Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 5 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 5, To List and Trade Two Series of Active Proxy Portfolio Shares Issued by the American Century ETF Trust Under NYSE Arca Rule 8.601-E, 40699-40709 [2020-14490]
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Federal Register / Vol. 85, No. 130 / Tuesday, July 7, 2020 / Notices
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3035, and
39 CFR part 3040, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: MC2020–187 and
CP2020–212; Filing Title: USPS Request
to Add Priority Mail Contract 632 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: June 30, 2020; Filing
Authority: 39 U.S.C. 3642, 39 CFR
3040.130 through 3040.135, and 39 CFR
3035.105; Public Representative:
Christopher C. Mohr; Comments Due:
July 9, 2020.
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2020–14518 Filed 7–6–20; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89192; File No. SR–
NYSEArca–2019–96]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 5 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 5, To List and Trade
Two Series of Active Proxy Portfolio
Shares Issued by the American
Century ETF Trust Under NYSE Arca
Rule 8.601–E
June 30, 2020.
I. Introduction
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On December 23, 2019, NYSE Arca,
Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the following under NYSE
Arca Rule 8.601–E (Active Proxy
Portfolio Shares): American Century
Mid Cap Growth Impact ETF and
American Century Sustainable Equity
ETF (‘‘Funds’’).3 The proposed rule
1 15
U.S.C.78s(b)(1).
CFR 240.19b–4.
3 The Exchange originally proposed to adopt
NYSE Arca Rule 8.602–E to permit the Exchange to
list and trade Actively Managed Solution Shares,
and to list and trade Shares of the Funds under
proposed Exchange Rule 8.602–E. In Amendment
No. 2, the Exchange removed the proposal to adopt
2 17
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change was published for comment in
the Federal Register on January 3,
2020.4
On February 13, 2020, pursuant to
Section 19(b)(2) of the Act,5 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.6 On March 31,
2020, the Exchange filed Amendment
No. 2 to the proposed rule change,
which replaced and superseded the
proposed rule change as originally
filed.7 On April 1, 2020, the
Commission published Amendment No.
2 for notice and comment and instituted
proceedings under Section 19(b)(2)(B) of
the Act 8 to determine whether to
approve or disapprove the proposed
rule change.9 On May 20, 2020, the
Exchange filed Amendment No. 3 to the
proposed rule change, which replaced
and superseded the proposed rule
change, as amended by Amendment No.
2.10 On June 15, 2020, the Exchange
filed Amendment No. 4 to the proposed
rule change, which replaced and
superseded the proposed rule change, as
amended by Amendment No. 3.11 On
June 19, 2020, the Exchange filed
proposed NYSE Arca Rule 8.602–E and revised the
proposal to seek to list and trade Shares of the
Funds under proposed NYSE Arca Rule 8.601–E
(Active Proxy Portfolio Shares). See Amendment
No. 2, infra note 7. See also Amendment No. 6 to
SR–NYSEArca–2019–95 (proposing to adopt NYSE
Arca Rule 8.601–E to list and trade Active Proxy
Portfolio Shares, available on the Commission’s
website at https://www.sec.gov/comments/srnysearca-2019-95/srnysearca201995-7329866218548.pdf. The Commission recently approved the
Exchange’s proposed rule change to adopt NYSE
Arca Rule 8.601–E to permit the listing and trading
of Active Proxy Portfolio Shares. See Securities
Exchange Act Release No. 89185 (June 29, 2020)
(SR–NYSEArca–2019–95) (‘‘Active Proxy Portfolio
Shares Order’’).
4 See Securities Exchange Act Release No. 87867
(Dec. 30, 2019), 85 FR 394.
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 88198,
85 FR 9833 (Feb. 20, 2020). The Commission
designated April 2, 2020, as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
7 Amendment No. 1 to the proposed rule change
was filed on March 30, 2020 and subsequently
withdrawn on March 31, 2020. Amendment No. 2
is available on the Commission’s website at https://
www.sec.gov/comments/sr-nysearca-2019-96/
srnysearca201996-7015541-214976.pdf.
8 15 U.S.C. 78s(b)(2)(B).
9 See Securities Exchange Act Release No. 88534,
85 FR 19519 (April 7, 2020).
10 Amendment No. 3 is available on the
Commission’s website at https://www.sec.gov/
comments/sr-nysearca-2019-96/srnysearca2019967220746-216947.pdf.
11 Amendment No. 4 is available on the
Commission’s website at https://www.sec.gov/
comments/sr-nysearca-2019-96/srnysearca2019967316464-218309.pdf.
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40699
Amendment No. 5 to the proposed rule
change, which replaced and superseded
the proposed rule change, as amended
by Amendment No. 4.12 The
Commission has received no comments
on the proposed rule change. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
5, from interested persons and is
approving the proposed rule change, as
modified by Amendment No. 5, on an
accelerated basis.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change, as Modified by Amendment
No. 5
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange has proposed to add
new NYSE Arca Rule 8.601–E for the
purpose of permitting the listing and
trading, or trading pursuant to unlisted
trading privileges (‘‘UTP’’), of Active
Proxy Portfolio Shares, which are
securities issued by an actively managed
open-end investment management
company.13 Proposed Commentary .01
12 Amendment No. 5 is available on the
Commission’s website at https://www.sec.gov/
comments/sr-nysearca-2019-96/srnysearca2019967329865-218547.pdf.
13 See Amendment 6 to SR–NYSEArca–2019–95,
filed on June 19, 2020. See also, Securities
Exchange Act Release No. 87866 (December 30,
2019), 85 FR 357 (January 3, 2020) (SR–NYSEArca–
2019–95). Proposed Rule 8.601–E(c)(1) provides
that ‘‘[t]he term ‘‘Active Proxy Portfolio Share’’
means a security that (a) is issued by a 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 specified minimum number of shares, or
multiples thereof, in return for a deposit by the
purchaser of the Proxy Portfolio and/or cash with
a value equal to the next determined net asset value
(‘‘NAV’’); (c) when aggregated in the same specified
minimum number of Active Proxy Portfolio Shares,
or multiples thereof, may be redeemed at a holder’s
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to Rule 8.601–E would require the
Exchange to file separate proposals
under Section 19(b) of the Act before
listing and trading any series of Active
Proxy Portfolio Shares on the Exchange.
Therefore, the Exchange is submitting
this proposal in order to list and trade
shares (‘‘Shares’’) of Active Proxy
Portfolio Shares of the American
Century Mid Cap Growth Impact ETF
and American Century Sustainable
Equity ETF (each a ‘‘Fund’’ and,
collectively, the ‘‘Funds’’) under
proposed Rule 8.601–E.
jbell on DSKJLSW7X2PROD with NOTICES
Key Features of Active Proxy Portfolio
Shares
While funds issuing Active Proxy
Portfolio Shares will be activelymanaged and, to that extent, will be
similar to Managed Fund Shares, Active
Proxy Portfolio Shares differ from
Managed Fund Shares in the following
important respects. First, in contrast to
Managed Fund Shares, which are
actively-managed funds listed and
traded under NYSE Arca Rule 8.600–
E 14 and for which a ‘‘Disclosed
Portfolio’’ is required to be disseminated
at least once daily,15 the portfolio for an
request in return for the Proxy Portfolio and/or cash
to the holder by the issuer with a value equal to
the next determined NAV; and (d) the portfolio
holdings for which are disclosed within at least 60
days following the end of every fiscal quarter.’’
Proposed Rule 8.601–E(c)(2) provides that ‘‘[t]he
term ‘‘Actual Portfolio’’ means the identities and
quantities of the securities and other assets held by
the Investment Company that shall form the basis
for the Investment Company’s calculation of NAV
at the end of the business day.’’ Proposed Rule
8.601–E(c)(3) provides that ‘‘[tbhe term ‘‘Proxy
Portfolio’’ means a specified portfolio of securities,
other financial instruments and/or cash designed to
track closely the daily performance of the Actual
Portfolio of a series of Active Proxy Portfolio Shares
as provided in the exemptive relief pursuant to the
Investment Company Act of 1940 applicable to such
series.’’
14 The Commission has previously approved
listing and trading on the Exchange of a number of
issues of Managed Fund Shares under NYSE Arca
Rule 8.600–E. See, e.g., Securities Exchange Act
Release Nos. 57801 (May 8, 2008), 73 FR 27878
(May 14, 2008) (SR–NYSEArca–2008–31) (order
approving Exchange listing and trading of twelve
actively-managed funds of the WisdomTree Trust);
60460 (August 7, 2009), 74 FR 41468 (August 17,
2009) (SR–NYSEArca–2009–55) (order approving
listing of Dent Tactical ETF); 63076 (October 12,
2010), 75 FR 63874 (October 18, 2010) (SR–
NYSEArca–2010–79) (order approving Exchange
listing and trading of Cambria Global Tactical ETF);
63802 (January 31, 2011), 76 FR 6503 (February 4,
2011) (SR–NYSEArca–2010–118) (order approving
Exchange listing and trading of the SiM Dynamic
Allocation Diversified Income ETF and SiM
Dynamic Allocation Growth Income ETF). The
Commission also has approved a proposed rule
change relating to generic listing standards for
Managed Fund Shares. See Securities Exchange Act
Release No. 78397 (July 22, 2016), 81 FR 49320
(July 27, 2016 (SR–NYSEArca–2015–110)
(amending NYSE Arca Equities Rule 8.600 to adopt
generic listing standards for Managed Fund Shares).
15 NYSE Arca Rule 8.600–E(c)(2) defines the term
‘‘Disclosed Portfolio’’ as the identities and
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issue of Active Proxy Portfolio Shares
will be publicly disclosed within at
least 60 days following the end of every
fiscal quarter in accordance with normal
disclosure requirements otherwise
applicable to open-end management
investment companies registered under
the 1940 Act.16 The composition of the
portfolio of an issue of Active Proxy
Portfolio Shares would not be available
at commencement of Exchange listing
and trading. Second, in connection with
the creation and redemption of Active
Proxy Portfolio Shares, such creation or
redemption may be exchanged for a
Proxy Portfolio with a value equal to the
next-determined NAV.
A series of Active Proxy Portfolio
Shares will disclose the Proxy Portfolio
on a daily basis, which, as described
above, is designed to track closely the
daily performance of the Actual
Portfolio of a series of Active Proxy
Portfolio Shares, instead of the actual
holdings of the Investment Company, as
provided by a series of Managed Fund
Shares.
In this regard, with respect to the
Funds, the Funds will utilize a proxy
portfolio methodology—the ‘‘NYSE
Proxy Portfolio Methodology’’—that
would allow market participants to
assess the intraday value and associated
risk of a Fund’s Actual Portfolio and
thereby facilitate the purchase and sale
of Shares by investors in the secondary
market at prices that do not vary
materially from their NAV.17 The NYSE
Proxy Portfolio Methodology would
quantities of the securities and other assets held by
the Investment Company that will form the basis for
the Investment Company’s calculation of net asset
value at the end of the business day. NYSE Arca
Rule 8.600–E(d)(2)(B)(i) requires that the Disclosed
Portfolio will be disseminated at least once daily
and will be made available to all market
participants at the same time.
16 A mutual fund is required to file with the
Commission its complete portfolio schedules for the
second and fourth fiscal quarters on Form N–CSR
under the 1940 Act. Information reported on Form
N–PORT for the third month of a fund’s fiscal
quarter will be made publicly available 60 days
after the end of a fund’s fiscal quarter. 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 series of Active
Proxy Portfolio Shares’ Statement of Additional
Information (‘‘SAI’’), its Shareholder Reports, its
Form N–CSR, filed twice a year, and its Form N–
CEN, filed annually. A series of Active Proxy
Portfolio Shares’ SAI and Shareholder Reports will
be 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.
17 The NYSE Proxy Portfolio Methodology is
owned by the NYSE Group, Inc. and licensed for
use by the Funds. NYSE Group, Inc. is not affiliated
with the Funds, Adviser or Distributor. Not all
series of Active Proxy Portfolio Shares will utilize
the NYSE Proxy Portfolio Methodology.
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utilize creation of a Proxy Portfolio for
hedging and arbitrage purposes.
The Exchange, after consulting with
various Lead Market Makers (‘‘LMMs’’)
that trade exchange-traded funds
(‘‘ETFs’’) on the Exchange,18 believes
that market makers will be able to make
efficient and liquid markets priced near
the ETF’s intraday value, 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.19 For Active
Proxy 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, as well as a
fund’s disclosed Proxy Portfolio, 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 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
Active Proxy Portfolio Shares without
precise knowledge of a fund’s
underlying portfolio. This is similar to
certain other existing exchange-traded
products (for example, ETFs that invest
18 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.
19 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 Active Proxy
Portfolio Shares and other instruments, both
through the creation and redemption process and
strictly through arbitrage without such processes.
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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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Description of the Funds and the Trust
The Funds will be series of the
American Century ETF Trust (‘‘Trust’’),
which will be registered with the
Commission as an open-end
management investment company.20
American Century Investment
Management, Inc. (‘‘Adviser’’) will be
the investment adviser to the Funds.
Foreside Fund Services, LLC will act as
the distributor and principal
underwriter (‘‘Distributor’’) for the
Funds. State Street Bank and Trust
Company will serve as transfer agent
(‘‘Transfer Agent’’) for the Funds.
Proposed Commentary.04 provides
that, if the investment adviser to the
Investment Company issuing Active
Proxy Portfolio Shares is registered as a
broker-dealer or is affiliated with a
broker-dealer, such investment adviser
will erect and maintain a ‘‘fire wall’’
between the investment adviser and
personnel of the broker-dealer or brokerdealer affiliate, as applicable, with
respect to access to information
20 The Trust is registered under the 1940 Act. On
April 6, 2020, the Trust filed a registration
statement on Form N–1A under the Securities Act
of 1933 and the 1940 Act for the Funds (File Nos.
