt 
trading in a series of Managed Portfolio Shares. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the series of Managed Portfolio Shares 
inadvisable. These may include: (a) The extent to which trading is not 
occurring in the securities and/or the financial instruments composing 
the portfolio; or (b) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.
    Proposed Rule 8.900-E(d)(2)(C)(ii) provides that, if the Exchange 
becomes

[[Page 22203]]

aware that: (a) the Verified Intraday Indicative Value of a series of 
Managed Portfolio Shares is not being calculated or disseminated in one 
second intervals, as required; (b) the net asset value with respect to 
a series of Managed Portfolio Shares is not disseminated to all market 
participants at the same time; (c) the holdings of a series of Managed 
Portfolio Shares are not made available on at least a quarterly basis 
as required under the 1940 Act; or (d) such holdings are not made 
available to all market participants at the same time (except as 
otherwise permitted under the currently applicable exemptive order or 
no-action relief granted by the Commission or Commission staff to the 
Investment Company with respect to the series of Managed Portfolio 
Shares), it will halt trading in such series until such time as the 
Verified Intraday Indicative Value, the net asset value, or the 
holdings are available, as required.
    Proposed Rule 8.900-E(d)(2)(D) provides that, upon termination of 
an Investment Company, the Exchange requires that Managed Portfolio 
Shares issued in connection with such entity be removed from Exchange 
listing.
    Proposed Rule 8.900-E(d)(2)(E) provides that voting rights shall be 
as set forth in the applicable Investment Company prospectus and/or 
statement of additional information.
    Proposed Rule 8.900-E(e), which relates to limitation of Exchange 
liability, provides that neither the Exchange, the Reporting Authority, 
when the Exchange is acting in the capacity of a Reporting Authority, 
nor any agent of the Exchange shall have any liability for damages, 
claims, losses or expenses caused by any errors, omissions, or delays 
in calculating or disseminating any current portfolio value; the 
current value of the portfolio of securities required to be deposited 
to the open-end management investment company in connection with 
issuance of Managed Portfolio Shares; the VIIV; the amount of any 
dividend equivalent payment or cash distribution to holders of Managed 
Portfolio Shares; NAV; or other information relating to the purchase, 
redemption, or trading of Managed Portfolio Shares, resulting from any 
negligent act or omission by the Exchange, the Reporting Authority when 
the Exchange is acting in the capacity of a Reporting Authority, or any 
agent of the Exchange, or any act, condition, or cause beyond the 
reasonable control of the Exchange, its agent, or the Reporting 
Authority, when the Exchange is acting in the capacity of a Reporting 
Authority, including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; or any error, omission, or delay in 
the reports of transactions in one or more underlying securities.
    Proposed Rule 8.900-E(f), which relates to disclosures, provides 
that the provisions of subparagraph (f) apply only to series of Managed 
Portfolio Shares that are the subject of an order by the Commission 
exempting such series from certain prospectus delivery requirements 
under Section 24(d) of the 1940 Act and are not otherwise subject to 
prospectus delivery requirements under the Securities Act of 1933. The 
Exchange will inform its ETP Holders regarding application of 
subparagraph (f) to a particular series of Managed Portfolio Shares by 
means of an information circular prior to commencement of trading in 
such series.
    The Exchange requires that ETP Holders provide to all purchasers of 
a series of Managed Portfolio Shares a written description of the terms 
and characteristics of those securities, in a form prepared by the 
open-end management investment company issuing such securities, not 
later than the time a confirmation of the first transaction in such 
series is delivered to such a purchaser. In addition, ETP Holders shall 
include such a written description with any sales material relating to 
a series of Managed Portfolio Shares that is provided to customers or 
the public. Any other written materials provided by an ETP Holder to 
customers or the public making specific reference to a series of 
Managed Portfolio Shares as an investment vehicle must include a 
statement in substantially the following form: ``A circular describing 
the terms and characteristics of (the series of Managed Portfolio 
Shares) has been prepared by the (open-end management investment 
company name) and is available from your broker. It is recommended that 
you obtain and review such circular before purchasing (the series of 
Managed Portfolio Shares).''
    An ETP Holder carrying an omnibus account for a non-ETP Holder 
broker-dealer is required to inform such non-ETP Holder that execution 
of an order to purchase a series of Managed Portfolio Shares for such 
omnibus account will be deemed to constitute agreement by the non-ETP 
Holder to make such written description available to its customers on 
the same terms as are directly applicable to ETP Holders under this 
rule.
    Upon request of a customer, an ETP Holder shall also provide a 
prospectus for the particular series of Managed Portfolio Shares.
    Additionally, the Exchange proposes to amend current Rule 5.3-E to 
include Managed Portfolio Shares listed pursuant to proposed Rule 
8.900-E among the derivative or special purpose securities that are 
subject to a limited set of corporate governance and disclosure 
policies. Similarly, the Exchange proposes to amend Rule 5.3-E(e) to 
include Managed Portfolio Shares listed pursuant to proposed Rule 
8.900-E among the derivative or special purpose securities to which the 
requirements concerning shareholder/annual meetings do not apply.
Key Features of Managed Portfolio Shares
    While each series of Managed Portfolio Shares will be actively 
managed and, to that extent, will be similar to Managed Fund Shares (as 
defined in Rule 8.600-E),\6\ Managed Portfolio Shares differ from 
Managed Fund Shares in the following important respects. First, in 
contrast to Managed Fund Shares, which require a ``Disclosed 
Portfolio'' to be disseminated at least once daily,\7\ the portfolio 
for a series of Managed Portfolio Shares will be disclosed quarterly in 
accordance with normal disclosure requirements otherwise applicable to 
open-end investment companies registered under the 1940

[[Page 22204]]