333–221045 and 811–23305) (‘‘Registration
Statement’’). The Trust also filed an application for
an order under Section 6(c) of the 1940 Act for
exemptions from various provisions of the 1940 Act
and rules thereunder (File No. 812–15082), dated
December 11, 2019 (‘‘American Century
Application’’ or ‘‘Application’’). On May 12, 2020,
the Commission issued an order granting the
exemptions requested in the Application
(Investment Company Act Release No. 33862 (May
12, 2020) (‘‘American Century Exemptive Order’’ or
‘‘Exemptive Order’’). The American Century
Application states that the exemptive relief
requested by the Trust will apply to funds of the
Trust that comply with the terms and conditions of
the American Century Exemptive Order and the
order issued to Natixis ETF Trust II. With respect
to the Natixis ETF Trust II, see Seventh Amended
and Restated Application for an Order under
Section 6(c) of the 1940 Act for exemptions from
various provisions of the 1940 Act and rules
thereunder (File No. 812–14870) (October 21, 2019
(‘‘Natixis Application’’); the Commission notice
regarding the Natixis Application (Investment
Company Release No. 33684 (File No. 812–14870)
November 14, 2019); and the Commission order
under the 1940 Act granting the exemptions
requested in the Natixis Application (Investment
Company Act Release No. 33711 (December 10,
2019)) (‘‘Natixis Exemptive Order’’). The American
Century Application incorporates the Natixis
Exemptive Order by reference. Investments made by
the Funds will comply with the conditions set forth
in the American Century Application, American
Century Exemptive Order and Natixis Exemptive
Order. The description of the operation of the Trust
and the Funds herein is based, in part, on the
Registration Statement and the American Century
Application.
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16:59 Jul 06, 2020
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concerning the composition and/or
changes to such Investment Company’s
Actual Portfolio and/or Proxy
Portfolio.21 Any person related to the
investment adviser or Investment
Company who makes decisions
pertaining to the Investment Company’s
Actual Portfolio and/or Proxy Portfolio
or has access to non-public information
regarding the Investment Company’s
Actual Portfolio and/or Proxy Portfolio
or changes thereto must be subject to
procedures reasonably designed to
prevent the use and dissemination of
material non-public information
regarding the Actual Portfolio and/or
Proxy Portfolio or changes thereto.
Proposed Commentary .04 is similar to
Commentary .03(a)(i) and (iii) to NYSE
Arca Rule 5.2–E(j)(3); however,
proposed Commentary .04, in
connection with the establishment of a
‘‘fire wall’’ between the investment
adviser and the broker-dealer, reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds.22 Proposed Commentary .04 is
also similar to Commentary .06 to Rule
8.600–E related to Managed Fund
Shares, except that proposed
Commentary .04 relates to establishment
and maintenance of a ‘‘fire wall’’
between the investment adviser and
personnel of the broker-dealer or brokerdealer affiliate, as applicable, applicable
to an Investment Company’s Actual
Portfolio and/or Proxy Portfolio or
changes thereto, and not just to the
21 The text of proposed Commentary .04 to NYSE
Arca Rule 8.601–E is included in Amendment 6 to
SR–NYSEArca–2019–95. See note 13, supra.
22 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel will be
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violations, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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Fmt 4703
Sfmt 4703
40701
underlying portfolio, as is the case with
Managed Fund Shares.
In addition, proposed Commentary.05
provides that any person or entity,
including a custodian, Reporting
Authority, distributor, or administrator,
who has access to non-public
information regarding the Investment
Company’s Actual Portfolio or the Proxy
Portfolio or changes thereto, must be
subject to procedures reasonably
designed to prevent the use and
dissemination of material non-public
information regarding the applicable
Investment Company Actual Portfolio or
the Proxy Portfolio or changes thereto.
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
Actual Portfolio or Proxy Portfolio.
The Adviser is not registered as a
broker-dealer but is affiliated with a
broker-dealer. The Adviser has
implemented and will maintain a ‘‘fire
wall’’ with respect to such broker-dealer
affiliate regarding access to information
concerning the composition of and/or
changes to a Fund’s Actual Portfolio or
Proxy Portfolio.
In the event (a) the Adviser becomes
registered as a broker-dealer or becomes
newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser is a
registered broker-dealer, or becomes
affiliated with a broker-dealer, it will
implement and maintain a fire wall with
respect to its relevant personnel or its
broker-dealer affiliate regarding access
to information concerning the
composition and/or changes to a Fund’s
Actual Portfolio and/or Proxy Portfolio,
and will be subject to procedures
designed to prevent the use and
dissemination of material non-public
information regarding a Fund’s Actual
Portfolio and/or Proxy Portfolio or
changes thereto. Any person related to
the Adviser or a Fund who makes
decisions pertaining to the Fund’s
Actual Portfolio and/or the Proxy
Portfolio or has access to non-public
information regarding a Fund’s Actual
Portfolio and/or the Proxy Portfolio or
changes thereto are subject to
procedures reasonably designed to
prevent the use and dissemination of
material non-public information
regarding a Fund’s Actual Portfolio and/
or the Proxy Portfolio or changes
thereto.
In addition, any person or entity,
including any service provider for a
Fund, who has access to non-public
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information regarding a Fund’s Actual
Portfolio or the Proxy Portfolio or
changes thereto, will be subject to
procedures reasonably designed to
prevent the use and dissemination of
material non-public information
regarding a Fund’s Actual Portfolio and/
or the Proxy Portfolio or changes
thereto. Moreover, if any such person or
entity is registered as a broker-dealer or
affiliated with a broker-dealer, such
person or entity has erected and will
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 a Fund’s Actual Portfolio
and/or Proxy Portfolio.
jbell on DSKJLSW7X2PROD with NOTICES
The Funds
According to the Application, the
Adviser believes a Fund would allow
for efficient trading of Shares through an
effective Fund portfolio transparency
substitute and publication of related
information metrics, while still
shielding the identity of the full Fund
portfolio contents to protect a Fund’s
performance-seeking strategies. Even
though a Fund would not publish its
full portfolio contents daily, the Adviser
believes that the NYSE Proxy Portfolio
Methodology would allow market
participants to assess the intraday value
and associated risk of a Fund’s Actual
Portfolio. As a result, the Adviser
believes that investors would be able to
purchase and sell Shares in the
secondary market at prices that are close
to their NAV.
In this regard, the Funds will utilize
a proxy portfolio methodology—the
‘‘NYSE Proxy Portfolio Methodology’’—
that would allow market participants to
assess the intraday value and associated
risk of a Fund’s Actual Portfolio and
thereby facilitate the purchase and sale
of Shares of a Fund by investors in the
secondary market at prices that do not
vary materially from their NAV.23 The
NYSE Proxy Portfolio Methodology
would utilize creation of a Proxy
Portfolio for hedging and arbitrage
purposes.
Each Fund’s holdings will conform to
the permissible investments as set forth
in the American Century Application
and American Century Exemptive Order
and the holdings will be consistent with
all requirements in the American
Century Application and American
23 The
NYSE Proxy Portfolio Methodology is
owned by the NYSE Group, Inc. and licensed for
use by the Funds. NYSE Group, Inc. is not affiliated
with the Funds, Adviser or Distributor. Not all
series of Active Proxy Portfolio Shares will utilize
the NYSE Proxy Portfolio Methodology.
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Century Exemptive Order.24 Any foreign
common stocks held by a Fund will be
traded on an exchange that is a member
of the Intermarket Surveillance Group
(‘‘ISG’’) or with which the Exchange has
in place a comprehensive surveillance
sharing agreement.
American Century Mid Cap Growth
Impact ETF
According to the Registration
Statement, the Fund will seek long-term
capital growth. The Fund, under normal
market conditions,25 will invest
principally in exchange-traded common
stocks and will invest at least 80% of its
assets in securities of medium
capitalization companies.
American Century Sustainable Equity
ETF
According to the Registration
Statement, the Fund will seek long-term
capital growth. The Fund, under normal
market conditions, will invest at least
80% of its assets in equity securities.
The Fund will invest principally in
exchange-traded common stocks.
Creations and Redemptions of Shares
According to the Registration
Statement, the Trust will offer, issue
and sell Shares of the Funds to investors
only in specified minimum size
‘‘Creation Units’’ through the Distributor
on a continuous basis at the NAV per
Share next determined after an order in
24 Pursuant to the American Century Application
and American Century Exemptive Order, the
permissible investments for a Fund are only the
following: ETFs traded on a U.S. exchange;
exchange-traded notes (‘‘ETNs’’) traded on a U.S.
exchange; U.S. exchange-traded common stocks;
common stocks listed on a foreign exchange that
trade on such exchange contemporaneously with
the Shares (‘‘foreign common stocks’’) in the
Exchange’s Core Trading Session (normally 9:30
a.m. and 4:00 p.m. Eastern time (‘‘E.T.’’)); U.S.
exchange-traded preferred stocks; U.S. exchangetraded American Depositary Receipts (‘‘ADRs’’);
U.S. exchange-traded real estate investment trusts;
U.S. exchange-traded commodity pools; U.S.
exchange-traded metals trusts; U.S. exchange-traded
currency trusts; and U.S. exchange-traded futures
that trade contemporaneously with a Fund’s Shares.
In addition, a Fund may hold cash and cash
equivalents (short-term U.S. Treasury securities,
government money market funds, and repurchase
agreements). Pursuant to the Application and
Exemptive Order, the Funds will not hold short
positions or invest in derivatives other than U.S.
exchange-traded futures will not borrow for
investment purposes, and will not purchase any
securities that are illiquid investments at the time
of purchase.
25 The term ‘‘normal market conditions’’ is
defined in proposed Rule 8.601–E(c)(6), which
states as follows: The term ‘‘normal market
conditions’’ includes, but is not limited to, the
absence of trading halts in the applicable financial
markets generally; operational issues (e.g., systems
failure) causing dissemination of inaccurate market
information; or force majeure type events such as
natural or manmade disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption or
any similar intervening circumstance.
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proper form is received. The NAV of a
Fund is expected to be determined as of
4:00 p.m. E.T. on each ‘‘Business
Day.’’ 26 The ‘‘Creation Basket’’ (as
defined below) for a Fund will be based
on the Proxy Portfolio, which is
designed to approximate the value and
performance of the Actual Portfolio. All
Creation Basket instruments will be
valued in the same manner as they are
valued for purposes of calculating a
Fund’s NAV, and such valuation will be
made in the same manner regardless of
the identity of the purchaser or
redeemer. Further, the total
consideration paid for the purchase or
redemption of a Creation Unit of Shares
will be based on the NAV of such Fund,
as calculated in accordance with the
policies and procedures set forth in its
Registration Statement.
The Trust will sell and redeem
Creation Units of each Fund only on a
Business Day. Creation Units of the
Funds may be purchased and/or
redeemed entirely for cash, as
permissible under the procedures
described below.
In order to keep costs low and permit
each Fund to be as fully invested as
possible, Shares will be purchased and
redeemed in Creation Units and
generally on an in-kind basis.
Accordingly, except where the purchase
or redemption will include cash under
the circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’). The names and
quantities of the instruments that
constitute the Deposit Instruments and
the Redemption Instruments for a Fund
(collectively, the ‘‘Creation Basket’’) will
be the same as a Fund’s Proxy Portfolio,
except to the extent purchases and
redemptions are made entirely or in part
on a cash basis.27
If there is a difference between the
NAV attributable to a Creation Unit and
the aggregate market value of the
Creation Basket exchanged for the
Creation Unit, the party conveying
instruments with the lower value will
also pay to the other an amount in cash
equal to that difference (the ‘‘Cash
Amount’’).
26 A Business Day is any day on which the
Exchange is open for business.
27 The Adviser represents that, to the extent that
a Fund allows creations and redemptions to be
conducted in cash, such transactions will be
effected in the same manner for all Authorized
Participants transacting in cash.
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Each Fund will adopt and implement
policies and procedures regarding the
composition of its Creation Baskets. The
policies and procedures will set forth
detailed parameters for the construction
and acceptance of baskets in compliance
with the terms and conditions of the
American Century Exemptive Order and
that are in the best interests of a Fund
and its shareholders, including the
process for any revisions to or
deviations from those parameters.
A Fund that normally issues and
redeems Creation Units in kind may
require purchases and redemptions to
be made entirely or in part on a cash
basis. In such an instance, a Fund will
announce, before the open of trading in
the Core Trading Session (normally,
9:30 a.m. to 4:00 p.m., E.T.) on a given
Business Day, that all purchases, all
redemptions, or all purchases and
redemptions on that day will be made
wholly or partly in cash. A Fund may
also determine, upon receiving a
purchase or redemption order from an
Authorized Participant, to have the
purchase or redemption, as applicable,
be made entirely or in part in cash. Each
Business Day, before the open of trading
on the Exchange, a Fund will cause to
be published through the National
Securities Clearing Corporation
(‘‘NSCC’’) the names and quantities of
the instruments comprising the Creation
Basket, as well as the estimated Cash
Amount (if any), for that day. The
published Creation Basket will apply
until a new Creation Basket is
announced on the following Business
Day, and there will be no intra-day
changes to the Creation Basket except to
correct errors in the published Creation
Basket.
All orders to purchase Creation Units
must be placed with the Distributor by
or through an Authorized Participant,
which is either: (1) A ‘‘participating
party’’ (i.e., a broker or other
participant), in the Continuous Net
Settlement (‘‘CNS’’) System of the
NSCC, a clearing agency registered with
the Commission and affiliated with the
Depository Trust Company (‘‘DTC’’), or
(2) a DTC Participant, which in any case
has executed a participant agreement
with the Distributor and the Transfer
Agent.
Timing and Transmission of Purchase
Orders
All orders to purchase (or redeem)
Creation Units, whether using the NSCC
Process or the DTC Process, must be
received by the Distributor no later than
the NAV calculation time (‘‘NAV
Calculation Time’’), generally 4:00 p.m.
E.T. on the date the order is placed
(‘‘Transmittal Date’’) in order for the
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purchaser (or redeemer) to receive the
NAV determined on the Transmittal
Date.
Daily Disclosures
With respect to the Funds, the
following information will comprise the
‘‘Proxy Portfolio Disclosures’’ and,
pursuant to the American Century
Application and Exemptive Order, will
be publicly available on the Funds’
website (www.americancenturyetfs.com)
before the commencement of trading in
Shares on each Business Day:
• The Proxy Portfolio holdings
(including the identity and quantity of
investments in the Proxy Portfolio) will
be publicly available on the Funds’
website before the commencement of
trading in Shares on each Business Day.
• The historical ‘‘Tracking Error’’
between a Fund’s last published NAV
per share and the value, on a per Share
basis, of a Fund’s Proxy Portfolio
calculated as of the close of trading on
the prior Business Day will be publicly
available on the Funds’ website before
the commencement of trading in Shares
each Business Day.
• The ‘‘Proxy Overlap’’ will be
publicly available on the Funds’ website
before the commencement of trading in
Shares on each Business Day. The Proxy
Overlap is the percentage weight
overlap between the Proxy Portfolio’s
holdings compared to the Actual
Portfolio’s holdings that formed the
basis for a Fund’s calculation of NAV at
the end of the prior Business Day. The
Proxy Overlap will be calculated by
taking the lesser weight of each asset
held in common between the Actual
Portfolio and the Proxy Portfolio and
adding the totals.
Availability of Information
The Funds’ website
(www.americancenturyetfs.com), which
will be publicly available prior to the
public offering of Shares, will include a
form of the prospectus for each Fund
that may be downloaded. The Funds’
website will include on a daily basis,
per Share for each Fund, the prior
Business Day’s NAV and the ‘‘Closing
Price’’ or ‘‘Bid/Ask Price,’’ 28 and a
calculation of the premium/discount of
the Closing Price or Bid/Ask Price
against such NAV. The Adviser has
records relating to Bid/Ask Prices will be
retained by the Funds or their service providers.
The ‘‘Bid/Ask Price’’ is the midpoint of the highest
bid and lowest offer based upon the National Best
Bid and Offer as of the time of calculation of a
Fund’s NAV. The ‘‘National Best Bid and Offer’’ is
the current national best bid and national best offer
as disseminated by the Consolidated Quotation
System or UTP Plan Securities Information
Processor. The ‘‘Closing Price’’ of Shares is the
official closing price of the Shares on the Exchange.
PO 00000
28 The
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40703
represented that the Funds’ website will
also provide: (1) Any other information
regarding premiums/discounts as may
be required for other ETFs under Rule
6c–11 under the 1940 Act, as amended,
and (2) any information regarding the
bid/ask spread for a Fund as may be
required for other ETFs under Rule 6c–
11 under the 1940 Act, as amended. The
website and information will be
publicly available at no charge. Each
Fund’s website also will disclose the
information required under proposed
Rule 8.601–E(c)(3).29 The Proxy
Portfolio holdings for each Fund
(including the identity and quantity of
investments in the Proxy Portfolio) will
be publicly available on the Funds’
website before the commencement of
trading in Shares on each Business Day.
Typical mutual fund-style annual,
semi-annual and quarterly disclosures
contained in the Funds’ Commission
filings will be provided on the Funds’
website on a current basis.30 Thus, each
Fund will publish the portfolio contents
of its Actual Portfolio on a periodic
basis within at least 60 days following
the end of every fiscal quarter.
Investors can also obtain a Fund’s
prospectus, SAI, Shareholder Reports,
Form N–CSR, N–PORT and Form N–
CEN filed with the Commission. The
prospectus, SAI and Shareholder
Reports are available free upon request
from the Trust, and those documents
and the Form N–CSR, N–PORT, and
Form N–CEN may be viewed on-screen
or downloaded from the Commission’s
website. The Exchange also notes that
pursuant to its Exemptive Order, the
issuer must comply with Regulation
Fair Disclosure, which prohibits
selective disclosure of any material nonpublic information.
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.
Updated price information for U.S.
exchange-listed equity securities is
available through major market data
29 See note 13, supra. Proposed Rule 8.601–E
(c)(3) provides that the website for each series of
Active Proxy Portfolio Shares shall disclose the
information regarding the Proxy Portfolio as
provided in the exemptive relief pursuant to the
Investment Company Act of 1940 applicable to such
series, including the following, to the extent
applicable: (i) Ticker symbol; (ii) CUSIP or other
identifier; (iii) Description of holding; (iv) Quantity
of each security or other asset held; and (v)
Percentage weighting of the holding in the portfolio.
30 See note 16, supra.
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vendors or securities exchanges trading
such securities. Quotation and last sale
information for the Shares, ETFs, ETNs,
U.S. exchange-traded common stocks,
preferred stocks and ADRs will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line or
from the exchange on which such
securities trade. Price information for
futures, foreign stocks and cash
equivalents is available through major
market data vendors. Intraday pricing
information for all constituents of the
Proxy Portfolio that are exchangetraded, which includes all eligible
instruments except cash and cash
equivalents, will be available on the
exchanges on which they are traded and
through subscription services. Intraday
pricing information for cash equivalents
will be available through subscription
services and/or pricing services.
Investment Restrictions
The Shares of each Fund will conform
to the initial and continued listing
criteria under proposed Rule 8.601–E. A
Fund’s holdings will be limited to and
consistent with permissible holdings as
described in the Application and all
requirements in the Application and
Exemptive Order.31
Each Fund’s investments, including
derivatives, will be consistent with its
investment objective and will not be
used to enhance leverage (although
certain derivatives and other
investments may result in leverage).
That is, a Fund’s investments will not
be used to seek performance that is the
multiple or inverse multiple (e.g., 2X or
–3X) of a Fund’s primary broad-based
securities benchmark index (as defined
in Form N–1A).32
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Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
a Fund.33 Trading in Shares of a Fund
will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12–E
have been reached. Trading also may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. Trading in the Shares will
be subject to NYSE Arca Rule 8.601–
E(d)(2)(D), which sets forth
circumstances under which Shares of a
Fund will be halted.
31 See
note 24, supra.
32 A Fund’s broad-based securities benchmark
index will be identified in a future amendment to
the Registration Statement following a Fund’s first
full calendar year of performance.
33 See NYSE Arca Rule 7.12–E.
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Specifically, proposed Rule 8.601–
E(d)(2)(D) provides that the Exchange
may consider all relevant factors in
exercising its discretion to halt trading
in a series of Active Proxy Portfolio
Shares. Trading may be halted because
of market conditions or for reasons that,
in the view of the Exchange, make
trading in the series of Active Proxy
Portfolio Shares inadvisable. These may
include: (a) The extent to which trading
is not occurring in the securities and/or
the financial instruments composing the
Proxy Portfolio and/or Actual Portfolio;
or (b) whether other unusual conditions
or circumstances detrimental to the
maintenance of a fair and orderly
market are present. If the Exchange
becomes aware that the NAV, Proxy
Portfolio or Actual Portfolio with
respect to a series of Active Proxy
Portfolio Shares is not disseminated to
all market participants at the same time,
the Exchange shall halt trading in such
series until such time as the NAV, Proxy
Portfolio or Actual Portfolio is available
to all market participants at the same
time.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace in all
trading sessions in accordance with
NYSE Arca Rule 7.34–E(a). As provided
in NYSE Arca Rule 7.6–E, the minimum
price variation (‘‘MPV’’) for quoting and
entry of orders in equity securities
traded on the NYSE Arca Marketplace is
$0.01, with the exception of securities
that are priced less than $1.00 for which
the MPV for order entry is $0.0001.
The Shares will conform to the initial
and continued listing criteria under
proposed NYSE Arca Rule 8.601–E. The
Exchange has appropriate rules to
facilitate trading in the Shares during all
trading sessions.
A minimum of 100,000 Shares for
each Fund will be outstanding at the
commencement of trading on the
Exchange. In addition, pursuant to
proposed Rule 8.601–E(d)(1)(B), the
Exchange, prior to commencement of
trading in the Shares, will obtain a
representation from the issuer of the
Shares of each Fund that the NAV per
Share will be calculated daily and that
the NAV, Proxy Portfolio and the Actual
Portfolio for each Fund will be made
available to all market participants at
the same time.
With respect to Active Proxy Portfolio
Shares, all of the Exchange member
obligations relating to product
description and prospectus delivery
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requirements will continue to apply in
accordance with Exchange rules and
federal securities laws, and the
Exchange and the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
will continue to monitor Exchange
members for compliance with such
requirements.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by the Exchange, as well
as cross-market surveillances
administered by FINRA on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws.34 The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares and underlying
exchange-traded instruments with other
markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading the Shares and
exchange-traded instruments from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares and
exchange-traded instruments from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.35
The Adviser will make available daily
to FINRA and the Exchange the Actual
Portfolio of the Funds, upon request, in
order to facilitate the performance of the
surveillances referred to above.
34 FINRA conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
35 For a list of the current members of ISG, see
www.isgportal.org.
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In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
Proposed Commentary .03 to NYSE
Arca Rule 8.601–E provides that the
Exchange will implement and maintain
written surveillance procedures for
Active Proxy Portfolio Shares. As part of
these surveillance procedures, the
Investment Company’s investment
adviser will upon request by the
Exchange or FINRA, on behalf of the
Exchange, make available to the
Exchange or FINRA the daily Actual
Portfolio holdings of each series of
Active Proxy Portfolio Shares. The
Exchange believes that the ability to
access the information on an as needed
basis will provide it with sufficient
information to perform the necessary
regulatory functions associated with
listing and trading series of Active
Proxy Portfolio Shares on the Exchange,
including the ability to monitor
compliance with the initial and
continued listing requirements as well
as the ability to surveil for manipulation
of Active Proxy Portfolio Shares.
The Exchange will utilize its existing
procedures to monitor issuer
compliance with the requirements of
proposed Rule 8.601–E. For example,
the Exchange will continue to use
intraday alerts that will notify Exchange
personnel of trading activity throughout
the day that may indicate that unusual
conditions or circumstances are present
that could be detrimental to the
maintenance of a fair and orderly
market. The Exchange will require from
the issuer of a series of Active Proxy
Portfolio Shares, upon initial listing and
periodically thereafter, a representation
that it is in compliance with proposed
Rule 8.601–E. The Exchange notes that
proposed Commentary .01 to Rule
8.601–E would require an issuer of
Active Proxy Portfolio Shares to notify
the Exchange of any failure to comply
with the continued listing requirements
of proposed Rule 8.601–E. In addition,
the Exchange will require funds 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 proposed Rule
8.601–E.
With respect to the Funds, all
statements and representations made in
this filing regarding (a) the description
of the portfolio or reference asset, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange listing rules specified in
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16:59 Jul 06, 2020
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this rule filing shall constitute
continued listing requirements for
listing the Shares on the Exchange. The
Exchange will obtain a representation
from the Adviser, prior to
commencement of trading in the Shares,
that it will advise the Exchange of any
failure by a Fund to comply with the
continued listing requirements, and,
pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange
will monitor for compliance with the
continued listing requirements. If a
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under NYSE Arca Rule 5.5–
E(m).
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,36 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,37 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.
With respect to the proposed listing
and trading of Shares of the Funds, the
Exchange believes that the proposed
rule change is designed to prevent
fraudulent and manipulative acts and
practices in that the Shares will be
listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in proposed NYSE Arca
Rule 8.601–E.38
Each Fund’s holdings will conform to
the permissible investments as set forth
in the American Century Application
and the Exemptive Order and the
holdings will be consistent with all
requirements in the American Century
Application and American Century
Exemptive Order.39 Any foreign
common stocks held by a Fund will be
traded on an exchange that is a member
of the ISG or with which the Exchange
has in place a comprehensive
surveillance sharing agreement.
Each Fund’s investments will be
consistent with its investment objective.
Each Fund’s investments, including
derivatives, will be consistent with its
investment objective and will not be
used to enhance leverage (although
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
38 The Exchange represents that, for initial and
continued listing, the Funds will be in compliance
with Rule 10A–3 under the Act, as provided by
NYSE Arca Rule 5.3–E.
39 See note 24, supra.
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36 15
37 15
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40705
certain derivatives and other
investments may result in leverage).
That is, a Fund’s investments will not
be used to seek performance that is the
multiple or inverse multiple (e.g., 2X or
–3X) of a Fund’s primary broad-based
securities benchmark index (as defined
in Form N–1A).
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares and underlying
exchange-traded instruments with other
markets and other entities that are
members of the ISG, and the Exchange
or FINRA, on behalf of the Exchange, or
both, may obtain trading information
regarding trading in the Shares and
exchange-traded instruments from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares and
exchange-traded instruments from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
The Exchange, after consulting with
various LMMs 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, 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.40 For Active
Proxy 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, as well as a
fund’s disclosed Proxy Portfolio, 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 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
Active Proxy Portfolio Shares without
precise knowledge of a fund’s
underlying portfolio. 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
40 See
E:\FR\FM\07JYN1.SGM
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market makers gain more confidence in
their real-time hedges.
The Funds will utilize the NYSE
Proxy Portfolio Methodology that would
allow market participants to assess the
intraday value and associated risk of a
Fund’s Actual Portfolio and thereby
facilitate the purchase and sale of
Shares by investors in the secondary
market at prices that do not vary
materially from their NAV.
The daily dissemination of the
identity and quantity of Proxy Portfolio
component investments, together with
the right of Authorized Participants to
create and redeem each day at the NAV,
will be sufficient for market participants
to value and trade Shares in a manner
that will not lead to significant
deviations between the Shares’ Bid/Ask
Price and NAV.
With respect to Active Proxy Portfolio
Shares generally, the pricing efficiency
with respect to trading a series of Active
Proxy 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 41 or by netting the
exposure against other, offsetting
trading positions—much as such firms
do with existing ETFs and other
41 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.