Act.\8\ The composition of the portfolio of a series of Managed 
Portfolio Shares would not be available at commencement of Exchange 
listing and/or trading. Second, in connection with the creation and 
redemption of shares in Creation Unit or Redemption Unit size (as 
described below), the delivery of any portfolio securities in kind will 
be effected through a Confidential Account (as described below) for the 
benefit of the creating or redeeming AP (as described below in 
``Creation and Redemption of Shares'') without disclosing the identity 
of such securities to the AP.
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    \6\ The Commission approved a proposed rule change to adopt 
rules permitting the listing and trading of Managed Fund Shares. See 
Securities Exchange Act Release No. 57619 (April 4, 2008), 73 FR 
19544 (April 10, 2008) (SR-NYSEArca-2008-25) (Order Granting 
Accelerated Approval of Rules Permitting the Listing and Trading of 
Managed Fund Shares, Trading Hours and Halts, Listing Fees 
Applicable To Managed Fund Shares). The Commission has also 
previously approved listing and trading on the Exchange of a number 
of issues of Managed Fund Shares under Rule 8.600-E. See, e.g., 
Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 
27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving Exchange 
listing and trading of twelve actively-managed funds of the 
WisdomTree Trust); 60460 (August 7, 2009), 74 FR 41468 (August 17, 
2009) (SR-NYSEArca-2009-55) (order approving listing of Dent 
Tactical ETF); 63076 (October 12, 2010), 75 FR 63874 (October 18, 
2010) (SR-NYSEArca-2010-79) (order approving Exchange listing and 
trading of Cambria Global Tactical ETF); 63802 (January 31, 2011), 
76 FR 6503 (February 4, 2011) (SR-NYSEArca-2010-118) (order 
approving Exchange listing and trading of the SiM Dynamic Allocation 
Diversified Income ETF and SiM Dynamic Allocation Growth Income 
ETF).
    \7\ NYSE Arca Rule 8.600-E(c)(2) defines the term ``Disclosed 
Portfolio'' as the identities and quantities of the securities and 
other assets held by the Investment Company that will form the basis 
for the Investment Company's calculation of net asset value at the 
end of the business day. NYSE Arca Equities Rule 8.600-E(d)(2)(B)(i) 
requires that the Disclosed Portfolio be disseminated at least once 
daily and be made available to all market participants at the same 
time.
    \8\ Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly 
basis within 60 days after fiscal quarter end. Investors can obtain 
a fund's Statement of Additional Information, its Shareholder 
Reports, its Form N-CSR, filed twice a year, and its Form N-CEN, 
filed annually. A Fund's SAI and Shareholder Reports are available 
free upon request from the Investment Company, and those documents 
and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed on-
screen or downloaded from the Commission's website at www.sec.gov.
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    For each series of Managed Portfolio Shares, an estimated value--
the VIIV-- that reflects an estimated intraday value of a fund's 
portfolio will be disseminated. Specifically, the VIIV will be based 
upon all of a series' holdings as of the close of the prior business 
day and, for corporate actions, based on the applicable holdings as of 
the opening of business on the current business day, and will be widely 
disseminated by the Reporting Authority and/or one or more major market 
data vendors in one second intervals during the Exchange's Core Trading 
Session. The dissemination of the VIIV will allow investors to 
determine the estimated intra-day value of the underlying portfolio of 
a series of Managed Portfolio Shares and will provide a close estimate 
of that value throughout the trading day.
    The Exchange, after consulting with various Lead Market Makers 
(``LMMs'') \9\ that trade ETFs on the Exchange, believes that market 
makers will be able to make efficient and liquid markets priced near 
the ETF's intraday value as long as a VIIV is disseminated in one 
second intervals, and market makers employ market making techniques 
such as ``statistical arbitrage,'' including correlation hedging, beta 
hedging, and dispersion trading, which is currently used throughout the 
financial services industry, to make efficient markets in exchange-
traded products.\10\ For Managed Portfolio Shares, market makers may 
use the knowledge of a Fund's means of achieving its investment 
objective, as described in the applicable Fund registration statement 
(the ``Registration Statement''), to construct a hedging proxy for a 
Fund to manage a market maker's quoting risk in connection with trading 
Fund Shares. Market makers can then conduct statistical arbitrage 
between their hedging proxy (for example, the Russell 1000 Index) and 
Shares of a Fund, buying and selling one against the other over the 
course of the trading day. This ability should permit market makers to 
make efficient markets in an issue of Managed Portfolio Shares without 
precise knowledge \11\ of a Fund's underlying portfolio.\12\ This is 
similar to certain other existing exchange-traded products (for 
example, ETFs that invest in foreign securities that do not trade 
during U.S. trading hours), in which spreads may be generally wider in 
the early days of trading and then narrow as market makers gain more 
confidence in their real-time hedges.
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    \9\ The term ``Lead Market Maker'' is defined in Rule 1.1(w) to 
mean a registered Market Maker that is the exclusive Designated 
Market Maker in listings for which the Exchange is the primary 
market.
    \10\ Statistical arbitrage enables a trader to construct an 
accurate proxy for another instrument, allowing it to hedge the 
other instrument or buy or sell the instrument when it is cheap or 
expensive in relation to the proxy. Statistical analysis permits 
traders to discover correlations based purely on trading data 
without regard to other fundamental drivers. These correlations are 
a function of differentials, over time, between one instrument or 
group of instruments and one or more other instruments. Once the 
nature of these price deviations have been quantified, a universe of 
securities is searched in an effort to, in the case of a hedging 
strategy, minimize the differential. Once a suitable hedging proxy 
has been identified, a trader can minimize portfolio risk by 
executing the hedging basket. The trader then can monitor the 
performance of this hedge throughout the trade period making 
corrections where warranted. In the case of correlation hedging, the 
analysis seeks to find a proxy that matches the pricing behavior of 
a fund. In the case of beta hedging, the analysis seeks to determine 
the relationship between the price movement over time of a fund and 
that of another stock. Dispersion trading is a hedged strategy 
designed to take advantage of relative value differences in implied 
volatilities between an index and the component stocks of that 
index. Such trading strategies will allow market participants to 
engage in arbitrage between series of Managed Portfolio Shares and 
other instruments, both through the creation and redemption process 
and strictly through arbitrage without such processes.
    \11\ Using the various trading methodologies described above, 
both APs and other market participants will be able to hedge 
exposures by trading correlative portfolios, securities or other 
proxy instruments, thereby enabling an arbitrage functionality 
throughout the trading day. For example, if an AP believes that 
Shares of a Fund are trading at a price that is higher than the 
value of its underlying portfolio based on the VIIV, the AP may sell 
Shares short and purchase securities that the AP believes will track 
the movements of a Fund's portfolio until the spread narrows and the 
AP executes offsetting orders or the AP enters an order through its 
AP Representative to create Fund Shares. Upon the completion of the 
Creation Unit, the AP will unwind its correlative hedge. Similarly, 
a non-AP market participant would be able to perform an identical 
function but, because it would not be able to create or redeem 
directly, would have to employ an AP to create or redeem Shares on 
its behalf.
    \12\ APs that enter into their own separate Confidential 
Accounts shall have enough information to ensure that they are able 
to comply with applicable regulatory requirements. For example, for 
purposes of net capital requirements, the maximum Securities Haircut 
applicable to the securities in a Creation Basket, as determined 
under Rule 15c3-1, will be disclosed daily on each Fund's website.
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    To protect the identity and weightings of the portfolio holdings, a 
series of Managed Portfolio Shares would sell and redeem their shares 
in Creation Units and Redemption Units to APs only through an AP 
Representative. As such, on each business day, before commencement of 
trading in Shares on the Exchange, each series of Managed Portfolio 
Shares will provide to an AP Representative of each AP the names and 
quantities of the instruments comprising a Creation Basket, i.e., the 
Deposit Instruments or ``Redemption Instruments'' and the estimated 
``Balancing Amount'' (if any),\13\ for that day (as further described 
below). This information will permit APs to purchase Creation Units or 
redeem Redemption Units through an in-kind transaction with a Fund, as 
described below.
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    \13\ The Balancing Amount is the cash amount necessary for the 
applicable Fund to receive or pay to compensate for the difference 
between the value of the securities delivered as part of a 
redemption and the NAV, to the extent that such values are 
different.
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Creation and Redemptions of Shares
    In connection with the creation and redemption of Creation Units 
and Redemption Units, the delivery or receipt of any portfolio 
securities in-kind will be required to be effected through a 
Confidential Account \14\ with an AP Representative,\15\ which will be 
a broker-dealer such as broker-dealer affiliates of JP Morgan Chase, 
State Street Bank and Trust, or Bank of New York Mellon, for the 
benefit of an AP.\16\

[[Page 22205]]

An AP must be a Depository Trust Company (``DTC'') Participant that has 
executed a ``Participant Agreement'' with the applicable distributor 
(the ``Distributor'') with respect to the creation and redemption of 
Creation Units and Redemption Units and formed a Confidential Account 
for its benefit in accordance with the terms of the Participant 
Agreement. For purposes of creations or redemptions, all transactions 
will be effected through the respective AP's Confidential Account, for 
the benefit of the AP without disclosing the identity of such 
securities to the AP. The Funds will offer and redeem Creation Units 
and Redemption Units on a continuous basis at the NAV per Share next 
determined after receipt of an order in proper form. The NAV per Share 
of each Fund will be determined as of the close of regular trading each 
business day. Funds will sell and redeem Creation Units and Redemption 
Units only on business days.
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    \14\ Transacting through a Confidential Account is designed to 
be very similar to transacting through any broker-dealer account, 
except that the AP Representative will be bound to keep the names 
and weights of the portfolio securities confidential. Each service 
provider that has access to the identity and weightings of 
securities in a Fund's Creation Basket or portfolio securities, such 
as a Fund's custodian or pricing verification agent, shall be 
restricted contractually from disclosing that information to any 
other person, or using that information for any purpose other than 
providing services to the Fund. To comply with certain recordkeeping 
requirements applicable to APs, the AP Representative will maintain 
and preserve, and make available to the Commission, certain required 
records related to the securities held in the Confidential Account.
    \15\ Each AP shall enter into its own separate Confidential 
Account with an AP Representative.
    \16\ Each Fund will identify one or more entities to enter into 
a contractual arrangement with the Fund to serve as an AP 
Representative. In selecting entities to serve as AP 
Representatives, a Fund will obtain representations from the entity 
related to the confidentiality of the Fund's Creation Basket and 
portfolio securities, the effectiveness of information barriers, and 
the adequacy of insider trading policies and procedures. In 
addition, as a broker-dealer, Section 15(g) of the Act requires the 
AP Representative to establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
material, non-public information by the AP Representative or any 
person associated with the AP Representative.
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    Each AP Representative will be given, before the commencement of 
trading each business day, the Creation Basket for that day. The 
published Creation Basket will apply until a new Creation Basket is 
announced on the following business day, and there will be no intra-day 
changes to the Creation Basket except to correct errors in the 
published Creation Basket. In order to keep costs low and permit Funds 
to be as fully invested as possible, Shares will be purchased and 
redeemed in Creation Units and Redemption Units and generally on an in-
kind basis. Accordingly, except where the purchase or redemption will 
include cash under the circumstances required or determined permissible 
by the Fund, APs will be required to purchase Creation Units by making 
an in-kind deposit of specified instruments (``Deposit Instruments''), 
and APs redeeming their Shares will receive an in-kind transfer of 
Redemption Instruments through the AP Representative in their 
Confidential Account.\17\
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    \17\ Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the 1933 Act.
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    In the case of a creation, the AP \18\ would enter into an 
irrevocable creation order with a Fund and then direct the AP 
Representative to purchase the necessary basket of portfolio 
securities. The AP Representative would then purchase the necessary 
securities in the Confidential Account. In purchasing the necessary 
securities, the AP Representative would use methods such as breaking 
the purchase into multiple purchases and transacting in multiple 
marketplaces. Once the necessary basket of securities has been 
acquired, the purchased securities held in the Confidential Account 
would be contributed in-kind to the applicable Fund.
---------------------------------------------------------------------------

    \18\ An AP will issue execution instructions to the AP 
Representative and be responsible for all associated profit or 
losses. Like a traditional ETF, the AP has the ability to sell the 
basket securities at any point during the Core Trading Session.
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    Other market participants that are not APs will not have the 
ability to create or redeem shares directly with a Fund. Rather, if 
other market participants wish to create or redeem Shares in a Fund, 
they will have to do so through an AP.
Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous 
basis at NAV. The Exchange represents that the issuance of Shares will 
operate in a manner substantially similar to that of other ETFs. Each 
Fund will issue Shares only at the NAV per Share next determined after 
an order in proper form is received.
    The Distributor will furnish acknowledgements to those placing 
orders that the orders have been accepted, but the Distributor may 
reject any order which is not submitted in proper form, as described in 
a Fund's prospectus or Statement of Additional Information (``SAI''). 
The NAV of each Fund is expected to be determined once each business 
day at a time determined by the board of the Investment Company 
(``Board''), currently anticipated to be as of the close of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the 
``Valuation Time''). Each Fund will establish a cut-off time (``Order 
Cut-Off Time'') for purchase orders in proper form. To initiate a 
purchase of Shares, an AP must submit to the Distributor an irrevocable 
order to purchase such Shares after the most recent prior Valuation 
Time.
    Purchases of Shares will be settled in-kind and/or cash for an 
amount equal to the applicable NAV per Share purchased plus applicable 
``Transaction Fees,'' as discussed below.
    Generally, all orders to purchase Creation Units must be received 
by the Distributor no later than the end of Core Trading Session on the 
date such order is placed (``Transmittal Date'') in order for the 
purchaser to receive the NAV per Share determined on the Transmittal 
Date. In the case of custom orders made in connection with creations or 
redemptions in whole or in part in cash, the order must be received by 
the Distributor, no later than the Order Cut-Off Time.\19\
---------------------------------------------------------------------------

    \19\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis, as provided in the 
Registration Statement.
---------------------------------------------------------------------------

Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by or through an AP (``AP Redemption Order''). 
Each Fund will establish an Order Cut-Off Time for redemption orders of 
Redemption Units in proper form. Redemption Units of a Fund will be 
redeemable at their NAV per Share next determined after receipt of a 
request for redemption by the Investment Company in the manner 
specified below before the Order Cut-Off Time. To initiate an AP 
Redemption Order, an AP must submit to the Distributor an irrevocable 
order to redeem such Redemption Unit after the most recent prior 
Valuation Time but not later than the Order Cut-Off Time.
    In the case of a redemption, the AP would enter into an irrevocable 
redemption order, and then instruct the AP Representative to sell the 
underlying basket of securities that it will receive in the redemption. 
As with the purchase of securities, the AP Representative would be 
required to obfuscate the sale of the portfolio securities it will 
receive as redemption proceeds using similar tactics.
    Consistent with the provisions of Section 22(e) of the 1940 Act and 
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor 
payment upon redemption delayed, except for: (1) Any period during 
which the Exchange is closed other than customary weekend and holiday 
closings, (2) any period during which trading on the Exchange is 
restricted, (3) any period during which an emergency exists as a result 
of which disposal by a Fund of securities owned by it is not reasonably 
practicable or it is not reasonably practicable for a Fund to determine 
its NAV, and (4) for such other periods as the Commission may by