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equities. Disclosure of a fund’s
investment objective and principal
investment strategies in its prospectus
and SAI should permit professional
investors to engage easily in this type of
hedging activity.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the Funds
that the NAV per Share of a Fund will
be calculated daily and that the NAV,
Proxy Portfolio and Actual Portfolio for
each Fund will be made available to all
market participants at the same time.
Investors can obtain a Fund’s SAI,
shareholder reports, and its Form N–
CSR, Form N–PORT and Form N–CEN.
A Fund’s SAI and shareholder reports
will be available free upon request from
a Fund, and those documents and the
Form N–CSR, Form N–PORT and Form
N–CEN may be viewed on-screen or
downloaded from the Commission’s
website. In addition, with respect to
each Fund, a large amount of
information will be publicly available
regarding the Funds and the Shares,
thereby promoting market transparency.
Quotation and last sale information for
the Shares, ETFs, ETNs, U.S. exchangetraded common stocks, preferred stocks
and ADRs will be available via the CTA
high-speed line or from the exchange on
which such securities trade. Price
information for futures, foreign stocks
and cash equivalents is available
through major market data vendors. The
website for the Funds will include a
form of the prospectus for each Fund
that may be downloaded, and additional
data relating to NAV and other
applicable quantitative information,
updated on a daily basis. Trading in
Shares of the Funds will be halted if the
circuit breaker parameters in NYSE Arca
Rule 7.12–E have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. In addition, as noted above,
investors will have ready access to the
Proxy Portfolio and quotation and last
sale information for the Shares. The
Proxy Portfolio holdings for each Fund
(including the identity and quantity of
investments in the Proxy Portfolio) will
be publicly available on the Funds’
website before the commencement of
trading in Shares on each Business Day.
The Shares will conform to the initial
and continued listing criteria under
proposed Rule 8.601–E.42
The Shares of the Funds will be
subject to proposed Rule 8.601–
42 See Amendment 6 to SR–NYSEArca–2019–95,
referenced in note 13, supra.
PO 00000
Frm 00087
Fmt 4703
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E(d)(2)(D), which provides that the
Exchange may consider all relevant
factors in exercising its discretion to
halt trading in a series of Active Proxy
Portfolio Shares. Trading may be halted
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the series of
Active Proxy Portfolio Shares
inadvisable. These may include: (a) The
extent to which trading is not occurring
in the securities and/or the financial
instruments composing the Proxy
Portfolio and/or Actual Portfolio; or (b)
whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. If the Exchange
becomes aware that the NAV, Proxy
Portfolio or Actual Portfolio with
respect to a series of Active Proxy
Portfolio Shares is not disseminated to
all market participants at the same time,
the Exchange shall halt trading in such
series until such time as the NAV, Proxy
Portfolio or Actual Portfolio is available
to all market participants at the same
time.
The 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. The Exchange will
obtain a representation from the
Adviser, prior to commencement of
trading in the Shares of a Fund, that it
will advise the Exchange of any failure
by a Fund to comply with the continued
listing requirements, and, pursuant to
its obligations under Section 19(g)(1) of
the Act, the Exchange will monitor for
compliance with the continued listing
requirements. If a Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Rule 5.5–E(m).
As noted above, the Exchange has in
place surveillance procedures relating to
trading in the Shares and may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. In addition, as noted
above, investors will have ready access
to information regarding quotation and
last sale information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
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necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes the proposed rule
change would permit listing and trading
of another type of actively-managed ETF
that has characteristics different from
existing actively-managed and index
ETFs and would introduce additional
competition among various ETF
products to the benefit of investors.
jbell on DSKJLSW7X2PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 5, is
consistent with the Act and rules and
regulations thereunder applicable to a
national securities exchange.43 In
particular, the Commission finds that
the proposed rule change, as modified
by Amendment No. 5 is consistent with
Section 6(b)(5) of the Act,44 which
requires, among other things, that the
Exchange’s rules be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Commission notes
that in a separate order, it approved the
Exchange’s proposed rule change to
adopt NYSE Arca Rule 8.601–E to
permit the listing and trading of Active
Proxy Portfolio Shares.45
The Commission believes that the
proposal is reasonably designed to
promote fair disclosure of information
that may be necessary to price the
Shares appropriately and to prevent
trading in the Shares when a reasonable
degree of certain pricing transparency
cannot be assured. As such, the
Commission believes the proposal is
reasonably designed to maintain a fair
and orderly market for trading the
Shares. The Commission also finds that
the proposal is consistent with Section
11A(a)(1)(C)(iii) of the Act, which sets
forth Congress’s finding that it is in the
public interest and appropriate for the
protection of investors and the
43 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
44 15 U.S.C. 78f(b)(5).
45 See note 3 supra.
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maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities.
Specifically, the Commission notes
that the Exchange, prior to
commencement of trading in the Shares,
will obtain a representation from the
issuer of the Shares of each Fund that
the NAV per Share will be calculated
daily and that the NAV, Proxy Portfolio,
and Actual Portfolio for each Fund will
be made available to all market
participants at the same time.46
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. Quotation and last-sale
information for the Shares, ETFs, ETNs,
U.S. exchange-traded common stocks,
preferred stocks, and ADRs will be
available via the Consolidated Tape
Association high-speed line or from the
exchange on which such securities
trade. Price information for futures,
foreign stocks and cash equivalents is
available through major market data
vendors. The Funds’ website will
include additional information updated
on a daily basis, including, on a per
Share basis for each Fund, the prior
business day’s NAV, the closing price or
bid/ask price at the time of calculation
of such NAV, and a calculation of the
premium or discount of the closing
price or bid/ask price against such NAV.
The website will also disclose the
percentage weight overlap between the
holdings of the Proxy Portfolio
compared to the Actual Portfolio
holdings for the prior business day, and
any other information regarding
premiums and discounts and the bid/
ask spread for a Fund as may be
required for other ETFs under Rule 6c–
11 under the 1940 Act. The Proxy
Portfolio holdings for each Fund
(including the identity and quantity of
investments in the Proxy Portfolio) will
be publicly available on the Funds’
website before the commencement of
trading in Shares on each Business Day
and each Fund’s website will disclose
the information required under Rule
8.601–E(c)(3).47 The website and
NYSE Arca Rule 8.601–E(d)(1)(B).
Rule 8.601–E(c)(3), which requires that the
website for each series of Active Proxy Portfolio
Shares shall disclose the information regarding the
Proxy Portfolio as provided in the exemptive relief
pursuant to the Investment Company Act of 1940
applicable to such series, including the following,
to the extent applicable: (i) Ticker symbol; (ii)
CUSIP or other identifier; (iii) description of
holding; (iv) quantity of each security or other asset
held; and (v) percentage weighting of the holding
in the portfolio.
PO 00000
46 See
47 See
Frm 00088
Fmt 4703
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40707
information will be publicly available at
no charge.
In addition, the Exchange states that
intraday pricing information for all
constituents of the Proxy Portfolio that
are exchange-traded, which includes all
eligible instruments except cash and
cash equivalents, will be available on
the exchanges on which they are traded
and through subscription services, and
that intraday pricing information for
cash equivalents will be available
through subscription services and/or
pricing services.
The Commission also notes that the
Exchange’s rules regarding trading halts
help to ensure the maintenance of fair
and orderly markets for the Shares.
Specifically, pursuant to its rules, the
Exchange may consider all relevant
factors in exercising its discretion to
halt trading in the Shares and will halt
trading in the Shares under the
conditions specified in NYSE Arca Rule
7.12–E. Trading may be halted because
of market conditions or for reasons that,
in the view of the Exchange, make
trading in the Shares inadvisable,
including (1) the extent to which trading
is not occurring in the securities and/or
the financial instruments composing the
Proxy Portfolio and/or Actual Portfolio;
or (2) whether other unusual conditions
or circumstances detrimental to the
maintenance of a fair and orderly
market are present.48 Trading in the
Shares also will be subject to NYSE
Arca Rule 8.601–E(d)(2)(D), which sets
forth additional circumstances under
which trading in the Shares will be
halted.
The Commission also believes that the
proposal is reasonably designed to help
prevent fraudulent and manipulative
acts and practices. Specifically, the
Exchange provides that:
• The Adviser is not registered as a
broker-dealer but is affiliated with a
broker-dealer and has implemented and
will maintain a ‘‘fire wall’’ with respect
to such broker-dealer affiliate regarding
access to information concerning the
composition of and/or changes to a
Fund’s Actual Portfolio and/or Proxy
Portfolio;
• Any person related to the Adviser
or a Fund who makes decisions
pertaining to the Fund’s Actual Portfolio
and/or Proxy Portfolio or who has
access to non-public information
regarding a Fund’s Actual Portfolio and/
or the Proxy Portfolio or changes thereto
are subject to procedures reasonably
designed to prevent the use and
dissemination of material non-public
information regarding a Fund’s Actual
48 See
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NYSE Arca Rule 8.601–E(d)(2)(D)(i).
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Portfolio and/or the Proxy Portfolio or
changes thereto;
• In the event (a) the Adviser
becomes registered as a broker-dealer or
becomes newly affiliated with a brokerdealer or (b) any new adviser or subadviser is a registered broker-dealer, or
becomes affiliated with a broker-dealer,
it will implement and maintain a fire
wall with respect to its relevant
personnel or its broker-dealer affiliate
regarding access to information
concerning the composition of and/or
changes to a Fund’s Actual Portfolio
and/or Proxy Portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding a Fund’s Actual Portfolio and/
or Proxy Portfolio or changes thereto;
and
• Any person or entity, including any
service provider for a Fund, who has
access to non-public information
regarding a Fund’s Actual Portfolio or
the Proxy Portfolio or changes thereto
will be subject to procedures reasonably
designed to prevent the use and
dissemination of material non-public
information regarding a Fund’s Actual
Portfolio and/or the Proxy Portfolio or
changes thereto, and if any such person
or entity is registered as a broker-dealer
or affiliated with a broker-dealer, such
person or entity has erected and will
maintain a ‘‘fire wall’’ between the
person or entity and the broker-dealer
with respect to access to information
concerning the composition of and/or
changes to a Fund’s Actual Portfolio
and/or Proxy Portfolio.
Finally, the Exchange represents that
trading in the Shares will be subject to
the existing trading surveillances,
administered by the Exchange, as well
as cross-market surveillances
administered by FINRA on behalf of the
Exchange,49 and that these surveillance
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities.
In support of this proposal, the
Exchange represents that:
49 See NYSE Arca Rule 8.601–E, Commentary .03,
which requires, as part of the surveillance
procedures for Active Proxy Portfolio Shares, a
Fund’s investment adviser to, upon request by the
Exchange or FINRA, on behalf of the Exchange,
make available to the Exchange or FINRA the daily
Actual Portfolio holdings of the Fund.
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(1) The Shares will conform to the
initial and continued listing criteria
under NYSE Arca Rule 8.601–E.
(2) A minimum of 100,000 Shares for
each Fund will be outstanding at the
commencement of trading on the
Exchange.
(3) The Exchange or FINRA, on behalf
of the Exchange, or both, will
communicate as needed, and may
obtain information, regarding trading in
the Shares and underlying exchangetraded instruments with other markets
and other entities that are members of
the ISG. In addition, the Exchange may
obtain information regarding trading in
the Shares and exchange-traded
instruments from markets and other
entities with which the Exchange has in
place a comprehensive surveillance
sharing agreement. Any foreign common
stocks held by a Fund will be traded on
an exchange that is a member of the ISG
or with which the Exchange has in place
a comprehensive surveillance sharing
agreement.
(4) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(5) For initial and continued listing,
the Funds will be in compliance with
Rule 10A–3 under the Act.50
(6) Each Fund’s holdings will conform
to the permissible investments as set
forth in the Application and Exemptive
Order and the holdings will be
consistent with all requirements set
forth in the Application and Exemptive
Order. Each Fund’s investments,
including derivatives, will be consistent
with its investment objective and will
not be used to enhance leverage
(although certain derivatives and other
investments may result in leverage).
(7) With respect to Active Proxy
Portfolio Shares, all of the Exchange
member obligations relating to product
description and prospectus delivery
requirements will continue to apply in
accordance with Exchange rules and
federal securities laws, and the
Exchange and FINRA will continue to
monitor Exchange members for
compliance with such requirements.
The Exchange also represents that all
statements and representations made in
the filing regarding: (1) The description
of the portfolios or reference assets; (2)
limitations on portfolio holdings or
reference assets; or (3) the applicability
of Exchange listing rules specified in the
filing constitute continued listing
requirements for listing the Shares on
the Exchange. In addition, the Exchange
represents that the Exchange will obtain
a representation from the Adviser, prior
to commencement of trading in the
PO 00000
50 See
17 CFR 240.10A–3.
Frm 00089
Fmt 4703
Sfmt 4703
Shares, that the Adviser will advise the
Exchange of any failure by a Fund to
comply with the continued listing
requirements and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor 51 for
compliance with the continued listing
requirements. If a Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Rule 5.5–E(m).
IV. Solicitation of Comments on
Amendment No. 5 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning whether the
proposed rule change, as modified by
Amendment No. 5, is consistent with
the Exchange Act. Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2019–96 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2019–96. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
51 The Commission notes that certain proposals
for the listing and trading of exchange-traded
products include a representation that the exchange
will ‘‘surveil’’ for compliance with the continued
listing requirements. See, e.g., Securities Exchange
Act Release No. 77499 (April 1, 2016), 81 FR 20428,
20432 (April 7, 2016) (SR–BATS–2016–04). In the
context of this representation, it is the
Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of compliance with
the continued listing requirements. Therefore, the
Commission does not view ‘‘monitor’’ as a more or
less stringent obligation than ‘‘surveil’’ with respect
to the continued listing requirements.