[[Page 22206]]

order permit for the protection of shareholders.
    It is expected that redemptions will occur primarily in-kind, 
although redemption payments may also be made partly or wholly in cash. 
The Participant Agreement signed by each AP will require establishment 
of a Confidential Account to receive distributions of securities in-
kind upon redemption.\20\ Each AP will be required to open a 
Confidential Account with an AP Representative in order to facilitate 
orderly processing of redemptions.
---------------------------------------------------------------------------

    \20\ The terms of each Confidential Account will be set forth as 
an exhibit to the applicable Participant Agreement, which will be 
signed by each AP. The Authorized Participant will be free to choose 
an AP Representative for its Confidential Account from a list of 
broker-dealers that have signed confidentiality agreements with the 
Fund. The Authorized Participant will be free to negotiate account 
fees and brokerage charges with its selected AP Representative. The 
Authorized Participant will be responsible to pay all fees and 
expenses charged by the AP Representative of its Confidential 
Account.
---------------------------------------------------------------------------

    After receipt of a Redemption Order, a Fund's custodian 
(``Custodian'') will typically deliver securities to the Confidential 
Account with a value approximately equal to the value of the Shares 
\21\ tendered for redemption at the Cut-Off time. The Custodian will 
make delivery of the securities by appropriate entries on its books and 
records transferring ownership of the securities to the AP's 
Confidential Account, subject to delivery of the Shares redeemed. The 
AP Representative of the Confidential Account will in turn liquidate 
the securities based on instructions from the AP. The AP Representative 
will pay the liquidation proceeds net of expenses plus or minus any 
cash Balancing Amount to the AP through DTC. The redemption securities 
that the Confidential Account receives are expected to mirror the 
portfolio holdings of a Fund pro rata. To the extent a Fund distributes 
portfolio securities through an in-kind distribution to more than one 
Confidential Account for the benefit of the accounts' respective APs, 
each Fund expects to distribute a pro rata portion of the portfolio 
securities selected for distribution to each redeeming AP.
---------------------------------------------------------------------------

    \21\ If the NAV of the Shares redeemed differs from the value of 
the securities delivered to the applicable Confidential Account, the 
applicable Fund will receive or pay a cash Balancing Amount to 
compensate for the difference between the value of the securities 
delivered and the NAV.
---------------------------------------------------------------------------

    If the AP would receive a security that it is restricted from 
receiving, for example if the AP is engaged in a distribution of the 
security, a Fund will deliver cash equal to the value of that security. 
APs will provide the AP Representative with a list of restricted 
securities applicable to the AP on a daily basis, and a Fund will 
substitute cash for those securities in the applicable Confidential 
Account.
    The Investment Company will accept a Redemption Order in proper 
form. A Redemption Order is subject to acceptance by the Investment 
Company and must be preceded or accompanied by an irrevocable 
commitment to deliver the requisite number of Shares. At the time of 
settlement, an AP will initiate a delivery of the Shares plus or minus 
any cash Balancing Amounts, and less the expenses of liquidation.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Managed Portfolio Shares on the 
Exchange during all trading sessions and to deter and detect violations 
of Exchange rules and the applicable federal securities laws. Trading 
of Managed Portfolio Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products. The 
Exchange will require the issuer of each series of Managed Portfolio 
Shares, upon initial listing and periodically thereafter, to provide a 
representation that it is in compliance with Rule 8.900-E. In addition, 
the Exchange will require issuers to represent that they will notify 
the Exchange of any failure to comply with the terms of applicable 
exemptive and no-action relief. As part of its surveillance procedures, 
the Exchange will rely on the foregoing procedures to become aware of 
any non-compliance with the requirements of Rule 8.900-E.
    The Exchange will require each issuer of a Fund to represent that 
it will advise the Exchange of any failure by a Fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Exchange Act, the Exchange will monitor for 
compliance with the continued listing requirements. If a Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting proceedings under Exchange Rule 5.5-E(m).
    Specifically, the Exchange will implement real-time surveillances 
that monitor for the continued dissemination of the VIIV. The Exchange 
will also have surveillances designed to alert Exchange personnel where 
shares of a series of Managed Portfolio Shares are trading away from 
the VIIV. As noted in proposed Rule 8.900-E(b)(3), the Investment 
Company's investment adviser will upon request make available to the 
Exchange and/or FINRA, on behalf of the Exchange, the daily portfolio 
holdings of each series of Managed Portfolio Shares. The Exchange 
believes that this is appropriate because it will provide the Exchange 
or FINRA, on behalf of the Exchange, with access to the daily portfolio 
holdings of any series of Managed Portfolio Shares upon request on an 
as needed basis. The Exchange believes that the ability to access the 
information on an as needed basis will provide it with sufficient 
information to perform the necessary regulatory functions associated 
with listing and trading series of Managed Portfolio Shares on the 
Exchange, including the ability to monitor compliance with the initial 
and continued listing requirements as well as the ability to surveil 
for manipulation of the shares.
    The Exchange notes that any equity instruments or futures held by a 
Fund operating under an exemptive order would trade on markets that are 
a member of Intermarket Surveillance Group (``ISG'') or affiliated with 
a member of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\22\ While future exemptive relief 
applicable to Managed Portfolio Shares may expand the investable 
universe, the Exchange notes that proposed Rule 8.900-E(b)(1) would 
require the Exchange to file separate proposals under Section 19(b) of 
the Act before listing and trading any series of Managed Portfolio 
Shares and such proposal would describe the investable universe for any 
such series of Managed Portfolio Shares along with the Exchange's 
surveillance procedures applicable to such series.
---------------------------------------------------------------------------

    \22\ For a list of the current members of ISG, see 
www.isgportal.com. The Exchange notes that cash equivalents may 
trade on markets that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    FINRA, on behalf of the Exchange, or the regulatory staff of the 
Exchange, or both, will communicate as needed regarding trading in the 
Shares, underlying exchange-traded instruments with other markets and 
other entities that are members of the Intermarket Surveillance Group 
(``ISG''), and FINRA, on behalf of the Exchange, or the regulatory 
staff of the Exchange, or both, may obtain trading information 
regarding trading such securities from such markets and other entities. 
In addition, the Exchange may obtain information regarding trading in 
the Shares, underlying exchange-traded instruments from other markets 
and other entities that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.

[[Page 22207]]

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Trading Halts
    As proposed above, the Exchange may consider all relevant factors 
in exercising its discretion to halt trading in a series of Managed 
Portfolio Shares. Trading may be halted because of market conditions or 
for reasons that, in the view of the Exchange, make trading in the 
series of Managed Portfolio Shares inadvisable. These may include: (1) 
The extent to which trading is not occurring in the securities and/or 
the financial instruments comprising the portfolio; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Additionally, the 
Exchange would halt trading as soon as practicable where the Exchange 
becomes aware that: (1) The VIIV of a series of Managed Portfolio 
Shares is not being calculated or disseminated in one second intervals, 
as required; (2) the net asset value with respect to a series of 
Managed Portfolio Shares is not disseminated to all market participants 
at the same time; (3) the holdings of a series of Managed Portfolio 
Shares are not made available on at least a quarterly basis as required 
under the 1940 Act; or (4) such holdings are not made available to all 
market participants at the same time, (except as otherwise permitted 
under a currently applicable exemptive order or no-action relief 
granted by the Commission or Commission staff to the Investment Company 
with respect to the series of Managed Portfolio Shares) (collectively, 
``Availability of Information Halts''). The Exchange would halt trading 
in such series of Managed Portfolio Shares until such time as the VIIV, 
the NAV, or the holdings are available, as required.
Availability of Information
    As noted above, Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly basis 
within 60 days after fiscal quarter end. Investors can obtain a fund's 
Statement of Additional Information, its Shareholder Reports, its Form 
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's 
SAI and Shareholder Reports are available free upon request from the 
Investment Company, and those documents and the Form N-PORT, Form N-
CSR, and Form N-CEN may be viewed on-screen or downloaded from the 
Commission's website at www.sec.gov.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the VIIV, as defined in 
proposed Rule 8.900-E(c)(2), will be widely disseminated by the 
Reporting Authority and/or one or more major market data vendors in one 
second intervals during the Exchange's Core Trading Session.
Trading Rules
    The Exchange deems Managed Portfolio Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
Managed Portfolio Shares will trade on the Exchange only during the 
trading hours specified in Rule 7.34-E(a). As provided in NYSE Arca 
Rule 7.6-E, the minimum price variation (``MPV'') for quoting and entry 
of orders in equity securities traded on the NYSE Arca Marketplace is 
$0.01, with the exception of securities that are priced less than $1.00 
for which the MPV for order entry is $0.0001.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin (``Bulletin'') of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Bulletin will discuss the following: (1) The 
procedures for purchases and redemptions of Shares; (2) NYSE Arca Rule 
9.2-E(a), which imposes a duty of due diligence on its ETP Holders to 
learn the essential facts relating to every customer prior to trading 
the Shares; (3) how information regarding the VIIV is disseminated; (4) 
the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (5) trading information; and (6) that 
the portfolio holdings of the Shares are not disclosed on a daily 
basis.
    In addition, the Bulletin will reference that Funds are subject to 
various fees and expenses described in the Registration Statement. The 
Bulletin will discuss any exemptive, no-action, and interpretive relief 
granted by the Commission from any rules under the Act. The Bulletin 
will also disclose that the NAV for the Shares will be calculated after 
4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\23\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\24\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 8.900-E is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Managed Portfolio 
Shares provide specific initial and continued listing criteria required 
to be met by such securities. Proposed Rule 8.900-E(d) sets forth 
initial and continued listing criteria applicable to Managed Portfolio 
Shares. Proposed Rule 8.900-E(d)(1)(A) provides that, for each series 
of Managed Portfolio Shares, the Exchange will establish a minimum 
number of Managed Portfolio Shares required to be outstanding at the 
time of commencement of trading. In addition, proposed Rule 8.900-
E(d)(1)(B) provides that the Exchange will obtain a representation from 
the Investment Company that issues each series of Managed Portfolio 
Shares that the NAV per share for the series will be calculated daily 
and that the NAV will be made available to all market participants at 
the same time.\25\ Proposed Rule 8.900-E(d)(2) provides that each 
series of Managed Portfolio Shares will be listed and traded subject to 
application of the specified continued listing criteria, as described 
above. Proposed Rule 8.900-E(d)(2)(A) provides that the VIIV for 
Managed Portfolio Shares will be widely disseminated by the Reporting 
Authority and/or one or more major market data vendors in one second 
intervals during the Exchange's Core Trading Session, and will be 
disseminated to all market participants

[[Page 22208]]

at the same time. Proposed Rule 8.900-E(d)(2)(B) provides that the 
Exchange will consider the suspension of trading in, and will commence 
delisting proceedings under Rule 5.5-E(m) for, a series of Managed 
Portfolio Shares under any of the following circumstances: (a) If, 
following the initial twelve-month period after commencement of trading 
on the Exchange of a series of Managed Portfolio Shares, there are 
fewer than 50 beneficial holders of the series of Managed Portfolio 
Shares; (b) if the Exchange has halted trading in a series of Managed 
Portfolio Shares because the Verified Intraday Indicative Value is 
interrupted pursuant to Rule 8.900-E(d)(2)(C)(ii) and such interruption 
persists past the trading day in which it occurred or is no longer 
available; (c) if the Exchange has halted trading in a series of 
Managed Portfolio Shares because the net asset value with respect to 
such series of Managed Portfolio Shares is not disseminated to all 
market participants at the same time, the holdings of such series of 
Managed Portfolio Shares are not made available on at least a quarterly 
basis as required under the 1940 Act, or such holdings are not made 
available to all market participants at the same time pursuant to Rule 
8.900-E(d)(2)(C)(ii) and such issue persists past the trading day in 
which it occurred; (d) if the Exchange has halted trading in a series 
of Managed Portfolio Shares pursuant to Rule 8.900-E(d)(2)(C)(i), such 
issue persists past the trading day in which it occurred; (e) if the 
Investment Company issuing the Managed Portfolio Shares has failed to 
file any filings required by the Commission or if the Exchange is aware 
that the Investment Company is not in compliance with the conditions of 
any currently applicable exemptive order or no-action relief granted by 
the Commission or Commission staff to the Investment Company with 
respect to the series of Managed Portfolio Shares; (f) if any of the 
continued listing requirements set forth in Rule 8.900-E are not 
continuously maintained; (g) if any of the statements or 
representations regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings, or (c) the applicability of Exchange 
listing rules, specified in the Exchange's rule filing pursuant to 
Section 19(b) of the Securities Exchange Act of 1934 to permit the 
listing and trading of a series of Managed Portfolio Shares, are not 
continuously maintained; or (h) if such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable. Proposed Rule 5.900-E(d)(2)(C)(i) 
provides that the Exchange may consider all relevant factors in 
exercising its discretion to halt trading in the series of Managed 
Portfolio Shares. Trading may be halted because of market conditions or 
for reasons that, in the view of the Exchange, make trading in the 
series of Managed Portfolio Shares inadvisable. These may include: (a) 
The extent to which trading is not occurring in the securities and/or 
the financial instruments composing the portfolio; or (b) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.
---------------------------------------------------------------------------