E:\FR\FM\07JYN1.SGM
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Federal Register / Vol. 85, No. 130 / Tuesday, July 7, 2020 / Notices
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2019–96, and
should be submitted on or before July
28, 2020.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 5
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 5, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 5 in the Federal
Register. In Amendment No. 5, the
Exchange modified the description of
each Fund and conformed the
description of NYSE Arca Rule 8.601–E
to the final rule approved in the Active
Proxy Portfolio Shares Order.52
Amendment No. 5 also provides other
clarifications and additional
information related to the Funds.53 The
changes and additional information in
Amendment No. 5 assist the
Commission in finding that the proposal
is consistent with the Exchange Act.
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Exchange Act,54 to approve the
proposed rule change, as modified by
Amendment No. 5, on an accelerated
basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 55 that the
proposed rule change (SR–NYSEArc–
2019–96), as modified by Amendment
No. 5, be, and it hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.56
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–14490 Filed 7–6–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89194; File No. SR–BOX–
2020–22]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fee
Schedule on the BOX Options Market
LLC Facility To Establish Section I.C.2
(Strategy Order Facilitation and
Solicitation Transactions)
June 30, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 15,
2020, BOX Exchange LLC (‘‘Exchange’’)
54 15
U.S.C. 78s(b)(2).
55 Id.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposed rule
change pursuant to Section
19(b)(3)(A)(ii) of the Act,3 and Rule
19b–4(f)(2) thereunder,4 which renders
the proposal effective upon filing with
the Commission. 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 the Substance
of the Proposed Rule Change
The Exchange is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend the Fee Schedule on the BOX
Options Market LLC (‘‘BOX’’) facility.
The text of the proposed rule change is
available from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s internet website at https://
boxexchange.com.
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
proposed rule change. The text of these
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 aspects of such
statements.
56 17
supra note 3.
53 See Amendment No. 5, supra note 12.
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52 See
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1 15
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3 15
4 17
E:\FR\FM\07JYN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
07JYN1
Agencies
[Federal Register Volume 85, Number 130 (Tuesday, July 7, 2020)]
[Notices]
[Pages 40699-40709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14490]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89192; File No. SR-NYSEArca-2019-96]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 5 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 5, To List and Trade
Two Series of Active Proxy Portfolio Shares Issued by the American
Century ETF Trust Under NYSE Arca Rule 8.601-E
June 30, 2020.
I. Introduction
On December 23, 2019, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
following under NYSE Arca Rule 8.601-E (Active Proxy Portfolio Shares):
American Century Mid Cap Growth Impact ETF and American Century
Sustainable Equity ETF (``Funds'').\3\ The proposed rule change was
published for comment in the Federal Register on January 3, 2020.\4\
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\1\ 15 U.S.C.78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange originally proposed to adopt NYSE Arca Rule
8.602-E to permit the Exchange to list and trade Actively Managed
Solution Shares, and to list and trade Shares of the Funds under
proposed Exchange Rule 8.602-E. In Amendment No. 2, the Exchange
removed the proposal to adopt proposed NYSE Arca Rule 8.602-E and
revised the proposal to seek to list and trade Shares of the Funds
under proposed NYSE Arca Rule 8.601-E (Active Proxy Portfolio
Shares). See Amendment No. 2, infra note 7. See also Amendment No. 6
to SR-NYSEArca-2019-95 (proposing to adopt NYSE Arca Rule 8.601-E to
list and trade Active Proxy Portfolio Shares, available on the
Commission's website at https://www.sec.gov/comments/sr-nysearca-2019-95/srnysearca201995-7329866-218548.pdf. The Commission recently
approved the Exchange's proposed rule change to adopt NYSE Arca Rule
8.601-E to permit the listing and trading of Active Proxy Portfolio
Shares. See Securities Exchange Act Release No. 89185 (June 29,
2020) (SR-NYSEArca-2019-95) (``Active Proxy Portfolio Shares
Order'').
\4\ See Securities Exchange Act Release No. 87867 (Dec. 30,
2019), 85 FR 394.
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On February 13, 2020, pursuant to Section 19(b)(2) of the Act,\5\
the Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\6\ On March 31, 2020, the Exchange filed Amendment No. 2 to the
proposed rule change, which replaced and superseded the proposed rule
change as originally filed.\7\ On April 1, 2020, the Commission
published Amendment No. 2 for notice and comment and instituted
proceedings under Section 19(b)(2)(B) of the Act \8\ to determine
whether to approve or disapprove the proposed rule change.\9\ On May
20, 2020, the Exchange filed Amendment No. 3 to the proposed rule
change, which replaced and superseded the proposed rule change, as
amended by Amendment No. 2.\10\ On June 15, 2020, the Exchange filed
Amendment No. 4 to the proposed rule change, which replaced and
superseded the proposed rule change, as amended by Amendment No. 3.\11\
On June 19, 2020, the Exchange filed Amendment No. 5 to the proposed
rule change, which replaced and superseded the proposed rule change, as
amended by Amendment No. 4.\12\ The Commission has received no comments
on the proposed rule change. The Commission is publishing this notice
to solicit comments on the proposed rule change, as modified by
Amendment No. 5, from interested persons and is approving the proposed
rule change, as modified by Amendment No. 5, on an accelerated basis.
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\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 88198, 85 FR 9833
(Feb. 20, 2020). The Commission designated April 2, 2020, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\7\ Amendment No. 1 to the proposed rule change was filed on
March 30, 2020 and subsequently withdrawn on March 31, 2020.
Amendment No. 2 is available on the Commission's website at https://www.sec.gov/comments/sr-nysearca-2019-96/srnysearca201996-7015541-214976.pdf.
\8\ 15 U.S.C. 78s(b)(2)(B).
\9\ See Securities Exchange Act Release No. 88534, 85 FR 19519
(April 7, 2020).
\10\ Amendment No. 3 is available on the Commission's website at
https://www.sec.gov/comments/sr-nysearca-2019-96/srnysearca201996-7220746-216947.pdf.
\11\ Amendment No. 4 is available on the Commission's website at
https://www.sec.gov/comments/sr-nysearca-2019-96/srnysearca201996-7316464-218309.pdf.
\12\ Amendment No. 5 is available on the Commission's website at
https://www.sec.gov/comments/sr-nysearca-2019-96/srnysearca201996-7329865-218547.pdf.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change, as Modified by Amendment
No. 5
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange has proposed to add new NYSE Arca Rule 8.601-E for the
purpose of permitting the listing and trading, or trading pursuant to
unlisted trading privileges (``UTP''), of Active Proxy Portfolio
Shares, which are securities issued by an actively managed open-end
investment management company.\13\ Proposed Commentary .01
[[Page 40700]]
to Rule 8.601-E would require the Exchange to file separate proposals
under Section 19(b) of the Act before listing and trading any series of
Active Proxy Portfolio Shares on the Exchange. Therefore, the Exchange
is submitting this proposal in order to list and trade shares
(``Shares'') of Active Proxy Portfolio Shares of the American Century
Mid Cap Growth Impact ETF and American Century Sustainable Equity ETF
(each a ``Fund'' and, collectively, the ``Funds'') under proposed Rule
8.601-E.
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\13\ See Amendment 6 to SR-NYSEArca-2019-95, filed on June 19,
2020. See also, Securities Exchange Act Release No. 87866 (December
30, 2019), 85 FR 357 (January 3, 2020) (SR-NYSEArca-2019-95).
Proposed Rule 8.601-E(c)(1) provides that ``[t]he term ``Active
Proxy Portfolio Share'' means a security that (a) is issued by a
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 specified minimum number of shares, or multiples
thereof, in return for a deposit by the purchaser of the Proxy
Portfolio and/or cash with a value equal to the next determined net
asset value (``NAV''); (c) when aggregated in the same specified
minimum number of Active Proxy Portfolio Shares, or multiples
thereof, may be redeemed at a holder's request in return for the
Proxy Portfolio and/or cash to the holder by the issuer with a value
equal to the next determined NAV; and (d) the portfolio holdings for
which are disclosed within at least 60 days following the end of
every fiscal quarter.'' Proposed Rule 8.601-E(c)(2) provides that
``[t]he term ``Actual Portfolio'' means the identities and
quantities of the securities and other assets held by the Investment
Company that shall form the basis for the Investment Company's
calculation of NAV at the end of the business day.'' Proposed Rule
8.601-E(c)(3) provides that ``[t{time} he term ``Proxy Portfolio''
means a specified portfolio of securities, other financial
instruments and/or cash designed to track closely the daily
performance of the Actual Portfolio of a series of Active Proxy
Portfolio Shares as provided in the exemptive relief pursuant to the
Investment Company Act of 1940 applicable to such series.''
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Key Features of Active Proxy Portfolio Shares
While funds issuing Active Proxy Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares,
Active Proxy Portfolio Shares differ from Managed Fund Shares in the
following important respects. First, in contrast to Managed Fund
Shares, which are actively-managed funds listed and traded under NYSE
Arca Rule 8.600-E \14\ and for which a ``Disclosed Portfolio'' is
required to be disseminated at least once daily,\15\ the portfolio for
an issue of Active Proxy Portfolio Shares will be publicly disclosed
within at least 60 days following the end of every fiscal quarter in
accordance with normal disclosure requirements otherwise applicable to
open-end management investment companies registered under the 1940
Act.\16\ The composition of the portfolio of an issue of Active Proxy
Portfolio Shares would not be available at commencement of Exchange
listing and trading. Second, in connection with the creation and
redemption of Active Proxy Portfolio Shares, such creation or
redemption may be exchanged for a Proxy Portfolio with a value equal to
the next-determined NAV.
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\14\ The Commission has previously approved listing and trading
on the Exchange of a number of issues of Managed Fund Shares under
NYSE Arca Rule 8.600-E. See, e.g., Securities Exchange Act Release
Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-
2008-31) (order approving Exchange listing and trading of twelve
actively-managed funds of the WisdomTree Trust); 60460 (August 7,
2009), 74 FR 41468 (August 17, 2009) (SR-NYSEArca-2009-55) (order
approving listing of Dent Tactical ETF); 63076 (October 12, 2010),
75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order
approving Exchange listing and trading of Cambria Global Tactical
ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR-
NYSEArca-2010-118) (order approving Exchange listing and trading of
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic
Allocation Growth Income ETF). The Commission also has approved a
proposed rule change relating to generic listing standards for
Managed Fund Shares. See Securities Exchange Act Release No. 78397
(July 22, 2016), 81 FR 49320 (July 27, 2016 (SR-NYSEArca-2015-110)
(amending NYSE Arca Equities Rule 8.600 to adopt generic listing
standards for Managed Fund Shares).
\15\ NYSE Arca Rule 8.600-E(c)(2) defines the term ``Disclosed
Portfolio'' as the identities and quantities of the securities and
other assets held by the Investment Company that will form the basis
for the Investment Company's calculation of net asset value at the
end of the business day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires
that the Disclosed Portfolio will be disseminated at least once
daily and will be made available to all market participants at the
same time.
\16\ A mutual fund is required to file with the Commission its
complete portfolio schedules for the second and fourth fiscal
quarters on Form N-CSR under the 1940 Act. Information reported on
Form N-PORT for the third month of a fund's fiscal quarter will be
made publicly available 60 days after the end of a fund's fiscal
quarter. 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 series of Active Proxy Portfolio Shares' Statement of Additional
Information (``SAI''), its Shareholder Reports, its Form N-CSR,
filed twice a year, and its Form N-CEN, filed annually. A series of
Active Proxy Portfolio Shares' SAI and Shareholder Reports will be
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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A series of Active Proxy Portfolio Shares will disclose the Proxy
Portfolio on a daily basis, which, as described above, is designed to
track closely the daily performance of the Actual Portfolio of a series
of Active Proxy Portfolio Shares, instead of the actual holdings of the
Investment Company, as provided by a series of Managed Fund Shares.
In this regard, with respect to the Funds, the Funds will utilize a
proxy portfolio methodology--the ``NYSE Proxy Portfolio Methodology''--
that would allow market participants to assess the intraday value and
associated risk of a Fund's Actual Portfolio and thereby facilitate the
purchase and sale of Shares by investors in the secondary market at
prices that do not vary materially from their NAV.\17\ The NYSE Proxy
Portfolio Methodology would utilize creation of a Proxy Portfolio for
hedging and arbitrage purposes.
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\17\ The NYSE Proxy Portfolio Methodology is owned by the NYSE
Group, Inc. and licensed for use by the Funds. NYSE Group, Inc. is
not affiliated with the Funds, Adviser or Distributor. Not all
series of Active Proxy Portfolio Shares will utilize the NYSE Proxy
Portfolio Methodology.
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The Exchange, after consulting with various Lead Market Makers
(``LMMs'') that trade exchange-traded funds (``ETFs'') on the
Exchange,\18\ believes that market makers will be able to make
efficient and liquid markets priced near the ETF's intraday value, 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.\19\ For Active Proxy 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, as well as
a fund's disclosed Proxy Portfolio, 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 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
Active Proxy Portfolio Shares without precise knowledge of a fund's
underlying portfolio. This is similar to certain other existing
exchange-traded products (for example, ETFs that invest
[[Page 40701]]
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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\18\ 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.
\19\ 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 Active Proxy Portfolio Shares
and other instruments, both through the creation and redemption
process and strictly through arbitrage without such processes.
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Description of the Funds and the Trust
The Funds will be series of the American Century ETF Trust
(``Trust''), which will be registered with the Commission as an open-
end management investment company.\20\
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\20\ The Trust is registered under the 1940 Act. On April 6,
2020, the Trust filed a registration statement on Form N-1A under
the Securities Act of 1933 and the 1940 Act for the Funds (File Nos.
333-221045 and 811-23305) (``Registration Statement''). The Trust
also filed an application for an order under Section 6(c) of the
1940 Act for exemptions from various provisions of the 1940 Act and
rules thereunder (File No. 812-15082), dated December 11, 2019
(``American Century Application'' or ``Application''). On May 12,
2020, the Commission issued an order granting the exemptions
requested in the Application (Investment Company Act Release No.