    \25\ Proposed Rule 8.900-E(d)(2)(C)(ii) provides that if the 
Exchange becomes aware that the NAV with respect to a series of 
Managed Portfolio Shares is not disseminated to all market 
participants at the same time, it will halt trading in such series 
until such time as the NAV is available to all market participants 
at the same time.
---------------------------------------------------------------------------

    Proposed Rule 8.900-E(d)(2)(C)(ii) provides that, if the Exchange 
becomes aware that: (a) The VIIV of a series of Managed Portfolio 
Shares is not being calculated or disseminated in one second intervals, 
as required; (b) the net asset value with respect to a series of 
Managed Portfolio Shares is not disseminated to all market participants 
at the same time; (c) the holdings of a series of Managed Portfolio 
Shares are not made available on at least a quarterly basis as required 
under the 1940 Act; or (d) such holdings are not made available to all 
market participants at the same time (except as otherwise permitted 
under the currently applicable exemptive order or no-action relief 
granted by the Commission or Commission staff to the Investment Company 
with respect to the series of Managed Portfolio Shares), it will halt 
trading in such series until such time as the VIIV, the net asset 
value, or the holdings are available, as required. Proposed Rule 8.900-
E(d)(2)(D) provides that, upon termination of an Investment Company, 
the Exchange requires that Managed Portfolio Shares issued in 
connection with such entity be removed from Exchange listing. Proposed 
Rule 8.900-E(d)(2)(E) provides that voting rights shall be as set forth 
in the applicable Investment Company prospectus and/or Statement of 
Additional Information. The Exchange also notes that pursuant to its 
exemptive order, an issuer must comply with Regulation Fair Disclosure, 
which prohibits selective disclosure of any material non-public 
information, which otherwise do not apply to issuers of Managed Fund 
Shares.
    Proposed Rule 8.900-E(b)(4) provides that, if the investment 
adviser to the Investment Company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliates, as applicable, with respect to access to information 
concerning the composition of and/or changes to such Investment Company 
portfolio and/or the Creation Basket. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to 
information regarding the Investment Company's portfolio composition or 
changes thereto or the Creation Basket must be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the applicable Investment Company portfolio or 
changes thereto or the Creation Basket. Proposed Rule 8.900-E(b)(5) 
provides that, any person or entity, including an AP Representative, 
custodian, Reporting Authority, distributor, or administrator, who has 
access to non-public information regarding the Investment Company's 
portfolio composition or changes thereto or the Creation Basket, must 
be subject to procedures reasonably designed to prevent the use and 
dissemination of material non-public information regarding the 
applicable Investment Company portfolio or changes thereto or the 
Creation Basket. Moreover, if any such person or entity is registered 
as a broker-dealer or affiliated with a broker-dealer, such person or 
entity will erect and maintain a ``fire wall'' between the person or 
entity and the broker-dealer with respect to access to information 
concerning the composition and/or changes to such Investment Company 
portfolio or Creation Basket.
    The Exchange believes that these proposed rules are designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares because they provide 
meaningful requirements about both the data that will be made publicly 
available about the Shares as well as the information that will only be 
available to certain parties and the controls on such information. 
Specifically, the Exchange believes that the requirements related to 
information protection enumerated under proposed Rule 8.900-E(b)(5) 
will act as a strong safeguard against any misuse and improper 
dissemination of non-public information related to a Fund's portfolio 
composition, the Creation Basket, or changes thereto. The requirement 
that any person or entity implement procedures reasonably designed to 
prevent the use and dissemination of material non-public information 
regarding the portfolio or

[[Page 22209]]

Creation Basket will act to prevent any individual or entity from 
sharing such information externally and the internal ``fire wall'' 
requirements applicable where an entity is a registered broker-dealer 
or affiliated with a broker-dealer will act to make sure that no entity 
will be able to misuse the data for their own purpose. As such, the 
Exchange believes that this proposal is designed to prevent fraudulent 
and manipulative acts and practices.
    The Exchange, after consulting with various LMMs that trade ETFs on 
the Exchange, believes that market makers will be able to make 
efficient and liquid markets priced near the VIIV, as long as market 
makers have knowledge of a Fund's means of achieving its investment 
objective, even without daily disclosure of a fund's underlying 
portfolio. The Exchange believes that market makers will employ risk-
management techniques to make efficient markets in exchange traded 
products. This ability should permit market makers to make efficient 
markets in shares without knowledge of a fund's underlying portfolio.
    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers utilizing statistical arbitrage use the knowledge of a fund's 
means of achieving its investment objective, as described in the 
applicable fund registration statement, to construct a hedging proxy 
for a fund to manage a market maker's quoting risk in connection with 
trading fund shares. Market makers will then conduct statistical 
arbitrage between their hedging proxy (for example, the Russell 1000 
Index) and shares of a fund, buying and selling one against the other 
over the course of the trading day. Eventually, at the end of each day, 
they will evaluate how their proxy performed in comparison to the price 
of a fund's shares, and use that analysis as well as knowledge of risk 
metrics, such as volatility and turnover, to enhance their proxy 
calculation to make it a more efficient hedge.
    Market makers have indicated to the Exchange that there will be 
sufficient data to run a statistical analysis which will lead to 
spreads being tightened substantially around the VIIV. This is similar 
to certain other existing exchange-traded products (for example, ETFs 
that invest in foreign securities that do not trade during U.S. trading 
hours), in which spreads may be generally wider in the early days of 
trading and then narrow as market makers gain more confidence in their 
real-time hedges.
    The LMMs also indicated that, as with some other new exchange-
traded products, spreads would tend to narrow as market makers gain 
more confidence in the accuracy of their hedges and their ability to 
adjust these hedges in real-time relative to the published VIIV and 
gain an understanding of the applicable market risk metrics such as 
volatility and turnover, and as natural buyers and sellers enter the 
market. Other relevant factors cited by LMMs were that a fund's 
investment objectives are clearly disclosed in the applicable 
prospectus, the existence of quarterly portfolio disclosure and the 
ability to create shares in creation unit size or redeem in redemption 
unit size through an AP.
    The real-time dissemination of a Fund's VIIV together with the 
right of APs to create and redeem each day at the NAV will be 
sufficient for market participants to value and trade Shares in a 
manner that will not lead to significant deviations between the Shares' 
bid/ask price and NAV.
    The pricing efficiency with respect to trading a series of Managed 
Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the Shares and a fund's portfolio, in 
addition to the ability of market participants to assess a fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in shares effectively. Professional traders can buy 
Shares that they perceive to be trading at a price less than that which 
will be available at a subsequent time, and sell Shares they perceive 
to be trading at a price higher than that which will be available at a 
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to Shares by the Exchange, 
off-exchange market makers, firms that specialize in electronic 
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being 
``long'' or ``short'' shares through such trading and will hedge such 
risk wholly or partly by simultaneously taking positions in correlated 
assets \26\ or by netting the exposure against other, offsetting 
trading positions--much as such firms do with existing ETFs and other 
equities. Disclosure of a fund's investment objective and principal 
investment strategies in its prospectus and SAI, along with the 
dissemination of the VIIV in one second intervals, should permit 
professional investors to engage easily in this type of hedging 
activity.\27\
---------------------------------------------------------------------------