33862 (May 12, 2020) (``American Century Exemptive Order'' or
``Exemptive Order''). The American Century Application states that
the exemptive relief requested by the Trust will apply to funds of
the Trust that comply with the terms and conditions of the American
Century Exemptive Order and the order issued to Natixis ETF Trust
II. With respect to the Natixis ETF Trust II, see Seventh Amended
and Restated Application for an Order under Section 6(c) of the 1940
Act for exemptions from various provisions of the 1940 Act and rules
thereunder (File No. 812-14870) (October 21, 2019 (``Natixis
Application''); the Commission notice regarding the Natixis
Application (Investment Company Release No. 33684 (File No. 812-
14870) November 14, 2019); and the Commission order under the 1940
Act granting the exemptions requested in the Natixis Application
(Investment Company Act Release No. 33711 (December 10, 2019))
(``Natixis Exemptive Order''). The American Century Application
incorporates the Natixis Exemptive Order by reference. Investments
made by the Funds will comply with the conditions set forth in the
American Century Application, American Century Exemptive Order and
Natixis Exemptive Order. The description of the operation of the
Trust and the Funds herein is based, in part, on the Registration
Statement and the American Century Application.
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American Century Investment Management, Inc. (``Adviser'') will be
the investment adviser to the Funds. Foreside Fund Services, LLC will
act as the distributor and principal underwriter (``Distributor'') for
the Funds. State Street Bank and Trust Company will serve as transfer
agent (``Transfer Agent'') for the Funds.
Proposed Commentary.04 provides that, if the investment adviser to
the Investment Company issuing Active Proxy Portfolio Shares is
registered as a broker-dealer or is affiliated with a broker-dealer,
such investment adviser will erect and maintain a ``fire wall'' between
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information
concerning the composition and/or changes to such Investment Company's
Actual Portfolio and/or Proxy Portfolio.\21\ Any person related to the
investment adviser or Investment Company who makes decisions pertaining
to the Investment Company's Actual Portfolio and/or Proxy Portfolio or
has access to non-public information regarding the Investment Company's
Actual Portfolio and/or Proxy Portfolio or changes thereto must be
subject to procedures reasonably designed to prevent the use and
dissemination of material non-public information regarding the Actual
Portfolio and/or Proxy Portfolio or changes thereto. Proposed
Commentary .04 is similar to Commentary .03(a)(i) and (iii) to NYSE
Arca Rule 5.2-E(j)(3); however, proposed Commentary .04, in connection
with the establishment of a ``fire wall'' between the investment
adviser and the broker-dealer, reflects the applicable open-end fund's
portfolio, not an underlying benchmark index, as is the case with
index-based funds.\22\ Proposed Commentary .04 is also similar to
Commentary .06 to Rule 8.600-E related to Managed Fund Shares, except
that proposed Commentary .04 relates to establishment and maintenance
of a ``fire wall'' between the investment adviser and personnel of the
broker-dealer or broker-dealer affiliate, as applicable, applicable to
an Investment Company's Actual Portfolio and/or Proxy Portfolio or
changes thereto, and not just to the underlying portfolio, as is the
case with Managed Fund Shares.
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\21\ The text of proposed Commentary .04 to NYSE Arca Rule
8.601-E is included in Amendment 6 to SR-NYSEArca-2019-95. See note
13, supra.
\22\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel will be
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violations, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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In addition, proposed Commentary.05 provides that any person or
entity, including a custodian, Reporting Authority, distributor, or
administrator, who has access to non-public information regarding the
Investment Company's Actual Portfolio or the Proxy Portfolio or changes
thereto, must be subject to procedures reasonably designed to prevent
the use and dissemination of material non-public information regarding
the applicable Investment Company Actual Portfolio or the Proxy
Portfolio or changes thereto. 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 Actual Portfolio or Proxy Portfolio.
The Adviser is not registered as a broker-dealer but is affiliated
with a broker-dealer. The Adviser has implemented and will maintain a
``fire wall'' with respect to such broker-dealer affiliate regarding
access to information concerning the composition of and/or changes to a
Fund's Actual Portfolio or Proxy Portfolio.
In the event (a) the Adviser becomes registered as a broker-dealer
or becomes newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser is a registered broker-dealer, or becomes
affiliated with a broker-dealer, it will implement and maintain a fire
wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to a Fund's Actual Portfolio and/or Proxy Portfolio, and
will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding a Fund's
Actual Portfolio and/or Proxy Portfolio or changes thereto. Any person
related to the Adviser or a Fund who makes decisions pertaining to the
Fund's Actual Portfolio and/or the Proxy Portfolio or has access to
non-public information regarding a Fund's Actual Portfolio and/or the
Proxy Portfolio or changes thereto are subject to procedures reasonably
designed to prevent the use and dissemination of material non-public
information regarding a Fund's Actual Portfolio and/or the Proxy
Portfolio or changes thereto.
In addition, any person or entity, including any service provider
for a Fund, who has access to non-public
[[Page 40702]]
information regarding a Fund's Actual Portfolio or the Proxy Portfolio
or changes thereto, will be subject to procedures reasonably designed
to prevent the use and dissemination of material non-public information
regarding a Fund's Actual Portfolio and/or the Proxy Portfolio or
changes thereto. Moreover, if any such person or entity is registered
as a broker-dealer or affiliated with a broker-dealer, such person or
entity has erected and will 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 a Fund's Actual Portfolio
and/or Proxy Portfolio.
The Funds
According to the Application, the Adviser believes a Fund would
allow for efficient trading of Shares through an effective Fund
portfolio transparency substitute and publication of related
information metrics, while still shielding the identity of the full
Fund portfolio contents to protect a Fund's performance-seeking
strategies. Even though a Fund would not publish its full portfolio
contents daily, the Adviser believes that the NYSE Proxy Portfolio
Methodology would allow market participants to assess the intraday
value and associated risk of a Fund's Actual Portfolio. As a result,
the Adviser believes that investors would be able to purchase and sell
Shares in the secondary market at prices that are close to their NAV.
In this regard, the Funds will utilize a proxy portfolio
methodology--the ``NYSE Proxy Portfolio Methodology''--that would allow
market participants to assess the intraday value and associated risk of
a Fund's Actual Portfolio and thereby facilitate the purchase and sale
of Shares of a Fund by investors in the secondary market at prices that
do not vary materially from their NAV.\23\ The NYSE Proxy Portfolio
Methodology would utilize creation of a Proxy Portfolio for hedging and
arbitrage purposes.
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\23\ The NYSE Proxy Portfolio Methodology is owned by the NYSE
Group, Inc. and licensed for use by the Funds. NYSE Group, Inc. is
not affiliated with the Funds, Adviser or Distributor. Not all
series of Active Proxy Portfolio Shares will utilize the NYSE Proxy
Portfolio Methodology.
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Each Fund's holdings will conform to the permissible investments as
set forth in the American Century Application and American Century
Exemptive Order and the holdings will be consistent with all
requirements in the American Century Application and American Century
Exemptive Order.\24\ Any foreign common stocks held by a Fund will be
traded on an exchange that is a member of the Intermarket Surveillance
Group (``ISG'') or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
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\24\ Pursuant to the American Century Application and American
Century Exemptive Order, the permissible investments for a Fund are
only the following: ETFs traded on a U.S. exchange; exchange-traded
notes (``ETNs'') traded on a U.S. exchange; U.S. exchange-traded
common stocks; common stocks listed on a foreign exchange that trade
on such exchange contemporaneously with the Shares (``foreign common
stocks'') in the Exchange's Core Trading Session (normally 9:30 a.m.
and 4:00 p.m. Eastern time (``E.T.'')); U.S. exchange-traded
preferred stocks; U.S. exchange-traded American Depositary Receipts
(``ADRs''); U.S. exchange-traded real estate investment trusts; U.S.
exchange-traded commodity pools; U.S. exchange-traded metals trusts;
U.S. exchange-traded currency trusts; and U.S. exchange-traded
futures that trade contemporaneously with a Fund's Shares. In
addition, a Fund may hold cash and cash equivalents (short-term U.S.
Treasury securities, government money market funds, and repurchase
agreements). Pursuant to the Application and Exemptive Order, the
Funds will not hold short positions or invest in derivatives other
than U.S. exchange-traded futures will not borrow for investment
purposes, and will not purchase any securities that are illiquid
investments at the time of purchase.
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American Century Mid Cap Growth Impact ETF
According to the Registration Statement, the Fund will seek long-
term capital growth. The Fund, under normal market conditions,\25\ will
invest principally in exchange-traded common stocks and will invest at
least 80% of its assets in securities of medium capitalization
companies.
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\25\ The term ``normal market conditions'' is defined in
proposed Rule 8.601-E(c)(6), which states as follows: The term
``normal market conditions'' includes, but is not limited to, the
absence of trading halts in the applicable financial markets
generally; operational issues (e.g., systems failure) causing
dissemination of inaccurate market information; or force majeure
type events such as natural or manmade disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption or any similar
intervening circumstance.
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American Century Sustainable Equity ETF
According to the Registration Statement, the Fund will seek long-
term capital growth. The Fund, under normal market conditions, will
invest at least 80% of its assets in equity securities. The Fund will
invest principally in exchange-traded common stocks.
Creations and Redemptions of Shares
According to the Registration Statement, the Trust will offer,
issue and sell Shares of the Funds to investors only in specified
minimum size ``Creation Units'' through the Distributor on a continuous
basis at the NAV per Share next determined after an order in proper
form is received. The NAV of a Fund is expected to be determined as of
4:00 p.m. E.T. on each ``Business Day.'' \26\ The ``Creation Basket''
(as defined below) for a Fund will be based on the Proxy Portfolio,
which is designed to approximate the value and performance of the
Actual Portfolio. All Creation Basket instruments will be valued in the
same manner as they are valued for purposes of calculating a Fund's
NAV, and such valuation will be made in the same manner regardless of
the identity of the purchaser or redeemer. Further, the total
consideration paid for the purchase or redemption of a Creation Unit of
Shares will be based on the NAV of such Fund, as calculated in
accordance with the policies and procedures set forth in its
Registration Statement.
---------------------------------------------------------------------------
\26\ A Business Day is any day on which the Exchange is open for
business.
---------------------------------------------------------------------------
The Trust will sell and redeem Creation Units of each Fund only on
a Business Day. Creation Units of the Funds may be purchased and/or
redeemed entirely for cash, as permissible under the procedures
described below.
In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Accordingly, except where the
purchase or redemption will include cash under the circumstances
specified below, purchasers will be required to purchase Creation Units
by making an in-kind deposit of specified instruments (``Deposit
Instruments''), and shareholders redeeming their Shares will receive an
in-kind transfer of specified instruments (``Redemption Instruments'').
The names and quantities of the instruments that constitute the Deposit
Instruments and the Redemption Instruments for a Fund (collectively,
the ``Creation Basket'') will be the same as a Fund's Proxy Portfolio,
except to the extent purchases and redemptions are made entirely or in
part on a cash basis.\27\
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\27\ The Adviser represents that, to the extent that a Fund
allows creations and redemptions to be conducted in cash, such
transactions will be effected in the same manner for all Authorized
Participants transacting in cash.
---------------------------------------------------------------------------
If there is a difference between the NAV attributable to a Creation
Unit and the aggregate market value of the Creation Basket exchanged
for the Creation Unit, the party conveying instruments with the lower
value will also pay to the other an amount in cash equal to that
difference (the ``Cash Amount'').
[[Page 40703]]
Each Fund will adopt and implement policies and procedures
regarding the composition of its Creation Baskets. The policies and
procedures will set forth detailed parameters for the construction and
acceptance of baskets in compliance with the terms and conditions of
the American Century Exemptive Order and that are in the best interests
of a Fund and its shareholders, including the process for any revisions
to or deviations from those parameters.
A Fund that normally issues and redeems Creation Units in kind may
require purchases and redemptions to be made entirely or in part on a
cash basis. In such an instance, a Fund will announce, before the open
of trading in the Core Trading Session (normally, 9:30 a.m. to 4:00
p.m., E.T.) on a given Business Day, that all purchases, all
redemptions, or all purchases and redemptions on that day will be made
wholly or partly in cash. A Fund may also determine, upon receiving a
purchase or redemption order from an Authorized Participant, to have
the purchase or redemption, as applicable, be made entirely or in part
in cash. Each Business Day, before the open of trading on the Exchange,
a Fund will cause to be published through the National Securities
Clearing Corporation (``NSCC'') the names and quantities of the
instruments comprising the Creation Basket, as well as the estimated
Cash Amount (if any), for that day. The published Creation Basket will
apply until a new Creation Basket is announced on the following
Business Day, and there will be no intra-day changes to the Creation
Basket except to correct errors in the published Creation Basket.
All orders to purchase Creation Units must be placed with the
Distributor by or through an Authorized Participant, which is either:
(1) A ``participating party'' (i.e., a broker or other participant), in
the Continuous Net Settlement (``CNS'') System of the NSCC, a clearing
agency registered with the Commission and affiliated with the
Depository Trust Company (``DTC''), or (2) a DTC Participant, which in
any case has executed a participant agreement with the Distributor and
the Transfer Agent.
Timing and Transmission of Purchase Orders
All orders to purchase (or redeem) Creation Units, whether using
the NSCC Process or the DTC Process, must be received by the
Distributor no later than the NAV calculation time (``NAV Calculation
Time''), generally 4:00 p.m. E.T. on the date the order is placed
(``Transmittal Date'') in order for the purchaser (or redeemer) to
receive the NAV determined on the Transmittal Date.
Daily Disclosures
With respect to the Funds, the following information will comprise
the ``Proxy Portfolio Disclosures'' and, pursuant to the American
Century Application and Exemptive Order, will be publicly available on
the Funds' website (www.americancenturyetfs.com) before the
commencement of trading in Shares on each Business Day:
The Proxy Portfolio holdings (including the identity and
quantity of investments in the Proxy Portfolio) will be publicly
available on the Funds' website before the commencement of trading in
Shares on each Business Day.
The historical ``Tracking Error'' between a Fund's last
published NAV per share and the value, on a per Share basis, of a
Fund's Proxy Portfolio calculated as of the close of trading on the
prior Business Day will be publicly available on the Funds' website
before the commencement of trading in Shares each Business Day.
The ``Proxy Overlap'' will be publicly available on the
Funds' website before the commencement of trading in Shares on each
Business Day. The Proxy Overlap is the percentage weight overlap
between the Proxy Portfolio's holdings compared to the Actual
Portfolio's holdings that formed the basis for a Fund's calculation of
NAV at the end of the prior Business Day. The Proxy Overlap will be
calculated by taking the lesser weight of each asset held in common
between the Actual Portfolio and the Proxy Portfolio and adding the
totals.
Availability of Information
The Funds' website (www.americancenturyetfs.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the prospectus for each Fund that may be downloaded. The
Funds' website will include on a daily basis, per Share for each Fund,
the prior Business Day's NAV and the ``Closing Price'' or ``Bid/Ask
Price,'' \28\ and a calculation of the premium/discount of the Closing
Price or Bid/Ask Price against such NAV. The Adviser has represented
that the Funds' website will also provide: (1) Any other information
regarding premiums/discounts as may be required for other ETFs under
Rule 6c-11 under the 1940 Act, as amended, and (2) any information
regarding the bid/ask spread for a Fund as may be required for other
ETFs under Rule 6c-11 under the 1940 Act, as amended. The website and
information will be publicly available at no charge. Each Fund's
website also will disclose the information required under proposed Rule
8.601-E(c)(3).\29\ The Proxy Portfolio holdings for each Fund
(including the identity and quantity of investments in the Proxy
Portfolio) will be publicly available on the Funds' website before the
commencement of trading in Shares on each Business Day.
---------------------------------------------------------------------------
\28\ The records relating to Bid/Ask Prices will be retained by
the Funds or their service providers. The ``Bid/Ask Price'' is the
midpoint of the highest bid and lowest offer based upon the National
Best Bid and Offer as of the time of calculation of a Fund's NAV.
The ``National Best Bid and Offer'' is the current national best bid
and national best offer as disseminated by the Consolidated
Quotation System or UTP Plan Securities Information Processor. The
``Closing Price'' of Shares is the official closing price of the
Shares on the Exchange.
\29\ See note 13, supra. Proposed Rule 8.601-E (c)(3) provides
that the website for each series of Active Proxy Portfolio Shares
shall disclose the information regarding the Proxy Portfolio as
provided in the exemptive relief pursuant to the Investment Company
Act of 1940 applicable to such series, including the following, to
the extent applicable: (i) Ticker symbol; (ii) CUSIP or other
identifier; (iii) Description of holding; (iv) Quantity of each
security or other asset held; and (v) Percentage weighting of the
holding in the portfolio.
---------------------------------------------------------------------------
Typical mutual fund-style annual, semi-annual and quarterly
disclosures contained in the Funds' Commission filings will be provided
on the Funds' website on a current basis.\30\ Thus, each Fund will
publish the portfolio contents of its Actual Portfolio on a periodic
basis within at least 60 days following the end of every fiscal
quarter.
---------------------------------------------------------------------------
\30\ See note 16, supra.
---------------------------------------------------------------------------
Investors can also obtain a Fund's prospectus, SAI, Shareholder
Reports, Form N-CSR, N-PORT and Form N-CEN filed with the Commission.
The prospectus, SAI and Shareholder Reports are available free upon
request from the Trust, and those documents and the Form N-CSR, N-PORT,
and Form N-CEN may be viewed on-screen or downloaded from the
Commission's website. The Exchange also notes that pursuant to its
Exemptive Order, the issuer must comply with Regulation Fair
Disclosure, which prohibits selective disclosure of any material non-
public information.
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.
Updated price information for U.S. exchange-listed equity
securities is available through major market data
[[Page 40704]]
vendors or securities exchanges trading such securities. Quotation and
last sale information for the Shares, ETFs, ETNs, U.S. exchange-traded
common stocks, preferred stocks and ADRs will be available via the
Consolidated Tape Association (``CTA'') high-speed line or from the
exchange on which such securities trade. Price information for futures,
foreign stocks and cash equivalents is available through major market
data vendors. Intraday pricing information for all constituents of the
Proxy Portfolio that are exchange-traded, which includes all eligible
instruments except cash and cash equivalents, will be available on the
exchanges on which they are traded and through subscription services.
Intraday pricing information for cash equivalents will be available
through subscription services and/or pricing services.
Investment Restrictions
The Shares of each Fund will conform to the initial and continued
listing criteria under proposed Rule 8.601-E. A Fund's holdings will be
limited to and consistent with permissible holdings as described in the
Application and all requirements in the Application and Exemptive
Order.\31\
---------------------------------------------------------------------------
\31\ See note 24, supra.
---------------------------------------------------------------------------
Each Fund's investments, including derivatives, will be consistent
with its investment objective and will not be used to enhance leverage
(although certain derivatives and other investments may result in
leverage). That is, a Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (e.g., 2X or -3X)
of a Fund's primary broad-based securities benchmark index (as defined
in Form N-1A).\32\
---------------------------------------------------------------------------
\32\ A Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following a Fund's first full calendar year of performance.
---------------------------------------------------------------------------
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of a Fund.\33\ Trading in Shares of a Fund will
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E
have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. Trading in the Shares will be
subject to NYSE Arca Rule 8.601-E(d)(2)(D), which sets forth
circumstances under which Shares of a Fund will be halted.
---------------------------------------------------------------------------
\33\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------
Specifically, proposed Rule 8.601-E(d)(2)(D) provides that the
Exchange may consider all relevant factors in exercising its discretion
to halt trading in a series of Active Proxy Portfolio Shares. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the series of Active Proxy
Portfolio Shares inadvisable. These may include: (a) The extent to
which trading is not occurring in the securities and/or the financial
instruments composing the Proxy Portfolio and/or Actual Portfolio; or
(b) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. If the
Exchange becomes aware that the NAV, Proxy Portfolio or Actual
Portfolio with respect to a series of Active Proxy Portfolio Shares is
not disseminated to all market participants at the same time, the
Exchange shall halt trading in such series until such time as the NAV,
Proxy Portfolio or Actual Portfolio is available to all market
participants at the same time.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace in all trading sessions in accordance with
NYSE Arca Rule 7.34-E(a). As provided in NYSE Arca Rule 7.6-E, the
minimum price variation (``MPV'') for quoting and entry of orders in
equity securities traded on the NYSE Arca Marketplace is $0.01, with
the exception of securities that are priced less than $1.00 for which
the MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under proposed NYSE Arca Rule 8.601-E. The Exchange has
appropriate rules to facilitate trading in the Shares during all
trading sessions.
A minimum of 100,000 Shares for each Fund will be outstanding at
the commencement of trading on the Exchange. In addition, pursuant to
proposed Rule 8.601-E(d)(1)(B), the Exchange, prior to commencement of
trading in the Shares, will obtain a representation from the issuer of
the Shares of each Fund that the NAV per Share will be calculated daily
and that the NAV, Proxy Portfolio and the Actual Portfolio for each
Fund will be made available to all market participants at the same
time.
With respect to Active Proxy Portfolio Shares, all of the Exchange
member obligations relating to product description and prospectus
delivery requirements will continue to apply in accordance with
Exchange rules and federal securities laws, and the Exchange and the
Financial Industry Regulatory Authority, Inc. (``FINRA'') will continue
to monitor Exchange members for compliance with such requirements.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Exchange, as
well as cross-market surveillances administered by FINRA on behalf of
the Exchange, which are designed to detect violations of Exchange rules
and applicable federal securities laws.\34\ The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and federal securities laws applicable to
trading on the Exchange.
---------------------------------------------------------------------------
\34\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and underlying
exchange-traded instruments with other markets and other entities that
are members of the ISG, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading the
Shares and exchange-traded instruments from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and exchange-traded instruments from markets and
other entities that are members of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement.\35\
---------------------------------------------------------------------------
\35\ For a list of the current members of ISG, see
www.isgportal.org.
---------------------------------------------------------------------------
The Adviser will make available daily to FINRA and the Exchange the
Actual Portfolio of the Funds, upon request, in order to facilitate the
performance of the surveillances referred to above.
[[Page 40705]]
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Proposed Commentary .03 to NYSE Arca Rule 8.601-E provides that the
Exchange will implement and maintain written surveillance procedures
for Active Proxy Portfolio Shares. As part of these surveillance
procedures, the Investment Company's investment adviser will upon
request by the Exchange or FINRA, on behalf of the Exchange, make
available to the Exchange or FINRA the daily Actual Portfolio holdings
of each series of Active Proxy Portfolio Shares. The Exchange believes
that the ability to access the information on an as needed basis will
provide it with sufficient information to perform the necessary
regulatory functions associated with listing and trading series of
Active Proxy Portfolio Shares on the Exchange, including the ability to
monitor compliance with the initial and continued listing requirements
as well as the ability to surveil for manipulation of Active Proxy
Portfolio Shares.
The Exchange will utilize its existing procedures to monitor issuer
compliance with the requirements of proposed Rule 8.601-E. For example,
the Exchange will continue to use intraday alerts that will notify
Exchange personnel of trading activity throughout the day that may
indicate that unusual conditions or circumstances are present that
could be detrimental to the maintenance of a fair and orderly market.
The Exchange will require from the issuer of a series of Active Proxy
Portfolio Shares, upon initial listing and periodically thereafter, a
representation that it is in compliance with proposed Rule 8.601-E. The
Exchange notes that proposed Commentary .01 to Rule 8.601-E would
require an issuer of Active Proxy Portfolio Shares to notify the
Exchange of any failure to comply with the continued listing
requirements of proposed Rule 8.601-E. In addition, the Exchange will
require funds 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 proposed Rule 8.601-E.
With respect to the Funds, all statements and representations made
in this filing regarding (a) the description of the portfolio or
reference asset, (b) limitations on portfolio holdings or reference
assets, or (c) the applicability of Exchange listing rules specified in
this rule filing shall constitute continued listing requirements for
listing the Shares on the Exchange. The Exchange will obtain a
representation from the Adviser, prior to commencement of trading in
the Shares, that it will advise the Exchange of any failure by a Fund
to comply with the continued listing requirements, and, pursuant to its
obligations under Section 19(g)(1) of the Act, the Exchange will
monitor for compliance with the continued listing requirements. If a
Fund is not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\36\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\37\ 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.
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
With respect to the proposed listing and trading of Shares of the
Funds, the Exchange believes that the proposed rule change is designed
to prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in proposed NYSE Arca Rule
8.601-E.\38\
---------------------------------------------------------------------------
\38\ The Exchange represents that, for initial and continued
listing, the Funds will be in compliance with Rule 10A-3 under the
Act, as provided by NYSE Arca Rule 5.3-E.
---------------------------------------------------------------------------
Each Fund's holdings will conform to the permissible investments as
set forth in the American Century Application and the Exemptive Order
and the holdings will be consistent with all requirements in the
American Century Application and American Century Exemptive Order.\39\
Any foreign common stocks held by a Fund will be traded on an exchange
that is a member of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
\39\ See note 24, supra.
---------------------------------------------------------------------------
Each Fund's investments will be consistent with its investment
objective. Each Fund's investments, including derivatives, will be
consistent with its investment objective and will not be used to
enhance leverage (although certain derivatives and other investments
may result in leverage). That is, a Fund's investments will not be used
to seek performance that is the multiple or inverse multiple (e.g., 2X
or -3X) of a Fund's primary broad-based securities benchmark index (as
defined in Form N-1A).
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and underlying
exchange-traded instruments with other markets and other entities that
are members of the ISG, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading in
the Shares and exchange-traded instruments from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and exchange-traded instruments from markets and
other entities that are members of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement.
The Exchange, after consulting with various LMMs 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, 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.\40\ For Active Proxy 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, as well as
a fund's disclosed Proxy Portfolio, 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 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
Active Proxy Portfolio Shares without precise knowledge of a fund's
underlying portfolio. 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
[[Page 40706]]
market makers gain more confidence in their real-time hedges.
---------------------------------------------------------------------------
\40\ See note 19, supra.
---------------------------------------------------------------------------
The Funds will utilize the NYSE Proxy Portfolio Methodology that
would allow market participants to assess the intraday value and
associated risk of a Fund's Actual Portfolio and thereby facilitate the
purchase and sale of Shares by investors in the secondary market at
prices that do not vary materially from their NAV.
The daily dissemination of the identity and quantity of Proxy
Portfolio component investments, together with the right of Authorized
Participants to create and redeem each day at the NAV, will be
sufficient for market participants to value and trade Shares in a
manner that will not lead to significant deviations between the Shares'
Bid/Ask Price and NAV.
With respect to Active Proxy Portfolio Shares generally, the
pricing efficiency with respect to trading a series of Active Proxy
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 \41\ or by netting the exposure against other, offsetting
trading positions--much as such firms do with existing ETFs and other
equities. Disclosure of a fund's investment objective and principal
investment strategies in its prospectus and SAI should permit
professional investors to engage easily in this type of hedging
activity.
---------------------------------------------------------------------------
\41\ Price correlation trading is used throughout the financial
industry. It is used to discover both trading opportunities to be
exploited, such as currency pairs and statistical arbitrage, as well
as for risk mitigation such as dispersion trading and beta hedging.
These correlations are a function of differentials, over time,
between one or multiple securities pricing. Once the nature of these
price deviations have been quantified, a universe of securities is
searched in an effort to, in the case of a hedging strategy,
minimize the differential. Once a suitable hedging basket has been
identified, a trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the performance of this
hedge throughout the trade period, making corrections where
warranted.