    \26\ Price correlation trading is used throughout the financial 
industry. It is used to discover both trading opportunities to be 
exploited, such as currency pairs and statistical arbitrage, as well 
as for risk mitigation such as dispersion trading and beta hedging. 
These correlations are a function of differentials, over time, 
between one or multiple securities pricing. Once the nature of these 
price deviations have been quantified, a universe of securities is 
searched in an effort to, in the case of a hedging strategy, 
minimize the differential. Once a suitable hedging basket has been 
identified, a trader can minimize portfolio risk by executing the 
hedging basket. The trader then can monitor the performance of this 
hedge throughout the trade period, making corrections where 
warranted.
    \27\ With respect to trading in the Shares, market participants 
would manage risk in a variety of ways. It is expected that market 
participants will be able to determine how to trade Shares at levels 
approximating the VIIV without taking undue risk by gaining 
experience with how various market factors (e.g., general market 
movements, sensitivity of the VIIV to intraday movements in interest 
rates or commodity prices, etc.) affect VIIV, and by finding hedges 
for their long or short positions in Shares using instruments 
correlated with such factors. Market participants will likely 
initially determine the VIIV's correlation to a major large 
capitalization equity benchmark with active derivative contracts, 
such as the Russell 1000 Index, and the degree of sensitivity of the 
VIIV to changes in that benchmark. For example, using hypothetical 
numbers for illustrative purposes, market participants should be 
able to determine quickly that price movements in the Russell 1000 
Index predict movements in a Fund's VIIV 95% of the time (an 
acceptably high correlation) but that the VIIV generally moves 
approximately half as much as the Russell 1000 Index with each price 
movement. This information is sufficient for market participants to 
construct a reasonable hedge--buy or sell an amount of futures, 
swaps or ETFs that track the Russell 1000 equal to half the opposite 
exposure taken with respect to Shares. Market participants will also 
continuously compare the intraday performance of their hedge to a 
Fund's VIIV. If the intraday performance of the hedge is correlated 
with the VIIV to the expected degree, market participants will feel 
comfortable they are appropriately hedged and can rely on the VIIV 
as appropriately indicative of a Fund's performance.
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    With respect to trading of the Shares, the ability of market 
participants to buy and sell Shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for a Fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
a Fund's actual portfolio holdings, (2) the securities in which a Fund 
plans to invest are generally highly liquid and actively traded and 
therefore generally have accurate real time pricing available, and (3) 
market participants will have a daily opportunity to evaluate whether 
the VIIV at or near the close of trading is indeed predictive of the 
actual NAV.
    In a typical index-based ETF, it is standard for APs to know what 
securities must be delivered in a creation or will be received in a

[[Page 22210]]

redemption. For Managed Portfolio Shares, however, APs do not need to 
know the securities comprising the portfolio of a Fund since creations 
and redemptions are handled through the Confidential Account mechanism. 
In-kind creations and redemptions through a Confidential Account are 
expected to preserve the integrity of the active investment strategy 
and reduce the potential for ``free riding'' or ``front-running,'' 
while still providing investors with the advantages of the ETF 
structure.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the Investment 
Company that issues each series of Managed Portfolio Shares that the 
NAV per share of a fund will be calculated daily and that the NAV will 
be made available to all market participants at the same time. 
Investors can also obtain a fund's Statement of Additional Information, 
its Shareholder Reports, its Form N-CSR, filed twice a year, and its 
Form N-CEN, filed annually. A fund's SAI and Shareholder Reports are 
available free upon request from the Investment Company, and those 
documents and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed 
on-screen or downloaded from the Commission's website at www.sec.gov. 
In addition, a large amount of information will be publicly available 
regarding the Funds and the Shares, thereby promoting market 
transparency. Quotation and last sale information for the Shares will 
be available via the CTA high-speed line. Information regarding the 
VIIV will be widely disseminated in one second intervals throughout the 
Core Trading Session by the Reporting Authority and/or one or more 
major market data vendors. The website for each Fund will include a 
form of the prospectus for the Fund that may be downloaded, and 
additional data relating to NAV and other applicable quantitative 
information, updated on a daily basis. Moreover, prior to the 
commencement of trading, the Exchange will inform its members in an 
Information Bulletin of the special characteristics and risks 
associated with trading the Shares.
    The Exchange further believes that the proposal is designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares and to promote just and 
equitable principles of trade and to protect investors and the public 
interest in that the Exchange would halt trading under certain 
circumstances under which trading in the shares of a Fund may be 
inadvisable. Specifically, the Exchange may consider all relevant 
factors in exercising its discretion to halt trading in a series of 
Managed Portfolio Shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the series of Managed Portfolio Shares inadvisable. These 
may include: (a) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the portfolio; or 
(b) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Additionally, 
the Exchange would halt trading as soon as practicable where the 
Exchange becomes aware that: (a) The VIIV of a series of Managed 
Portfolio Shares is not being calculated or disseminated in one second 
intervals, as required; (b) the net asset value with respect to a 
series of Managed Portfolio Shares is not disseminated to all market 
participants at the same time; (c) the holdings of a series of Managed 
Portfolio Shares are not made available on at least a quarterly basis 
as required under the 1940 Act; or (d) such holdings are not made 
available to all market participants at the same time, (except as 
otherwise permitted under a currently applicable exemptive order or no-
action relief granted by the Commission or Commission staff to the 
Investment Company with respect to the series of Managed Portfolio 
Shares). The Exchange would halt trading in such series of Managed 
Portfolio Shares until such time as the VIIV, the NAV, or the holdings 
are available, as required.
    The Exchange is proposing to retain discretion to halt trading in a 
series of Managed Portfolio Shares based on market conditions or where 
the Exchange determines that trading in such series is inadvisable 
(each a ``Discretionary Halt'') and is also proposing the four 
Availability of Information Halts described above. The Exchange 
believes that retaining discretion to implement a Discretionary Halt as 
specified is consistent with the Act. The proposed rule retaining 
discretion related to halts is designed to ensure the maintenance of a 
fair and orderly market and protect investors and the public interest 
in that it provides the Exchange with the ability to halt when it 
determines that trading in the shares is inadvisable. This could be 
based on the Exchange's own analysis of market conditions being 
detrimental to a fair and orderly market and/or information provided by 
the Investment Company or its agent. There are certain circumstances 
related to the trading and dissemination of information related to the 
underlying holdings of a series of Managed Portfolio Shares, such as 
the extent to which trading is not occurring in the securities and/or 
financial instruments composing the portfolio, that the Exchange may 
not be in a position to know or become aware of as expeditiously as the 
Investment Company or its agent. There are certain circumstances where 
the Investment Company or its agent may request that the Exchange halt 
trading in the applicable series of Managed Portfolio Shares. Upon 
receipt of information and/or a request from the Investment Company, 
the Exchange would consider the information and/or circumstances 
leading to the request as well as other factors both specific to such 
issue of Managed Portfolio Shares and the broader market in determining 
whether trading in the series of Managed Portfolio Shares is 
inadvisable and that halting trading is necessary in order to maintain 
a fair and orderly market. As such, the Exchange believes that the 
proposal to provide the Exchange with discretion to implement a 
Discretionary Halt is consistent with the Act.
    The Exchange believes that the proposed Availability of Information 
Halts to halt trading in shares of a series of Managed Portfolio Shares 
are consistent with the Act because: (i) The Commission has already 
determined that the requirement that the VIIV be disseminated every 
second is appropriate; (ii) the other Availability of Information Halts 
are generally consistent with and designed to address the same concerns 
about asymmetry of information that Rule 8.600-E(d)(2)(D) related to 
trading halts in Managed Fund Shares \28\ is intended to address,

[[Page 22211]]

specifically that the availability of such information is intended to 
reduce the potential for manipulation and help ensure a fair and 
orderly market in Managed Portfolio Shares;\29\ and (iii) the quarterly 
disclosure of portfolio holdings is a fundamental component of Managed 
Portfolio Shares that allows market participants to better understand 
the strategy of the funds and to monitor how closely trading in the 
funds is tracking the value of the underlying portfolio and when such 
information is not being disclosed as required, trading in the shares 
is inadvisable and it is necessary and appropriate to halt trading. The 
Exchange notes, however, that an Investment Company that issues Managed 
Portfolio Shares will still be subject to Rule 5.2-E(b), which requires 
that an ``Issuer with securities listed under Rule 5.2-E or Rule 8-E 
must provide the Exchange with prompt notification after the issuer 
becomes aware of any noncompliance by the issuer with the applicable 
continued listing requirements of Rule 5.2-E, Rule 5.5-E or Rule 8-E.''
---------------------------------------------------------------------------

    \28\ Rule 8.600-E(d)(2)(D) provides that ``If the Portfolio 
Indicative Value (as defined in Rule 8.600-E(c)(3)) of a series of 
Managed Fund Shares is not being disseminated as required, the 
Exchange may halt trading during the day in which the interruption 
to the dissemination of the Portfolio Indicative Value occurs. If 
the interruption to the dissemination of the Portfolio Indicative 
Value persists past the trading day in which it occurred, the 
Exchange will halt trading no later than the beginning of the 
trading day following the interruption. If a series of Managed Fund 
Shares is trading on the Exchange pursuant to unlisted trading 
privileges, the Exchange will halt trading in that series as 
specified in Rule 7.34-E(a). In addition, if the Exchange becomes 
aware that the net asset value or the Disclosed Portfolio with 
respect to a series of Managed Fund Shares is not disseminated to 
all market participants at the same time, it will halt trading in 
such series until such time as the net asset value or the Disclosed 
Portfolio is available to all market participants.'' These are 
generally consistent with the proposed Availability of Information 
Halts, specifically as it relates to whether the NAV or Disclosed 
Portfolio is not being made available to all market participants at 
the same time.
    \29\ See, e.g., Securities Exchange Act Release No. 80169 (March 
7, 2017), 82 FR 13536 (March 13, 2017); Securities Exchange Act 
Release Nos. 54739 (November 9, 2006), 71 FR 66993, 66997 (November 
17, 2006) (SR-AMEX-2006-78) (approving generic listing standards for 
Portfolio Depositary Receipts and Index Fund Shares based on 
international or global indexes, and stating that ``the proposed 
listing standards are designed to preclude ETFs from becoming 
surrogates for trading in unregistered securities'' and that ``the 
requirement that each component security underlying an ETF be listed 
on an exchange and subject to last-sale reporting should contribute 
to the transparency of the market for ETFs'' and that ``by requiring 
pricing information for both the relevant underlying index and the 
ETF to be readily available and disseminated, the proposal is 
designed to ensure a fair and orderly market for ETFs''); 53142 
(January 19, 2006), 71 FR 4180, 4186 (January 25, 2006) (SR-NASD-
2006-001) (approving generic listing standards for Index-Linked 
Securities and stating that ``[t]he Commission believes that by 
requiring pricing information for both the relevant underlying index 
or indexes and the Index Security to be readily available and 
disseminated, the proposed listing standards should help ensure a 
fair and orderly market for Index Securities'').
---------------------------------------------------------------------------

    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. Additionally, any equity instruments or 
futures held by a Fund operating under an exemptive order would trade 
on markets that are a member of Intermarket Surveillance Group 
(``ISG'') or affiliated with a member of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.\30\ While 
future exemptive relief applicable to Managed Portfolio Shares may 
expand the investable universe, the Exchange notes that proposed Rule 
8.900-E(b)(1) would require the Exchange to file separate proposals 
under Section 19(b) of the Act before listing and trading any series of 
Managed Portfolio Shares and such proposal would describe the 
investable universe for any such series of Managed Portfolio Shares 
along with the Exchange's surveillance procedures applicable to such 
series. In addition, as noted above, investors will have ready access 
to information regarding the VIIV and quotation and last sale 
information for the Shares.
---------------------------------------------------------------------------

    \30\ The Exchange notes that cash equivalents may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that the 
proposed rule change, rather will facilitate the listing and trading of 
a new type of actively-managed exchange-traded product that will 
enhance competition among both market participants and listing venues, 
to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \31\ and Rule 19b-
4(f)(6) thereunder.\32\
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    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \33\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\34\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
waiver of the operative delay would allow for the immediate listing and 
trading of Managed Portfolio Shares on the Exchange and therefore would 
provide issuers with an additional listing and trading venue. The 
Commission notes that the proposed rule change is based on and 
substantively identical to the rules of the Cboe BZX Exchange, Inc. 
(``BZX'') relating to the listing of Managed Portfolio Shares.\35\ For 
these reasons, the Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Accordingly, the Commission waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\36\
---------------------------------------------------------------------------

    \33\ 17 CFR 240.19b-4(f)(6).
    \34\ 17 CFR 240.19b-4(f)(6)(iii).
    \35\ See BZX Rule 14.11(k). See also Securities Exchange Act 
Release No. 87759 (December 16, 2019), 84 FR 70223 (December 20, 
2019) (SR-CboeBZX-2019-047) (Notice of Filing of Amendment Nos. 4 
and 5, and Order Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment Nos. 4 and 5, To Adopt BZX Rule 
14.11(k) To Permit the Listing and Trading of Managed Portfolio 
Shares).
    \36\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of

[[Page 22212]]

investors, or otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2020-32 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-2020-32. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2020-32 and should be submitted 
on or before May 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08385 Filed 4-20-20; 8:45 am]
BILLING CODE 8011-01-P

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