---------------------------------------------------------------------------
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the Funds that the
NAV per Share of a Fund will be calculated daily and that the NAV,
Proxy Portfolio and Actual Portfolio for each Fund will be made
available to all market participants at the same time. Investors can
obtain a Fund's SAI, shareholder reports, and its Form N-CSR, Form N-
PORT and Form N-CEN. A Fund's SAI and shareholder reports will be
available free upon request from a Fund, and those documents and the
Form N-CSR, Form N-PORT and Form N-CEN may be viewed on-screen or
downloaded from the Commission's website. In addition, with respect to
each Fund, a large amount of information will be publicly available
regarding the Funds and the Shares, thereby promoting market
transparency. Quotation and last sale information for the Shares, ETFs,
ETNs, U.S. exchange-traded common stocks, preferred stocks and ADRs
will be available via the CTA high-speed line or from the exchange on
which such securities trade. Price information for futures, foreign
stocks and cash equivalents is available through major market data
vendors. The website for the Funds will include a form of the
prospectus for each Fund that may be downloaded, and additional data
relating to NAV and other applicable quantitative information, updated
on a daily basis. Trading in Shares of the Funds will be halted if the
circuit breaker parameters in NYSE Arca Rule 7.12-E have been reached
or because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. In addition, as noted
above, investors will have ready access to the Proxy Portfolio and
quotation and last sale information for the Shares. The Proxy Portfolio
holdings for each Fund (including the identity and quantity of
investments in the Proxy Portfolio) will be publicly available on the
Funds' website before the commencement of trading in Shares on each
Business Day. The Shares will conform to the initial and continued
listing criteria under proposed Rule 8.601-E.\42\
---------------------------------------------------------------------------
\42\ See Amendment 6 to SR-NYSEArca-2019-95, referenced in note
13, supra.
---------------------------------------------------------------------------
The Shares of the Funds will be subject to proposed Rule 8.601-
E(d)(2)(D), which provides that the Exchange may consider all relevant
factors in exercising its discretion to halt trading in a series of
Active Proxy Portfolio Shares. Trading may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the series of Active Proxy Portfolio Shares inadvisable.
These may include: (a) The extent to which trading is not occurring in
the securities and/or the financial instruments composing the Proxy
Portfolio and/or Actual Portfolio; or (b) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. If the Exchange becomes aware that the
NAV, Proxy Portfolio or Actual Portfolio with respect to a series of
Active Proxy Portfolio Shares is not disseminated to all market
participants at the same time, the Exchange shall halt trading in such
series until such time as the NAV, Proxy Portfolio or Actual Portfolio
is available to all market participants at the same time.
The 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. The Exchange will obtain a
representation from the Adviser, prior to commencement of trading in
the Shares of a Fund, that it will advise the Exchange of any failure
by a Fund to comply with the continued listing requirements, and,
pursuant to its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor for compliance with the continued listing
requirements. If a Fund is not in compliance with the applicable
listing requirements, the Exchange will commence delisting procedures
under NYSE Arca Rule 5.5-E(m).
As noted above, the Exchange has in place surveillance procedures
relating to trading in the Shares and may obtain information via ISG
from other exchanges that are members of ISG or with which the Exchange
has entered into a comprehensive surveillance sharing agreement. In
addition, as noted above, investors will have ready access to
information regarding quotation and last sale information for the
Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not
[[Page 40707]]
necessary or appropriate in furtherance of the purposes of the Act. The
Exchange believes the proposed rule change would permit listing and
trading of another type of actively-managed ETF that has
characteristics different from existing actively-managed and index ETFs
and would introduce additional competition among various ETF products
to the benefit of investors.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 5, is consistent with the Act and
rules and regulations thereunder applicable to a national securities
exchange.\43\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment No. 5 is consistent with Section
6(b)(5) of the Act,\44\ which requires, among other things, that the
Exchange's rules be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest. The Commission notes that in a
separate order, it approved the Exchange's proposed rule change to
adopt NYSE Arca Rule 8.601-E to permit the listing and trading of
Active Proxy Portfolio Shares.\45\
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\43\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\44\ 15 U.S.C. 78f(b)(5).
\45\ See note 3 supra.
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The Commission believes that the proposal is reasonably designed to
promote fair disclosure of information that may be necessary to price
the Shares appropriately and to prevent trading in the Shares when a
reasonable degree of certain pricing transparency cannot be assured. As
such, the Commission believes the proposal is reasonably designed to
maintain a fair and orderly market for trading the Shares. The
Commission also finds that the proposal is consistent with Section
11A(a)(1)(C)(iii) of the Act, which sets forth Congress's finding that
it is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure the
availability to brokers, dealers, and investors of information with
respect to quotations for, and transactions in, securities.
Specifically, the Commission notes that the Exchange, prior to
commencement of trading in the Shares, will obtain a representation
from the issuer of the Shares of each Fund that the NAV per Share will
be calculated daily and that the NAV, Proxy Portfolio, and Actual
Portfolio for each Fund will be made available to all market
participants at the same time.\46\ 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. Quotation and last-sale information for the
Shares, ETFs, ETNs, U.S. exchange-traded common stocks, preferred
stocks, and ADRs will be available via the Consolidated Tape
Association high-speed line or from the exchange on which such
securities trade. Price information for futures, foreign stocks and
cash equivalents is available through major market data vendors. The
Funds' website will include additional information updated on a daily
basis, including, on a per Share basis for each Fund, the prior
business day's NAV, the closing price or bid/ask price at the time of
calculation of such NAV, and a calculation of the premium or discount
of the closing price or bid/ask price against such NAV. The website
will also disclose the percentage weight overlap between the holdings
of the Proxy Portfolio compared to the Actual Portfolio holdings for
the prior business day, and any other information regarding premiums
and discounts and the bid/ask spread for a Fund as may be required for
other ETFs under Rule 6c-11 under the 1940 Act. The Proxy Portfolio
holdings for each Fund (including the identity and quantity of
investments in the Proxy Portfolio) will be publicly available on the
Funds' website before the commencement of trading in Shares on each
Business Day and each Fund's website will disclose the information
required under Rule 8.601-E(c)(3).\47\ The website and information will
be publicly available at no charge.
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\46\ See NYSE Arca Rule 8.601-E(d)(1)(B).
\47\ See Rule 8.601-E(c)(3), which requires that the website for
each series of Active Proxy Portfolio Shares shall disclose the
information regarding the Proxy Portfolio as provided in the
exemptive relief pursuant to the Investment Company Act of 1940
applicable to such series, including the following, to the extent
applicable: (i) Ticker symbol; (ii) CUSIP or other identifier; (iii)
description of holding; (iv) quantity of each security or other
asset held; and (v) percentage weighting of the holding in the
portfolio.
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In addition, the Exchange states that intraday pricing information
for all constituents of the Proxy Portfolio that are exchange-traded,
which includes all eligible instruments except cash and cash
equivalents, will be available on the exchanges on which they are
traded and through subscription services, and that intraday pricing
information for cash equivalents will be available through subscription
services and/or pricing services.
The Commission also notes that the Exchange's rules regarding
trading halts help to ensure the maintenance of fair and orderly
markets for the Shares. Specifically, pursuant to its rules, the
Exchange may consider all relevant factors in exercising its discretion
to halt trading in the Shares and will halt trading in the Shares under
the conditions specified in NYSE Arca Rule 7.12-E. Trading may be
halted because of market conditions or for reasons that, in the view of
the Exchange, make trading in the Shares inadvisable, including (1) the
extent to which trading is not occurring in the securities and/or the
financial instruments composing the Proxy Portfolio and/or Actual
Portfolio; or (2) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present.\48\ Trading in the Shares also will be subject to NYSE Arca
Rule 8.601-E(d)(2)(D), which sets forth additional circumstances under
which trading in the Shares will be halted.
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\48\ See NYSE Arca Rule 8.601-E(d)(2)(D)(i).
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The Commission also believes that the proposal is reasonably
designed to help prevent fraudulent and manipulative acts and
practices. Specifically, the Exchange provides that:
The Adviser is not registered as a broker-dealer but is
affiliated with a broker-dealer and has implemented and will maintain a
``fire wall'' with respect to such broker-dealer affiliate regarding
access to information concerning the composition of and/or changes to a
Fund's Actual Portfolio and/or Proxy Portfolio;
Any person related to the Adviser or a Fund who makes
decisions pertaining to the Fund's Actual Portfolio and/or Proxy
Portfolio or who has access to non-public information regarding a
Fund's Actual Portfolio and/or the Proxy Portfolio or changes thereto
are subject to procedures reasonably designed to prevent the use and
dissemination of material non-public information regarding a Fund's
Actual
[[Page 40708]]
Portfolio and/or the Proxy Portfolio or changes thereto;
In the event (a) the Adviser becomes registered as a
broker-dealer or becomes newly affiliated with a broker-dealer or (b)
any new adviser or sub-adviser is a registered broker-dealer, or
becomes affiliated with a broker-dealer, it will implement and maintain
a fire wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition of
and/or changes to a Fund's Actual Portfolio and/or Proxy Portfolio, and
will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding a Fund's
Actual Portfolio and/or Proxy Portfolio or changes thereto; and
Any person or entity, including any service provider for a
Fund, who has access to non-public information regarding a Fund's
Actual Portfolio or the Proxy Portfolio or changes thereto will be
subject to procedures reasonably designed to prevent the use and
dissemination of material non-public information regarding a Fund's
Actual Portfolio and/or the Proxy Portfolio or changes thereto, and if
any such person or entity is registered as a broker-dealer or
affiliated with a broker-dealer, such person or entity has erected and
will maintain a ``fire wall'' between the person or entity and the
broker-dealer with respect to access to information concerning the
composition of and/or changes to a Fund's Actual Portfolio and/or Proxy
Portfolio.
Finally, the Exchange represents that trading in the Shares will be
subject to the existing trading surveillances, administered by the
Exchange, as well as cross-market surveillances administered by FINRA
on behalf of the Exchange,\49\ and that these surveillance procedures
are adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and federal securities laws applicable to trading on the Exchange.
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\49\ See NYSE Arca Rule 8.601-E, Commentary .03, which requires,
as part of the surveillance procedures for Active Proxy Portfolio
Shares, a Fund's investment adviser to, upon request by the Exchange
or FINRA, on behalf of the Exchange, make available to the Exchange
or FINRA the daily Actual Portfolio holdings of the Fund.
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The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities.
In support of this proposal, the Exchange represents that:
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.601-E.
(2) A minimum of 100,000 Shares for each Fund will be outstanding
at the commencement of trading on the Exchange.
(3) The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed, and may obtain information, regarding trading in
the Shares and underlying exchange-traded instruments with other
markets and other entities that are members of the ISG. In addition,
the Exchange may obtain information regarding trading in the Shares and
exchange-traded instruments from markets and other entities with which
the Exchange has in place a comprehensive surveillance sharing
agreement. Any foreign common stocks held by a Fund will be traded on
an exchange that is a member of the ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement.
(4) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(5) For initial and continued listing, the Funds will be in
compliance with Rule 10A-3 under the Act.\50\
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\50\ See 17 CFR 240.10A-3.
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(6) Each Fund's holdings will conform to the permissible
investments as set forth in the Application and Exemptive Order and the
holdings will be consistent with all requirements set forth in the
Application and Exemptive Order. Each Fund's investments, including
derivatives, will be consistent with its investment objective and will
not be used to enhance leverage (although certain derivatives and other
investments may result in leverage).
(7) With respect to Active Proxy Portfolio Shares, all of the
Exchange member obligations relating to product description and
prospectus delivery requirements will continue to apply in accordance
with Exchange rules and federal securities laws, and the Exchange and
FINRA will continue to monitor Exchange members for compliance with
such requirements.
The Exchange also represents that all statements and
representations made in the filing regarding: (1) The description of
the portfolios or reference assets; (2) limitations on portfolio
holdings or reference assets; or (3) the applicability of Exchange
listing rules specified in the filing constitute continued listing
requirements for listing the Shares on the Exchange. In addition, the
Exchange represents that the Exchange will obtain a representation from
the Adviser, prior to commencement of trading in the Shares, that the
Adviser will advise the Exchange of any failure by a Fund to comply
with the continued listing requirements and, pursuant to its
obligations under Section 19(g)(1) of the Act, the Exchange will
monitor \51\ for compliance with the continued listing requirements. If
a Fund is not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under NYSE Arca Rule
5.5-E(m).
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\51\ The Commission notes that certain proposals for the listing
and trading of exchange-traded products include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
77499 (April 1, 2016), 81 FR 20428, 20432 (April 7, 2016) (SR-BATS-
2016-04). In the context of this representation, it is the
Commission's view that ``monitor'' and ``surveil'' both mean ongoing
oversight of compliance with the continued listing requirements.
Therefore, the Commission does not view ``monitor'' as a more or
less stringent obligation than ``surveil'' with respect to the
continued listing requirements.
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IV. Solicitation of Comments on Amendment No. 5 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether the proposed rule change, as modified by
Amendment No. 5, is consistent with the Exchange Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2019-96 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2019-96. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than
[[Page 40709]]
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2019-96, and should
be submitted on or before July 28, 2020.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 5
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 5, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
5 in the Federal Register. In Amendment No. 5, the Exchange modified
the description of each Fund and conformed the description of NYSE Arca
Rule 8.601-E to the final rule approved in the Active Proxy Portfolio
Shares Order.\52\ Amendment No. 5 also provides other clarifications
and additional information related to the Funds.\53\ The changes and
additional information in Amendment No. 5 assist the Commission in
finding that the proposal is consistent with the Exchange Act.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Exchange Act,\54\ to approve the proposed rule change,
as modified by Amendment No. 5, on an accelerated basis.
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\52\ See supra note 3.
\53\ See Amendment No. 5, supra note 12.
\54\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\55\ that the proposed rule change (SR-NYSEArc-2019-96), as modified by
Amendment No. 5, be, and it hereby is, approved on an accelerated
basis.
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\55\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14490 Filed 7-6-20; 8:45 am]
BILLING CODE 8011-01-P